Vous êtes sur la page 1sur 42

Bain-Chicago Practice Casebook

Consultant / Summer Associate Fall 2004


This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Practice casebook - Consultant / SA


Table of Contents

Introduction

Practice Case: Office Products

Practice Case: Utility Marketing Strategy

17

Practice Case: Office Vending Services

24

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Introduction

The Case Interview


The case interview is only one dimension of the recruiting process, but it is typically the part that raises the most anxiety. This casebook is designed to help you prepare for doing well in your case interviews, and therefore relieve some of that anxiety. Bain uses the case interview to test a candidate's analytical skills and business judgment. The case is generally a real business problem, based on disguised Bain work. To do well, you will need to provide a clear structure to your analysis and drive to an answer for the client. Initially you will be given limited case facts, and it is up to you to identify and ask for the most leveraged new information you need to develop your recommendation. There is never a clear cut solution to the problem presented to you. What is important is not your answer, but how you get to it and the logical arguments you use to support it.

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Practice casebook - Consultant / SA


Practice makes perfect. -- Teachers everywhere

This Casebook
This book presents sample case problems and walks you through the process of developing an answer. The goal for these materials is not to present every possible type of case you may encounter. Rather, each case is thoroughly dissected to illustrate a solid analytic approach and the level of detailed analysis which a candidate is expected to bring to the discussion. Each case is structured in 3 sections: 1. An overview that lays out the keys to success on the case 2. Background data slides to set up the problem 3. A 5-part analysis that drives to recommendations for the client At each step in the analysis, good answers to the case questions are provided, along with pitfalls candidates commonly encounter. The suggested approach (and the pitfalls) should generalize to most of the cases you will encounter, so this casebook should help provide a good introduction for your case practice efforts.

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Practice casebook - Consultant / SA

Case Interview Tips


Dont get thrown by the interviewers questions. The interviewer is your ally and uses questions to get a better understanding of your thought process -- not to stump you. Be concise. If asked for the two top issues, confine your response to two items. Provide logical backup for your answers. Be sure to explain what case facts led you to a conclusion, and how you reasoned from those facts to your conclusion. Dont be afraid to ask clarifying questions. If you dont understand the case facts, it will be tough to ace the interview. Relax and have fun. Try to approach the case as an interesting problem to be solved and an opportunity to create value for the client. Good luck!
5

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Case overview: office products


Keys to the Case

There are 5 background slides in this case. A large amount of data is presented up front, but the problem itself is not clearly stated. Thus, an important aspect of this case is for the candidate to quickly identify the critical issue(s) to be analyzed. There is more than one framework that can be applied successfully in this case. The traditional revenue/cost breakdown approach will work, as will a 3Cs-oriented structure. Recognizing which factors the client can influence or control is key to developing a good hypothesis in this case. The ultimate goal is to drive to specific, actionable recommendations for the client to improve profitability.

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 1 Client profile


Acme Office Supplies is one of the largest diversified manufacturers of office products, with sales of $300M in 1991
- strong brands - significant advertising and marketing expense to support these brands - historical growth generated by product line extensions and 4 key acquisitions

Note: In a case interview, this information may be presented verbally

Company is organized into 5 autonomous operating divisions, but with shared manufacturing and marketing functions
- shared costs (45% of total) are allocated to products on a percent of sales method (e.g. if product X is 1% of total Acme sales, it is allocated 1% of indirect manufacturing costs, distribution expenses, marketing costs, and corporate overhead) - current manufacturing capacity utilization is ~50%

Stock is publicly traded


- current P/E is 8 - low long-term debt - industry analysts are predicting that Acme will become an acquisition target in the near future given a strong balance sheet but weakening earnings

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 2 Acme financials


Acme experienced consistent revenue and profit growth during the 1980s.
$Millions

$400M

1980-1989 CAGR
Sales

1989-1991 CAGR

300

15%

(8%)

200

100

Pre-Tax Profit 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

15%

(40%)

Source: Acme Financials

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 3 Competitive product lines


Acme offers a broader product line than its competitors
Number of Different Products Manufactured (SKUs)

