Consulting Case

Business turnaround

Contents
Acme Closes U.S. Plants, Moves Production to Mexico.....................................................................1
St. Joseph Hospital to Consolidate with Competitor............................................................................8
Applebee’s Restaurant to Focus on Family Dinner Customers........................................................10
Wireless Carrier VoiceDirect Cut Price to Match Competitors.........................................................13
Ashland Chemical Company to Develop New Business Model.......................................................16
How to Turn Around a Whataburger Fast Food Restaurant?...........................................................19
Church Attendance Keeps Falling Despite New Pastor’s Effort.......................................................22
Georgia-Pacific to Buy Additional Paper Mill in Midwest...................................................................23
Diesel Engines Manufacturer MTU Posts Net Loss...........................................................................27
Verizon to Turn Around Directory Assistance Business....................................................................28
Hormel Foods to Sell Spam Luncheon Meat Division.......................................................................32
Rohm and Haas to Turn Around Specialty Chemical Business.......................................................35
National Oilwell Varco to Turn Around Declining Share Price..........................................................39
Swiss Food Giant Nestle Losing Its Innovative Reputation..............................................................40
Emerged from Bankruptcy, Tronox Looks Ahead to the Future.......................................................42
Avery Dennison to Turn Around Specialty Label Business...............................................................45
Emerged from Bankruptcy, Chemtura Seeks Strategic Alternatives...............................................46
Lucent Technologies to Reverse Trend of Declining Profits.............................................................49
How to Turn Around a Failing Start-up Software Company?............................................................51
Kodak to Improve Profit Margin for Digital Cameras..........................................................................52
Polaroid Facing Challenges of Digital Photography...........................................................................54
NYC Carnegie Hall to Turnaround Declining Business.....................................................................56
California to Woo Japanese Business Investors................................................................................58
How to Turnaround NewYork-Presbyterian Hospital?.......................................................................59
Colgate Turnaround Toothpaste Business in China..........................................................................61
Rio Tinto Alcan to Turn Around Aluminum Business.........................................................................62
Consolidated Edison Turns Around Steam Boiler Division...............................................................63
Fertilizer Maker CF Industries Sales and Profits Decline..................................................................64
How to Save Bank One’s Retail Lockbox Services?..........................................................................65
Naked Juice Considers Selling Chilled Juices Business...................................................................67
Cable News Network CNN Losing Money in Tucson.........................................................................69
Kimberly-Clark to Increase Profitability in Paper Stationery.............................................................70

Acme Closes U.S. Plants, Moves Production to Mexico

Case Type: reduce costs; business turnaround.
Consulting Firm: Bain & Company final round full time job interview.
Industry Coverage: office supplies; manufacturing.
Case Interview Question #00767: The client Acme United Corporation (NYSE MKT: ACU) is a supplier
of cutting, measuring and safety products for the school, home, office, hardware and industrial markets.
The company was organized as a partnership in 1867 and incorporated in 1873 under the laws of

the  State of Connecticut. It is publicly traded on the NYSE Mkt with symbol
ACU.
The year is 1992. As one of the largest diversified manufacturers of office supplies, Acme has historically
enjoyed very rapid growth. Both their sales and pre-tax profits grew at an astounding 15% CAGR during
the 1980s, while the industry average was only 8%. In 1990 and 1991, however, the client’s sales
declined 8% per year, and profits were even worse, down 40% year over year. You have been hired by
the CEO of Acme to investigate their problems. How would you about it? What would you propose Acme
to turn around their declining business?
Additional Information: (to be provided to candidate upon request)
Exhibit 1. Client Company
1. Acme 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.

2. Client company Acme 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%.

3. Acme’s 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.

Exhibit 2. Acme Financials

The client Acme experienced consistent revenue and profit growth during the 1980s.

