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General Business Strategy and Decision Making

Questions to Ask When Assessing the Situation ............................................................ 2

The Customer .................................................................................................................... 2
The Product ....................................................................................................................... 3
The Company .................................................................................................................... 4
The Competition................................................................................................................ 5
Mergers & Acquisitions.................................................................................................... 6
Capacity Change ............................................................................................................... 8
Franchising a Business ..................................................................................................... 9
A Profitability Framework............................................................................................. 10
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Questions to Ask When Assessing the Situation

Answering these questions (pick the categories which are most relevant to your project or
case) will help you better understand the problems areas you are assessing and will get
you thinking about more problem-oriented solutions.

The Customer

Who is the customer?

-What is the segment size? (i.e. what is a rough number of customers currently?)
-What is the growth rate of the customer segment size?
-What % of the total market does your company consist of?
-Have there been any notable trends in the segment size recently? If so, what
could have possibly caused this?

What is the customer looking for when buying the product?

-Especially focus on “intangibles” (i.e. someone who buys Crest toothpaste
doesn’t just buy it because they want toothpaste but could also be buying that brand
specifically due to name-recognition

What price is each segment willing to pay?

-How sensitive is each customer segment to price changes? (i.e. products that
cater to low-income people probably have less leeway to increase their price than luxury
products)

What is the customer’s buying frequency?

How can we increase buyer frequency? (i.e. Apple increases their buyer
frequency by constantly releasing new versions of their products & savvy marketing)

What are the distribution channels for each customer segment?

-Is your customer buying the product at a mega-general store like Target or
Walmart? Or is your costumer buying your product at a specialty or geographically
specific store? Keep in mind that it is possible for one product to many different
consumer segments who purchase it from many different distribution channels
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The Product

What are the benefits and advantages of the product?

-Why would someone choose to buy this product and what factors would cause
someone to stop buying this product? Once a gain, keep in mind, intangibles

What differentiates this product from other similar products in the market?
-And, more importantly, how can your company increase product differentiation?

What are complementary goods (goods which are bought/used in conjunction with your
good – such as toothpaste and a toothbrush are complimentary goods)?
-Is there any way the company can piggy-back growth off of complements?

What are the substitute goods?

-What vulnerabilities does the company have concerning indirect competitors?

What is the product’s lifecycle?

What is the product packaging?

-What is included?
-Can anything additional be included to spur product growth?
-Can we change packaging to make the product meet the needs of specific
customers?
-Can we improve packaging to make it more appealing to customers? (i.e. an
apple juice company who exclusively sells in gallon size bottles will probably gain
another consumer segment (mothers) if they start packaging their juice in individual
child-friendly packages)
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The Company

What are the capabilities and expertise of the company? )

-Are any skills of employees being underutilized?
-Will the benefit of hiring someone with a specific skill outweigh the cost of
doing so?

What distribution channels is the company using?

What is the cost structure of the company?

-Think about whether it is better to have a fixed versus a variable cost in the
industry (i.e. is it better to have a higher fixed cost and small variable cost or vice versa)
-What is the cost structure of the industry
-Why was this particular cost structure chosen?

What are the intangibles?

-Company intangibles include – brand name, loyalty, employee morale,
bureaucracy, aesthetic appeal, customer service, customer satisfaction, productivity,
waste (such as inefficient allocation of employee skills)

What is the financial situation?

What is the organizational structure?

-Is the company organization in conflict with how customers want to do business?
-Is it top down or network-based? (this question can extend to how the company
is concretely organized – ie. For X company, is it better to have individual office space
which is supposed to encouraged focused/concentrated productivity or is it better to have
open office space which is supposed to encourage idea sharing and easy cooperation?)
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The Competition

What is the industry structure and concentration?

-I.E. is this a monopoly, oligopoly, monopolistic competition?
-What is the company’s market share?

How do the competitors behave?

-How do the competitors target customer segments?
-How do the competitors differentiate their products?
-What is the pricing strategy of competitiors?
-What accounts for a discrepancy between your brand loyalty and your
competitor’s brand loyalty?
-What is the competitor’s distribution strategy?

