2021-2022 IESE Casebook

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I E S E C O N S U L T I N G C L U B

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

General Management Consulting Internal Consulting

✓ McKinsey and Company ✓ BASF (Chemicals)


✓ Bain and Company ✓ DHL Consulting
✓ Boston Consulting Group ✓ AMEX Strategic Planning Group
✓ AT Kearney ✓ Disney Internal Consulting
✓ Roland Berger
✓ Strategy&
✓ L.E.K. Consulting
Capability Specific Consulting Firms
✓ OC&C strategy consultants

✓ McKinsey Digital
Industry Specific Consulting Firms ✓ McKinsey Operations (within McKinsey)
✓ Deloitte Digital
✓ Delta Partners (TMT) ✓ BCG DV
✓ ZS Associates (Pharma / Healthcare)

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Consulting Journey

CV/CL Submissions Interview Rounds

Career Forum Interview Selection Offer

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Consulting Interview Process
Case interviews take very similar formats across the various consultancies where they are used. Before landing your dream role with any
consulting firm, you will need to complete between four and six case interviews, divided between 2 rounds in most cases, with each interview
lasting approximately 50- 60 minutes. Over the past few years, consulting firms are also increasingly using logical reasoning tests or gamified
assessments as the first step of the interview process.

Typical Interview Format (Varies from firm to firm)


1. Fit Interview: 15-20 minutes
2. Case Interview: 25-35 minutes

What do the firms look for?


“While there’s no exact template for success at McKinsey, our people share some qualities that help make us successful –and that make working here fun:
Personal Impact, Entrepreneurial Drive, Problem Solving Skills, Inclusive Leadership” - Mckinsey & Company

“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

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What does a case interview consist off?
A case interview can be thought of as a simplified and shortened version of an actual consulting project. The candidate is pr esented with a business
problem, after which he or she will need to segment the information provided, navigate his or her structure, identify key fac tors which are driving the
issue that is being addressed, lead a hypothesis driven analysis and ultimately suggest a recommendation to solve the issue.

Quantitative Listening and Synthesizing and


Business Sense Structured Thinking
Capabilities Synthesizing communication
How comfortable are Are you able to listen Can you identify how Are you able to break Can you synthesize all
you with numbers? to the question the business operates? down your thought the analysis done in a
You need to not only prompt, understand What the pain points process in a structured clear, concise and
do quick and accurate the company and the or synergies within the manner and follow a actionable manner for
calculations but also overall business business are? Are you hypothesis-driven your client? Can you
clearly communicate environment, and ask able to create analysis of the then communicate it in
business insights and the right kind of solutions to help problem that needs to the same way?
other implications of questions to elicit resolve it? be solved?
your quantitative more relevant
analysis. information?

Common Types of Cases:


Profitability, Market Entry, New Product Development, Pricing, Valuation , Competitive Interaction, Estimates/Market Sizing

IESE CONSULTING CLUB IESE CASE BOOK 2021 |


Fit Interview
Consultancy firms use the Fit or Personal Experience Interviews to learn about the candidate’s personal interests and passion s, gauge the
candidate’s interpersonal skills and ability to successfully work in diverse teams, and most importantly assess how well the candidate understands
the firm and its values.

Examples of questions asked during Fit interviews:

General Questions: Competency Based Questions: Forward looking Questions:


• Tell me about yourself / Walk me through • Tell me about a time when you • Suppose we hire you and you need to
your CV demonstrated entrepreneurial drive manage a team of 5 analysts who know
• Tell me something about yourself that is • Tell me about a time you worked in a more about consulting that you – what
not on your CV diverse, cross functional team would be your leadership style?
• What are you most passionate about? • Describe a failure you’ve experienced at • Suppose you are in a client meeting and
What matters most to you and why? work? What were the biggest learnings you see a competitor’s consulting report on
• Why Consulting? Why that specific firm? from that experience? the client’s desk, do you look at the report?
Why that specific location? • Tell me about a time when you led a team • Suppose we assign you to a project in an
• What are your interests outside of work? and accomplished impactful results industry you have minimal knowledge
• What is your proudest accomplishment? about – how do you start your work?

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.

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A brief overview of the preparation
Balancing your fit and case prep, as well as updating your documents and researching/networking

Documents Fit interview preparation: 20 – 30 hours

Many are under prepared – start now!


• CV: Don’t spend too much time adapting Tell me about yourself: Autobiographical Qs: Competency Qs:
• CL: Why consulting? Why this firm? Why location? • Autobiographical or theme- • Strength/weaknesses • 6 – 8 stories
Why me? based • Long-term plan • Brainstorm stories, not
• 2.5 – 3 minutes • Why consulting? Why the firm? answers
• Prep the most! Why location? • Practice adaptations

Research and Networking Case Prep: 40+ hours


Tips: Mocks (some might take more, and others Drills:
• Watch office selection video less): • Market sizing
• Follow partners on LinkedIn • Frameworks Use RocketBlocks to
• Look for “high activity” profiles Ability • Brainstorming
~30 mocks complete drills,
• LinkedIn Cover Photo • Quants suggestion:
• Shares and Likes posts • Charts & Graphs
5 – 10 mocks 1 hour/day
• Premium subscription • Industry Sprints
• Look for similar profiles # of mocks
• Learn 1-3 cases to deliver
In the session • Take good notes & synthesize findings
• Ask questions about them • MBA 2yrs, professional coaches, alumni, Use CaseCoach to partner up with other students and
• Ask “who else” to talk to or if you can follow-up and CDC professional coaches (more info later). Also, review
with them concepts.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 8


CONTENT ❖ INTRODUCTION TO CONSULTING
❖ IESE STATISTICS
❖ INDUSTRY KNOW HOW
❖ BEST PRACTICES AND TIPS
❖ CASES
❖ BCG CASE COMPETITION WINNERS (3rd EDITION)
❖ PREVIOUS CASEBOOK CASES

9
Internships by Sector – Class of 2021
Finance 27%

Consulting 20%

Healthcare 16%

Tech 14%

Consumer Goods and Retail 11%

Other 8%

Energy & Manufacturing 4%

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Internships by Sector – Class of 2022
Finance 27%

Consulting 20%

Tech 16%

Healthcare 15%

Consumer Goods and Retail 10%

Other 9%

Energy & Manufacturing 4%

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Internships by Sector – Class of 2023
Consulting 27%

Finance 20%

Tech 16%

Consumer Goods and Retail 14%

Other 11%

Healthcare 8%

Energy & Manufacturing 4%

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Fulltime Employment by Sector – Class of 2021
Consulting 34%

Financial Services 25%

Technology 17%

Industry 24%

28% 22% 20% 14% 12% 4%

Latin Europe (Ex Spain Middle East North


America Spain) Asia Pacific America
& Africa

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Average Compensation by Sector – Class of 2021

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

Consulting 93,981 47,500 168,652 58,789 5,539 350,844

Finance 83,998 50,000 133,408 58,363 1,000 160,219

Industry 82,235 52,887 120,025 35,436 2,000 142,203

Technology 86,051 46,162 132,951 46,041 8,500 182,303

*In Euros

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 14


CONTENT ❖ INTRODUCTION TO CONSULTING
❖ IESE STATISTICS
❖ INDUSTRY KNOW HOW
❖ BEST PRACTICES AND TIPS
❖ CASES
❖ BCG CASE COMPETITION WINNERS (3rd EDITION)
❖ PREVIOUS CASEBOOK CASES

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

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Industry Know How – Automotive
Airline Overview Revenue Streams Cost Drivers
• Low margins (but increasing) • New car sales • Raw materials
• High capital and labour intensive • Used car sales • Labour
Automotive • Sector under transformation/disruption • Parts sales • Marketing (Advertising)
• Key players: • Servicing • Depreciation
Banking / Financial ‒ Original Equipment Manufacturers (OEMs)
Services ‒ National Marketing & Sales Companies (Affiliates or Non-affiliated) • Financing • Financing costs
‒ Components & Replacement parts Suppliers (Tier#1 to #3) • Leasing • Recall costs
Insurance ‒ Retailers • Subscription model • R&D
‒ Others: RAC (Rent-a-Car) companies / Ride-hailing & Ride sharing companies / MaaS
(Mobility as a Service) companies / Geo-location & Cloud companies)
• Data-sales to 3 rd parties • Logistics
‒ Public Sector (Governments & Municipalities)
Healthcare
• By business model (B2B/B2C/B2G) • By product type (Mini/Urban, Hatchbacks, Sedan, Crossovers, SWs 2,
Manufacturing Customer • By vehicle type (Cars/LCVs 1/Trucks) SUVs, Pickup Trucks, Vans, Sports Cars, Performance3)
• By price point (Mass/Premium) • By usage (Off-road, On-road, Performance/Track)
Segment
• By route frequency (Commuters/One-off) • By powertrain (Petrol, Diesel, Hybrids 4, BEVs 5, Others 6)
Energy (Oil & Gas)
• Car dealerships Service outlets for automotive parts (affiliates & independents)
Energy (Power & Channels • Secondary market (online and offline)
Utilities)
• Business cycle • Steel/Lithium/Nickel prices
External • Disposable income per capita • Consumer confidence index
Retail
drivers/risks • Oil/Gas/Electricity prices • Regulation

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

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Industry Know How – Banking / Financial Services
Airline Overview Revenue Streams Cost Drivers
• Retail banks: Take deposits, Retail banks: • Labour (wages)
provide loans • Loan/credit interest • Overheads – costs for running branches
Automotive
• Investment banks: Raise debt/capital, M&A • Service fees (Balance check, withdraw) • Interest rates on deposits
advisory, market making • Interest rate on reserves (spread) • Fines
Banking / Financial
• Cornerstone of economies • Commissions on the distribution of third party • Bad debt expense
Services
• Highly capital intensive products (such as insurance)
• Complex and highly regulated Investment banks:
Insurance
• Underwriting (IPOs or bond offerings)
• Deal completion fees (M&As)
Healthcare • Fees for financial advice (Asset Mgmt)
• Proprietary Trading
Manufacturing Retail Investment
Customer • Business customers • Acquiring companies
Energy (Oil & Gas) Segment • Low, medium and High net worth individuals • Companies looking to raise capital
• Everyday customers • Companies looking to IPO
Energy (Power & • Retail banks (ATMs, cashiers, branch managers, online banking, call center)
Utilities) Channels • Investment banking (Officer – Account manager; investment advisor)
Retail • Business cycle (default rates) • Regulation
External • Central bank interest rates • Customers centricity
drivers/risks • Consumer saving behavior
TMT
• Rise of challenger and digital only banks (customers in the centre)
Information Trends • Increasing digitization and decentralization
Technology • Increase in mobile banking

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Industry Know How – Insurance
Airline
Overview Revenue Streams Cost Drivers
• Insurance companies: covers the risks in Premium • Payments of claims + Adjustments
exchange for a premium • Charging premiums in exchange for insurance • Acquisition expenses (broker´s commissions,
Automotive • Intangible services being provided coverage sales personnel, and marketing expenses)
• Complex and highly regulated industry Investment • Administrative Expenses (legal, compliance,
Banking / Financial
• Investing the premium acquired into other underwriting, etc.)
Services
interest-generating assets (spread)
Insurance

Healthcare
B2C B2B
Customer • Customers from low, medium and high income • SME (Small and medium enterprises)
Manufacturing Segment • Clear credit line • Corporations

Energy (Oil & Gas) Offline Online


• Brokers (branches and call centres) • Insurance company´s website
Energy (Power & Channels • Retail bank (ATMs, cashiers, managers) • Online banking
Utilities) • Online insurance shopping

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

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Industry Know How – Healthcare
Airline Overview Revenue Streams Cost Drivers
• High margins • Sales of drugs • Manufacturing
• Highly capital intensive with long time horizons • Insurance payments • Sales & marketing
Automotive • Patent lasts for approx. 20 years • R&D
• Blockbuster is > $1bn. In sales
Banking / Financial • Branded vs. generic drugs
Services • Cannibalization – key aspect
• Dosage
Insurance • Drug Effectiveness: -> Cure / Treatment ->Time
to market -> Adverse / Side effects
Healthcare

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

Retail • Regulation (FDA Approvals)


External • Politics
drivers/risks • Loss of patent leads to big loss in revenue
TMT
• Numerous M&As as big players look to enhance R&D pipeline
Information Trends • Consolidation of players focusing on specific treatment areas
Technology • Wearable Medical Devices, Gene Therapy, Value based healthcare

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Industry Know How – Manufacturing
Airline Overview Revenue Streams Cost Drivers
• Mechanical, physical, or chemical • FG (finished good) sales – standard products • Raw materials
Automotive transformation of raw materials into new • Module sales – customized products • Labour
products • Machinery (CAPEX)
Banking / Financial • Margin fluctuates by volume (economies of • Quality control (COPQ)
Services scale, high fixed cost) • Inventory costs
• Capacity utilization is key KPI • Customization costs (prototyping)
Insurance (normally target is around 90%) • R&D costs

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

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Industry Know How – Energy (Oil & Gas)
Airline Overview Revenue Streams Cost Drivers
• Upstream – exploration & production • Raw materials (crude oil, gas) • Drilling & Exploration
• Midstream – processing, transporting, and • Derivatives • Maintenance & Reliability
Automotive
storage ‒Petroleum • Transportation
Banking / Financial • Downstream – refining, distribution, and ‒Plastics • Labour
Services marketing ‒Lubricants
• Renewable energy – hydro, solar, wind • Trading
Insurance • Commodity transportation (midstream)
• Construction of new pipelines
Healthcare • Operations • End user
Customer • Upstream/Midstream/Downstream • Airplanes/Utility Companies/Facilities
Manufacturing Segment • Gas Stations • Refineries

Energy (Oil & Gas) • Retail • Trading


Channels • Commercial
Energy (Power &
Utilities) • Price of Oil • Reserves
External • Strikes / Protests • Demand
Retail
drivers/risks • Government regulation / political factors • Substitutes
• Equipment age • Safety
TMT
• Efficient/smart machinery • Alternative energy increasing
Trends • Pricing differences between countries • Political views of production and transport
Information
Technology

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Industry Know How – Energy (Power & Utilities)
Airline Overview Revenue Streams Cost Drivers
• Generation – Solar PV, Thermosolar, Generators: Renewable Generators:
Wind, Biomass, Cogeneration, • Electricity wholesale market • Large CAPEX: Land, EPC (inc. OEM equipment)
Automotive
Hydro, Pumping, Nuclear, Waste, • Feed-in-tariffs (if winner of an electricity • Small Opex: O&M
Combined Cycle and Coal Power auction) or PPAs Conventional Generators and Biomass:
Banking / Financial
Plants Transport and Distribution Operators (TSO & • Large CAPEX: Land, EPC (inc. OEM equipment)
Services
• Distribution – DSOs): • Large Opex: Fuel costs and O&M
(voltage level <=132 kV) • Regulated remuneration Transport and distribution operators:
Insurance • Transport – Retailers: • Recurrent CAPEX: asset renewal, digitalization &
(voltage level >= 220 kV) • Electricity bills automation, (new and replacement OEM equipment)
Healthcare • Retailers • Natural gas • Large OPEX: O&M, Customer Service
Retailers: Electricity Trading and Customer Service

Manufacturing

Customer Segment Electricity Prices:


Energy (Oil & Gas) • Retailers: Households and Commercial sector, • Wholesale market price
• Retailers and Generators: Industry and government • Government charges to pay networks and FITs
Energy (Power & • Government Taxes
Utilities)
• Marginal Pricing System (Scarce goods) • Natural Gas Prices
Retail External • Government Taxes • CO2 Prices
drivers/risks • Interconnection with other countries • Storage (Security of Supply)