1980-1989 CAGR 1989-1991 CAGR

Sales 15% (8%)

Pre-Tax Profit 15% (40%)

Source: Acme Financials

Exhibit 3. Competitive product lines

The client Acme offers a broader product line than its competitors

Number of Different Products Manufactured (SKUs)

Source: Competitor Research; Acme Marketing Department

Exhibit 4. Distribution channels

Source: Acme Sales Database; Wholesaler interviews (sample size N = 19)

Exhibit 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.
- Acme’s most profitable product is a high-end branded stapler.
- Staples, Inc. is now Acme’s largest single customer.

Source: Acme Product Marketing; Analyst Reports; Market Research

Possible Answers:
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 I’d 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 what’s 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

These trends are both negative from Acme’s perspective:

- increasing price pressures from superstores.
- threat to Acme’s core branded business.

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.

Potential Pitfalls:
Not taking the general manager or investor’s perspective.

Focusing on a relevant issue but missing the big picture

- “I think this private label problem is really a threat, so I’d like to focus my efforts here.”
Picking an area which you know a lot about, but which isn’t central to the case.
- “Let’s talk about Acme’s capital structure….”

Not using background facts to support your arguments.

Failing to ask clarifying questions to ensure understanding of background data (as appropriate).

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:
I’d like to break this out in terms of Revenues and Costs:

Revenues = price x volume

- price: pressure from discounters, likely eroding premium with emergence of private label.
- volume: market decline, share loss to private label.

Costs = variable + fixed

- variable / fixed: product line complexity.
- fixed: capacity utilization.

I’d approach the profit erosion issue by grouping the key issues around customers, competitors, and costs
(3Cs):

- 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.

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 aren’t highly
leveraged (e.g. with Porter’s 5 Forces, you could end up wasting a lot of time on entry barriers in this
case).
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 3C’s framework)
It is unlikely Acme can do much about customer and market trends:
- macro economic factors are obviously out of Acme’s control.
- given the superior value-proposition of the superstores, I don’t 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.

The competitive development of low-cost offshore producers would seem to be driven by these customer
and market trends, and also isn’t under Acme’s 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.

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?
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.

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.)

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)
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)
a. 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.”

b. Realistic and pragmatic:

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

c. 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.”

d. Sensitive to client capabilities, biases, politics:

- “Right now there isn’t 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 you’ve 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.”

Potential pitfalls:
Reluctance to make recommendations in the absence of perfect information
- “I’d prefer to do more analysis first.”
Providing a generic answer that doesn’t drive to specific client actions
- “The client should increase capacity utilization.”

Unrealistic / too optimistic:

- “I don’t see how the union could be an obstacle.”

Ignoring the client as relevant to solving the problem

- “This is clearly the right answer, so I don’t think the COO’s objections are all that important.”

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 3C’s-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.

St. Joseph Hospital to Consolidate with Competitor

Case Type: business turnaround.
Consulting Firm: Roland Berger Strategy Consultants first round full time job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00779: Lexington is a mid-size city in Kentucky, United States. In the 2014
U.S. Census Estimate, the city’s population was 310,797, anchoring a metropolitan area of 489,435
people and a combined statistical area of 708,677 people. For this case, our client Saint Joseph

Hospital  is a 350-bed hospital located 2 miles southwest of Downtown

Lexington, Kentucky.
The organization Saint Joseph Hospital has historically exhibited strong financial performance, and had a
1-3% operating gain each year for the last five years. However, they are projecting a $12 million operating
loss this year, and expect this situation to worsen in the future. As a result, the CFO of Saint Joseph
Hospital believes that they will be out of cash within five years. They have asked us to identify the source
of this sudden downturn, and to come up with alternatives to restore them to a break-even position. They
are one of the largest employers in the State of Kentucky, and will not consider layoffs as a possible
solution. How would you go about helping the client to restore profitability?
Possible Answer:
This case addresses company profitability. The interviewer is looking for a candidate’s business intuition
and ability to apply this intuition to identify potential sources of the problem. In addition, the interviewer is
looking for potential solutions to the client’s profitability problem.