15,000 12,500

10,000

5,000

5,000 3,400

Acme

Competitor A

Competitor B

Source: Competitor Research; Acme Marketing Department

CHI

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 4 Distribution channels

Acme 75% 15% 10%

Wholesalers 50% Dealers / Small Retailers 25% Superstores

End Customers

Source: Acme Sales Database; Wholesaler interviews (n = 19)

CHI

10

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 5 Market trends

The US office supplies market grew at a 5% CAGR during the 1980s. In 1990 and 1991, however, the market declined 5% per year Superstore channel is becoming increasingly critical
- superstores have gained 10 share points in the last 2 years - superstores typically offer products at 30% discount to small retailers / dealers

Superstores are aggressively substituting private label products for traditional brand names
- For example, Staples, Inc. is currently negotiating with private label stapler manufacturers in China - Acmes most profitable product is a high-end branded stapler - Staples, Inc. is now Acmes largest single customer

Source: Acme Product Marketing; Analyst Reports; Market Research

CHI

11

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 1: Identify the critical issues


Interviewer: What do you think are the critical issues facing this client? (or) Where would you focus your efforts at this client?
Reasonable answers There are a lot of issues here, but Id like to focus first on the near-term profitability problem. Given that the client has seen such a dramatic decrease in profits, I want to examine whats been driving the erosion here. Better answer From a strategic perspective, there are some worrisome trends:
- channels shifting toward mass retailers - emergence of private label

Potential pitfalls Not taking the general manager or investors perspective Focusing on a relevant issue but missing the big picture
- I think this private label problem is really a threat, so Id like to focus my efforts here.

These trends are both negative from Acmes perspective:


- increasing price pressures from superstores - threat to Acmes core branded business

Picking an area which you know a lot about, but which isnt central to the case
- Lets talk about Acmes capital structure.

But, decreasing profitability is making Acme highly vulnerable in the short run, so profitability must be directly addressed, and quickly. This is where I would focus initially.

Not using background facts to support your arguments Failing to ask clarifying questions to ensure understanding of background data (as appropriate)
CHI

12

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 2: Specify an analytic framework


Interviewer: How would you approach this problem? (or) Specifically, what would be the key elements of your analysis?
Useful frameworks Id like to break this out in terms of revenues and costs
- revenues: price and volume 8price: pressure from discounters, likely eroding premium with emergence of private label 8volume: market decline, share loss to private label - costs: variable and fixed 8variable / fixed: product line complexity 8fixed: capacity utilization

Potential pitfalls Not specifying a framework (scattershot approach) Digging deep into one area (e.g. share loss) before laying out the overall structure Applying a framework that will not help you decompose the problem (e.g. SWOT analysis is not particularly useful for profitability problems) Applying a framework that causes you to spend a lot of time on issues that arent highly leveraged (e.g. with Porters 5 Forces, you could end up wasting a lot of time on entry barriers in this case)

Id approach the profit erosion issue by grouping the key issues around customers, competitors, and costs
- customers: recession driving lower market volumes, switching to low-price / lower-margin channels, shift away from branded to private label products - competitors: emergence of low-cost offshore players - costs: product line complexity, excess capacity

CHI

13

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 3: Prioritize/develop hypothesis


Interviewer: So, what issue would you pursue first? (or) Which do you think is the most leveraged area for analysis? Good response (based on 3Cs framework)
It is unlikely Acme can do much about customer and market trends:
- macro economic factors are obviously out of Acmes control - given the superior value-proposition of the superstores, I dont think Acme will be able to stop channel migration - if the superstores are aggressively moving to private label, and the customer base is becoming increasingly pricesensitive, additional advertising / marketing efforts will probably not prevent the shift away from traditional brands to private label -- especially given spending levels here that are already high

Potential pitfalls
Reluctance to develop a hypothesis in the absence of perfect information Neglecting to explain to the interviewer why you are focusing on a given area Not using the facts from the case to support your arguments Losing sight of the big picture / most critical issue Not differentiating between internal and external factors: what can the client actually influence and what is out of their control?