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

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Industry Know How – Retail
Airline Overview Revenue Streams Cost Drivers
• Key ideas • Fashion: apparels, bags/wallets, accessories (e.g., Gucci, • COGS
> Same store (comp) sales Coach) > Fixed: facilities
Automotive > Store productivity • Drugs & cosmetics (e.g., L'Oréal, Estée Lauder) > Variable (production could be outsourced)
- Sales per square foot • Furniture & household goods (e.g., Maison de Monde, - Raw materials
- Sales / traffic Maiden Home) - Labor
Banking / Financial - Traffic per labor hour • General merchandise (e.g., Dollar Tree, JC Penny) - Duty and freight
Services > Inventory turnover • Key metrics - Shrinkage and obsolescence
• Low margins (except for luxury brands) > Offline sales = Traffic * Conversion% * Units per • Compensation of store employees
Insurance • Likelihood of price war (usually through discounts) transaction * Price per unit • Occupancy (i.e., rent and utilities)
> Online Sales = Impressions * Conv% to traffic * Conv% • Marketing
to purchase * $ per purchase
Healthcare
• Household income
Customer • Age/gender
Manufacturing • Geography
Segment • Purchase frequency

Energy (Oil & Gas) • Hypermarkets • Shopping malls


• Discount retailers/outlets • Department stores
Channels • Flagship stores • Duty free stores
Energy (Power & • Wholesale/distributors • Ecommerce (direct site/third party)
Utilities)
• GDP/Inflation/consumer confidence index
External • Business cycle (holidays, sale season)
Retail • Geopolitics (e.g., trade war, nationalism)
drivers/risks • Natural disasters/pandemic
TMT • Omnichannel
• More concentrated toward high and low end brands
Information Trends • Sustainability
• Supply chain diversification
Technology

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Industry Know How – TMT
Airline Overview Revenue Streams Cost Drivers
• High capital expenditure Subscriptions (Avg. Revenue per User) • Raw materials
Automotive
• High R&D costs • Voice calls ‒Fiber optic network
• Use of bundling to differentiate • Messages ‒Transmission towers
Banking / Financial • Always consider churn! • Data/internet ‒Spectrum frequency
Services • IT/cloud services ‒Customer premise equipment
Other Revenues • Sales & Marketing
Insurance • Accessories • Labour
• Mobile handsets
Healthcare
• Consumer and Small Businesses (price sensitive)
Customer • Businesses (price insensitive)
Manufacturing Segment
• Retail stores
Energy (Oil & Gas)
Channels • Online
Energy (Power &
Utilities) • High entry and exit barriers
External • Rapid development of technology
Retail drivers/risks • Highly regulated industry (specific frequency open/closed by the government)
• Shift from desktop to mobile
TMT • Artificial intelligence, machine learning, deep learning
Trends • Virtual and augmented reality
Information • 5G (high data speed) & IoT (LPWAN, Low Power Wide Area Network)
Technology

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Industry Know How – Information Technology
Airline Overview Revenue Streams Cost Drivers
• Projects are delivered in an onsite and offshore Largely, multi year B2B contracts. For e.g. imagine • Manpower and overhead costs ( includes
model an AI product for a bank. Revenue could be training, upskilling on evolving technologies)
Automotive • Onsite team (in US, EU): the functional 1. Consulting to identify product needs (8 • Infrastructure – Storage, Connectivity, Systems
consultants and the lead developer. weeks) • Facilities
Banking / Financial • Offshore(In India, Philippines etc.): Dev, Test, 2. Product Development ( 6 – 12 months – • Research and Development (not major but IT
Services Deploy based on complexity) firms are trying to build industry specific
• Generally, consulting led approach across 3. Test and Roll out (ongoing 6 – 12 months – products – can assume that annual revenue
Insurance • Software development lifecycle and multiple See Agile and DevSecOps) from products is about 5% on average)
domains – AI, Cybersecurity, Cloud, IoT, 4. Product Maintenance (at least 18 months to
Blockchain etc. 24 months – driven by customer’s inhouse
Healthcare
• IT Infrastructure capability to manage, budget and
• Business Process Outsourcing complexity)
Manufacturing • Checkout website of Accenture or Tata 5. Business Process Outsourcing
Consultancy Services to understand more
Energy (Oil & Gas) • Big IT players qualify companies with revenue upwards of USD 500mn+ (Accenture, IBM, Tata Consultancy Services, Infosys)
Customer • Increasing focus on subscription model for SMBs
Energy (Power & Segment
Utilities)
• Marketing – All (not limited to any channel now)
Channels • Sales – Typical Account development and management ranging from cold calls to farming accounts
Retail
• Customers may want to have their own low cost IT ”captive” set up in emerging economies
External • Tech product firms offering bundled services – Salesforce, SAP, Microsoft, etc(often pricier)
TMT drivers/risks • Regulations (some governments want a foreign IT firm to have a certain percentage of local workforce)
• Shifting focus on building products along with services
Information Trends • Facing competition from telecom providers traying to become one-stop-shop System Integrator
Technology

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❖ INTRODUCTION TO CONSULTING
❖ IESE STATISTICS
❖ INDUSTRY KNOW HOW
❖ BEST PRACTICES AND TIPS
❖ CASES
❖ BCG CASE COMPETITION WINNERS (3rd EDITION)
❖ PREVIOUS CASEBOOK CASES

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 27


How you apply to Consulting firms will vary based on their
recruitment structure

Global Recruitment Regional Recruitment

McKinsey, Bain, BCG Strategy&, Monitor


Submit one application with
Deloitte, EY-Parthenon, ZS
up to three office selections, Submit one application to one
broken down by rankings and office; relationships with
percentage; global offices are individual
relationships with offices

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 28


Some basic strategies can improve your chances of success
significantly

Narrow down your office Invest in local office


selection – very rarely will you networking in any market you
get called from an office you are applying to, particularly
mark with < 30% non-home countries

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!

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 29


How To Use This Case Book

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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 30


CONTENT ❖ INTRODUCTION TO CONSULTING
❖ IESE STATISTICS
❖ INDUSTRY KNOW HOW
❖ BEST PRACTICES AND TIPS
❖ CASES
❖ BCG CASE COMPETITION WINNERS (3rd EDITION)
❖ PREVIOUS CASEBOOK CASES

31
Case Title Industry Type of Case Difficulty Level

INDEX REEVE TEC.


StoreStuff
Nabaco
Automotive
Real Estate
Mining
Profitability, Product Launch
M&A, Self-Storage
Investments, Alternatives
Medium
Medium
Medium
PaintTech Chemicals Product Launch, Pricing, Sustainability Hard
IoT and Flexible Loans Financial Services M&A, Synergies Hard
Fastcar Automotive Market Entry, Profitability Medium
Travel Wizard Airlines Competitive Threat, Profitability Medium
Eurotech TMT M&A, Profitability Medium
Crunch Yo’ Burger Food Service Profitability, Operations Medium
Transantiago Transportation Public Sector, Profitability Medium
California Wildfires Public Sector Climate Change, Strategic Response Medium
South bank Financial Services Product Launch, Profitability Medium
Cricket Mania Sports Investment Decision, Profitability Hard
The Bookstore Retail Market Entry, E-Commerce Medium
Green Airlines Airlines Growth Strategy, Investments Hard
Pipeline Oil Technology Oil & Gas Operations, Pricing Medium
Nica Productions Media & Entertainment Profitability, Operational costs Medium
Cowbon Emissions Agriculture Sustainability, Operations Hard
OncoCo PE/Pharma Profitability, M&A Medium
Investment Bank Spin-off Financial Services Profitability, Banking Hard

32
REEVE TEC.
By Íñigo Losada

Automotive Easy
Product launch Medium
Profitability Hard

33
Automotive Easy
Product launch Medium

REEVE TEC. Profitability Hard

PROMPT CLARIFYING POINTS (if asked)


REEVE TEC., is a TIER 2 automotive supplier • TIER 2 suppliers are experts in their specific domain, but they don’t have the desire to
specialized in VAI (Video Artificial produce auto-grade parts. Thereby they can also sell to non-automotive customers. REEVE
Intelligence). currently sales to OEMs only
• REEVE sales pre-collision video technology as in a catalog of 3 different product segments,
The company offers safety related having gained its competitive advantage thanks to its in-house developed Software
products, and currently serves the most
relevant OEMs in Europe (original • The company has its core in Software development. Product manufacturing is
equipment manufacturers). subcontracted in a long-term contract and thereby doesn’t affect REEVE’s profitability
• Car safety technology is a fierce market, with many players interested to gain market share
After 9 years of growth, profitability has
• The CEO doesn’t have a specific growth target. He’s looking for short & long-term solutions
stagnated for the past year.

The CEO hires you to:


• Find why is this trend happening
CASE GUIDANCE
• Define ways to increase profits This is an interviewee-led case, where the candidate is expected to drive the case and
suggest the next course of action. The candidate should notice this is a case about a middle
market company in the automotive industry. Therefore, the company’s competitive
landscape and margins may differ to the ones of an OEM.
The interviewer should guide the candidate towards focusing on improving revenues and
not get stuck on reducing costs.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 34


Automotive Easy
Product launch Medium

REEVE TEC. Profitability Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 35


Automotive Easy
Product launch Medium

REEVE TEC. – Exhibit 1 Profitability Hard

MARKET EVOLUTION AND REEVE’S PRODUCT MIX

Market evolution EU REEVE Product Mix


A B
Revenue; M€ Revenue; M€
250 244 150 144 144
220 128
+5% 200 28 31
200 180 112 24
+8% 104
156 164 20
148 100
150 140 20 44 48
128 40
116 36
32
100
50
50 64 72 65
52 56

1 2 3 4 5 6 7 8 9 10 6 7 8 9 10
Year Cars Vans Trucks Year

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 36


Automotive Easy
Product launch Medium

REEVE TEC. – Exhibit 1 Profitability Hard

EXAMPLE CANDIDATE RESPONSE


• The exhibit on the left shows the market revenues for the past 10 years
• The market has evolved from growing at +8% for the first 4 years, to a period of lower growth at a +5% rate, getting back to a +10% growth rate
from years 6 to 10. The candidate should discard a market trend as the cause of the decrease in sales
• A great candidate should notice cyclicality of the automotive industry as a cause of different growth rates
• The exhibit to the right shows the REEVE’s revenues by product from years 6-10
• The company has lost market share, from ~65% Y6 to ~60% in Y10, meaning that company’s sales have not increased despite the increasing
market trend in the industry
• This is caused by a decrease in sales of product segment “Trucks”, which is preventing the company from growing
• The candidate should identify that this decrease in sales can be caused either by a problem with “Trucks” or by a negative trend in its market
segment
• The candidate should suggest to investigate further about product segment “Trucks”

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 37


Automotive Easy
Product launch Medium

REEVE TEC. Profitability Hard

FOLLOW-UP QUESTION AFTER EXHIBIT 1 - BRAINSTORMING


• We have discovered there is a sales problem with product segment “Trucks”
• Talking to the CMO, he admits that a competitor has caught up in the development of a similar software, offering a similar product to that of
REEVE’s, but at a cheaper price
• What are different ways in which the company can respond to this competitive threat?

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 38


Automotive Easy
Product launch Medium

REEVE TEC. Profitability Hard

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)

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 39


Automotive Easy
Product launch Medium

REEVE TEC. – Exhibit 2 Profitability Hard

YEAR 11 - LAUNCH ANALYSIS

PRODUCT A B C

INVESTMENT 20M 30M 15M

VARIABLE COSTS 50% 20% 40%

MARKET
80% 90% 70%
CAPTURE

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 40


Automotive Easy
Product launch Medium

REEVE TEC. Profitability Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 41


StoreStuff
By Lucas Delgado

Real Estate Easy


Self-Storage Medium
M&A Hard

42
Real Estate Easy
Self-Storage Medium

StoreStuff M&A Hard

PROMPT CLARIFYING POINTS (if asked)


Our Client, StoreStuff, is a successful chain of • The company only provides the space for rental – no additional services such as logistics are provided by
Self-Storage units, specialized in rental of StoreStuff. Their buildings are owned and managed by the company.
spaces for both people and companies to • In the customer jorney, a new client goes to the store or on-line, rents a space, and receives a password to
store their belongings such as old documents, access his Box. Contracts are paid, renewed and readjusted on a monthly basis.
furniture, and all sort of equipment. A New • StoreStuff has 60% of total market, and the rest 40% is divided among smaller companies
York based company, StoreStuff is the market • StoreStuff has 20 units mainly located on the East side. Each operating unit has an approximate $5Mi
revenue. As Operational Expenses are low (mainly building maintenance and security), StoreStuff enjoys a
leader in the US sector and has grown steadily 40% Net Margin
in the past 10 years, mainly through
• A typical StoreStuff facility provides two sizes of rental space, called “Box”. The “Large Box” has 10 square
acquisition of smaller, regional companies. meters, and the “Regular Box” has 2,5 square meters. Boxes can be both aggregated to form a larger one,
Aiming to increase their presence in the West or dismantled, to form small boxes.
side of the country, StoreStuff has identified • The company wants to understand wether this is a good target. So far, they are not worried with the size of
YourPlace, a Self-Storage unit in Nevada, that the deal
seems to be a good target for an acquisition.

The CEO has hired us to figure if they should


move on with this acquisition.
CASE GUIDANCE
While this a M&A case, the potential synergies are key to crack this case. The Self-Storage is a very unique
industry and relatively unknown, but while the interviewer could work on leading the candidate to the right
path, if it is required, it is expected that a good interviewee can use his business sense to lead the case in its
distinct parts.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 43


Real Estate Easy
Self-Storage Medium

StoreStuff M&A Hard

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?

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 44


Real Estate Easy
Self-Storage Medium

StoreStuff M&A Hard

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

• Additionally, the candidate should do a similar analysis to conclude potential


Revenue synergies. Setting Revenue/Sqm in same level would entail revenue
synergies of USD700k/year

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 45


Real Estate Easy
Self-Storage Medium

StoreStuff M&A Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 46


Real Estate Easy
Self-Storage Medium

StoreStuff M&A Hard

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

Stores Occupancy Rate (2020-21) Expected insights:


12
0%

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 47


Real Estate Easy
Self-Storage Medium

StoreStuff M&A Hard

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

StoreStuff M&A Hard

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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 49


NABACO
By Robinson Redford

Mining Easy
Land Use Alternatives Medium
Investment Decision Hard

50
Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

PROMPT CLARIFYING POINTS (if asked)


• If asked about objectives, in addition to financial considerations, what NABACO is looking to get out of its
North American Bauxite (pronounced box- selected alternative is a “social license to operate.”
site) and Aluminum Company (NABACO) is an • NABACO is market leader with $12 billion in revenue, 5% net income, and a solid balance sheet and cash
American mining company specializing in position.
extracting bauxite. Bauxite is a type of
• The land tends to be in rural locations, usually close to a community. That being said, NABACO has no
sedimentary rock with an aluminum content specific country or plot of land in mind yet.
of 40%-60% and is the world’s principal
• Bauxite mines tend to be shallow, open-pit mines.
source for aluminum metal.
NABACO’s mineral extraction operations are
concentrated in Australia, USA, Guinea, and
Brazil, in that order. NABACO owns many CASE GUIDANCE
inactive plots of land in these countries,
them being either exhausted or unexploited This case is an opportunity for candidates to move beyond profitability and market-entry cases. Candidates
bauxite reserves. are expected to take a macro perspective in a case where financials are not the main criteria for decision-
NABACO is wondering how to make the most making.
of this idle land and has hired you to help The case is designed to lead the candidate away from the original prompt. The candidate must make an
them decide between alternatives. What effort to keep the objective in mind, first of helping NABACO choose criteria (rather than rank them), and
then of making a decision based on the social benefit rather than financials.
criteria should NABACO consider when
evaluating alternatives? A good candidate will drive the case starting at the quantitative analysis and demonstrate business-sense
throughout.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 51


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

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

Financial: Operational: Strategic: Political/Legal: Social: Environmental:


• Budget • Capabilities (tech, human, • Company strategy • Legal? • Local community • Resources of the land (sun,
infrastructure, expertise) wind, rain)
• Required return • Effect on brand • Government stability • Pressing local needs
• Past failure (food, water, housing, • Topography
• Payback period • Reversibility • Government support
employment, health) • GHG emissions (or removal)
• Upkeep requirements • Regulatory approval
• NPV • Ethical/compliance risk
• Community • Pollutants or waste
• Implementation length • Property protection laws
• Diversification engagement
• Partnerships required • Law enforcement • Energy consumption (or
• Visual impact creation)
• Water consumption
• Ecological impact

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 52


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

BRAINSTORMING QUESTION (optional)


“What type of projects do you think could work for NABACO?”
A simple brainstorming exercise to test creativity and to ensure that the candidate has understood the context of the case.