Candidate: Profitability is a function of an organization’s revenues and costs. The first thing I’d like to
focus on is the hospital’s future revenue stream. As I understand the hospital industry, revenues may be
fixed for several years due to long-term contracts with insurers. Is this the case for this particular hospital?

Interviewer: Your intuition is correct. Revenues have dropped approximately 15% so far this year due to
aggressive pricing on capitated managed care contracts that were signed in January and declining
admissions and length of stay for their fee-for-service contracts, most of which are still reimbursed on a
per diem basis. All contracts are binding for three years, and cannot be renegotiated.

Candidate: In that case, it is important to understand the company’s cost structure to see if it can adjust to
this declining stream of revenue. Does the client have considerable fixed costs that will be difficult to
reduce in the near term?

Interviewer: Hospital occupancy is approximately 70%, resulting in high fixed costs that are not covered
by the current contribution margin. The organization is currently staffed for 80% occupancy.

Candidate: Since revenue is declining at a fixed rate and fixed costs are high in the short-term, the
hospital will have to analyze its variable cost structure. I would surmise that staffing costs are the main
source of variable costs. However, the hospital cannot address this due to its policy concerning layoffs. I
would think that the other main driver of variable costs for the hospital lies in its utilization of resources.
Am I headed down the right track?

Interviewer: In fact, you’re right. The utilization of diagnostic and therapeutic services during a patient’s
stay is approximately 15% higher than what was expected when contract pricing was negotiated.

Candidate: Given that information, the hospital should focus on changing physician behavior since
physicians ultimately control the utilization of resources. The hospital may want to align MD incentives
with those of the hospital by sharing risk, giving physicians data and education on their use of resources
versus the competition. Other ways to reduce expenses could be to sign exclusive contracts with a
distributor in order to generate volume discounts and economies in purchasing, or by reducing choice by
limiting the pharmacy formulary to generics and decreasing the number of vendors utilized for high
volume items such as prosthetics and heart catheters.

Interviewer: That’s a good discussion of cost implications, but have you given up on recommending ways
to increase hospital revenue?
Candidate: Now that you mention it, the situation is not hopeless in this regard. The hospital may want to
increase revenue by signing contracts with additional insurers, by putting salaried physicians on staff to
guarantee that they admit to our client’s hospital, or by creating an affiliated physician organization to
increase their share of admissions. In addition, they can potentially leverage their distinctive
competencies by developing Centers of Excellence that can be marketed to managed care contractors as
an exclusive provider for those services within the region, and possibly outside the region.

Interviewer: Are there any other solutions that may be feasible?

Candidate: One final thought that keeps coming back to me centers on the company’s current
competitors. What does the local market look like?

Interviewer: There are two other 350-bed hospitals in the city of Lexington. One is an academic medical
center, the other a catholic hospital recently acquired by a for-profit chain. Additionally, total admissions in
the marketplace have dropped by 5% and total patient days have declined 10%.

Candidate: In that case the client may want to consider affiliating with a competitor in the market. This
may help to decrease capacity across the city by rationalizing the services offered at each institution. This
may allow one hospital to close, thereby reducing fixed costs.

Interviewer: Very good, thank you!

Applebee’s Restaurant to Focus on Family Dinner Customers

Case Type: business competition; business turnaround.
Consulting Firm: OC&C Strategy Consultants first round full time job interview.
Industry Coverage: restaurant & food service.
Case Interview Question #00748: Your client is the owner of an Applebee’s franchise restaurant in the
small town of Shelton, Connecticut (population ~40,000 as of 2010 census). The Applebee’s concept
focuses on casual dining, with mainstream American dishes such as sandwiches, burgers, salads,

shrimp, chicken, and pasta.

Recently, the Shelton Applebee’s restaurant’s revenues are trending downward but costs are stable.
Therefore, profits are shrinking quickly. What are your thoughts on:

(1) the cause of the issue,

(2) how to help turn around the business.
Additional Information:
There are no changes in customer tastes. The client’s menu, food quality, service and suppliers are all
the same.
The main cause in the sales drop is the opening of a new competitor FinerFoods Restaurant that just
opened across the street. FinerFoods Restaurant is a fast food “plus” style restaurant that serves not only
traditional fast food (sandwiches, burgers), but also a broader menu (chicken, pasta, burritos) with table
clothes and waiter service. FinerFoods Restaurant has a family-friendly atmosphere.