The competitive development of low-cost offshore producers would seem to be driven by these customer and market trends, and also isnt under Acmes control. Therefore, Acme should focus on cost reduction to improve profitability:
- most actionable by the client (e.g. complexity reduction) - much faster payback than brand-building or a major strategic shift (e.g. vertical integration) - cost cutting will become increasingly critical as our margins are squeezed by superstores and price premium falls against private label

CHI

14

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 4: Structure/execute analysis


Interviewer: What analysis would you need to perform to address the issue? (or) How would you develop your hypothesis on reducing costs? Good response (complexity reduction)
The most important analysis necessary to reduce complexity in the various product lines is to develop an accurate picture of product profitability from a managerial perspective. Product-specific revenues and direct costs (e.g. direct labor) are relatively easy to obtain. Therefore, product cost allocation for indirect costs (45% of total) becomes critical in this case. One good way to allocate indirect costs is to first identify the key cost drivers in each cost area, and then allocate costs to specific products based on their usage of those drivers.
- for example, the key cost driver in the area of warehousing rent and utilities is square footage. Therefore, I would allocate these costs to products based on the amount of space they require for storage in the warehouse.

Potential pitfalls
Being unable to explain why an analysis you suggest is important or how it could be executed Not following your framework / jumping around in your structure without a clear plan of attack Getting caught up in academic theory and losing sight of the practical application (e.g. accounting conventions) Failing to adjust your answer based on additional data provided by the interviewer Not doing the math (as appropriate to the case)

Of course, it is also important to consider marketoriented factors. So, I would want to do a customer impact analysis to identify any loss leaders and determine where carrying a full product line is necessary to compete. We also need to develop a transition plan to minimize unmet customer expectations as we cancel specific products. These analyses need to be done for each major channel, and on end-user impact as well. Finally, I would want to understand the impact of complexity reduction in the factories (production scheduling, capacity utilization issues, etc.)

CHI

15

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 5: Drive to recommendations


Interviewer: What actions would you recommend to the client? (or) Based on your analysis, what should the client do? Good response (capacity utilization)
Specific and action-oriented:
- Given the situation with capacity utilization and the cost advantages in Mexico, Acme should close the New Jersey and Michigan plants and consolidate production in Chihuahua.

Potential pitfalls
Reluctance to make recommendations in the absence of perfect information
- Id prefer to do more analysis first.

Realistic and pragmatic:


- The implementation timeframe for the plant closure is probably 8 to 12 months.

Providing a generic answer that doesnt drive to specific client actions


- The client should increase capacity utilization.

Unrealistic / too optimistic:


- I dont see how the union could be an obstacle.

Acknowledge difficulties in implementing change:


- This will be a major change for the organization. We will need a carefully developed transition plan that considers the problem comprehensively: relationships with the union, customer impacts, changes in distribution and warehousing, public relations, and impact on the supplier base.

Ignoring the client as relevant to solving the problem


- This is clearly the right answer, so I dont think the COOs objections are all that important.

Sensitive to client capabilities, biases, politics:


- Right now there isnt a strong central purchasing department. If we are going to shift from local to corporatewide sourcing with the plant consolidations, the client will have to invest in this capability. - Given what youve told me about the culture at this firm, this is likely to be highly controversial. We need to be careful how and when this is communicated to the organization.

CHI

16

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Case overview: utility marketing strategy


Keys to the Case
The background slide to the case does not clearly state the issue to be addressed. You must decide where the leverage is without getting distracted by the existence of the gas business or delving into regulatory concerns. There is really only one framework that works for this case and it is not a standard framework. The critical variables to prioritize customers are value and vulnerability (or risk of defection). A simple 2 X 2 matrix works best. There are not a lot of numbers to use in this case but they can help you develop your hypothesis. Be comprehensive and creative in the approach for analyzing the value of a customer. It is critical to consider the lifetime value vs. just the margin. A methodology can be created where you calculate actual inputs for most variables of the equation. Driving recommendations to discussion on deploying actual sales, service and marketing resources is the point of the case. The prioritization is interesting but the question is what do you do once you understand how to prioritize.
CHI

17

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 1
In 1993, a combination gas and electric utility (regulated monopoly) was preparing for a change in the regulatory environment when electric power generation would become a competitive business

A new VP of Marketing and Sales was put in place to prepare that organization for the competitive marketplace

Composition of the customer base:

Residential Customers

Major Industrial and Commercial (I&C) Customers

Remaining I&C Customers

Number of customers: Share of 1992 Revenues: (1992 Revenues = $1.0B)

1.8M 50%

1000 30%

199K 20%

CHI

18

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 1: Identify the critical issues


Interviewer: Given this information, where do you think the case team should focus?
Good Initial Questions Good Answer Potential Pitfalls

Are the gas and electric businesses inter-related?