What are the competitors best at/what are the others doing differently?

Does the company need to worry about new companies entering the market?

Does the company share input suppliers?

-How does this affect the variable costs?

Are there any industry-wide regulations?

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Mergers & Acquisitions

What is the firm's primary reason for a merger?

-Acquiring talent, increasing profits, and expanding services or geographic
coverage are common reasons

How will the merger help the firm achieve its strategic vision?

Does your firm have an effective leader? Does the merger partner have one?
-The new, combined firm will need this component to succeed. If both firms are
lacking strong leadership, then you will need to find someone new to lead the merged
firm

What are the office space considerations?

-They include when the firms will physically merge and how
-Consider lease or real estate ownership issues, as well as how you will physically
"blend" the staffs of two firms

What will be the name of the new firm?

Will the firm have an executive committee?

-If so, you need to identify who will be on the committee, what the terms of service
will be, and what the committee's powers and responsibilities will be.

What will the combined firm's structure be?

-Include departments, heads of practices, etc.

How will partners be compensated?

-Especially keep in mind profitability gaps are a key issue that must be considered
in developing the new compensation structure

Will the merger affect earnings and profitability?

-Although an important reason to merge is to increase earnings, know that the first
year normally brings an earnings drain, as people work to become familiar with new
systems and leaders and productivity tends to drop

Will the merged entity require new capital contributions?

-One firm that is highly leveraged merging with one that is not represents a major
philosophical difference

How will you communicate the coming merger to staff?

-Telling key people as soon as possible is important, before the rumors begin. One-
on-one discussions, memos, and "town hall" meetings are ways to let people know what
is going on. Decide early who you want to retain and work to keep them
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How will employee issues be addressed?

-Every staff person will want to know how the merger is going to affect him or her-
and then there are always issues about compensation and benefits for the staff from the
respective firms
- Companies should consider offering a"stay bonus" for those who remain through
the first year

Do you have a financial forecast for the first year?

-Take the most conservative view of what the first year may bring for the merged
entity
-Savings that you thought were there will disappear or take longer to materialize.

Are there any deal breakers?

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Capacity Change

Answer these questions when a company is considering adding capacity (such as building
a new factory, closing a location, or acquiring a direct competitor)

How sustainable is the company’s growth and market share?

What are the trends in demand? (look at both the demand for your company as well as
demand in the general industry)
-Try breaking down the demand into different consumer segments to get a more
accurate view of these trends

What possibly event could cause demand to fall and how sharp would this affect be?
-Is the company willing to take the risk even in the face of a possible such event?

What are the possible benefits of expanding or decreasing capacity?

What technological innovations can you incorporate to make your expansion seamless?

What are the real, upfront costs of this expansion? (i.e. is this affordable right now?)

Is now the best time for a capacity change?

-If not, when?

Have you explored the alternatives to changing capacity? (these include but are not
limited to outsourcing, sub-contracting, leasing)
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Franchising a Business

Does the owner prefer the business or operations end of your company?
-If the owner prefers the operations end of the company, it can be hard to put
stores in someone else’s hands

Can the company afford it?

-There are many hidden costs of franchising such has having to hire a lawyer who
specializes in franchise agreements, accountants, etc.
-Do you have a good credit line to get a franchise loan or do you have a good plan
to attract capital via investors?

Can the business support franchisees?

-Does the business depend heavily on customer loyalty or brand image? If so, it’s
really important to consider the decision of franchising especially deeply because it is
possible that if someone irresponsible takes control of a franchise of your business, they
can not only have an unsuccessful franchising location but also overall hurt the image of
your store
-Make sure that the reason why your business is currently successful is NOT
because of the owners’ charisma or personality because if that’s the case, franchising is
not a good option

Why would people want to become franchisees of your business instead of doing it
themselves?
-This doesn’t mean that the product has to be super-unique or exotic but there has
to be something unique about your process which makes it hard to replicate

Do you have more than one location now?

-Deciding to franchise based on the success of one location can be risky because
there can be very unique factors that you may have not considered that contribute to your
business’ success
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A Profitability Framework

Source: From Victor Cheng’s Case Interview Core Framework