Practice Cases

Ten incredibly complex business problems that will keep you entertained for hours!

IMPORTANT NOTE: These cases have been culled from emails, web pages, loose conversations, and the like. They are intended for use only by students at the Goizueta Business School.

Cutting Costs:

Youre working on a project for a major credit card company in the call center. The call center handles customer service type calls (i.e. complaints and questions) as well as marketing type calls (i.e. requests for new product information, etc..) Your team is interested in some cost savings. What do you do? Key Issues: Since this one focused on just cost, take a look at all of the different things that could drive costs, and then break them down. Labor (operators) and its productivity- major cost (How can they be more productive?) Look at different types of calls; can you route them, create specialists? Can you take a look at how long different types of calls are? What are some ways to shorten call lengths? How can you generate revenue with calls? How about waiting time? System improvement? How can this help or hurt costs? Possible look at service level and determine the optimal length of time for different types of calls. Staggering labor around the call patterns (density of calls per time of day)

New Markets: You are with a project team working for an office furniture

manufacturer. The manufacturer wants you to think of ways in which it can expand its markets. What do you do? Key Issues: Always ask for more information Frame your questions in the format of the case (i.e. How big is the manufacturer? Where do they shake out in the market? Who are their clients?, etc..) Think of current customers and expand with them (i.e. Who are the customers today? Identify the How do they rank in office furniture purchases customer today and determine which (by size, age, location, etc.. of company) optimal companies will move in that direction in the future. Think of who may be the optimal customer of the future. Think of different ways to segment the market for this problem (i.e. What types of industries require high furniture use and replacement? Mention companies strengths and weaknesses (what are they doing well, what are they doing poorly)

Declining Profits: A laundry service company provides linen washing services for highend restaurants, mostly cleaning linen tablecloths and napkins. The company has a fleet of trucks that pick napkins up and delivers them at regular intervals to each restaurant. After a period of rapid growth, the company has had increasing revenues, but declining profits over the past two years. What is the problem? Key Issues: Company has centralized cleaning Each truck takes a week-long round-trip of delivery and pickup Washers and dryers are of normal size (no real economies of scale in processing) As revenues have grown, customers are more distant, more expensive to service. Utilization of space in the trucks (some are about 50% full, recent w/ the more distant customers) Decentralization would reduce the number of trucks needed because each truck could cover more customers because they are closer together. This decentralization would also enable better truck utilization. Cost cutting/competition is not the reason for reduced profitability Restaurants are mostly independent operations - no real buyer power There is competition, but account turnover is low Small sales force that calls on restaurants

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Global Expansion: Your client, a US based manufacturer of a powdered drink, similar to Kool Aid, wants to expand into Europe. things you will need to know? Key Issues: Ask Why do they want to expand? Why Europe over Asia or Latin America? (Internal) Firms competence/strength Capacity Existing products/plants/distribution channels in Europe Relationships in Europe Demand in Europe for this type of product Differences in local culture/customs Need for custom package/branding by country Can we make the product to their specifications in our current facilities? How would you explore the European market? Use our (consulting firms) resources in Europe Hire local consulting/consumer research firm Contract retailers, distributors and manufacturers of related products Market test/focus group Competitive landscape You are tasked with determining how they will accomplish this. What are some of the key

(External)

Retaliation Can we have a competitive advantage such as price or differentiation

Does our strength match up to the needs in Europe? (yes) Shelf space Distribution Export from US (Trade barriers?) Use own distribution force Use distributor/consolidator Partner with a firm selling related products (parallel) License product to local manufacturer and use their channels Joint venture with local manufacturer Economic incentives Regulatory climate Proximity of suppliers Consider distribution

Need for a local plant, if so where do you put it?

Unusual local conditions (will water supply impact quality of our product?)

New Business Opportunity: You are working for a major phone company (one of the big three). They currently make new phone equipment, which they sell to companies and individuals. Is this a good idea? Key Issues: They are thinking of getting into the second-hand equipment business (i.e. selling used phone equipment).

What is this market about? (i.e. Who are the players, who are the customers, how big is it, how profitable, etc..) Next, get more pointed in questioning and ideas. (i.e. How do they go about getting the used equipment, are there costs involved, what about quality issues, how old does equipment have to be before it becomes obsolete, etc..)

Does the company already do some of the required tasks? (i.e. testing equipment, packaging equipment, delivery and setup of equipment, etc..)

Next, lead into economies of scale, or will it need to set up entirely new facilities and systems?(costs) In general, perform a cost-benefit analysis.