- Do they serve the same customers? (some overlap) - Will the de-regulation of electric power generation impact the gas business? (no) - What is the relative size of the businesses? (electric = 80% of revenues and 85% of profits)

Is it therefore safe to assume that the composition of the overall customer base reflects the electric business as well? (yes)

Given the size and the dynamics of the electric power market I will focus on that part of the business With the emerging deregulation, the key marketing issue is customer retention Since the utility will lose some customers with deregulation (starting with a monopoly they only have one direction to move) the key question is which segments of customers the utility should invest in retaining For extra credit articulate additional questions which drive to actions: what are their needs, how is the organization aligned to meet those needs today and what organizational and strategic changes should be made to improve the way we serve target segments

Getting caught up in trying to understand dynamics of gas and electric businesses


- a few simple questions can make it clear that the electric business is what matters

Digging into detailed regulatory issues Not identifying retention as the critical issue Trying to develop strategies to retain all customers rather than focusing on segments

CHI

19

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 2: Specify an analytic framework


Interviewer: How would you determine on which segments the utility should focus? Useful frameworks Customer segments should be ranked based on two criteria:
- Value: profitability of power generation to the utility - Vulnerability: risk of losing the customers (segments) to competitors

Potential pitfalls Trying to apply a standard framework to this fairly focused question--Keep it simple Not considering all components of lifetime value (e.g., acquisition costs and lifetime) as that ranking can vary considerably from a ranking based on current margin

Value should be based on lifetime value of the customer segment. This incorporates the investment required to acquire the customers, their annual profitability, and the expected life of a customer Vulnerability would capture the likelihood of different segments of customers switching to competitive offerings once deregulation occurs Extra Credit Observation: there is likely to be some correlation between value and vulnerability as new entrants will probably attempt to target the highest value customer segments first

CHI

20

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 3: Prioritize/develop hypothesis


Interviewer: What is your hypothesis of which segments are highest priority? Good hypothesis
The first step would be to further segment the customer base. Specifically, I am most interested in understanding any sub-segments within major I&C customers (avg. revenue of $300K) where needs probably vary dramatically by industry (i.e., government, retail, process industries, etc.) There are probably not major distinctions in the needs of residential customers by segment I would therefore hypothesize the following customer prioritization:
- Large Industrial customers should be the initial focus because they will be most valuable (high electric usage in one location for a long time translates into low acquisition costs, high margins and a long life) and the most vulnerable (easy to target and valuable to competitors) - Large Commercial customers will rank second because large commercial customers (e.g., grocery chains) are heavy users but harder to serve because of multiple locations and higher turnover (high acquisition costs and shorter customer life) - Small I&C and Residential customers are of lower value and are less vulnerable to competition because their usage is relatively low, they are more costly for a competitor to target and for most individuals, the electric bill is a relatively small expense so they will not go out of their way to seek an alternative provider.
CHI

Potential pitfalls
Failing to further segment customers misses a lot of the potential richness of the case Digging into residential customer issues because that is what you understand best Forgetting to consider the acquisition costs and customer life issues Not clearly explaining any assumptions you are making

21

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 4: Structure/execute analysis


Interviewer: What analysis would you have the team perform to test your hypothesis? Good response
Conduct customer research to further segment customers by needs and to assess the vulnerability of segments based on propensity to switch/loyalty behavior To prioritize segments the team must first estimate each of the major elements of the value equation:
- Acquisition cost based on sales and marketing costs devoted to that segment (either tracked directly or estimated through interviews/surveys of sales and marketing depts.) - Volume based on usage for that segment (or in the case of 1000 Major I&C customers can track actual historic usage by specific customers) - Profitability margin based on usage patterns (peak loads, timing of peaks, etc.) developed in conjunction with technical and finance resources from the client - Customer life based on industry research regarding the typical life of that type of business