(Do not give the below information unless candidate asks about the Applebee restaurant’s customer
segments) There are two main customer segments served by Shelton Applebee’s:

 Business customers for lunch (60% of your clientele)

 Families for dinner (40% of your clientele)
Shelton Applebee’s is losing both its business lunch and family dinner segment to the new competition.

Possible Answer:
Interviewer: Which customer segment is more important and more profitable between the business and
family segments?

By reviewing the profitability of Shelton Applebee’s by customer:

 Business Lunch garners an average profit of $8 per customer

 The overall average profit is $10 per customer
Interviewer: What is the average profit for the Family Dinner segment?

Possible Answer:
The candidate should ask for the following information to back solve for a weighted average:

 Lunch is 60% of the customer segment

 Dinner is 40% of the customer segment
Once the candidate asks for the number of customers, she/he can use a weighted average formula to find
the profitability per customer for the dinner segment.

0.60 * $8 + 0.40 * $X = $10 overall average profit per customer

X = profitability for the Dinner segment is $13 per customer, which is more profitable than the lunch
segment for Shelton Applebee. It would likely recoup the loss of this customer segment from FinerFoods.

Interviewer: If the total average profit margin is 50%, what is the overall average revenue per customer?

Possible Answer:
$10 / 0.50 = $20 revenue per customer (customers really like Applebee’s)
Interviewer: FinerFoods Restaurant’s revenues are 20% higher and costs are 10% higher than that of
Shelton Applebee’s overall average customer. What is the average profit per customer at FinerFoods
Restaurant?

Possible Answer:
Revenues: (1 + 20%) * $20 = $24
Costs: (1 + 10%) * $10 = $11 (Note: The costs for Shelton Applebee is determined by revenue less)
Shelton Applebee’s Gross margin from above: $20 – $10 = $10
FinerFoods Restaurant’s Profit = $24 – $11 = $13
Insight: FinerFoods has a more profitable business at $13 vs. Shelton Applebee’s $10 per average
customer.

Interviewer: How would Shelton Applebee’s determine why their customers are leaving?

Possible Answers:
 Create customer satisfaction survey – be sure to account for biases by interviewing an equal
number of regular vs. one-time customers.
 Ask corporate headquarters to provide information on performance of other Applebee’s
restaurants due to effects of a nearby FinerFoods (or similar competitor) opening to determine if
customer defections are widespread.
 Industry publications.
Interviewer: You now have a chance to create some customer survey questions. You can ask any
customer but state whom the survey is tailored toward and state your most important question. (Provide
opportunity for the candidate to state various survey audiences and question possibilities).

Wait until after candidate finishes the exercise then state the following:

Interviewer: We have some additional survey data collected and here are the results:

First survey audience consists of Shelton Applebee’s defecting family dinner customer:

Survey Question: What are important factors in your purchase decisions?

Survey Answer: Family dinner customers value price and service. They are price sensitive and like the
perception of FinerFoods as providing value. FinerFoods also has waiter service so the parents do not
need to clean up after their children’s meals, service is viewed as quick. The prices are comparable to
Shelton Applebee’s, although 20% higher.

Second survey audience consists of Shelton Applebee’s defecting business lunch customer:

Survey Question: What are important factors in your purchase decisions?

Survey Answer: Business lunch customers value speed and convenience. They perceive Shelton
Applebee’s as providing relatively slower service and less convenience than FinerFoods since
FinerFoods has waiter service. While the time spent at with waiter service at FinerFoods and the time
spent waiting in line at Shelton Applebee’s is about the same, the perception is that FinerFoods is faster
service.

Interviewer: Which customer segment would you focus on based on your survey information and
recommend solutions to help your client Shelton Applebee’s restaurant. You cannot hire any additional
service staff nor change their menu offerings (per corporate policy).