Facing New Competition: You are consulting to a CEO of an airplane manufacturer. In the last couple of years, you have gone from being number one in market share to number two. In addition, another company has announced that it will be entering the business and is presently tooling up its plant. As a consultant, what are the concerns your client might face, what additional information might you want to find out, and what recommendations would you have? Key Issues: What is the condition of the airplane manufacturing industry? Why has the firm lost market share? How do you prevent the new entrant from stealing market share? INDUSTRY: globalization. Demand is a function of travel among two classes, Business travel increases as a result of Leisure travel increases with growth of middle and

business and leisure.

upper classes. Leisure travelers are very price sensitive. MARKET SHARE: It turns out the competitors plane is cheaper to operate because it is more fuel efficient. The consultant should ask as a strategic question whether the firm is interested in the manufacture of more fuel efficient planes. The answer would depend on the future of oil prices. Instead, it might be better to compete on the basis of price, safety, and service.

PREVENTING NEW ENTRANTS: based economies.

Barriers to entry may include

preemptive long-term contracts, economies of scale, knowledge Purchasers are concerned with safety, to highlighted the firms proven safety record would be appropriate.

Alarmingly Poor Sales: Your client is the manufacturer of audio cassettes. sales year. about it? Key Issues: MARKET CONDITIONS: Mature market, 5-6, major players, They have hired

you to figure out why theyve been experiencing an alarmingly poor Whats the real problem and what are you going to do

market share has increased from 33% to 44%. Client offers a full range of audio cassettes from low bias to high bias/metal. The firm historically targeted two consumer groups older middle income enthusiasts and high school rock n roll types. Recently, the client has been losing younger target market customers. The client has traditionally managed its relationship with retailers well. However, the firm has recently lost several major accounts because their product isnt selling. THE COMPANY: The firm has been losing sales reps, yet loyal reps claim that sales are at record high levels for them this year. manufacturing techniques. The combined market characteristics, recent symptoms and sales decline and increased market share suggest that competitors are abandoning this market, likely due to a new and better substitute technology (compact laser disc, for example). The company is using the most sophisticated and quality driven cassette

Still, the clients historically flat market share suggests brand loyal customers, probably in the older segment of the market. short run. That segment might be less likely to switch to new technology in the

Long-term, the client needs to consider whether or not they want to stay in this market. (i.e., laser discs). Given their commitment to technology, it makes sense that they would consider introducing new products

Profitability Problems: Your client is a large agricultural equipment manufacturer. primary product line, farming tractors, is losing money. profitability problem? Their What

questions would you ask of your client to help them solve their

Sample Question and Answers: How many competitors are in the market? Two direct

competitors. What is your market share compared to those competitors. Firm: 40 percent share, Competitor A: 30%, Competitor B: 15%; the remaining share is split among small players. What are the trends in market share? Five years ago, the firm

had 60%, the others were at 15 and 10 percent. How is your product priced relative to your competitors? It is higher. Always has been. Are the products the same? a few differences do exist.) What are the differences that allow you to charge a premium for your product? Strong reputation for quality in the market. Product last longer and needs less maintenance. Essentially, yes, they all have the

same basic features. Of course, tractors are not commodity items and

Are sales revenues down? both.

Are sales quantities down?

Yes to

Is the price down? Are costs the same? No, both costs and price are up. Have fixed costs increased? No, but variable costs have

skyrocketed, though. I dont know why. Do you manufacture your tractor or just assemble it? Primarily an assembly. So finished part prices have gone up? Yes. Is your supplier paying more for raw materials? No Have you changed suppliers? No Why are your suppliers charging you more the same products? Well, theyre not. The prices have increased as a result of our product improvement efforts. Weve tightened tolerances and improved the durability of our component parts. Why did you make these improvement? Because we want to sell the best tractors in the world. Are your customers willing to pay for these products? Huh.

It turns out that prices have been raised to cover the cost of these improvements, but customers do not value these improvements unless they are free, so sales are down. The client needs to incorporate a cost/benefit analysis into its product improvement process.

Stiff Competition: Your client is the largest discount retailer in Canada, with 500 stores spread throughout the country. Let's call it "CanadaCo." For several years running, CanadaCo has surpassed the second largest Canadian retailer (300 stores) in both relative market share and profitability. The largest discount retailer in the United States, "USCo," however, has just bought out CanadaCo's competition and is planning to convert all 300 stores into USCo stores. The CEO of CanadaCo is quite perturbed by this turn of events, and asks you the following questions: "Should I be worried? How should I react?" How would you advise the CEO? Some Questions and Answers: Well, before I can advise the CEO I need some more

information about the situation. First of all, I'm not sure I understand what a "discount retailer" is! A discount retailer sells a large variety of consumer goods at discounted prices, generally carrying everything from housewares to appliances to clothing. examples in the U.S. Oh, I see. Then I think it makes sense to structure the problem this way: First, let's understand the competition in the Canadian market and how CanadaCo has become the market leader. Then, let's look at the U.S. to understand how USCo has Kmart, Woolworth, and Wal-Mart are prime