Potential pitfalls
Not being creative in places and ways to gather data and conduct analysis Not attempting to get actual data or at least samples of actual data wherever possible and instead relying on assumptions for critical drivers of value Not articulating framework for visually capturing output of analysis to articulate/demonstrate the answer

To assess vulnerability utilize output of research and supplement with an assessment of the attractiveness of segments to likely new competitors (qualitative assessment) Create 2X2 matrix plotting segments based on value and vulnerability
CHI

22

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 5: Drive to recommendations


Interviewer: Based on your analysis, what should the client do? Good response Now that we have prioritized customer segments, the issue is how the utility should apply sales, marketing and potentially technical resources differentially against the highest priority segments Definite recommended actions:
- Focus marketing activities against developing programs that meet critical needs identified in research (i.e., devices/programs to increase energy efficiency) - Dedicate more sales/non-technical service support to highest priority segments (e.g., improved billing services)

Potential pitfalls General/non-specific recommendations (e.g., improve service without describing how) Not distinguishing with actions you can definitely recommend now vs. actions that would require additional research because of the investment required Being unrealistic in recommendations

Potential recommended actions (evaluate cost/benefit tradeoffs):


- Invest more to deliver higher technical service (less downtime) to highest priority segments 8More backup generators/systems where high priority customers may be clustered (areas with a lot of process plants, for example) 8More technical personnel on duty to make repairs whenever system does go down
CHI

23

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Case overview: Office Vending Services


Keys to the Case
There is only one background slide in this case (Situation / Complication). It is up to the interviewee to ask the right questions to uncover the data necessary to formulate a reasonable hypothesis. The additional data slides are then provided to the interviewee as data is requested. There is more than one framework that can be applied successfully in this case. The traditional revenue/cost breakdown approach will work, as will a 3Cs-oriented structure. Due to the open-ended nature of the problem posed, the key to this case is to remain focused on addressing the clients key question. The ultimate goal is to drive to specific, actionable recommendations for the client to improve profitability.
CHI

24

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Background Slide 1 Situation/complication


Situation: Office Vending Services, Inc. is the market leader in office vending machine services The business services provided include sales and delivery of product, restocking of machines, and repair of faulty equipment Profits are substantially down in the business The CEO of Office Vending Services needs Bain to assess the root causes of the profitability decline

Complication:

Key Question:

CHI

25

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services revenue (1996-1998)


Office Vending Services Revnues

$300M 250 200 150 100 50 0 250 230 200

1996

1997

1998

Source: Office Vending Services, Inc. Financial Statements

CHI

26

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services cost (1996-1998)


Office Vending Services Costs

$300M 250 200 150 100 50 0

225

216 200

1996

1997

1998

Source: Office Vending Services, Inc. Financial Statements

CHI

27

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services volume sold (1995-1998)


Volume Sold (Millions of Deliveries)

3.0M 2.5 2.0 1.5 1.0 0.5 0.0 1995

1996

1997

1998

Source: Office Vending Services Financial Reports

CHI

28

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services historical pricing (1995-1998)


Office Vending Services Average Price (Dollars per Delivery)

$125

100

75

50

25

0 1995

1996

1997

1998

Source: Office Vending Services Pricing Data

CHI

29

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services market trend (1996-1998)


Total Market Sales
Percentage Change (1996-1998) Total:
Others

$500M

3% 17% 22%

400

Candy & Pop Co

300

Vend International

44%

200
(20%)

100

Office Vending Services

0 1996

1997

1998

Source: Market Research; Company Annual Reports; Office Vending Services Financials

CHI

30

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Customer satisfaction
Importance/Performance: 1=Low, 10=High Attribute Price Product Variety/Selection Delivery Reliability 3 Machine Service/Repair 5 Complaint Resolution 7 5 4 9 4 5 Importance 10 6 9 Office Vending Services 4 10 5 Vend International 8 5 10 Candy & Pop Co. 7 6 8

Source: Bain Customer/Market Research for Office Vending Services (n=3500)