Possible Answer:
Focus on the more profitable family dinner customer (at the higher $13/profit per customer vs. $8
business lunch customer) and one possible solution includes:

Providing entertainment for children at Shelton Applebee’s such as a playground, a clown, or offer
promotions on birthday or other special celebrations to make Shelton Applebee’s a destination of choice
for family events. Shelton Applebee’s can also reduce the amount of packaging so there is less to clean
up for the family. The children may drive the decision of parents to frequent Shelton Applebee’s if they
view the restaurant as more attractive and fun.

Recommended Conclusion
Interviewer: Please summarize your findings (cause of the sales deterioration, and recommended
solutions to address the problem faced by your client Shelton Applebee’s franchise).

Wireless Carrier VoiceDirect Cut Price to Match Competitors

Case Type: business competition; business turnaround.
Consulting Firm: Bain & Company first round full time job interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00743: Our consulting firm is hired by the CEO of VoiceDirect. VoiceDirect is
an American regional carrier which owns and operates the six largest wireless telecommunications
network in the United States. Headquartered in Chicago, Illinois, they serve about 4 million customers in

26 U.S.  states as of year 2014.

The client VoiceDirect has been packaging and reselling excess capacity on their cellular network to
highly fragmented prepaid phone card buyers. Over the past few years, VoiceDirect has lost significant
market share to their competitors. What is happening here, and how can you help VoiceDirect turn around
the down trend?

Additional Information:
Who are the client’s competitors? Only five other major players in this market (Verizon Wireless, Sprint,
AT&T, T-Mobile, U.S. Cellular)

What is their pricing? VoiceDirect charges five cents per minute, while all five other competitors charge
three cents.

Possible Answer:
First, ask the candidate to calculate VoiceDirect’s percentage price premium

(5 cents – 3 cents)/3 cents ~= 67%

The price premium is equal to 67%

The candidate should first draw a diagram to understand the market. The cellular market in the U.S. is
divided into Contract (or pay after usage) and Prepaid minutes. We are not analyzing the “Contract”
market segment. The competitors’ strategy is to sell their excess capacity to the prepaid market. In light of
current economy conditions and with the assumption that people who rely on prepaid cards are mostly
those who have difficulty getting Contracts due to a bad credit history, this segment is growing.

The candidate then should ask what is the excess capacity for VoiceDirect (we can assume near infinite
capacity) as well as demonstrate understanding that the marginal cost for providing this capacity is zero.

At this stage the candidate should try to evaluate the issues behind the loss of market share. After
computing the client VoiceDirect’s price premium (67%), the candidate should establish three hypotheses.

 There is no differentiation that justifies the price premium, technological (quality of the wireless
signal), geographical (geographic availability), customer service, etc.
 There is differentiation but it is not perceived by the market.
 There is differentiation, the market perceives it but because of its place on the low end of the
segment, people are not willing to pay for it.
For scenarios (1) and (3), a possible strategy would be to match the competitors’ prices, go from five
cents/minute to three cents/minute. At this point, the candidate should argue that if the client VoiceDirect’s
prices for “Contract” cellular service are larger than 3 cents/minute, there is the possibility of
cannibalization of their customer base.

For scenario (2), the candidate should suggest possible marketing initiatives (a test to the candidate’s
creativity). Possible examples are:
 joint campaigns with powerful brands offering prepaid phone cards (remember the marginal cost
is zero);
 offering phone cards with a free cellphone, offering supplemental “Contract” phone cards;
 two-for-one campaigns;
 offering prepaid phone cards in exchange for competitors’ cards (but need to check if it is
possible in light of regulatory restrictions)
At this point the interviewer should ask the candidate for other possible strategies (restart the top-down
process)

Can we enter into a contract at a set price to provide minutes to major prepay providers? The answer is
no, Virgin Mobile already has an agreement with one of our competitors. The rest of the market is very
fragmented.