SAMPLE ANSWERS
• Renewable energy farm (solar, wind)
• Conservation area
• Reforestation
• Agriculture
• School
• Space for cultural events
• Space for entertainment (mountain bike trail, rock climbing)

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 53


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 54


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

EXHIBIT 1 – ALTERNATIVES

Location Guinea
Available Land Area 400m x 250m

Sample Investment Data Solar Panels Sorghum Field School


Occupied Land Area 100m x 100m 200m x 200m 100m x 200m
Investment (k$) 28 80 180
Annual Revenue (k$) 11 50 140
Annual Operating Cost (k$) 4 20 100

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 55


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

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

NABACO Investment Decision Hard

EXHIBIT 2 – SITE-SPECIFIC INFORMATION

Rating Age Pyramid, Guinea 2019


Food Security 80-84
Water Security 70-74
Days of Sun 60-64 48% 52%
Access to Energy 50-54

Age
40-44
Access to Education
30-34
Employment 20-24
Biodiversity 10-14
Air Quality 0-4
M F

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 57


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

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?

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 58


Mining Easy
Land Use Alternatives Medium

NABACO Investment Decision Hard

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.

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PaintTech
By Daniel Plested

Chemicals Easy
Product launch/Pricing Medium
Sustainability Hard

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Industry Easy
Case Type Medium

PaintTech Function Hard

PROMPT CLARIFYING POINTS (if asked)


Your client is ChemCo, a global manufacturer • The company will manufacture the product in the UK and commercialize it in the US.
of Chemical specialties based in the UK with • Chemco is very interested on generating positive impact to climate, but the project needs
profits of approximately $200M. Although to be profitable.
Petrochemical solvents are necessary in • The performance of the paint with water does not change compared to the traditional
paint formulators, they are a source of CO2 formulation
emissions, represent a safety hazard (they • Carbon credits can be sold in the market.
are flammable) and, also, a health hazard to • No other competitor has developed yet a competitive technology.
operators and painters. • Fixed costs will increase by $10M due to the new operation.

ChemCo has recently developed an


innovative chemical ingredient that paint
CASE GUIDANCE
manufacturers can include in their • This case is Interviewee-led and ideally the candidate should guide the case to the
formulations allowing them to eliminate all questions showed in the following slides.
Petrochemical solvents from their • The case will evaluate the ability of the candidate to approach to a product launch case and
formulation and replace them with water. his/her ability to price a product in a structured approach.
Chemco’s CEO has hired you to understand • The numbers required for the calculation are in the solution.
whether it is a good idea to proceed on • When estimating the price of the product, A good candidate will propose climate benefits
commercializing the product. or sustainability benefits as a source of value. An outstanding candidate will try to suggest
carbon credits as a potential source of economic benefit. Give the opportunity to the
candidate to come to these conclusions on their own, progressively giving hints as required.

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Industry Easy
Case Type Medium

PaintTech Function 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

• Will the product perform as expected


• Changes in tariffs?
Risks • Carbon credit prices?
• Competitive response?

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Industry Easy
Case Type Medium

PaintTech Function Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 63


Industry Easy
Case Type Medium

PaintTech Function Hard

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

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Industry Easy
Case Type Medium

PaintTech Function Hard

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%

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 65


Industry Easy
Case Type Medium

PaintTech Function Hard

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.

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Industry Easy
Case Type Medium

PaintTech Function Hard

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.

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IoT and Flexible Loans
By Javier Burgos

Financial Easy
M&A Medium
Synergies Hard

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Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

PROMPT CLARIFYING POINTS (if asked)


Industrial Bank (IB) is a leading financial institution • What is the objective? What does attractive means? → To acquire more clients and
providing loans to manufacturing companies to improve profitability of the bank.
finance machinery and Capex-intensive equipment. • Why is IB interested in this acquisition? → To diversify its product offering and add new
solutions to its clients.
IB is considering to acquire IoTech, which installs IoT
(Internet of Things) devices in production machines • Where is the bank located and/or where does it operate? → United States.
and leverages their usage data for various uses.

IB believes that having this production data will be CASE GUIDANCE


useful to launch a new product: flexible loans in
Context: This case engages the candidate in how the combination of two business
which clients repay the loan instalments in a
models (industry 4.0 and traditional financing) can generate an innovative
per-use basis (this means, as they produce), instead
solution to the banking industry: flexible loans.
of as in a standard fixed-payment loan. This could
be attractive for seasonal businesses, for instance.
Objective: The case is designed to push the candidate to think creatively – to evaluate the
increased value proposition to the bank’s clients, explore benefits and
IB’s president would like you to evaluate if the
downsides, competencies and risks to implement, among others.
value proposition of the new flexible loans after
acquiring IoTech would be attractive for the bank.
Prompt: The prompt may suggest an M&A case, but the prompt specifically asks to
evaluate the attractiveness of the new flexible loan product. Therefore,
listening is evaluated.

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Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

STRUCTURE GUIDANCE SAMPLE STRUCTURE


The case is intended to evaluate the creative Main structure Possible brainstorm ideas
thinking of the candidate. • What of our clients’ problems would we be solving?
Product E.g.: payment flexibility in times of low liquidity
A great structure will be one the provides out- • What industries could be interested?
of-the-box ideas of the implications of Strategic fit Clients E.g.: Seasonal businesses
launching the flexible loan product (e.g.: in
• Are competitors providing this kind of solutions?
revenues, monetizing usage data in other Competitors • Can we make it a competitive advantage?
ways, such as predictive maintenance) • Can we charge a higher interest rate?
Revenues • SaaS (software as a service) fees?
Economic • Alternative ways to monetize data?
Suggested next course of action: evaluate the benefits
Attractiveness • Fixed: technical team, platform infrastructure
economic benefits of the flexible loan. Costs • Variable: IoT devices, platform scaling
of the new
flexible loan • What technical team and skills would we need?
product IT / technical • How would we install the IoT devices?
Capabilities • How will the data be shared among stakeholders?
Operational • Are the flexible loan terms and conditions different
than those of a standard loan?
Loan re- • What if the client doesn’t use the machine as
payment planned?

Data • Would clients be willing to share their production data?


Risks • What kind of usage data will be used?
confidentiality
• How can we guarantee the usage data is trustful?
Fraud • How can we cover from customer tapering the IoT?

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Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

TABLE AND CHART INTERPRETATION (EXHIBIT 1)


Read to the To evaluate the attractiveness of the flexible loan, IB is considering to analyze the case of ToyGame, a toys manufacturing company.
candidate: To start, ToyGame shared next year’s financial projections with IB and IB has asked you to help them understand the forecast.
What insights would you provide? After reading, show Exhibit 1 to the candidate (next slide).

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

IoT and Flexible Loans Function Hard

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.

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Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

QUANTITATIVE ANALYSIS (EXHIBIT 2)


First, share Exhibit 2 with the candidate (next slide).
Read to the Industrial Bank considers that ToyGame is a great candidate for a flexible loan – it could solve its liquidity issues of negative cash flows in QI
candidate: and QII by allowing to repay the loan later in the year according to their seasonal production and sales.
In Option 1, ToyGame would have to incur in an additional 10% financing cost to cover any negative cashflow balance. Therefore, IB
believes that it can charge a higher interest rate on the flexible loan if ToyGame would not have to incur in this additional financing.
A) What is the maximum annual interest rate that IB can charge on the flexible loan for the options to be indifferent from each other?
B) What would be a reasonable rate to charge?

GUIDANCE HINTS SOLUTION


The math is HINT #1 OPTION 1 (US$ 000s) QI QII QIII QIV Annual 20 out of a $1,000 loan
simple, the The annual cost of financing is is equal to 2%
challenge is to 10%; therefore, the quarterly Quarterly cash flow -200 -200 200 675 -
understand the rate is 2.5%. A) Therefore,
Cumulative cashflow -200 -400 -200 500 500 the maximum interest
difference
rate would be 12%
between options HINT #2
and structure the For simplicity, the cost of B) A reasonable rate
calculation. financing should be calculated on could be 11%, to split
Cost of financing 5 + 10 + 5 + - = 20
the benefit among IB
the ending cumulative cashflow 2.5% of 2.5% of 2.5% of Positive and ToyGame
of the period. 200 400 200 cash flow, no
financing needed

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Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

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

275 275 275 275 300

75 75 75 50 75 50

QI QII QIII QIV QI QII QIII QIV

Quarterly cash flow -200 -200 200 675 25 25 175 275

Cumulative cashflow -200 -400 -200 500 25 50 225 500

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 74


Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

NOTE: Do as many brainstorming questions as time


allows, move to recommendation after total case
BRAINSTORMING SAMPLE ANSWERS time is 30 minutes at this point.

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’?

Brainstorming question 2: Access to new market


What other benefits can Industrial Bank Categories Monetize data Clients’ profiling
segments
obtain from the new product?
• Can we monetize the • Could the usage data • Could the flexible loan
usage data with other help the bank to product give IB access
Ideas third parties like predict the credit to other high-capex
insurance companies profile of certain type market segments that
or for preventive of clients / industry usually require another
maintenance segments? type of financing (e.g.:
purposes? leasing)?

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 75


Industry Easy
Case Type Medium

IoT and Flexible Loans Function Hard

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?

GUIDANCE SAMPLE RECOMMENDATION


A good recommendation would be concise, top- Acquiring IoTech would allow IB to offer the new flexible loan, which could be an attractive
down structured and highlighting the relevant product to offer because of three reasons:
points discussed in the case. 1. New solution for seasonal businesses: as we can offer loan re-payments aligned with the
seasonality of our clients’ operations.
As the case involves a complex product and 2. Opportunities to push higher interest rates: as we are helping our clients to solve their
different companies (IB, IoTech and ToyGame), liquidity issues.
clear communication would be key to provide a 3. Opportunities to monetize usage data: for preventive maintenance or through partnerships
great answer. with insurance companies.
However, there are risks worth considering, for instance the risk of fraud by tampering the IoT
device or the risk of data confidentiality or reluctancy of clients to share their production data.
I believe further insights could be obtained from these risks and further benefits if we continue
to a due diligence phase in the acquisition of IoTech.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 76


CONTENT ❖ INTRODUCTION TO CONSULTING
❖ IESE STATISTICS
❖ INDUSTRY KNOW HOW
❖ BEST PRACTICES AND TIPS
❖ CASES
❖ BCG CASE COMPETITION WINNERS (3rd EDITION)
❖ PREVIOUS CASEBOOK CASES

77
Fastcar
By CR7

Automotive Easy
Market entry Medium
Profitability Hard

78
Automotive Easy
Market entry Medium

Fastcar Profitability Hard

PROMPT CLARIFYING POINTS (if asked)


• Fastcar has only one brand of cars, in the luxury segment. Its main competitors are
• Fastcar is a big multinational automotive
Mercedes, Audi and BMW.
company in the luxury segment
• There are no financial constrains, but all the investments should have a maximum payback
• It has the headquarter in Germany in
period of 5 years.
production plants in Europe, North
America and Latin America • 5 years ago, Fastcar tried to enter in Asia, in the Chinese market, but it decided to quit after
2 unsuccessful years, due to local regulations. Legislative environment will not represent an
• Fastcar is considering to expand its sales
issue this time.
network and to enter in Pakistan.
• After-sales and maintenance market are outside the scope of this case
• The company is also asking what is the
best supply chain strategy: shipping cars
from Europe or opening a production plant CASE GUIDANCE
in Pakistan.
• This is an interviewer led case that can be adjusted for different difficulty levels and skills
• The CEO of Fastcar has hired you to assess tested
this opportunity and which supply chain
strategy should pursue. • The case makes the candidate (i) assess the attractiveness of a market opportunity
(market sizing), (ii) estimate the market penetration (iii) evaluate different alternatives
and translate them into business recommendations
• The brainstorming part requires the candidate to apply common sense and knowledge
of a familiar business (restaurants) to identify possible business opportunities.
• The quantitative part requires an organized and structured approach to be solved
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 79
Automotive Easy
Market entry Medium

Fastcar Profitability Hard

SAMPLE STRUCTURE STRUCTURE GUIDANCE


• The case allows for a very wide structure,
Competitors Focus of the case
however the (i) analysis of the market, (ii)
Market Market size the financials and (iii) the operational
landscape aspect (since it was asked in the prompt),
Trend/growth
are the must haves for a complete analysis
Mkt penetration
• The candidate should be able to mention
Price the breakdown of the price: base price,
Revenue optionals and discounts
Volume
Investment • Regarding the costs, the candidate should
Financials Production cost
opportunity be able to compare the all the different
Cost (Europe vs. Transp. cost cost items between the 2 scenarios:
Pakistan) Customs shipment from Europe and production in
Pakistan
Investment

Time to deliver
Other
Regulation
aspects
Talent

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 80


Automotive Easy
Market entry Medium

Fastcar Profitability Hard

MARKET SIZING QUESTION


What is the market size of luxury cars in Pakistan?

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 81


Automotive Easy
Market entry Medium

Fastcar Profitability Hard

REVENUE ESTIMATION QUESTION


What are the forecasted revenues of Fastcar in Pakistan? But before going into the calculation what are the factors that affect the
revenues? What are the methodologies to determine the price?

SAMPLE ANSWER – FACTORS FOR SAMPLE ANSWER – PRICE


REVENUES DETERMINATION
The candidate should summarize the following aspects: The candidate should point out and explain the following
• Economic factors methodologies:
• Price of Fastcar • Cost-based pricing: determined with a mark-up is added to
• Price of competitors the cost of the car
• Promotions • Competitors based-pricing: competitors’ price
• Non-economic factors • Value based-pricing: willingness to pay of customers
• Marketing effort
• Availability of cars
• Reputation of the brand

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 82


Automotive Easy
Market entry Medium

Fastcar Profitability Hard

REVENUE ESTIMATION QUESTION


What are the forecasted revenues of Fastcar in Pakistan? But before going into the calculation what are the factors that affect the
revenues? What are the methodologies to determine the price?