CHI

31

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Customer satisfaction
Importance/Performance: 1=Low, 10=High
Customer Rating of Importance/Performance
10 10 9 8 6 5 4 3 2
Cand & Pop Co Vend International Office Vending Services Importance
Price Product Variety/Selection Delivery Reliability Machine Service/Repair Complaint Resolution

Source: Bain Customer/Market Research for Office Vending Services (n=3500)

CHI

32

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Competitor comparison (1998)

Competitor Office Vending Services

Revenue $200M

Cost of goods sold $70M

SG&A expense $60M

Direct labor (delivery) $30M

Direct labor (repair) $30M

Other costs $10M

Vend International

$130M

$35M

$30M

$30M

$17M

$5M

Candy & Pop Co.

$110M

$32M

$22M

$23M

$15M

$6M

Source: Financial Statements & Annual Reports

CHI

33

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services cost per delivery (Versus competitors)


Cost per delivery

$125 105.3 100


Other

94.7

Repair

93.8

75

Delivery

50

SG&A

25
COGS

Office Vending Services

Vend International

Cand & Pop Co

Source: Financial Statements & Annual Reports

CHI

34

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Office Vending Services cost structure (Historical trend, 1996-1998)


Costs

$300M 250 200 150 100 50 0


Percentage Change (1996-1998) Total: (11%)

225
Other

216 200

Repair Delivery

0% (14%) (25%)

SG&A

(8%)

COGS

(7%)

1996

1997

1998

Source: Office Vending Services Financial Statements

CHI

35

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 1: Identify the critical issues


Interviewer: What do you think are the critical issues facing this client? (or) Where would you focus your efforts at this client? Reasonable Answers The client has identified the decline in profitability as the most important issue
- Id like to investigate how revenues and costs have changed to answer this question.

Better Answer The client has identified the decline in profitability as the most important issue.
- Id like to investigate how revenues and costs have changed over time to answer this question - After we understand what has changed from a financial perspective, Id like to look at how the customer base/preferences have changed in addition to competitive forces in the industry to understand the root cause of the clients decline in profitability.

Potential Pitfalls Ignoring or missing key information presented up front


- I think the most critical issue is determining how the client can grow their business.

Jumping to a conclusion without supporting data.


- A decline in profitability must be due to their failure to control costs.

Failing to summarize the situation and diving into a detailed data request
- Id like to look at the income statements for the past 8 quarters.

CHI

36

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 2: Specify an analytic framework


Interviewer: How would you approach this problem? (or) Specifically, what would be the key elements of your analysis? Useful frameworks
After identifying profitability as the key issue under consideration, the interviewee should be very explicit about how they would like to proceed to answer the question. There are two frameworks which an interviewee may find useful in this case : Profitability Framework
- Interviewees which use this framework will quickly uncover that a decline in unit sales has caused a decline in revenue and will likely hypothesize that a failure to cover fixed costs is causing costs (as a percentage of sales) to increase - Interviewees which use this framework will be less likely to fully investigate the change in customer preferences or competitive landscape to which the client must respond

Potential pitfalls
Picking an inappropriate framework
- Using Porters Five forces would indicate that the interviewee likely does not grasp the key issues in the case

Not fully exploring one portion of the framework before moving on / jumping around in your framework
- For instance, asking about price, moving to COGS, then returning to sales volume and finishing with SGA

3 Cs
- Users of this framework may have a more difficult time driving towards the sales decline and fixed cost leverage issues than those which use the profitability framework - However, the 3Cs framework is a great way to explore the customer and competitor issues here

CHI

37

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 3: Prioritize/develop hypothesis


Interviewer: So, what issue would you pursue first? (or) Which do you think is the most leveraged area for analysis? Good response (based on the profitability framework) When this question is asked, it is a sign that the interviewee has uncovered what has changed with respect to revenue and costs and is being prompted to suggest a line of analysis which will help them drive toward a recommendation
- I think the most important issue facing the client is the decline in unit sales which are responsible for the decrease in revenue. My hypothesis is that this decline in demand is responsible for a decrease in capacity utilization and/or leverage of other fixed costs which is ultimately responsible for the decline in profitability. - If nothing can be done to address the decline in unit sales (for instance, market-wide demand change), it will be necessary to aggressively manage costs to improve profitability. For this reason, I would next like to investigate the clients major cost components.

