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Preparing a Winning Case

© George Leng

Cisco Systems

Posted with permission – March 2006.

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What Are We Looking for?

CreativeCreative

Apply a unique perspective to business situations

See the big picture

Draw conclusions from partial information• Make assumptions, see patterns, and generate hypotheses

Soft SkillsSoft Skills

Time management skills and awareness

Communication skills

Interpersonal skills and personality

Performance under and reaction to pressure

AnalyticsAnalytics

Provide structure to unstructured problems

Break problems into components

Apply transparent, logical thinking to each component

Synthesize discussion into solution

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To be successful, you must:

• Play the role stated in the case.

• Make a decision and support it.

• Make reasonable assumptions

• Support your recommendations with detailed qualitative and financial analysis

• Financial Analysis it is not that hard.

Just ask “what numbers do I need to crunch to figure out what is going on with the firm?”

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What is the Right Answer?

• There isn’t one in most cases.

• There are, however, very bad answers.

• Make sure your B.S. meter is functioning.

• The solution must be realistic given:

the power of the company,

the resources she can control,

the time frame for solving the problem and

the expected competitive response.

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Understand The Business

• What Business Are We In?

• Who Are Our Customers?

• What Are They Buying?

• Who Are Our Competitors?

• How Do We Make Money?

• How Does $ Go Through Our Company?

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Approaching the Case

DissectDissect Structure Structure Analyze Analyze Conclude Conclude

•Ensure complete understanding of question•Distinguish relevant issues from “red herrings”•Identify root causes of problem

•Develop approach to solve problem•Be hypothesis-driven•Communicate approach and assumptions (if necessary)

•Prioritize hypothesis•Ask questions to test hypothesis•Perceive possible solutions in the decomposition•Perform “reality check:” Did you address the key problem?

•Synthesize findings and their relation to the question•Make recommendations•Identify implications

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Issue Tree Methodology

Basic Issue Tree Structure Characteristics of Good Issue Trees

Elements at a given level are logically part of prior level

No overlap of elements (mutually exclusive) and thorough representation of contributing elements (collectively exhaustive)

Elements are useful, observable, measurable and can be delegated

Can be easily communicated

Problem

Issue/Cause

Issue/Cause

Subissue

Subissue

Subissue

Subissue

Subissue

Subissue

The Issue Tree Analysis

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Leveraging Common Business Frameworks

• Frameworks are used to help guide and present analysis in a logical fashion

• There is no exhaustive list of frameworks or analytical tools

• Frameworks can be expanded and changed

• Not all frameworks can be applied to all situations

• The key is to understand which framework works best with the situation in question

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Leveraging Common Business Frameworks

• Product Life Cycle

• Porter's 5 Forces: Barriers to Entry, Bargaining Power of Buyers, Bargaining Power of Suppliers, Availability of Substitute Products, and Level of Competition Among Firms

• 3 C's: Cost, Customers, Competitors (Capacity sometimes added as a 4th C)

• Value Chain

• 4 P's: Product, Price, Place, Promotion

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Sample Case

Cisco Systems has experienced the third consecutive drop in home networking sales. What should Cisco do to overcome this declining trend?

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Process

Flattening Sales

Flattening Sales

Distribution Channels

Distribution Channels

Sales Strategy

Sales Strategy

Product QualityProduct Quality

Increased CompetitionIncreased

Competition

Declining Market

Declining Market

Hypothesis

Research Solution

Enter Adjacent Markets

Enter Adjacent Markets

Take Market Share

Take Market Share

DivestDivest

Digital TVDigital TV

Handheld Devices

Handheld Devices

Video/ Entertainment

Video/ Entertainment

Electronic AppliancesElectronic Appliances

Implementation

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Six Elements of a Winning CaseProblemDefinition

Research

Implement-ation Plan

StrategyFormulation

Financials

Cohesive Storyline

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Top 7 things to DO

• Tell a story. Develop a logical flow.

• Answer the questions stated in the Case.

• Tie your strategy back to your problem statement.

• Be realistic, given the constraints of money, customer readiness, and technology limitations.

• Summarize your slides.

• Manage your time

• Leverage visuals to bring out your points.