SAMPLE ANSWER – REVENUE CALCULATION


Willingness to pay of customer in Pakistan for cars Assumptions:
€ 100,000 • Market penetration: 10% in 1° year, 25% in 2° year, 50% in
€ 80,000 3° year
• Competitor price: €75k
Car Price

€ 60,000 • Competitors based-pricing


€ 40,000 Calculation solved
• 1° year: 440,000*10%*75,000 = €3.3B
€ 20,000 • 2° year: 440,000*25%*75,000 = €8.25B
€0 • 3° year: 440,000*50%*75,000 = €16.5B
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Population (%)

Exhibit 1 – Willingness To Pay of customers for cars


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Automotive Easy
Market entry Medium

Fastcar Profitability Hard

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

Europe 50,000,000€ 4 months • Roundings are allowed


Pakistan 1,000,000,000€ 5 months
• The candidate should not consider any discount rate for
Exhibit 3 – Cost of the investment and time to deliver a car summing up the costs
from Europe and Pakistan

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Automotive Easy
Market entry Medium

Fastcar Profitability Hard

COST ANALYSIS - EUROPE


Europe 1° year 2° year 3° year 4° year 5° year Total cost: €63.6B
€50k*110/100*44,000 cars = €50k*110/100*110,000 cars = €50k*110/100*220,000 cars =
Prod. Cost €12.1B €12.1B
€2.42B €6.05B €12.1B
€1.5k*170/100*44,000 cars = €1.5k*170/100*110,000 cars = €1.5k*170/100*220,000 cars =
Trans. Cost €561M €561M
€112.2M €280.5M €561M
€2.42B*1.25%*3000/100 = €6.05B*1.25%*3000/100 = €12.1B*1.25%*3000/100 =
Customs €4.54B €4.54B
€907,5M €2.72B €4.54B
Total €3.44B €8.6B €17.2B €17.2B €17.2B

COST ANALYSIS - PAKISTAN


Pakistan 1° year 2° year 3° year 4° year 5° year Total cost: €36.7B
€50k*90/100*44,000 cars = €50k*90/100*110,000 cars = €50k*90/100*220,000 cars =
Prod. Cost €9.9B €9.9B
€1.98B €4.95B €9.9B
€1.5k*10/100*44,000 cars = €1.5k*10/100*110,000 cars = €1.5k*10/100*220,000 cars =
Trans. Cost €33M €33M
€6.6M €16.5M €33M
DIFFERENCE IN
Customs - - - - -
COST = €26.7B
Total €1.99B €4.97B €9.93B €9.93B €9.93B

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 85


Automotive Easy
Market entry Medium

Fastcar Profitability Hard

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
IESE CONSULTING CLUB IESE CASE BOOK 2021 | 86
Travel Wizard
By Sahaj Garg

Airlines Easy
Competitive Threat Medium
Profitability Hard

87
Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

PROMPT CLARIFYING POINTS (if asked)


• Assume that SG Airlines loses customers only to Travel Wizard and to no other player
The R&D team of Travel Wizard, a technology
• Travel Wizard only has 2 teleportation rooms for now, and does not intend to create any new teleportation
innovator, just announced that they have rooms
successfully invented a teleportation device
• One room will be placed in New York, while the other one will be placed in London. Each room can act as a
which they plan to launch commercially next
transmitter or a receiver room
month. This device consists of a transmission
room and a receiver room which can be • The main objective for the owner/CEO of SG Airlines is to calculate the loss in profit and to give ideas to
turnaround the business
placed at any distance and this one-of-a-kind
device will be able transport a passenger • SG Airlines is not looking to enter the teleportation business
between the two rooms within seconds.

Your client is the owner & CEO of SG


CASE GUIDANCE
Airlines, one of the biggest airlines in the
world and she wants to know a few things: In this case, the candidate will need to lead through directive questioning. Although the answer may seem
straightforward, the case will force the candidate to analyze the problem from different perspectives; it will
(1) How many customers should they
demand not only math and problem-solving skills, but also creativity.
expect to lose to Travel Wizard?
(2) What will be their annual reduction in A strong candidate will quickly realize that in order to answer the questions of SG Airlines’ CEO, it will be
necessary to assess the annual demand of the teleportation device.
profit as a result?

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 88


Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 89


Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

MARKET SIZE ANALYSIS


Provide the candidate only with the following information: SG Airlines currently runs 5 flights from London to New York and 5 flights from New York to
London per day. SG Airlines’ flights have 5 first class rows, 5 business class rows and 40 economy class rows, with 6 seats in every row.
Market size (provide only if asked): The suggested framework is: Total # of flights per day x Capacity of passengers per plane x Churn rate x Load factor

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 90


Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

REVENUE LOSS ESTIMATION


After finding the number of lost passengers per day, the candidate should estimate the loss of revenue per annum for SG Airlines.
(Provide only if asked) The flight tickets currently sell for $3,000 for first class, $2,000 for business class and $1,000 for economy class passengers
• First Class: 192 passengers / day x 360 days x $3,000 = $207.4 million
• Business Class: 120 passengers / day x 360 days x $2,000 = $86.4 million The candidate should note that first class passengers are
leading to 57% loss in revenue, while economy class
• Economy Class: 192 passengers / day x 360 days x $1,000 = $69.1 million passengers are leading to only 19% loss in revenue.
Total lost revenue per year = $363 million

ESTIMATION FOR REVENUE NEXT YEAR


To move forward, ask the candidate to calculate the estimated revenue for SG Airlines for next year, after losing customers to Travel Wizard.
(Provide only if asked) The revenue growth rate by 2% per annum.
Revenue in previous year:
• First Class: 240 passengers / day x 360 days x $3,000 = $259.2 million Predicted revenue for next year =
• Business Class: 240 passengers x 360 days x $2,000 = $172.8 million Revenue in previous year x (1 + Growth rate) – Lost revenue
• Economy Class: 1920 passengers x 360 days x $1,000 = $691.2 million = $1,123 million x (1 + 2%) - $363 million
Revenue for SG Airlines last year = $1,123 million or $1.12 billion = $783 million

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 91


Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 92


Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 93


Airlines Easy
Competitive Threat Medium

Travel Wizard Profitability Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 94


Eurotech
By Íñigo Arteche

TMT Easy
M&A Medium
Profitability Hard

95
TMT Easy
M&A Medium

Eurotech Profitability Hard

Total time: 36-45 min


CASE FLOW – FOR INTERVIEWER

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

Eurotech Profitability Hard

PROMPT CLARIFYING POINTS (if asked)


• If the interviewee asks to know more about the audio-visual industry, show exhibit I
Two technologic firms within the audio- • The companies work on a per project basis, mainly for hospitality segment (75% of their revenue)
visual tech industry have decided to join
• Their operations are limited to the manufacturing & assembly of the Hardware components, the
forces. Their market*: manufacturing of installation is done by a third party
Hardware components for audio-visual • The companies are not based in the same country, one company is in France and the other in Poland
transmission has been declining at a 14% • They are both of similar size and have similar operations
rate and this has affected their • The French company owns two plants (one in Southern France and the other next to Paris) while the
profitability jeopardizing their future Polish part owns one bigger plant near Warsaw
operations. • The objective is to improve their common profitability by a 10% of the aggregated revenues

Both of their CEOs have agreed on


contracting a consulting firm to help them CASE GUIDANCE
navigate the process.
The objective of this case is to test the candidate’s ability to navigate through an M&A operation between
technological firms. It is designed to test brainstorming and focuses on a not very known industry to test
Your job is to size the potential synergies the candidate’s capacity of applying a structured approach to divide the problem into more manageable
that the operation may yield for the parts.
NewCo in the future
The case is not to test the specific knowledge on the AV infrastructure market, but to test the proficiency on
how to confront a merger operation, more concretely, how to approach the synergy calculation.

(*) 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

Eurotech – Exhibit 1 Profitability Hard

INDUSTRY INSIGHTS PRODUCT CATEGORIES – HW TRANSMISSION


• 80% of TAM1 depends on Hospitality
purchases
• Hotels have recently been moving to
Software services, reducing RECEPTION TRANSMISSION TERMINALS
dependence on Hardware providers Antennas, Encoders, & Wiring for different End user devices such
• Market size for HW companies has Converters* signals and network as Smart TVs, Tablets,
been declining for the last 3Y (see devices computers…
graph)
MAIN COMPETITORS AND 3Y CAGR
800
680 660 CLIENT CLIENT
Country

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

Eurotech – Exhibit 1 Profitability Hard

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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 99


TMT Easy
M&A Medium

Eurotech Profitability Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |100


TMT Easy
M&A Medium

Eurotech – Proposed structure Profitability Hard

Products • New potential cross-selling opportunities coming from gaining access to:
SALES SYNERGIES ✓ New products
Geographies ✓ New countries
✓ New clients
Products

Raw Materials • Potential Savings in terms of purchasing and supplier optimization

Direct Labour • Cost reduction derived from optimization of production process


COST SYNERGIES
R&D • Savings associated to duplicated R&D functions

Structure Costs • Potential savings in centralizing Selling & Administrative costs

• Risk analysis for determining potential threat to synergy consecution i.e..


OTHER Risks cannibalization, high costs associated with terminations, reputational risks,
liquidity issues…
CONSIDERATIONS
• Feasibility of the merger operation: action plan, funding & liquidity, stage of the
Feasibility
industry (i.e. mature close to obsoletion…)

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

Eurotech – Exhibit 2 Profitability Hard

REVENUES FY20 ADDITIONAL INFO


All Numbers in M€ French Company Polish Company
• Variable Costs have remained
Revenues 70 85
stable over the last 10 years and
Variable Costs 10 11.5 are not expected to change
Raw Materials (components, 9 9.5 since relation with the provider
wirings, hardware pieces…) is good
Transportation 1 1.5
Energy 1 0.5 • Fixed costs have been increasing
Fixed Costs 55 50.5 over the last 5 years at a slow
steady pace (no hiring nor firing
Production (Salaries of employees) 42 33.5 has occurred for the last 6 years)
Research & Development 10 15
Sales and Administration 3 2
Operational Profit 5 23

IESE CONSULTING CLUB IESE CASE BOOK 2021 |102


TMT Easy
M&A Medium

Eurotech – Exhibit 2 Profitability Hard

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.

The candidate should notice that:


1. Raw Materials (small electronic components that both companies assemble to create their products) are being managed more efficiently in
Poland, it could be an effect of volume but with such a difference it is more likely that they are working with different providers
2. French salaries are consuming a big portion of profitability. The candidate should be able to associate this to the fact that wages in France are
much higher than in Poland, and ask if it is possible to shift production from France to Poland
3. He should also notice that Poland is spending more on R&D and state that for a technologic company this is a relevant issue, if he links it with
the lesser decline seen in Exhibit I it would be considered a plus

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.
IESE CONSULTING CLUB IESE CASE BOOK 2021 |103
TMT Easy
M&A Medium

Eurotech Profitability Hard

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€
IESE CONSULTING CLUB IESE CASE BOOK 2021 |104
TMT Easy
M&A Medium

Eurotech Profitability Hard

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.:

REVENUES VARIABLE COSTS FIX COSTS

• Substitute products • Increase in the price of • Moving production from France


• Competitive environment (i.e., components to Poland might not be possible
price-war) • Decline in bargaining power (gov. pressure, legal procedures…)
• Failure in the R&D process against suppliers (i.e., bankruptcy • Employee dismissal may harm
• Harming client relations of current providers) reputation in the French market
• … • Increase in the price of utilities… • Loss of capacity in the R&D
function…

IESE CONSULTING CLUB IESE CASE BOOK 2021 |105


TMT Easy
M&A Medium

Eurotech Profitability Hard

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

Food service Easy


Profitability Medium
Operations Hard

107
Food service Easy
Profitability Medium

Crunch Yo’ Burger Operations Hard

UPFRONT NOTE FOR INTERVIEWER


• This case is designed to be as long or short as you want
• There are two optional estimations to test candidate’s market sizing ability
– # Subway restaurants in the US
– # of sit-in customers per Subway per day

• 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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |108


Food service Easy
Profitability Medium

Crunch Yo’ Burger Operations Hard

INTRO PROMPT CLARIFYING POINTS (if asked)


• You are the CEO of a large • Your company sells fast food that is cooked onsite (similar price point
multinational fast food chain to McDonald’s/Subway)
• In recent years, you have noticed • Crunch Yo’ Burger operates all its own stores (i.e. no franchises)
that your profitability in the US has
• There are four major players in the market, differentiated only by the
been lagging behind competitors
type of food they offer (prices are the same)
• Your Board of Directors would like – Crunch Yo’ Burger makes hamburgers
to know: – TacoCo sells tacos and other Mexican food
– Why profitability is below that of – NoodleCo is focused on different varieties of noodles
competitors
– PizzaCo sells pizzas
– How you plan to get profitability back
in line • We are concerned only with the US operations of Crunch Yo' Burger
and its competitors
• Our customers can be either takeout or eat-in customers
• Note for interviewer: If asked for detailed figures on profit or revenue,
tell the candidate you will show an exhibit after you have seen their
IESE CONSULTING CLUB structure IESE CASE BOOK 2021 |109
Food service Easy
Profitability Medium

Crunch Yo’ Burger Operations Hard

EXAMPLE CANDIDATE RESPONSE: SAMPLE STRUCTURE


Trends • Are hea lth trends negatively i mpacting our burgers more than other foods?

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.)?

• Ha ve competitors recently become more profitable?


Competitors Performance • Di d a ny of our big competitors recently ma ke a ny changes to their offering?

• Are there a ny new competitors?


New entrants • Di d a ny existing competitors consolidate to get economies of scale?

• 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?

• Are we s elling l ess high-priced food products?


Profit Product mix • How a re we bundling products together?

• 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

Crunch Yo’ Burger – Exhibit 1 Operations Hard

REVENUE AND PROFITS (ONLY FOR US)

Note: Food variable costs relate


to raw ingredients that are
actually eaten by customers,
non-food variable costs are all
other variable costs
IESE CONSULTING CLUB IESE CASE BOOK 2021 |111
Food service Easy
Profitability Medium

Crunch Yo’ Burger – Exhibit 1 Operations Hard

EXAMPLE CANDIDATE RESPONSE


• This chart shows 2017 and 2018 revenues of the four main players, including our own company (Crunch Yo' Burger),
as well as 2018 net profits
• We can see that Crunch Yo' Burger has the highest revenue, thus we are the market leader in fast food in the US
• Revenue growth rates for all competitors have been ~10% since 2017; hypothesis is that this is not a revenue issue
• If we divide net profit by revenues to be able to compare margins, Crunch Yo' Burger has the lowest net profit
margin out of its peer group (~1% vs competitors in range of 1.5-2%); this extra 0.5% represents ~$100M
• This issue is caused by non-food variable costs (11% of sales for Crunch Yo’ Burger vs 10% of sales for our peers),
and we should investigate these costs further
• Note for interviewer: The presentation of the chart (showing net profit in absolute terms and variable cost as % of
sales in relative terms is intentional in order to ensure that the candidate can turn these into comparable figures

IESE CONSULTING CLUB IESE CASE BOOK 2021 |112


Food service Easy
Profitability Medium

Crunch Yo’ Burger Operations Hard

FOLLOW UP QUESTION AFTER EXHIBIT


• We have concluded that Crunch Yo' Burger’s cost issues lie in its non-food related variable costs
• What are some creative ways in which Crunch Yo' Burger could decrease these costs?
EXAMPLE CANDIDATE RESPONSE
• Some of the major non-food costs that we would have are:
– Condiments (ketchup packets or ketchup dispenser)
– Packaging (burger wrappers, soda cups)
– Other consumables (napkins toilet paper, plastic cutlery, hand sanitizer)
• Some ways to reduce these could be:
– Limit ketchup to 1 packet per order, and charge extra for extra packets
– Use cheaper packaging (although this might pose an environmental and customer experience risk)
– Limit the number of napkins per customer by handing them out at the teller (this might cause a delay in getting orders out) or
by setting up a napkin dispensing machine
• Note for interviewer: Try steer the candidate towards napkins, in order to set up the next part of the case; if the
candidate does not arrive at this, mention it as a high potential solution

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Food service Easy
Profitability Medium

Crunch Yo’ Burger Operations Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |114


Food service Easy
Profitability Medium

Crunch Yo’ Burger Note for interviewer: remember this


case has 2 optional estimations! If you
Operations Hard

want the candidate to estimate, use


‘long version’ prompts
CALCULATION SOLUTION
Decrease in Number of Number of Cost per napkin Days per year Total gross
napkins per customers per stores in the US saving
X store per day X X X =
customer
3 960 22500 $0.005 365 ~$118M
-
• Before the • Short version of • Short version of • Napkins are • Candidate can
machine, the case: Give the case: Give purchased in assume 360 to Cost of machine
customers took figure of 960 sit- figure of 22500 boxes of 6000 make
5 napkins each in customers per stores in US napkins. A box calculations
store per day costs $28 easier
• If machine is • Long version of
implemented, it • Long version of the case: • Note: Allow • Important that ~$11M
will reduce to 2 the case: Candidate candidate to the candidate =
per customer Candidate should estimate round to $0.005 notes takes note
should estimate this (see (half a cent) if that fast food Total net saving
this (see Optional needed restaurants tend
Optional Estimation 2) to be open most
Estimation 1) days of the year
~$106M
IESE CONSULTING CLUB IESE CASE BOOK 2021 |
Food service Easy
Profitability Medium

Crunch Yo’ Burger Operations Hard

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

Crunch Yo’ Burger Operations Hard

EXAMPLE CANDIDATE RESPONSE: INTERPRETATION OF SAVINGS VALUE


• We have calculated that we will save $106M per year
• This $106M represents an additional 0.5% of net profit margin
• With this additional saving, our profit margin will increase from 1% to 1.5%, putting us within the band of our
competitors (although still at the lower end)
• We should consider other cost-saving initiatives to continue to increase profitability

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

Crunch Yo’ Burger Operations Hard

PROMPT FOR FINAL RECOMMENDATION


• You have a 45-second slot in the Board meeting tomorrow to update the Board on your progress. What will you say?