Potential pitfalls Touching on issues rather than driving to the essence of the case
- Id like to know how much the company spent on advertising over the last year compared to other industry players

Failing to directly answer the interviewers question


- How many other players are there in this industry?

CHI

38

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 4: Structure/execute analysis


Interviewer: What analysis would you need to perform to address the issue? (or) How would you develop your hypothesis on reducing costs? Good response
Here, the interviewer is looking for specific analytics which would enable the case team to make an actionable, data-driven recommendation On the revenue side, Id like to investigate why unit sales have fallen and on the cost side, Id like to understand how our costs compare to those of competitors
- It is clear that falling unit sales are driving the decline in revenue. Id like to understand whether a customer or competitor shift is driving this trend, or the market is simply contracting 8 Id like to see how our market share has changed relative to other industry players. If everyones sales have declined, that implies a need to aggressively manage costs in the face of a shrinking market. 8 On the other hand, if other competitors have gained share at our expense, Id like to know why. Id like to see what features or characteristics customers value most (especially price) and how our client stacks up with other industry players - Id like to compare the clients major cost elements with those of the other two competitors.

Potential pitfalls
Failure to suggest an actionable course of analysis
- Id like to understand why sales have declined - Interviewer - Ok, so what data do you want/how would you actually go about this?

Suggesting a course of analysis which will not directly lead to an answer for the key question in the case
- First we need to estimate customer price elasticities for each service provided.

CHI

39

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Step 5: Drive to recommendations


Interviewer: What actions would you recommend to the client? (or) Based on your analysis, what should the client do? Good response
At this point, the interview is either running short or you have reached a point where you have all the information you need to present a recommendation to the client. The root cause of the decline in profitability is that our client is offering the wrong set of products to customers. Specifically, customers now buy on price and reliability, not on product variety and repair capabilities. For our client to effectively reverse the trend in profitability, they should immediately do the following three things :
- Reduce the number of products offered. Do this by looking at products with the lowest sales volumes and total gross margin contribution. The client should seriously consider keeping only those products which account for 80% of its sales or gross margin dollars. This will reduce manufacturing costs (COGS) and the overhead associated with managing such a large product line (SG&A) - Id look next at the repair department to determine if costs could be removed from this area. OVS apparently has very strong capabilities in this area but customers do not appear to be willing to pay more for this - The cost savings should be used to reduce price and improve delivery reliability in order to preserve their market share.
CHI

Potential pitfalls
Making a recommendation which is not specific
- The client should cut costs - Interviewer : How?

Making a recommendation which does not address the key issue facing the client
- I think they should consider using a pay-forperformance scheme to better motivate employees

Making a recommendation with no factual support


- I think our client should invest more in advertising - Interviewer : Why?

40

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Question tree
The following tree illustrates how a candidate might use the profitability framework to work through the case.
Office Vending Services,Inc. Office Vending Services Volume Sold (1995-1998)

3.0MM

2.5MM

Office Vending Services,Inc. Office Vending Services Revenue (1996-1998)

$300MM $250MM $230MM $200MM $200MM

How has sales volume changed?

2.0MM

1.5MM

1.0MM

0.5MM

0.0MM 1995

1996

1997

1998

b c
Source: Office Vending Services Financial Reports
CHI 60ASVM003 1

Office Vending Services Revnues

$250MM

Is this decline the result of a market trend or has a competitor been stealing share?

Office Vending Services,Inc. Office Vending Services Market Trend (1996-1998)


Percentage Change (1996-1998)

$500MM
Others

Total:

3% 17% 22%

Volume Sold (Millions of Deliveries)

Total Market Sales (Millions of Dollars)

$400MM

Candy & Pop Co

$300MM

Vend International

44%

$200MM
(20%)

$100MM

Office Vending Services

$0MM 1996

(Next Page)

1997

1998

bc
Source: Market Research; Company Annual Reports; Office Vending Services Financials
C H I 60ASVM003 6

$150MM

$100MM

Office Vending Services,Inc.

