Case ideas

Question 1

Barriers to entry (4)

Answer 1

Capital requirements
Government policy / regulation
IP
Access to raw materials
Access to distribution channels
Are there barriers to exit?

Question 2

Ways to enter a market (4)

Answer 2

Start from scratch and grow organically
Acquisition
Joint venture
Outsource

Question 3

Ways to cut labour costs (7)

Answer 3

Cross-train workers
Cut overtime
Reduce pension contributions
Institute four 10 hour days, not five 8 hour days
Convert workers into owners
Consider layoffs
Institute across-the-board pay decreases

Question 4

Ways to cut production costs (8)

Answer 4

Invest in technology
Consolidate production space to gain scale and create accountability
Create flexible production lines
Reduce inventories
Outsource
Renegotiate with suppliers
Vertical integration
Import parts

Question 5

Ways to cut finance costs (4)

Answer 5

Reduce debtor days
Refinance debt
Sell non-essential assets
Hedge currency rates

Question 6

If sales are flat and profits are declining…

Answer 6

…you should still examine both revenues and costs

Question 7

If there is a decline in sales (and the segment where the decline is happening is known), consider…

Answer 7

1. overall decline of market
2. loss of market share to a competitor
3. loss of market share to a substitute

Question 8

If sales and market share are increasing, but profits are decreasing, consider…

Answer 8

1. are costs increasing?
2. have we lowered our prices?
3. are we selling more of our less profitable products?

Question 9

If profits are declining due to a fall in revenues…

Answer 9

…concentrate on marketing and distribution channel issues

Question 10

If profits are declining due to an increase in costs (and the affected segment is known)…

Answer 10

Concentrate on financial and operational issues:
COGS
labour
logistics
inventory
rent
marketing
finance

Question 11

If profits are declining and revenues have gone up…

Answer 11

Think about:
changes in variable costs
changes in fixed costs
changes in prices
product mix

Question 12

Entering new market - initial questions

Answer 12

1. Why do they want to enter a new market?
2. What are they trying to achieve with this move?
3. How much capital to they have to back up this move?
4. What capabilities does the company already have that may be of assistance?

Question 13

Valuation-type question

Answer 13

Approach

1. What is current value?
2. Any clear potential sources of value that are yet to be tapped?
3. What is value if pursuing other growth options?
4. What is the offer?

Valuation methodologies

Question 14

Ways to use spare capital

Answer 14

1. Invest in new products / R&D
2. Acquisition
3. Enter a new market
4. Increase salaries etc.

Question 15

Market Entry

Answer 15

What is the motivation / aspiration?
How is the market?
  - size
  - growth rate
  - competition (and implications for profitability)
  - customer segments
  - barriers
What capabilities do we have?
  - inc. available capital
How do we enter?
  - buy
  - build
  - partner
  - timing + scale of entry
What are the economics of entry?
  - how much of market can we take
  - at what cost
What risks are there to entry?
  - better alternative uses for this capital

Question 16

Achieving growth

Answer 16

Increase penetration of existing offering:
  - increased marketing
  - discounts
  - price changes
More fundamental moves:
  - new customer segment
  - new distribution channels
  - new product
  - new geographies

Question 17

M&A

Answer 17

Market characteristics
- size
- growth
- competition (and implications for profitability)
- customers
- barriers (e.g. regulation)
- same as buyer’s market
Buyer
- why are we buying (undervaluation, control,
synergies - think, do they have any cap gaps)
- available capital
- acquisition experience
- timing (and risk of loss of focus)
Target
- current and future financial position
- strategically useful capabilities
- quality of management (i.e. can we improve
performance by installing our own management?)
- culture
Synergies and Risks
- value of combined entities
- cost synergies
- revenue synergies
- biggest risks of failure (e.g. culture, regulation)