EXAMPLE CANDIDATE RESPONSE: RECOMMENDATION


• (Candidate should assume an air of authority and confidence when addressing board)
• Good day and welcome
• We have run a diagnosis and can conclude that our lower profitability is caused by high non-food variable costs, specifically in napkins
– customers are currently using excessive napkins when they enter our stores
• We have found a way of bringing our net profit margin closer in line with our competitors, increasing it from 1% to 1.5% by
implementing a new napkin dispensing machine in all of our stores
• This machine will reduce napkins taken per customer by 3 napkins (60%), and on a national scale, save Crunch Yo' Burger ~$100 M per
year
• There are some implementation risks related to customer experience and ease-of-use of this new machine
• In order to mitigate these risks we will pilot the machine in 100 stores nation wide and record feedback and improvements
• Furthermore, we are investigating similar cost-saving initiatives in our ketchup and straw dispensing, in order to surpass the
profitability of competitors

IESE CONSULTING CLUB IESE CASE BOOK 2021 |118


Transantiago
By Michael Stefanic
Transportation Easy
Profitability Medium
Public Sector Hard

119
Transportation Easy
Profitability Medium

Transantiago Public Sector Hard

PROMPT CLARIFYING POINTS (if asked)


• The main goal is to see if they will be able to cover all their operating costs this year
Transantiago is the public transportation system of
Santiago de Chile. It is managed by the Ministry of • The only actual source of revenue is the transportation tickets sold
Transportation and has more than 5 million users, • Each ticket can be used in buses and subway or mixing both
integrating all the city's urban buses and subway. • The only price discrimination is if it is a student or not
Transantiago' s main source of revenue is the one
generated by the tickets sold. They have two types
of tickets. One normal ticket, that has a price of 2
dollars per trip, and one discounted tickets, that
CASE GUIDANCE
has a price of 1 dollar.
This is an interviewee-led case, where the candidate is expected to drive the case and suggest the next
With this revenue, plus a fixed subsidy of 900
course of action.
Million USD, Transantiago must cover all their
operating costs of the year. This case strongly focuses on profitability and requires the interviewee to think about the cost and revenue
Suppose it is April 2021. The Ministry of and analyse the total impact generated considering both. Also, the candidate must consider the risk behind
the forecast and the consequences if some of the forecasted numbers are not reached.
Transportation has called you because, After
Covid-19, Transantiago has been experiencing a From the quantitative aspect, the interviewee will have to connect numbers given in different stages of the
substantial decrease in the demand and is worried case.
if they to cover all their operating costs. That's Since the case is talking about a service that has a big social impact, the interviewee is expected to be aware
why they want you to investigate all the possible of the consequences of each of his decisions and try to pick the solution the impacts the less.
impacts of Covid-19 and see how they will be able
to cover all their operating costs this year.

IESE CONSULTING CLUB IESE CASE BOOK 2021 |120


Transportation Easy
Profitability Medium

Transantiago Public Sector Hard

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

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Transportation Easy
Profitability Medium

Transantiago – Exhibit 1 Public Sector Hard

DEMAND FORECAST
Normal Ticket Students
Total Trips projected 2021 500 million 100 million
Expected price 2 USD 1 USD*

Scenarios Covid Impact


Optimist (30%) -10% -30%
Neutral (40%) -20% -60%
Pessimist (30%) -30% -100%

*Note: Prices for Students can not be modified during 2021

IESE CONSULTING CLUB IESE CASE BOOK 2021 |122


Transportation Easy
Profitability Medium

Transantiago Public Sector Hard

DEMAND FORECAST ANALYSIS


From Exhibit 1 the candidate should understand the differences between each passenger and each one of the scenarios. A good candidate should be
aware of the consequences of only considering an average scenario since there is a significant risk if the pessimistic scenario happens.
Also, it is expected that the candidate takes some shortcut to calculate the revenue of each type of ticket, special for the “Normal Ticket”.

NEW EXPECTED REVENUE


Revenue Normal Tickets = Normal Price * Expected Demand = 2 USD * 400 MM = 800 MM USD
Expected Demand = Projected Demand * (1+Expected Impact Covid) = 500 MM * (1-20%) = 400 MM
Expected Impact Covid = 0,3*-10% + 0,4*-20% + 0,3*-30% = -20%

Revenue Student Tickets = Students Price * Expected Demand = 1 USD * 37 MM = 37 MM USD


Expected Demand = Projected Demand * (1+Expected Impact Covid) = 100 MM * (1-63%) = 37 MM
Expected Impact Covid = 0,3*-30% + 0,4*-60% + 0,3*-100% = -63%

TOTAL REVENUE = Revenue Normal Tickets + Revenue Student Tickets = 837 MM USD

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Transportation Easy
Profitability Medium

Transantiago – Exhibit 2 Public Sector Hard

INITIAL COSTS PROJECTION


Total Costs* MM USD 2,000
Covid-19 Effects
Buses 1,500 • Average price of oil is expected to decrease 20% versus the
Maintenance 300 initial projected price
Fuel 500
Total Kilometres MM km 1000
Consumption Lt/km 0,5 • Average price of electricity is expected to decrease 10%
Price of oil USD/lt 1
versus the initial projected price
Bus drivers 500
Other costs 200
• Night curfews we will have two effects (only for buses):
Subway 500
Maintenance 100 • Bus driver's cost will decrease 10% because fewer part-
Electricity 100 time drivers will be required
Total Kilometres MM km 200
• The total amount of kilometres of buses will be
Consumption Kwh/km 1
Price of electricity USD/Kwh 0,5 reduced by 10%
Subway drivers 200
Other costs 100
*Note: This cost where projected before Covid-19 effects

IESE CONSULTING CLUB IESE CASE BOOK 2021 |124


Transportation Easy
Profitability Medium

Transantiago Public Sector Hard

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 EXPECTED COST


New Fuel Cost = New Total Kilometres * Consumption * New Oil Price = 900 MM * 0.5 * 0.8 = 360 MM USD
New Total Kilometres = Original Total Kilometres * (1 – Night Reduction) = 1000 MM * (1-10%) = 900 MM
New Oil Price = Original Oil Price *(1 - Oil Price Change) = 1 * (1-20%) = 0.8

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |125


Transportation Easy
Profitability Medium

Transantiago Public Sector Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |126


Transportation Easy
Profitability Medium

Transantiago Public Sector Hard

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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 |127


California Wildfires
By Alan Bleiberg

Public Sector Easy


Climate Change Medium
Strategic Response Hard

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Public Sector Easy
Climate Change Medium

California Wildfires Strategic Response Hard

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.

Diagnosing Crisis Action Measures Feasibility

Geographic Trends Over Ability to Legal and


Causes of Fire Prevention Response Time Horizon Financial Cost
Spread Time Implement Regulatory
• Understand what are current prevention methods and • What are the costs and ability to implement the proposed
• What are the causes of wildfires and where do they what are addressable gaps? solutions?
occur? • What are the current response tactics? What new or • Are there legal barriers from stakeholders (lawmakers,
• Are certain causes more preventable than others? existing tactics should be implemented? utility companies, private sector)?
• Are come types of wildfires more devastating than others? • Action measures should be categorized by time-horizon: • Given scale, feasibility should be factor considered for each
• Understand any trends (time of year, certain geography, short-term quick fixes and long-term infrastructure solution.
identifiable causes)? changes
• What is the effectiveness of various strategies?

IESE CONSULTING CLUB IESE CASE BOOK 2021 |129


Public Sector Easy
Climate Change Medium

California Wildfires – Exhibit 1 Strategic Response Hard

CALIFORNIA HISTORICAL WILDFIRE REPORT


Number of Fires by Source Total Area Burned by Source (Thousand Acres)
6,400 460

4,500
270
3,000 220

1,200 1,250 1,400 100 95


80 70
40 50
350 500 450

2000 2010 2020 2000 2010 2020


Utilities Failure Human Error (campfires, cigarettes, gender reveals) Natural Causes (lightning)

IESE CONSULTING CLUB IESE CASE BOOK 2021 |130


Public Sector Easy
Climate Change Medium

California Wildfires – Exhibit 1 Strategic Response Hard

INSIGHT ANALYSIS
Hand over Exhibit 1 if the interviewee asks about causes of wildfires or trends over time

EXPECTED TAKEWAYS FROM EXHIBIT


Candidate should note the temporal data set and identify trends and outliers
• Candidate should explain that fires due to human error have increased over the last 20 years (2x), while other causes of fires are relatively constant
• Next, candidate should note two observations on the quantity of acres burned:
1. In-line with increased quantities of fires, acres burned due to human error has steadily increased over the last 20 years
a) Candidate should note these are likely frequent but smaller fires, hence the relative magnitude is not extremely high
b) Candidate should highlight this is an area to focus on prevention, as the cause is avoidable and various policies should be able to
reverse the increase
2. The candidate should also note outlier years, 2010 (natural causes) and 2021 (utilities)
a) Candidate should speculate these were likely single “disaster” fires that inflate the year’s statistics
b) Candidate should think these are likely impossible to prevent in the short-term due to the nature of the cause, but could suggest long-
term prevention or mitigation measures
• Let the candidate think out loud and drive ideas, but next present Exhibit 2

IESE CONSULTING CLUB IESE CASE BOOK 2021 |131


Public Sector Easy
Climate Change Medium

California Wildfires – Exhibit 2 Strategic Response Hard

2022 CALIFORNIA DEPARTMENT OF FORESTRY ANALYSIS

% of
Cost to Build Residential Annual % that are Avg Property
City Structures
SafeWall 1 ($M) Structures Wildfires catastrophic 2 Value ($M)
At-Risk

Oakland 6.4 400,000 2% 10 5% 1.00

Santa Barbara 7.0 100,000 4% 15 15% 2.50

Sacramento 5.8 250,000 3% 12 10% 0.50

Notes
1. SafeWall reduces the probability of a catastrophic fire by 50%
2. “Catastrophic” defined as destroying 10% of at-risk structures

IESE CONSULTING CLUB IESE CASE BOOK 2021 |132


Public Sector Easy
Climate Change Medium

California Wildfires – Exhibit 2 Strategic Response Hard

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |133


Public Sector Easy
Climate Change Medium

California Wildfires Strategic Response Hard

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:

Short-Term Actions Long-Term Changes (Infrastructure)


• Station more firefighters
• Update high-risk power lines
• Purchase more water-planes
• Clear break-lines in forests
• Ban the use of campfires
• Implement drone detection fleet
• More frequent forest management

IESE CONSULTING CLUB IESE CASE BOOK 2021 |134


South bank
By Giancarlo Young

Financial Services Easy


Product launch Medium
Profitability Hard

135
Financial Services Easy
Product launch Medium

South bank Profitability Hard

PROMPT CLARIFYING POINTS (if asked)


South Bank (SB) is the leading retail bank in • Peru has 35 M inhabitants. The local currency is PEN. Adults represent 70% of population.
Peru, an emerging South American country. • Country has 3 main economic segments, with clear different behaviours in credit card use.
SB has a dominant performance on high- • Consider Credit Card business as an independent unit of analysis.
income and a very good performance in • Revenues are only generated by merchant fee, a percentage of the amount paid with the
medium-income customers but has not been card. During the last years has been stable at 2%.
capable of entering to low-income market. • Each client can only have 1 credit card at the same time.
CMO has told us that his team has been • To be approved, a project is required to have a payback period of 3 years. As a secondary
evaluating the option to launch a new credit metric, CMO prefers to generate the highest possible net cash flow in the first 3 years.
card with cashback benefits, which are
perceived as much more valuable in this
segment, and the product has already shown CASE GUIDANCE
some results in competitors.
The case requires the candidate to financially estimate (using payback period) the feasibility
Currently, SB has a credit card with a loyalty of launching this new product and assess the option of a new sales channel. After calculating
program based on airline miles. This program both results, as a counterbalance, there are qualitative, country-related situations that have
is considered part of a strategic alliance with to be considered and open a chance to brainstorm, and even propose a different
an important regional airline. recommendation.
The candidate will need to ask for information to create a market sizing logic. Then, the
The CMO would like you to evaluate if it is interviewer can start showing exhibits. Is expected to work with order to avoid reprocessing
convenient to invest in this project. and don’t get confused with numbers.

IESE CONSULTING CLUB IESE CASE BOOK 2021 |136


Financial Services Easy
Product launch Medium

South bank Profitability Hard

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

I) Revenues: # customers, frequency of use, size of ticket, merchant fee value.


FINANCIALS II) Costs: variable -> sales commissions, plastic cards, loyalty program; fixed -> wages, system maintenance

I) Competitors: BS market share, positioning, value proposition


MARKET II) Clients: segments, purchase behaviours and perceptions
III) Ecosystem: availability of POS, trends in cashless options

I) Commercial: brand awareness, know how of regional needs and customs


CAPABILITIES II) Financial: Budget for investment, need of additional CAPEX/OPEX
III) Operational: scale and granularity of sales force, logistics for credit card supply

I) Financial: small ROI


RISKS II) Commercial: bad experience of user because of lack of knowledge regarding credit cards or not enough
POS to pay, cannibalization vs current credit card
IESE CONSULTING CLUB IESE CASE BOOK 2021 |13
Financial Services Easy
Product launch Medium

South bank Profitability Hard

QUANTITATIVE ANALYSIS, PART 1


• Candidate should propose a market sizing as first action, explaining the reasoning before doing numbers. Interviewer should show EXHIBIT 1 once
the candidate has identified many variables implied. Candidate should mention macro features (e.g. large market vs small ticket and small
penetration)
• After having calculated revenue per segment, challenge the idea (so what?) of entering low income since is a very small market (3% of total, 0.3% of
BS revenues).
• If the candidate only considers calculating values for low-income segment, is adequate. Still, he/she should calculate all segments in order to
compare them and find some insights of the whole potential.