Can we vertically integrate and repackage the minutes ourselves, creating our own prepay brand? Or, is
Virgin Mobile’s presence too strong to compete?

Does the price premium reflect down to the consumer level, or do the repackagers (gas stations, Wal-
Marts, etc) eat the price delta? Would it make sense to renegotiate with repackagers to lower their
margins?

Quantitative Analysis

 Price premium percentage (67%).

 The marginal cost of providing extra minutes (it’s zero)
Key Takeaways

Even though five cents versus three cents seem small, the resulting 66% price premium becomes a major
issue as purchase volumes go up. It costs VoiceDirect nothing to provide more minutes, as capacity is
unlimited. Providing that there will be no cannibalization of their postpaid customer base, there is only
upside in matching the competitors’ prices.

Recommended Conclusion
The client should immediately cut their price to at least the competitor level for repackaging purposes.
Assess whether it will be effective for VoiceDirect to go into prepay repackaging market. This is important
since people with bad credit and people under age 18, for example, cannot enter into Contracts with
VoiceDirect.

At this point, if there is still time, ask the candidate to estimate the impact of his or her recommendation, in
percentage changes in demand. Tell the candidate that elasticity for these type of products is
approximately -1.25. The candidate should explain what Elasticity is and why it is negative. Elasticity ε=
(ΔDemand/Demand) / (ΔPrice/Price)
Ashland Chemical Company to Develop New Business Model
Case Type: business turnaround; operations strategy.
Consulting Firm: Roland Berger Strategy Consultants first round full time job interview.
Industry Coverage: chemical industry.
Case Interview Question #00730: Your client Ashland Inc. (NYSE: ASH) is an American Fortune 500
chemical company headquartered in Covington, Kentucky. Ashland is a major U.S. chemical
manufacturer in the commodity chemicals business with single digit market share. It recently emerged

from bankruptcy  and has limited capital available. The chemicals business is
cyclical with pricing cycles of 7 years. The client is worried about how it will survive year 2015 when it hits
the bottom of the pricing cycle. The question is how this company can become sustainable, if at all
possible.
The CEO of Ashland has hired your consulting firm to develop a new business model, either through:

(1) acquisition into a non-cyclical chemicals market, or

(2) the manufacture of new products and services for customers, or
(3) your own recommendations.
What would you recommend?

Additional Information: (Provide the following information if requested by interviewee)

1. Competitors

The commodity chemical market is highly fragmented. A large number of competitors are either stand-
alone or small in size, or are a small division of a larger conglomerate. Acquisition is difficult because of
limited capital.

2. Customers

Ashland’s customers are highly fragmented, each of them purchasing no more than 10% of the client’s
inventory annually.

3. Raw Materials

Your client’s raw material suppliers are increasingly turning to “greener” processes and products without
increasing their total capacity. This trend is significantly reducing the supply of “non-green” raw materials
which drives their cost up.
4. Infrastructure

Your client currently has 5 plants. 3 are performing well, one has been having problems of quality
consistency recently and one plant has been historically a bad performer in terms of capacity utilization.
All plants are over 10 years old and production is spread evenly over all the plants. (none are at full
capacity)

5. Government

Increasing push from environmental groups has caused additional government taxes and regulations on
shipping to be enacted recently.

6. Products

The chemical manufacturer Ashland mainly produces two chemicals: X and Y. Chemical Y is a by-product
of Chemical X with a weight ratio of X = 1.5Y (each 1.5 ton of X manufactured results in the byproduction
of 1 ton of Y).

2012 Costs per

2012 Prices per ton 2013 Prices per ton ton 2013 Costs per ton

Chemical
X $150 $100 $50 $95

Chemical Y $175 $100

The client Ashland expects to sell 100% of the chemicals manufactured. All of its plants operate below
capacity; they currently manufacture 100,000 tons of Chemical X annually to meet the market demand.
The pricing changes are normal.

Possible Answer:
Profit margin should be calculated, in addition to the dollar margin derived from Chemical X versus
Chemical Y to determine if there is any advantage to changing the product mix.