achieved its position. At the end, we can merge the two discussions to understand whether USCo's strength in the U.S. is transferable to the Canadian market. That sounds fine. Let's start, then, with the Canadian discount retail market. What would you like to know? Are CanadaCo's 500 stores close to the competition's 300 stores, or do they serve different geographic areas? The stores are located in similar geographic regions. In fact, you might even see a CanadaCo store on one corner, and the competition on the very next corner. Do CanadaCo and the competition sell a similar product mix? Yes. CanadaCo's stores tend to have a wider variety of brand names, but, by and large, the product mix is similar. Are CanadaCo's prices significantly lower than competition's? No. For certain items CanadaCo is less expensive, and for others the competition is less expensive, but the average price level is similar. Is CanadaCo more profitable just because it has more stores, or does it have higher profits per store? It actually has higher profits than the competition on a per-store basis.

Well, higher profits could be the result of lower costs or higher revenues. Are the higher per-store profits due to lower costs than the competition's or the result of higher per-store sales? CanadaCo's cost structure isn't any lower than the competition's. higher per-store profits are due to higher per-store sales. Is that because it has bigger stores? No. CanadaCo's average store size is approximately the same as that of the competition. If they're selling similar products at similar prices in similarsized stores in similar locations, why are CanadaCo's per-store sales higher than the competition's? It's your job to figure that out! Is CanadaCo better managed than the competition? I don't know that CanadaCo as a company is necessarily better managed, but I can tell you that its management model for individual stores is significantly different. How so? The competitor's stores are centrally owned by the company, while CanadaCo uses a franchise model in which each individual store is owned and managed by a franchisee who has invested in the store and retains part of the profit. Its

In that case, I would guess that the CanadaCo stores are probably better managed, since the individual store owners have a greater incentive to maximize profit. You are exactly right. It turns out that CanadaCo's higher sales are due primarily to a significantly higher level of customer service. The stores are cleaner, more attractive, better stocked, and so on. The company discovered this through a series of customer surveys it administered last year. I think you've sufficiently covered the Canadian market---let's move now to a discussion of the U.S. market. How many stores does USCo own and how many does the second largest discount retailer own in the U.S.? USCo owns 4,000 stores and the second largest competitor owns approximately 1,000 stores. Are USCo stores bigger than those of the typical discount retailer in the U.S.? Yes. USCo stores average 200,000 square feet, whereas the typical discount retail store is approximately 100,000 square feet. Those numbers suggest USCo should be selling roughly eight times the volume of the nearest U.S. competitor! Close. USCo's sales are approximately $5 billion, whereas the nearest competitor sells about $1 billion worth of merchandise.

I would think that sales of that size give USCo significant clout with suppliers. Does it have a lower cost of goods than the competition? In fact, its cost of goods is approximately 15 percent less than that of the competition. So it probably has lower prices. Right again. Its prices are on average about 10 percent lower than those of the competition. So it seems that USCo has been so successful primarily because it has lower prices than its competitors. That's partly right. Its success probably also has something to do with a larger selection of products, given the larger average store size. How did USCo get so big compared with the competition? It started by building superstores in rural markets served mainly by mom & pop stores and small discount retailers. It bet that people would be willing to buy from it, and they were right. As it grew and developed more clout with suppliers, it began to buy out other discount retailers and convert their stores to the USCo format. So whenever USCo buys out a competing store it also physically expand its?

Not necessarily. Sometimes it does, but when I said it converted it to the USCo format, I meant that it carries the same brands at prices that are on average 10 percent lower than the competition's. What criteria does USCo use in deciding whether it should physically expand a store it's just bought out? It depends on a lot of factors, such as the size of the existing store, local market competition, local real estate costs, and so on, but I don't think we need to go into that here. Well, I thought it might be relevant in terms of predicting what it will do with the 300 stores that it bought in Canada. Let's just assume that it doesn't plan to expand the Canadian stores beyond their current size. OK. I think I've learned enough about USCo. I'd like to ask a few questions about USCo's ability to succeed in the Canadian market. Does USCo have a strong brand name in Canada? No. Although members of the Canadian business community are certainly familiar with the company because of its U.S. success, the Canadian consumer is basically unaware of USCo's existence. Does CanadaCo carry products similar to USCo's, or does the Canadian consumer expect different products and brands than the U.S. discount retail consumer?