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

South bank – Exhibit 1 Profitability Hard

CREDIT CARD MARKET MAIN INDICATORS

% of Credit card SB market Avg. spending


Segments
population penetration share per year
High-income 10% 80% 60% 100,000
Medium-income 30% 50% 30% 30,000
Low-income 60% 10% 5% 6,000

IESE CONSULTING CLUB IESE CASE BOOK 2021 |139


Financial Services Easy
Product launch Medium

South bank Profitability Hard

QUANTITATIVE ANALYSIS, PART 2


• Once the interviewee calculates the revenues, the interviewer has to indicate that we have receive additional information about 2 options of sales
channels: traditional (branches) or online. Criteria for choosing an alternative remain the same as indicated during clarifying questions.
• Interviewer mentions main revenues and costs (see SOLUTION, PART 2).
• Once cash flows have been calculated, show (in EXHIBIT 2) that we don’t have branches in the majority of low-income regions.

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

South bank – Exhibit 2 Profitability Hard

PERU’S POLITICAL MAP

• 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.

Lima City High penetration of SB branches


High income regions
Medium income regions
Low income regions

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Financial Services Easy
Product launch Medium

South bank – Exhibit 2 Profitability Hard

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.

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Financial Services Easy
Product launch Medium

South bank Profitability Hard

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.

2. Bundling is, again, a good practice:


• Commercial: partner with local authorities or leaders to give financial education and training, focus on capture competitors’ clients using
higher cashback or other discounts, revisit analysis and focus on high-density, higher-income regions.
• Financial: evaluate if opening mini-branches (less CAPEX).
• Operational: deliver credit cards by courier, negotiate with Credit Card provider/competitors/government to accelerate POS instalment,
evaluate other technologies as Digital Credit Card (in smartphones).

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Financial Services Easy
Product launch Medium

South bank Profitability Hard

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.

A good candidate will:


• Recognize that there is an underlying, structural problem that has to be solved to increase probability of success. He/she explains that the project
is a long-run bet, since these markets have to be developed.
• Consider other costs/losses as defaults or frauds, and suggest a sensitivity analysis (e.g. % of market captured, payback period required = 1 year,
higher cashback %).
• Size how many low-income clients are in medium or high-income regions. For instance, Lima City probably has a relevant low-income population,
and already counts with a high branch penetration.
• Ponder to explore medium-income segment, since the size, penetration and market share put SB in a better position.
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Cricket Mania
By Participation Code - CB11

Sports Easy
Investment Decision Medium
Profitability Hard

IESE CONSULTING CLUB IESE CASE BOOK 2021 |145


Sports Easy
Investment Decision Medium

Cricket Mania Profitability Hard

PROMPT CLARIFYING POINTS (if asked)


PCC is one of the cricket franchise in • Success here would be defined based on improved profitability
worlds largest cricket league, LPI. • The team has been relatively stable with no abnormal changes
Despite having one of the strongest • The owners are willing to incur Capex to attract up to two star-performers in the auction
teams in league, PCC has continuously • PCC lacks brand recall, amongst the lowest in the league
disappointed its fans and owners and
• All franchisees in the league are profit making
has failed to live up to its true potential.
• The overall cricket viewership and popularity has been on the rise (assume pre-covid time)
Mr. Gandhi, has recently replaced Mr.
Modi as the new CEO of PCC. Mr.
CASE GUIDANCE
Gandhi has been handed the task of In this case the candidate should not rely on any pre-knowledge of the game and think of the
turning around the fortunes or PCC. Mr. problem as a classical profitability issue.
Gandhi has been an ardent cricket fan The candidate should ask the right questions and aim to grow the existing revenue streams
and player of the sport all his life. He and add new revenue streams to improve profitability. The interviewer should guide the
also has a track record of turning around candidate towards focusing on improving revenues and not get stuck on reducing costs.
Given, that a franchisee’s brand has a high impact on revenues, the candidate should be
corporates.
conscious of making recommendations to improve the brand as well.
For Interviewer’s understanding ONLY (to understand the business model):
Mr. Gandhi has hired you to investigate
and recommend on the action plan. • Key revenue streams - Broadcasting Rights, Sponsorship, Ticket Sales, Merchandize Sale,
Player trading
• Major Costs heads – Player Fee (30-35%), Franchise Fee (20%)
IESE CONSULTING CLUB IESE CASE BOOK 2021 |146
Sports Easy
Investment Decision Medium

Cricket Mania Profitability Hard

SAMPLE STRUCTURE INTERVIEWER GUIDANCE


The interviewer should allow the Candidate
Increase Ticket to share different ideas but eventually guide
Sales
Improve Existing the Candidate to focus on improving the
Revenue Revenues
Increase Non-
Ticket Income
Increase Revenue The next exercises, focuses on increasing
existing revenues streams by improving team
Add New Add ancillary performance and brand-rating, thereby
Revenue Streams businesses
charging more for tickets, merchandize, etc.
The Interviewer should try to guide the
Improve Profit Improve success
linked fee
Candidate towards identifying that both
Reduce Player these objectives can be achieved through
Fee acquiring Star players.
Trade/Fire non-
performing
Staff and expensive players Once the Candidate takes that path, the
Reduce Costs Corporate
Expenses interviewer should share Exhibit-1 & Exhibit-2
with the candidate and let them make the
Other choice
Operational
Expenses

IESE CONSULTING CLUB IESE CASE BOOK 2021 |147


Sports Easy
Investment Decision Medium

Exhibit-1 (INTERVIEWER VERSION) Profitability Hard

LPI TEAM RANKINGS FOR THE LAST 3 YEARS AVERAGE STAR RATING SCORE
League Rankings Average Star-Rating

CSC
DDC
HYC
KKC
MMC

2020 2019 2018


PCC

CSC DDC HYC KKC MMC PCC RBC RJC


RBC
RJC
INTERVIEWER GUIDANCE
The Candidate should be able to identify that while the performance for most team typically varies, PCC has consistently performed poor. A great
candidate would even calculate average ranking over the 3 years and see PCC as the lowest average ranking.

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
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Sports Easy
Investment Decision Medium

Exhibit-1 (CANDIDATE VERSION) Profitability Hard

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

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Sports Easy
Investment Decision Medium

Exhibits-2 (INTERVIEWER VERSION) Profitability Hard

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)

VK 15.0 200 6000 30 10 LM 7.0 125 200 1.6 7

MD 15.0 200 4800 24 9 YC 5.5 100 121 1.2 6

RS 12.0 200 6000 30 8 JB 8.0 75 140 1.9 9

DW 10.5 150 5250 35 7 AM 5.5 150 175 1.2 6

CG 12.0 130 5200 40 9 DS 10.0 70 97 1.4 8

Note: Maximum permitted budget for acquisitions is $20mn

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

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Sports Easy
Investment Decision Medium

Exhibits-2 (CANDIDATE VERSION) Profitability Hard

Star batsmen available for auction Star bowlers available for auction

Games Start Rating Games Wickets Start Rating


USD Mn Runs Scored USD Mn
Played (out of 10) Played Taken (out of 10)

VK 15.0 200 6000 10 LM 7.0 125 200 7

MD 15.0 200 4800 9 YC 5.5 100 121 6

RS 12.0 200 6000 8 JB 8.0 75 140 9

DW 10.5 150 5250 7 AM 5.5 150 175 6

CG 12.0 130 5200 9 DS 10.0 70 97 8

Note: Maximum permitted budget for acquisitions is $20mn

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Sports Easy
Investment Decision Medium

Cricket Mania Profitability Hard

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

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Sports Easy
Investment Decision Medium

Exhibit-3 Profitability Hard

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

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Sports Easy
Investment Decision Medium

Cricket Mania Profitability Hard

BRAIN STORMING EXERCISE – NEW REVENUE STREAMS


What are some of the additional revenues streams that PCC can look to add to their operations in order to support
the company turnaround and profitability?

SOME SAMPLE IDEAS


✓ Merchandizing revenue ✓ Launch a sport magazine, sport website, online talk
show for ad-revenues
✓ Start a junior training academy
✓ Launch co-branded credit/debit cards for fans to make
✓ Launch a mobile gamming app
commission income
✓ Create a paid fan club with special privileges like
✓ Ultra-Premium Membership for seats close to players,
priority access for tickets, lunch with players, etc. allowing hotel access to fans, and similar incentives
✓ Partner with a co-branded cafes and sports bars

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Sports Easy
Investment Decision Medium

Cricket Mania Profitability Hard

FINAL RECOMMENDATION (SAMPLE RECOMMENDATION)


Acquire the two-star players, because:
• The acquisition improves the probability of winning
• The Probability adjusted winning prize money increases profits by ~$10mn/year for the next three years
• The additional profits cover for the upfront investment of ~20mn
• The other revenue streams can add a significant headroom to the profits, given the non-prize revenues (typically a major
chunk of income), will be directly related to the brand-value of the franchise and the star players. Which would improve a lot
given the better performance in the league and the presence of Star players

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

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The Bookstore
By Víctor Manzanares Bonilla (IESE MBA 2021)

Retail Easy
E-commerce Medium
Market Entry Hard

156
Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

PROMPT CLARIFYING POINTS (if asked)


Our client, Classic Bookstore (CB), is a • CB only sells to customers through physical stores, no online business is available.
traditional bookstore chain in Spain, • CB has stores in the largest cities in Spain.
specialized in non-technical books. CB’s • CB has 3 types of customers: AVID READERS (2 books/month), OCCASIONAL READERS (1 book/2 months)
and RARE READERS (1 book/6 months).
revenue has stagnated for the past 3
years, with a stable and loyal customer • Non-technical physical book market in Spain has been stagnated for the past 3 years.

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.

The client is considering to sell a CB


branded reading device and develop a
website to sell e-books for it. CASE GUIDANCE
This is a case designed to be led by the candidate. Start by reading the case question and let the candidate
Our client asked us to analyze this drive the analysis. Do not provide any information until it is asked.
opportunity and provide a
recommendation. This case primarily tests the understanding of market entry and its implications on the current business model.

For simplicity, taxes and value of money over time have been ignored in this case, although excellent
candidates should mention them during the case.

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

INTERVIEWER GUIDANCE – STRUCTURE


Candidate’s structure should cover the following key aspects of the problem.

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.

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

INTERVIEWER GUIDANCE – MARKET SIZING


(Suggested approach) Total books: 24 + 30 + 30 = 84M 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

3. Percentage of population that buys books: We assume 60% of


people between 15 and 80.
Total target population = 36.5M x 0.60 = 22M people

4. Type of readers: We assume the following categories and quantities


Avid Readers: 12 books/year x 2M readers = 24M books/year
Occasional Readers: 6 books/year x 5M readers = 30M books/year
Rare Readers: 2 books/year x 15M readers = 30M books/year

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

PROFITABILITY ANALYSIS – GIVEN DATA


In the next step, the candidate should focus on profitability. Hand Exhibit 1 for this part and provide the following information if requested:

REVENUE COSTS

• Market Annual Growth: 5% • Webpage Investment: 150,000€

• Expected Market Share: 1% • General Expenses website: 50,000€

• 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.

• No customers change from paper to e-book after year 1.


New readers are coming from new customers.

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

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.

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

EXHIBIT 1: NON-TECHNICAL BOOKS MARKET IN SPAIN


PAPER BOOKS MARKET IN SPAIN E-BOOKS MARKET IN SPAIN

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

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

EXHIBIT 2: ELECTRONIC READERS


Amazon Kindle
CB e-Reader Sony e-Reader Amazon Kindle
PRO
Price TBD 120€ 100€ 150€
Cost 60€ - - -
Formats accepted CB All formats All formats All formats
Storage Up to 1,000 Up to 1,500 Up to 750 books Up to 2,000
books books books
Extra Features Medium Medium Low High

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

EXHIBIT 3: CB’S CUSTOMERS INFORMATION


What do you value the most about CB?
50%
TOTAL CUSTOMERS: 390,000

Avid Readers 22%


18%
13% 10%

Customer Quality of Variety of Promotions


Occasional Service products stock
18% Readers
Would you consider switching to an electronic reader?
96% 97% 97.4%

69%
Rare Readers No
Yes
4% 3% 2.6%
Avid Occasional Rare
Readers Readers Readers

IESE CONSULTING CLUB IESE CASE BOOK 2021 |164


Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

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?

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Retail Easy

The Bookstore E-commerce


Market Entry
Medium
Hard

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.

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Green Airlines
By Antonio Niemeyer (IESE MBA 2021)

Airlines Easy
Growth Strategy Medium
Investment Decision Hard

167
Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

PROMPT CLARIFYING POINTS (if asked)


Due to the recent bankruptcy of a major • An airport slot is a permission granted by the owner of an airport, which allows the grantee to
airline, the aviation authority of Brazil recently schedule a landing or departure at that airport during a specific time period
• Green airlines currently does not operate in the airport that is being discussed
opened an auction for landing and takeoff
• Green airlines currently only flies regional flights and has no plans to include international flights in its
slots in one of the country’s biggest airports. offerings
A slot is the right to land and depart from an • Green airlines currently does not have the necessary planes to operate the slot. Management will
airport during a given time period. need to lease 5 airplanes to operate the 10 slots
• The $100M that Green Airlines would have to pay is a one-off payment, due before operations start
Green Airlines, a small, regional airline • The main objective of the owner/CEO is financial gain
• Green Airlines can sell the slots, but only after five years of operation
operating in the North part of the country,
• If Green Airlines does not buy the slots, they will be sold to another airline
was offered 10 slots, for the total price of
$100M. If Green accepts to buy the slots, it
will have to operate them for at least 5 years.
The owner and CEO of Green Airlines
approached your firm looking for an
CASE GUIDANCE
In this case, the candidate will need to lead through directive questioning. Although the answer may
advice on whether they should buy the seem straightforward, the case will force the candidate to analyze the problem from different
slots or not. perspectives; it will demand not only math and problem-solving skills, but also, creativity.

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.

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Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

INTERVIEWER GUIDANCE – STRUCTURE


The candidate should realize that this is an opportunity for Green Airlines to expand its business into one of the country’s main airport.

Suggested items-to-consider are:

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?

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Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

INTERVIEWER GUIDANCE – PART 1


If the candidate raises concerns related to competition, operational challenges or the aviation market in Brazil, hand Exhibit 1 (next page) to clarify these points.

KEY TAKEWAYS – EXHIBIT 1


• The candidate should notice that Green Airlines operates in a very distinct region of Brazil and is much smaller than the mai n players of the Sao Paulo region
• Buying the 5 planes would mean almost doubling Green Airlines fleet, and represents a significant strategic shift
• Airlines A and C are big players located in Sao Paulo, and they currently operate planes bigger than the other airlines, however, the price per ticket is lower (this may be
due to shorter flights and high competition)
• The average load factor in Sao Paulo is significantly higher than the average for Green Airlines
• If Green Airlines were to buy the slots, it would most likely need to have bigger planes and keep prices low

IESE CONSULTING CLUB IESE CASE BOOK 2021 |170


Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

EXHIBIT 1
Green
Current Operations Airlines A Airlines B Airlines C
Airlines
City Hub São Paulo Santa Catarina São Paulo Pará

G Total # of planes 100 80 70 6

Avg plane size (# seats) 300 200 300 100

Avg Load Factor (%) 80% 70% 80% 60%

Avg Ticket Price ($) 200 250 200 300

Airport selling slots

A Airlines A Main Hub

A B Airlines B Main Hub

B C C Airlines C Main Hub

G Green Airlines Main Hub

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Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

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:

Revenues – For operation of 10 slots

# 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

Average Load Factor (%) 80%

Average Ticket Price $ 200

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Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

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:

Costs – for operation of 10 slots


COST CALCULATION
Fuel: $14k * 50 * 5 = $ 3,5M/month Expected Insight:
Initial Investment $5M (to set up
operations) Other Variable Costs: $4k * 50 * 5 = $ 1,0M/month The candidate should realize that
the expected operational result is
Salaries: $ 1,5M/month
Fuel $14k per flight -$5M in Year 1, and zero in the
Maintenance & Leasing: $400k * 5 = $ 2,0M/month following years for the 10 slots on
Other Variable Costs $4k per flight Insurance, Fees & Others: $ 2,0M/month sale.
Total Cost: $10M/month
Salaries $1,5M per month

Maintenance & Leasing $400k per Expected Profit:


plane/month
Year 1: -$5M + $120M - $120M = -$5M
Insurance, Fees & Others $2M per month Following years: $120M - $120M = $0

IESE CONSULTING CLUB IESE CASE BOOK 2021 |173


Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

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?