$50MM

$0MM 1996 1997 1998

b c
Source: Office Vending Services, Financial Statements Inc.
CHI 60ASVM003 2

Office Vending Services Average Price (Dollars per Delivery)

How has revenue changed? Why have profits declined?

How has unit price changed?

Office Vending Services Historical Pricing (1995-1998)

$125

$100

$75

$50

$25

$0 1995

1996

1997

1998

b c
Source: Office Vending Services Pricing Data
CHI 60ASVM003 5

Cost Insights Our client is at a cost disadvantage relative to other industry players Our client does not have much flexibility to adjust price because of their high relative cost position The cost disadvantage comes primarily from SG&A and COGS implying inefficient manufacturing practices and high overhead relative to competitors OVS appears to be investing less in its delivery capabilities than competitors
CHI

Office Vending Services,Inc. Office Vending Services Cost Structure (Historical Trend, 1996-1998)

$300MM
Percentage Change (1996-1998)

How has total cost changed?


Office Vending Services,Inc. Office Vending Services Cost (1996-1998)
$300MM

$250MM $225MM Costs (Millions of Dollars)


Other

$216MM $200MM

Total:

(11%) 0% (14%)

What are the key components of cost? How does each compare to competitor costs?

$200MM

Repair Delivery

$150MM
SG&A

(25%)

$100MM

(8%)

$50MM
COGS

(7%)

$0MM

1996

1997

1998

b c
CHI 60ASVM003 1 1

Source: Office Vending Services Financial Statements

$250MM Office Vending Services Costs $225MM $200MM $216MM $200MM

Office Vending Services,Inc. Competitor Comparison (1998)


Direct Labor (Delivery) $30MM $30MM $23MM Direct Labor (Repair) $30MM $17MM $15MM

$150MM

$100MM

$50MM

Competitor Office Vending Services Vend International Candy & Pop Co.

Revenue $200MM $130MM $110MM

Cost of Goods Sold $70MM $35MM $32MM

SG&A Expense $60MM $30MM $22MM

Other Costs $10MM $5MM $6MM

$0MM

1996

1997

1998

b c
CHI 60ASVM003 3

Source: Office Vending Services, Financial Statements Inc.

b c
Source: Financial Statements & Annual Reports
CHI 60ASVM003 9

41

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

Question tree (cont)

Office Vending Services,Inc. Customer Satisfaction


Importance/Performance: 1=Low, 10=High Office Vending Services 4 10 5 9 7 Vend International 8 5 10 4 5 Candy & Pop Co. 7 6 8 5 4

Attribute Price Product Variety/Selection Delivery Reliability Machine Service/Repair Complaint Resolution

Importance 10 6 9 3 5

bc
Source: Bain Customer/Market Research for Office Vending Services (n=3500)
C H I 60ASVM003 7

Revenue Insights Our client has the wrong cost/quality configuration They are perceived as dead last in the two categories listed as most important to end customers (price and delivery reliability) Our clients perceived strengths (large product selection and repair services) are not particularly important to end customers

Is this decline the result of a market trend or has a competitor been stealing share?

Office Vending Services,Inc. Office Vending Services Market Trend (1996-1998)


Percentage Change (1996-1998)

$500MM
Others

Total:

3% 17% 22%

$400MM

Candy & Pop Co

$300MM

Vend International

44%

$200MM
(20%)

$100MM

Office Vending Services

$0MM 1996

1997

1998

bc
Source: Market Research; Company Annual Reports; Office Vending Services Financials
C H I 60ASVM003 6

Have competitors taken share by offering a superior value proposition or by cutting price?

What attributes are most important to end customers?

Total Market Sales (Millions of Dollars)

How does our client deliver on these attributes?


Office Vending Services,Inc. Customer Satisfaction
Importance/Performance: 1=Low, 10=High

10 Customer Rating of Importance/Performance

10 9 Cand & Pop Co Vend International Office Vending Services Importance

6 5

4 3 2

0 Price Product Variety/Selection Delivery Reliability Machine Service/Repair Complaint Resolution

bc
Source: Bain Customer/Market Research for Office Vending Services (n=3500)
C H I 60ASVM003 8

CHI

42

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.