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2X2 matrix

Rev

enu

e P

ote

nti

al

Service Rating

50

50

20

80

% of accounts

Seg A

Seg B

% of Profit

‘01

‘00

‘99

CostMillions

RevenueMillions

100

70

50

70

70

70

Year

Do Use Visuals to communicate broad trends

Impact

Ris

ks

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Example of Visuals

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Top 7 things NOT to do

• Recommend something that the company has already done

• Try to force-fit a framework to the problem

• Label your frameworks

• Hide from the details or numbers

• Forget what question you’re trying to answer

• Crowd your slides

• Panic

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Common Frameworks

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Sales

Time

Growth

Introduction

Maturity

Decline

• Describes the stages that a new product goes through from the beginning to the end

The Product (Industry) Life Cycle

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Introduction Growth Maturity Decline

• Definition of users and uses

• Low competition

• High risk

• High investment

• Technical period

• Growth of competition

• High profits

• Strategies are defined

• Legends develop

• Dynamic period

• Profits level/decline

• Marketing plays key role

• Manufacturing economics are key

• Mergers

• Stable period

• Sales decline

• Eroding profits

• Products perceived as commodities

• Market exit

• Mergers

• Each phase within the product life cycle is defined by certain characteristics

The Product (Industry) Life Cycle

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SWOT Analysis

Strengths• Cost advantage• Financial resources• Customer loyalty• Modern production facilities• Patents

Opportunities• Add to the product line• Enter new market• Acquire firms with needed technology

Weaknesses• Too narrow a product line• Lack of management depth• High-cost operation • Inadequate financing• Weak market image

Threats• Shifting buyer tastes• Likely entry of new competitors• Potential for technology to radically change industry

Leverage

Problems

Cons

trai

nts

Vulnerability

• Used to understand how internal/external factors interact to create competitive advantage or competitive pressure

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Buyers

Substitutes

New Entrants

Industry Competitors

Suppliers

Government Forces

Macroeconomic Forces

Distribution Channel

Dynamics

Technology

Porter’s Five Forces

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Porter’s Five Forces Model

• New entrants are companies from a different industry offering products within the same class as competitors• High threat if: low barriers to entry, high industry profitability and/or growth, and/or low buyer switching cost

• Suppliers provide the inputs (labor, material, equipment, infrastructure, etc.) to the competitors• High power if: few suppliers with no available substitute inputs, high supplier switching costs for industry competitors, and/or other markets for suppliers’ products

• Substitutes are products of a different class that offer a similar value proposition as the industry product class• High threat if: low substitute cost-to-benefit trade-off, rapidly-changing technology, and/or high buyer willingness to substitute

• Buyers are the purchasers of industry product class• Power is high if there is/are: a relatively small number of informed buyers or buyer groups purchasing high volume, little or no perceived product differentiation, and/or low switching costs

• Competitors are those companies offering products within the same product class• Competition is high if there is/are: numerous or equally balanced competitors, mature market growth, and/or high exit barriers

• Each of the five forces shapes various aspects of an industry and must be taken into account in strategy formulation

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The Marketing Mix: Four P’s

Price Product

PlacePro

mot

ion

Marketing MixMarketing Mix

• Payment Period

• Credit Terms

• Discounts

• Allowances

• List Price

• Channels

• Coverage

• Location

• Inventory

• Transport

• Quality

• Features

• Warranties

• Brand

• Services

• Options

• Publicity

• Partnering

• Advertising

• Is used as an approach for crafting and implementing marketing strategies, usually for new products

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Understanding Financials

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• The following three financial statements are available for any public entity and can be used to assess the financial health of the entity

Key Financial Statements

Balance Sheet Income Statement Cash Flow Statement

A snapshot of assets and

liabilities at a given point in

time

Reflects the financial results of an entity

over a period of time, typically one year

Reflects the flow of funds received and paid out over a period of time,

typically one year

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• Provides a snapshot of an entity’s assets and liabilities at a given point in time

Balance Sheet

Current Liabilities

Long-term Liabilities

Shareholder’s Equity & Retained Earnings

Off-Balance Sheet Items

Where the money is

coming from

Where the money is going to

Current Assets

Fixed Assets

Intangible Assets

Liq

uid

ity

Assets = Liabilities & Shareholder Equity

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• Reflects the financial results of a an entity over a period of time, typically one year

Income Statement

Sample Income Statement for 2003

2003

Sales $900,000

COGS (250,000)

Gross Profit on Sales 650,000

Operating Expenses (120,000)

Depreciation Expense (30,000)

Operating Income 500,000

Other Income 50,000

EBIT 550,000

Interest Expense (30,000)

Taxes (50,000)

Net Income $470,000

Revenues

COGS

SGA

Interest Expenses

Net Profit

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Net Present Value

• NPV is a quantitative way to evaluate strategic choices.