IESE CONSULTING CLUB IESE CASE BOOK 2021 |174


Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

INTERVIEWER GUIDANCE – PART 2


After discussing the potential alternatives, state that management has already explored all alternative ways to improve the operational result, and the numbers
presented are already considering all operational improvements possible.

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:

New Revenue per month = 5 * 50 * 300 * 80% * 200 = $12M/month


New Monthly profit = $2 million/month
= $24 million/year

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Airlines Easy

Green Airlines Growth Strategy


Investment Decision
Medium
Hard

INTERVIEWER GUIDANCE – PART 2


Now that we know the operational results for a big company utilizing these 10 slots, ask the candidate to estimate the value of the slot for a big company such as Airlines
A. Provide the following information if requested

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.

RECOMMENDATION SAMPLE RECOMMENDATION


Ask the candidate her/his final recommendation The recommendation should be that Green Airlines buy the 10 slots, operate them for the
mandatory 5 years and then sell them at a potential profit of approx. $135M

IESE CONSULTING CLUB IESE CASE BOOK 2021 |176


Pipeline Oil Technology
By Roberto Carlos De Araujo (IESE MBA 2021)

Oil & Gas Easy


Operations Medium
Pricing Hard

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

PROMPT CLARIFYING POINTS (if asked)


Minerva’s University Fluids Research Lab What is the market? such as rail car, barge and truck.
has discovered a more efficient way to - Mexico. How is the demand for crude oil?
transport crude petroleum oil inside How big is the market? - NOC sells all the crude oil it buys. See Exhibit 2 for the next
pipelines. This new technology can be - 4,800 km of pipeline. years’ forecast.
used in midstream applications where Who are the competitors and market share? Can NOC build more pipelines to substitute other means of
the oil is acquired from the extraction - National Oil Company (NOC) is the only player. However, the transportation?
plant and delivered to the refinery plant. market is open for the last two years. - Yes, it is an alternative. However, there are costs involved. See
The university invested $ 1,200M in this Which are the potential buyers? “4. Given Data - Alternative: Expand Pipeline Network”
project during the last 12 years. - Primarily, NOC. However, the other two prospects are How long does it take to implement this technology?
interested in entering the market. - Minerva’s University estimates that the technology would be
The new technology mixes water and oil Does the University have a patent? How long does it last? running in 100% of the pipelines in one year at $2,000 M
under certain conditions to reduce the - The University has already filed for a patent, which lasts for installation cost.
loss of energy, caused by the friction 20 years.
between the oil and the pipeline surface What is NOC pipelines current capacity?
while being transported. As a result, the - Full capacity. Surplus is transported by more expensive means

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.

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

INTERVIEWER GUIDANCE – STRUCTURE


Identify the main drivers of the pricing and evaluate the results by comparing to other investments.

A) PRICING:
Value = (1) Savings Costs of transportation + (2) Savings Cost of replacing pipelines – (3) Cost to implement

(1) Savings in Cost of transportation


- Increase in flow speed leads to increase in the pipeline’s delivery capacity
- Save costs of sales by switching from other means of transportation to pipelines

(2) Savings in Cost of replacing pipelines


- Save Costs by using the pipelines for longer, reducing the replacement

(3) Cost of installation


- $2,000 M

B) COMPARISON: Compare the value of the technology to other investments to validate the final pricing

(4) Research Investment (by Minerva’s University):


- $1,200 M (spent in the last 12 years by Minerva’s University)

(5) Alternative investment (for National Oil Company):


- Investment to expand the pipeline network from 2 M to 2.5 M barrels per day

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

REVENUE ANALYSIS DEMAND ANALYSIS


Hand over Exhibit 1 if the candidate asks for revenues Hand over Exhibit 2 if the candidate asks about the demand
and/or costs breakdown for the next years

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

TIP: ROUND OFF NUMBERS


Suggest the candidate to round off numbers to facilitate easier calculations. Some suggestions are underlined in the case. Nonetheless, strong candidates figure out these
opportunities by themselves.

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

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

Means Cost Barrels

Pipeline $2 per barrel 70%

Truck $6 per barrel 5%

Barge $3 per barrel 10% Table 2: Cost of Sales breakdown


per means of transportation
Rail $5 per barrel 15%

(*) Cost of transportation already includes the buying price from the extractors.
(**) Assume that Other Operating Costs do not change over the years.

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

EXHIBIT 2
Crude oil demand forecast

(*) Demand in millions


2.5

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.

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

PRICING CALCULATION GIVEN DATA:


(2) Savings in Cost of replacing pipelines (SCRP): - Cost of replacing pipelines: $1,000M per year

= 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)

ALTERNATIVE ANALYSIS GIVEN DATA:


Expand network pipeline - Additional capacity: 50,000 barrels per day

Investment to expand the pipeline network: - Time to implement: 2 years

= (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

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

COMPARISON ANALYSIS
PRICING $8,000 M INVESTMENTS

(+) Savings in Cost of transportation $6,000 M (-) Research Investment


(University) $1,200 M
(+) Savings in Cost of replacing
$4,000 M
pipelines (-) Alternative investment
(National Oil Company) $7,000 M
(-) Cost of installation $2,000 M

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.

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Oil & Gas Easy
Pipeline Oil Technology Operations
Pricing
Medium
Hard

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

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Nica Productions
By Alfonso Tomás Durandeu (IESE MBA 2021)

Media & Entertainment Easy


Profitability Medium
Operations Cost Hard

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

PROMPT CLARIFYING POINTS (if asked)


Nica Productions is an American Media • There is no specific profitability goal
company that is trying to figure out its next • The company is known worldwide, with access to top star directors, actors and technical
project. This company has an extensive staff
experience producing series and movies • It has not budget limitation
for all types of audiences and has got many
awards doing so. This company has two • Both alternatives look for a worldwide reach but target different type of customers
alternatives: to produce a series for a • Production of any alternative will last one year
streaming company or a movie to be • There is no alternative project
projected in cinemas worldwide.
• The main source of revenue of both projects depends on audience
Producing media content implies big
investments and low certainty about CASE GUIDANCE
potential incomes, which depends on
This is a quantitative case that requires the candidate to estimate the potential cashflow of
many factors; for that reason, our client
different alternatives in order to get the NPV and decide the best option for the client.
has hired us to help her decide which is
the best alternative for her. The candidate will need to ask for additional information that is necessary to solve the
problem, rather than relying on the interviewer to dispense it.
Especially for less finance-read candidates, you may have to help nudge trough the math and
formulae.

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

INTERVIEWER GUIDANCE – STRUCTURE


The candidate should express that the company will pursue the project that generates the higher positive profits and show that in his/her
Framework.

• 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.

IESE CONSULTING CLUB IESE CASE BOOK 2021 |188


Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

PROJECT ALTERNATIVES ANALYSIS – MOVIE


The company is not sure about which type of movie they want to produce and if it will be able to hire the director and actors for the desired
alternative. However it was able to assign probabilities for each scenario. Income will depend on the size of audience movie attracts, which further
depends on the critics received. Which project (movie or series) should our client choose? (Show Exhibit 1).

ANALYSIS TAKEWAYS - MOVIE


In order to estimate the NPV of this alternative, the candidate should calculate the corresponding Cash Flows and request for a Discount Rate (20%).
The investment are made at the beginning of the project and incomes are received at the end of year 1 (Solution in the following slide).

A good candidate will:


- read the note to get the information about how much money the company receives from Cinema chains
- be structured and present the calculation with clarity (ideally, in the form of a decision tree)

IESE CONSULTING CLUB IESE CASE BOOK 2021 |189


Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

ANALYSIS CALCULATION - MOVIE


TOTAL AUDIENCE (TA):
TA = [ (AudienceGood * %Good ) + (AudienceBad * %Bad) ] (M USD) ALTERNATIVE 1 ALTERNATIVE 2
TA NOLAN = [ (600M * 70%) + (400M * 30%)] = [ 420M + 120M ] = 540M Year 0 1 0 1
TA BAY = [ (400M * 80%) + (200M * 20%)] = [ 320M + 40M ] = 360M
Investment -150 0 -100 0
INCOME:
1ST YEAR (Year 0) Income 0 540 0 360
There is no income Cash Flow -150 540 -100 360
2ND YEAR (Year 1) NPV -150 450 -100 300
Income = Total Audience * Ticket Price * %Commission
Income NOLAN = 540M * 10 USD/t * 10% = 540M USD Accumulated NPV 300 200
Income BAY = 360M * 10 USD/t * 10% = 360M USD
INVESTMENT:
Each alternative has its own cost structure (See exhibit 2)
ALTENATIVE 1 ALTERNATIVE 2
GOOD BAD GOOD BAD ALTERNATIVE 1 ALTERNATIVE 2
Probability (%) 70% 30% 80% 20% Probability (%) 60% 40%
Audience (M) 600 400 400 200 NPV (M USD) 300 200
Contribution (M) 420 120 320 40 Contribution (M) 180 80
Average audience 540 360 Average NPV (M USD) 260 -

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

EXHIBIT 1: MOVIES ALTERNATIVES


Alternative 1 Alternative 2

Target Audience Teenagers and Young Adults Kids and Teenagers

Probability (%) 60% 40%

Director Christopher Nolan 25M USD Michael Bay 10M USD

Main Actor Tom Hardy 50M USD Mark Walhberg 25M USD

Support Actor Michael Cain 25M USD Tyrese Gibson 5M 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);

IESE CONSULTING CLUB IESE CASE BOOK 2021 |191


Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

PROJECT ALTERNATIVES ANALYSIS - SERIES


The company already has the script for a potential Series, and in case of choosing this alternative, it will receive an upfront payment from the
Streaming company. Income will be based on the Audience per episode in the first year (Show Exhibit 2).

ANALYSIS TAKEWAYS - SERIES


In order to estimate the NPV of this alternative, the candidate should calculate the corresponding Cash Flows and request for a Discount Rate (20%).
The investment is made at the beginning of the project and incomes are received at the end of year 1 (Solution in the following slide)

A good candidate will:


- understand that the Script expense (10M USD) is a sunk cost and it should not be taken into consideration to make the decision
- be structured and present the calculation with clarity (ideally, in the form of a decision tree)

If the candidate realizes about the sunk cost, she/he will choose to produce a Series. If not, make him/her identify the mistake

NPV NPV (with sunk cost)

Movies 260 260

Series 270 260

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

ANALYSIS CALCULATION - SERIES


TOTAL AUDIENCE (TA):
TA = [ (AudienceGood * %Good ) + (AudienceMedium * %Medium) + (AudienceBad * %Bad) ] * GOOD MEDIUM BAD
#Episodes
TA = [ (100M * 30%) + (70M * 40%) + (40M * 30%)] * 10 = [ 30M + 28M + 12M ] * 10 = 700 M Probability (%) 30% 40% 30%
INCOME:
Audience (M) 100 70 40
1ST YEAR (Year 0)
The income in the first year is the Upfront = 20M USD Contribution (M) 30 28 12
2ND YEAR (Year 1)
Income = Total Audience * Income per episode (PMV) = 700M * 600k USD = 420M USD
INVESTMENT:
If the company chooses this alternative, it should make an additional Investment of 100M USD
(The Script is a sunk cost)

(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 -

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

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%

PMV: per million views

IESE CONSULTING CLUB IESE CASE BOOK 2021 |194


Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

PROJECT ALTERNATIVES ANALYSIS – ADDITIONAL INFO


Would your decision change with this new information? (Show Exhibit 3)

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

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

EXHIBIT 3 – MOVIES ALTERNATIVE 2


Cash Flow (M USD)
20,00
20
18,00
16,20

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

IESE CONSULTING CLUB IESE CASE BOOK 2021 |196


Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

PROJECT ALTERNATIVES ANALYSIS – OTHER FACTORS


Which other factor would you take into consideration?

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.

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Media & Entertainment Easy
Nica Productions Profitability
Operations Cost
Medium
Hard

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.

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Cowbon Emissions
By Emily Hinton (IESE MBA 2021)

Agriculture Easy
Sustainability Medium
Operations Hard

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

PROMPT CLARIFYING POINTS (if asked)


Our client is a major milk producer in New • MIC produces approximately 100% of New Cowland’s milk supply
Cowland, Milking it Co., MIC. New • MIC does not have plans for expansion, but reducing volumes is not an option
Cowland has recently introduced a law • They only produce milk and have no plans to diversify
that means MIC has to reduce its GHG • Budget for this project is $750m/year for the next five years (for perspective, current revenues are
emissions by 45% of 2019 levels within $15billion)
the next five years or face being shut • MIC owns the entire production chain – from farms, production and transport, they sell to a variety of
down or heavily fined. They currently clients
produce 20% of New Cowland’s GHG The candidate might ask what the breakdown of where GHG comes from within the business, this is shown in
emissions. Exhibit 1
• 5% of their market is local, the rest is foreign
The CSO has hired us to figure out a way • Only need to reduce GHG directly produced by MIC
to reach this target.

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.

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

INTERVIEWER GUIDANCE - STRUCTURE


A good framework would touch on:
• Different ideas to reduce GHG emissions in the different segments of • Non-financial implications – PR, risks (e.g., change in government, a
the business (farming, processing, transportation, overheads, etc.) backlash from farmers)
• Ability to implement changes The candidate should lead the case towards understanding the current
• Financial implications breakdown of GHG emissions – if not, the interviewer should gently nudge
toward this path.