The two companies carry similar products, although the CanadaCo stores lean more heavily toward Canadian suppliers. How much volume does CanadaCo actually sell? About $750 million worth of goods annually. Is there any reason to think that the costs of doing business for USCo will be higher in the Canadian market? Can you be more specific? I mean, for example, are labor or leasing costs higher in Canada than in the U.S.? Canada does have significantly higher labor costs, and I'm not sure about the costs of leasing space. But what are you driving at? I was thinking that if there's a higher cost of doing business in Canada, perhaps USCo will have to charge higher prices than it does in the U.S. to cover its costs. That's probably true, but remember, CanadaCo must also cope with the same high labor costs. Can you think of additional costs incurred by USCo 's Canada operations that would not be incurred by CanadaCo? USCo might incur higher distribution costs than CanadaCo, since it will have to ship product from its U.S. warehouses up to Canada.

You are partially right. CanadaCo is advantaged in distribution costs, since its network spans less geographic area and it gets more product from Canadian suppliers. However, since CanadaCo continues to get a good deal of product from the U.S., the actual advantage to CanadaCo is not great---only about 2 percent in terms of overall costs. All this suggests that USCo will be able to retain a significant price advantage over CanadaCo's stores: if not 10 percent, then at least 7-8 percent. I would agree with that conclusion. Then I would tell the CEO the following: In the near term, you might be safe. Your stores have a much stronger brand name in Canada than those of USCo, and seem to be well managed. However, as consumers get used to seeing prices that are consistently 7-8 percent less at USCo, they will realize that shopping at USCo means significant savings over the course of the year. Although some consumers will remain loyal out of habit or because of your high level of service, it is reasonable to expect the "discount" shopper to shop where prices are lowest. will Moreover, over time your "brand-name" advantage as USCo becomes more familiar to Canadian erode

consumers. You certainly have to worry about losing significant share to USCo stores in the long term. You should probably do something about it now, before it's too late. Can you suggest possible strategies for CanadaCo?

Maybe it can find ways to cut costs and make the organization more efficient, so it can keep prices low even if its cost of goods is higher. Anything else? It might consider instituting something like a "frequent

shopper" program, where consumers accumulate points that entitle them to future discounts on merchandise. What might be a potential problem with that? Well, it might not be that cost-effective, since it would be rewarding a significant number of shoppers who would have continued to shop with it anyway. Any other suggestions? It might want to prepare a marketing or advertising campaign that highlights its high level of service. It might even institute a CanadaCo Service Guarantee" that surpasses any guarantees offered by USCo. Assuming the only way to keep customers is through competitive pricing, is there anything CanadaCo can do to appear competitive to the consumer? It might want to consider offering fewer product lines, so that it can consolidate its buying power and negotiate prices with suppliers that are competitive with USCo's. It might lose some

customers who want the variety of product that USCo has, but be able to retain the customer who is buying a limited array of items and is just looking for the best price. All of your suggestions are interesting, and you would want to analyze the advantages and disadvantages of each in more detail before making any recommendations to the CEO.

Information Technology:

You are the managing director in a large international consulting firm. Traditional strengths of your firm have been solving strategy and organizational issues. Recently, you have noticed an increasing So far, your firms increasingly number of your firms proposals are being rejected because of a lack of information technology expertise in your firm. annual earnings. Nonetheless, you are growth has been strong enough that proposals lost have not hurt becoming concerned about the need to develop the firms capabilities in information technology. Q1: Assuming your concern is valid, what reasons will you provide to other partners about the need to acquire information technology skills. Q2: Assuming you are able to convince other partners of the

importance of IT expertise, what steps would you take to rapidly build IT capacity in this area? Q3: What are the major risks in executing an IT capacity-expansion?

Some Answer Ideas: A1: Good answer focus on the value of IT to clients: discussion topics include the increasing importance of information in business, strategic value of information and information flows, importance of information systems for implementing new organizational structures and management control systems.

Better answer focus on the costs of losing clients to competitors: discussions included the encroachment costs of having clients talking with competitors about IT problems, risk of losing credibility with clients by not being able to solve a problem. A2: Good answers will focus on various methods to build expertise: buying expertise by acquiring another firm, by raiding IT practices of other firms for a few key consultants, building capacity through recruitment of IT experts and training them to be consultants, building capacity by training current consultants in IT practice skills, establishing a strategic alliance with a IT boutique firm. Candidates should discuss the pros and cons of each method proposed; impact on the firms culture, cost tot he firm, time needed to build expertise, etc Better answer will realize the importance of stimulation client demand as capacity builds through seminars, articles, and strategic studies in the IT area. A3: Good answers depend on the expansion methods discussed, but an important issue is the loss of the firms focus away from just strategy and organization. Better answers will focus on the difficulty of implementation in IT, rapid technological changes in the IT industry require significant ongoing training and development costs: new practice cultures may be significantly different from current culture, especially if external experts are brought into the firm.