• PV = FV

(1+r)n

PV = Present Value, FV = Future Value, r = discount rate, n = time in years

• NPV = FV0 + FV1 + C2 +…

(1+r)2 (1+r)3

• Perpetuity: C

r

C = Cash Flow, r = discount rate

Note: First payment is one year from today, not today.

• Payback Method: How long will to take to recover the initial investment?

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NPV Example:

Payback Example:

NPV and Payback Example

Year 0 (today)

End of Year 1

End of Year 2

End of Year 3

End of Year 4

End of Year 5

Initial Investment 10,000 0 0 0 0 0

Annual Operations Cash Flow

0 4,000 4,000 2,500 2,000 2,000

Total Cash Flow (10,000) 4,000 4,000 2,500 2,000 2,000

PV Factor = 1/(1+i)^n 1.00 0.87 0.76 0.66 0.57 0.50

Total PV annual cash flow (10,000) 3,478 3,024 1,644 1,144 994

NPV = $285

Year Annual Cash Flow Cumulative Cash Balance

0 (Today) ($10,000) ($10,000)

1 $4,000 ($6,000)

2 $4,000 ($2,000)

2.8 = Payback $2,000 $0

3 $2,500 $500

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Ratio Analysis

Ratio Calculation Desired Value

Return on Investment Net Income

Avg Total Equity

Return on Assets Net Income

Avg Assets

Net Profit Margin Net Income

Sales

Total Asset Turnover Sales

Avg Total Assets

Inventory Turnover COGS

Avg Inventory

Current Ratio Current Assets

Current Liabilities

Earnings Per Share (EPS)

Net Income – Pfd Div

Avg # Shares

P/E Ratio Mkt Value

EPS

• The following are some common ratios used to analyze a company’s financial health

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Other Analytical Tools

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• This is used to understand the relationship between costs and helps identify the point at which an investment will receive a positive return

Break-Even Analysis

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• You expect a certain outcome based on the current market environment, trends and your current assumptions.

• But Wait! Your solution may have several outcomes due to “uncontrollable” variables:

Competition, consumer preference, economy, energy costs, process complications, delays, new technologies, regulations, etc.

Solution Scenario Analysis

Best outcome Expected outcome Worst outcome

Robust economy

High market adoption

Weak, Less Competition

No delays, quick implementation

High revenue growth

Business as usual

Expected market adoption

Expected competition

Expected possible delays

Expected revenue growth

Poor economy

Poor market adoption

Strong, Evolved Competition

Multiple delays

Poor revenue growth

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Stakeholder Analysis

Consider the following questions:

• Is the stakeholder part of the decision making? How influential is the stakeholder?

• How does your strategy affect the stakeholder and how does the stakeholder affect your strategy?

• Is the stakeholder a possible supporter or a possible hurdle?

• What do you need to achieve with the stakeholder to make sure your strategy is a success?

Some Examples of Stakeholders

• Shareholders

• Executive Management

• Board of Directors

• Employees

• Strategic Partners

• Consumers

• Investors/Banks/Rating Agencies

• Suppliers/Buyers

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• Your strategy should be accompanied by a realistic timeline

• Consider the following questions:

What kind of a time scale does it take to implement your strategy?

6 months, 1 year, 2 years, 5 years, etc.

What happens at each milestone?

How realistic is your implementation milestones? What kind of research have you put in to your estimates?

How much money is required for each step?

Implementation Timeline

2/17/2005 12/31/20053/1/2005 4/1/2005 5/1/2005 6/1/2005 7/1/2005 8/1/2005 9/1/2005 10/1/2005 11/1/2005 12/1/2005

3/29/2005Step 1

5/15/2005Step 2

8/17/2005Step 3

11/6/2005Step 4