GHG EMISSIONS ANALYSIS EXHIBIT 1 TAKEAWAYS


• GHG emissions have been increasing over the last three years with farming
The candidate should be presented with Exhibit 1 if s/he asks about being the key driver
the breakdown of GHG in each business segment. Candidate should
be told that MIC has already taken measures to reduce Overheads • Farming is the largest emitter followed by production
Emissions and MIC believes that there is no further that can be done • From farming, cows are by far the largest emitter producing 63% of 2019’s
to reduce these. emissions – this would be the key thing to look into first as it can make the
biggest difference (it is the only value that is over 50% of the emissions by
itself)
• Processing is the second biggest emitter so that should be focused on next
(20% of total emissions)
The candidate should identify cows as the first logical step to explore in
reducing emissions.
IESE CONSULTING CLUB IESE CASE BOOK 2021 |201
Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

EXHIBIT 1 - TRENDS OF GHG EMISSIONS OF MIC


Total GHG emissions (millions of tons) 5,0
19,5 20,0
19,0 5%
5% 80% Processing
Overheads 10%
25% 25% 20% Transportation
Production 25% Production (2019)

14,0

70% 70%
Farming 65%
90% Cows

10% Other
2017 2018 2019 Farming (2019)

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

COW EMISSION ANALYSIS ESTIMATION DATA


There is a new breed of cow that MIC is interested in to replace their Provide only if requested:
current herd. All characteristics are the same as the current herd, but • Population of New Cowland: 5 million
they produce 33% less GHG emissions.
• Milk produced per cow: 10L/days
As MIC owns farms all over New Cowland, they want us to approximate
how many cows they have in total. • Number of days in a year: 300
• Domestic market: 5% of sales
• Domestic market share: 100%
• Average milk consumption per person: 150L/year

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

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

COW EMISSION ANALYSIS


Knowing that there are 5 million cows in the MIC herd and the average life of a dairy cow is 5 years. Calculate the total cost of replacing the herd
and the total emissions saved from this replacement.
• The old breed cost $2000 and the new breed costs $2500 to purchase
• The old breed emits 2.5 ton/year and the new breed emits 33% less GHG

SUGGESTED CALCULATION & TAKEAWAYS


YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Cost [1 million cows] [1 million cows] [1 million cows] [1 million cows] [1 million cows]
*[$500/cow] *[$500/cow] *[$500/cow] *[$500/cow] *[$500/cow]
= $500 million = $500 million = $500 million = $500 million = $500 million
GHG ton reduction [1 million cows]* [2 million cows]* [3 million cows]* [4 million cows]* [5 million cows]*
[0.33*2.5t] [0.33*2.5t] [0.33*2.5t] [0.33*2.5t] [0.33*2.5t]
Or Or Or Or Or
[12.6million tons]* [12.6million tons]* [12.6million tons]* [12.6million tons]* [12.6million tons]*
[33%]/[5/1] [33%]/[5/2] [33%]/[5/3] [33%]/[5/4] [33%]/[5/5]
= 0.825 mil tons = 1.65 mil tons = 2.475 mil tons = 3.3 million tons = 4.125 mil tons
% GHG reduction 4.125% 8.25% 12.375% 16.5% 20.625% (~21%)
Candidate can calculate only Year 5 as this is the final number required but must check that the annual budget is not exceeded.
Candidate should conclude that this is approximately halfway to our goal, spending 67% of our budget.
Next should look at reducing emissions from production.

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

PRODUCTION EMSSIONS ANALYSIS


What are some ways that the GHG emissions can be reduced during the production phase?

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

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

PRODUCTION EMSSIONS ANALYSIS


MIC has been looking into different ways to reduce GHG emissions in both processes and transportation and they have identifie d these options
(show Exhibit 2).

CALCULATION AND TAKEAWAYS – EXHIBIT 2


This exhibit is intentionally challenging to understand, point
the candidate towards the footnotes if they are struggling to TOTAL GHG
COST PER TOTAL COST GHG REDUCTION
understand the meaning of each column. REDUCTION (5
YEAR (5 YEARS) PER YEAR
YEARS)
Key insights from Exhibit 2:
Renewable $150 [$150m] * [25%]*[80%]*[70%] [2.8%] * [5 years]
• Conversion to renewable energy has the largest emissions
energy million [5years] *[20%]= 2.8% (0.56 = 14% (2.8 mil
savings (potential reduction of 14% of GHG) and can be
source =$750 million mil tons) tons)
completely replaced within the 5-year period
• Replacing sterilizing units will only reduce emissions by 4% New $100 [$100m] * [25%]*[80%]*[20%] [0.2%] * [5 years]
total and will take 20 years to carry out Sterilizing million [5years] *[5%]= 0.2% (0.04 = 0.8% (0.2 mil
Process =$500 million mil tons) tons)
• The other processes are also not cost-effective and should
be written off straight away Transport $50 [$50m] * [25%]*[20%]*[100% [2.8%] * [5 years]
electrification million [5years] ]*[20%]= 1% (0.2 = 5% (1 mil tons)
• Transportation is a cost-effective method of GHG reduction
=$250 million mil tons)
which can be completed within 5 years and will reduce
emissions by 5% total
The candidate should conclude that conversion to renewable energy and electrifying the transport
fleet will be the most efficient costing $200m/year and reducing the GHG emissions by 19% in total
by year 5

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

EXHIBIT 2 - ALTERNATIVES TO REDUCE GHG EMISSIONS OF MIC


PROPOSED TOTAL %
MAX. % ANNUAL UNIT ANNUAL TOTAL COST
CHANGE TO REDUCTION OF # OF UNITS2
REPLACEMENT 3 OF MAX REPLACEMENT4
PRODUCTION EMISSIONS1
Renewable energy 70% 10 20% $150m
source

New Sterilizing 20% 20 5% $100m


Process
Process
New Packaging 2% 50 20% $50m
process + material

Other 0.1% 500 10% $1m

Transport Electrification of 100% 500 20% $50m


fleet

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

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Agriculture Easy
Cowbon Emissions Sustainability
Operations
Medium
Hard

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.

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OncoCo
CB21

PE / Pharmaceuticals Easy
Profitability Medium
M&A Hard

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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

PROMPT CLARIFYING POINTS (if asked)


• PE target: EBITDA margin > 20%
A private equity client owns a specialized • Liquid Morphine: Used to treat severe pain, for example after an operation or a serious injury, or pain from
pharma manufacturer called OncoCo which cancer or a heart attack. Morphine liquid is fast acting and used for pain which is expected to last for a
focuses on cancer treatments. OncoCo is not short time, e.g. when you start taking other forms of morphine to help find the right dose. Usually
only profitable, but also experienced steady morphine is prescribed by pain specialists
growth in the past years. Hence, the PE fund • Commercial rights means that OncoCo will be able to produce and sell the product under its name. Often
was surprised when the management board pharma companies purchase existing stocks and have the opportunity to either renegotiate the contracts
of OncoCo stated that they expect declining with raw material suppliers or continue under existing conditions
profits in the future. OncoCo’s management • Declining revenue: expect a drop in revenues of 100m€
board has also suggested, to cushion the • BM: OncoCo’s income stems from one drug to treat a very niche, late stage cancer
decline with the acquisition of an additional • Price (treatment costs) per year: 10k€
asset. In particular, OncoCo’s board received • Location: EU
the opportunity to purchase the commercial
rights of liquid morphine. CASE GUIDANCE
The PE fund has asked us to figure out why a • Ask value added question: Its is a complex industry, candidates might feel tempted to ask unimportant
decline is expected and whether they questions because they don’t know the industry
should move forward with the acquisition. • Don’t boil the ocean: Despite being a PE case, we don’t get into the business model of the PE itself and
despite being an M&A case, we focus only on the target product (asset in pharma language).
• Acquisition price is irrelevant in this case
• Case duration: ~35 mins
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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo 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

Are there less risky


opportunities to pursue

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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

Profit analysis of OncoCo


Begin by investigating why profits are expected to fall and hand out Exhibit 1: profit analysis OncoCo. The candidate can spend a few moments to
digest the information but is expected to comment on the insights fairly quickly as all the math can be done mentally.

Expected takeaways from Exhibit 1


A good candidate will mention:
• Expected drop in revenue in 2022? 100m€, loss of 2/3
• Price of the drug? 10k€
• Profit in 2020? 40m€

A very good candidate will mention:


• EBITDA margin is not only >20% (26.7%) but also very high in general in 2020 & 2021
• However, margin drops to 0% in 2022
• Possible reasons for the expected price drop?
• E.g. new entrant of a better performing drug, no longer owning the commercial rights to sell it in certain geographies
• Real answer: patent expiration and with that entry of generics
• Once the candidate understood why the decline is happening, he / she should suggest to look into the acquisition next, e.g. getting a better
understanding of the morphine market

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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

EXHIBIT 1 – Profit analysis


OncoCo profit development from 2018 – 2022 [in M€]
Forecast
160 M€ 150 150 30.0%

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]

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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

Market analysis of liquid morphine


Continue with the analysis of the morphine market and hand out Exhibit 2: morphine market. The candidate is expected to request the missing
information proactively. This slide has some more complicated calculations, hence the candidate can spend more time on the math part. Ensure that
the candidate receives all the quantitative information mentioned and bolded below (ask questions if the candidate does not pro-actively requests it).

Expected takeaways from Exhibit 2


A good candidate will mention:
• Some data is missing, ideally the candidate asks for the total revenue of the morphine market. 6,25bn€
• Quantify and comment on the fact that liquid morphine is a rather small part of the morphine market. 8% (500m€)
• The target assets represents the category leader with a share of 25 % of the liquid morphine market (125m€ revenue)

A very good candidate will mention:


• Comment more on the fact that the target is category leader: Most likely originator & the strongest brand and hence can influence the market
• Asks for the average EBITDA margin of the industry: 20%
• With this information, the candidate should directly mention that it meet’s the PE fund’s target margin of 20%, but also highlight that profit
is lower than the profit from OncoCo’s current product (25m€, 15m€ less)
• An outstanding candidate will calculate the market share required to achieve the same profit (40m€), suggested approach:
• Required revenues: 40m€ / 0.2 margin = 200m€ revenues
• Required market share: (0.25+x)500=200 → x = 0.15, required market share = 40%
• The candidate should finish by arguing whether achieving 40% is possible. There are good reasons for and against it, e.g.: Adding 15% more
market share is doable as target asset is the category leader and there seem to be many very small players that could be consolidated.
• Either way, the candidate should request more details on the target asset’s performance or company
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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

EXHIBIT 2 – Morphine market


Morphine market by formulation in 2020 [in % of sales] Liquid Morphine market in 2020 [in % of sales]

40%

25%
4%

8%

55%
10%
16%

32% 10%

Intravenous Liquid Injection Capsules Tablet Target Asset Drug A Drug B Others

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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

Profit analysis of target asset


The candidate might wants to rush and analyze competition or other external factors. However, we still know very little about the actual target and
should investigate further, hand out Exhibit 3: profit analysis of target asset. The chart looks very similar to the first exhibit, but the difficulty here is to
identify the differences correctly (and not fall for the traps).

Expected takeaways from Exhibit 3


A good candidate will mention:
• Profit has decreased after 2017, but it looks like the company was able to get back on track and previous performance
• Since we talked about price before, the candidate should calculate it here too. Exhibit 1 and 3 show [volumes in K] but given the figures in exhibit
3 are in thousands, a careless candidate might ignore it and compute 10k as result. Correct answer, 10€

A very good candidate will mention:


• Suggestions as to why profit decreases and identifies possible explanations for the decrease in revenues and increase in costs:
• Revenues down: competitor entry, stock-outs, scandal that led to bad perception of product
• Costs up: production issues, investments in new technology directly related to product, legal costs
• Correct Answer: Opioid crisis -> physicians used morphine much less (revenues down) and had to settle several legal lawsuits (costs up)
• However, morphine sales recovered as it is a basic medicine, but manufacturers has to stick to tighter guidelines (Fixed costs up)
• Realize that this is a mass product which requires a total different business model than OncoCo’s existing ones
• The candidate should end this slide by computing the EBITDA margin (32%) and highlight that: (i) it is higher than market average, presumably
based on higher price since originator or economies of scale, (ii) margin meets the PE funds requirements
• Despite meeting PE fund’s target margin, the candidate should suggest to assess more qualitative aspects of the acquisition
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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

EXHIBIT 3 – Profit analysis target asset


Profit development of target asset from 2016 – 2022 [in M€] Forecast
160 M€ 150

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]

IESE CONSULTING CLUB IESE CASE BOOK 2021 |217


PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

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
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PE / Pharmaceuticals Easy
Profitability Medium

OncoCo M&A Hard

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).

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Investment Bank Spin-off
By CB16

Financial Services Easy


Profitability Medium
Investment Bank Hard

IESE CONSULTING CLUB IESE CASE BOOK 2021 | 220


Financial Services Easy
Profitability Medium

Investment Bank Spin-off Investment Bank Hard

PROMPT CLARIFYING POINTS (if asked)


• The main reason behind the VP’s request is financial – i.e. end goal is additional profits for the IB
Your client is a leading retail bank in a South
• IBs operate on a fee-based model. They are remunerated as a percentage of the total transaction in which
American country, with over 3,000 branches they facilitated for the company (e.g. 2% fee of a USD 100M transaction means USD 2M in revenues for the IB)
across the country. In addition to the retail
• She suspects that even though being attached to the retail bank provides benefits (e.g. shared systems and
business, the bank also has an Investment
services, access to clients), the IB unit is unable to tap additional sources of revenues (e.g. through Joint
Banking (IB) unit, which acts as an Ventures with other Investment Banks)
intermediary and/or advisor when
• She is also worried about the bureaucracy imposed by the conglomerate, which slows down relevant (and
corporations want to engage in complex sometimes urgent) decisions for the IB unit
financial transactions (for example M&A,
• For simplicity, you can assume that there is no discount rate, time value of money and required NPV
raising capital, initial public offering (IPO),
calculations for the case
etc.).
• Considerations regarding the momentum of the Investment Banking industry are not relevant for this case
The IB unit of this bank is headed by a Vice
President who reports to the bank’s CEO. CASE GUIDANCE
This IB VP hired you to evaluate whether the • This is an interviewee-led case and the candidate should always drive the case and suggest the next
course of action
IB should spin off from the retail bank,
becoming fully independent from the • This is a profitability case on its essence, nevertheless it touches significantly on qualitative aspects of the
conglomerate. Investment Bank spin off
• It is not expected any prior knowledge of the Investment Bank industry, due to the sector’s specificity,
and candidates with previous knowledge should not benefit from it in this case

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Financial Services Easy
Profitability Medium

Investment Bank Spin-off Investment Bank Hard

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

Investment Bank Spin-off Investment Bank Hard

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)

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Financial Services Easy
Profitability Medium

Investment Bank Spin-off Investment Bank Hard

EXHIBIT 1 – CURRENT AND EXPECTED REVENUES BY BUSINESS LINE

Business Line Total transaction Average fee1 Current market Expected market
market share share2
Equity Capital Market (ECM) USD 500 M 5% 10% 20%

Debt Capital Market (DCM)3 USD 600 M 4% 35% 25%

M&A and advisory USD 400 M 8% 20% 30%

Sales and trading USD 1,500 M 2% 5% 15%

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

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Financial Services Easy
Profitability Medium

Investment Bank Spin-off Investment Bank Hard

EXHIBIT 2 – INVESTMENT BANKS COST STRUCTURE BENCHMARK (P&L)


Sales (USD M):
The two benchmarked banks are comparable to our client’s bank in
operations, sales mix, geography and other aspects relevant to the P&L 19 55 40
Both banks are purely standalone IBs, with no Retail Bank unit
Our client understands that front office and back office staff will not
change their representativeness on total costs with the spin-off
35% 37%
39%
P&L Summary USD’000 % sales
(+) Sales 18,800 100%
(-) Personnel - Front office 7,300 39%
6%
(-) Personnel - Back office 1,500 8% 7%
8% 5%
(-) IT and systems 200 1% 1% 4%
2% 6%
6%
(-) Rent & Maintenance 400 2%
49% 47% 45%
(-) Other expenses 150 1%
Operating profit 9,250 49%
Our client’s bank Benchmark bank 1 Benchmark bank 2
Front office staff Back office staff IT & systems Rent & maintenance Other expenses Operating profit

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Financial Services Easy
Profitability Medium

Investment Bank Spin-off Investment Bank Hard

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

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Financial Services Easy
Profitability Medium

Investment Bank Spin-off Investment Bank Hard

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

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SPECIAL THANKS
IESE CONSULTING CLUB CASE BOOK COMMITTEE BCG DIRECT SUPPORT AND JUDGES
Nicolás Fernández Shlok Dugar Mike Mascarenhas
Nicolas.f.lavalle@iese.net Shlok.dugar@iese.net Udit Pandey
Jaswanth Vasireddy Juan Fer Pineda Roberto Davy
Jaswanth.v@iese.net Juan.pineda@iese.net
David Thompson
David.thompson@iese.net

IESE CONSULTING CLUB IESE CASE BOOK 2021 |

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