In 2013, 100,000 tons of X are being manufactured at a profit of $5/ton, deriving a profit of $500,000 for
Chemical X. The manufacturing of X results in the by-production of 100,000 / 1.5, i.e. around 66,667 tons
of Chemical Y or 70,000 tons for rounding purposes. Since Chemical Y is a byproduct of X, one can
assume a corresponding cost of $0/ton. The client should thereby derive a profit of $100 x 70,000 =
$7,000,000 for Chemical Y, and a total profit of around $7,500,000 for both chemicals.

Comparatively, the company generated a profit of $100 x 100,000 = $10,000,000 for Chemical X in 2005,
plus an additional $175 x 70,000 = $12,250,000 for Chemical Y. This amounts to a total profit of
22,250,000 in 2012, and therefore a huge loss in profit. These results are summarized in the following
Tables:

Year 2006 Volume (ton) Prince/ton Cost/ton Profit margin % Profit margin

Chemical
X 100,000 $100 $95 5% $500,000

Chemical Y 66.667 $100 - 100% $6,666,667

Total $7,166,667

Year 2005 Volume (ton) Prince/ton Cost/ton Profit margin % Profit margin

Chemical
X 100,000 $150 $50 67% $10,000,000

Chemical Y 66.667 $175 - 100% $11,666,667

Total $21,666,667

Recommended Conclusion
This case is qualitative in nature and can take many directions.

The interviewee should first explore the root causes of the sales and profit cycles including the following
topics:

 Why are costs increasing?

 Why is there a reduction in supply of raw materials and can it be addressed?
 Who are our client Ashland’s customers?
 Can the client company pass them raw material cost increases?
 What are the new government regulations’ impact?
 How efficient is manufacturing?
The interviewee should further review pros & cons of acquisition, joint venture, licensing, divesting a plant
or two, and organic growth through new products/services (preferably with a pricing cycle opposite that of
X and Y). The dimensions for evaluating each option should include impact on sales/profit, ROI, risk,
feasibility, and timing.

In addition to organic and inorganic growth, there seems to be opportunities to improve the current
business model. For example, since none of the plants operates at capacity and Chemical Y can be sold
at a higher price/margin than Chemical X in the upside part of the pricing cycle, the interviewee may ask
these questions:

 Can the plants increase their production of X and Y when the pricing cycle is up?
 Are there opportunities for cost reduction by increasing the volume of raw materials purchased?
 Can the more profitable chemical Y be produced in larger quantities in upside cycles?
Exploring the trend of raw materials suppliers turning to greener products:

 If the suppliers of raw materials for X and Y are switching to “greener” processes across the
industry, can the client pass on the price increase along the value chain?
 Can the client use this as an opportunity to differentiate its products as “green” as well and
therefore charge a premium?
Possible recommendation may include:

 Launch new products & services to differentiate from the competition, build customer loyalty, gain
new customers, and leverage synergies through existing plants.
 Operating costs may increase with purchase of new materials/machinery for refining chemicals.
 Organic growth must be considered in addition to improving the client’s current business model
which does not seem to be working well.
 Possible exploration into joint ventures or divesting the company.
Any number of recommendations would work for this case as long as the interviewee properly explores all
of the options.

How to Turn Around a Whataburger Fast Food Restaurant?

Case Type: business turnaround; competition.
Consulting Firm: Alvarez & Marsal first round summer internship job interview.
Industry Coverage: restaurant & food service.
Case Interview Question #00666: Whataburger is a privately held, American regional fast food
restaurant chain that specializes in hamburgers. Headquartered in San Antonio, Texas, United States, the
chain is owned and operated by the Dobson family, along with 25 franchisers. As of September

2012,  there are over 735 Whataburger stores across the Southern United States
region.
One of your classmates from college just bought a Whataburger restaurant in Dallas, Texas a year ago.
He just called you to complain that the Whataburger fast food burger joint he bought last year has been
steadily losing money for the last 6 months. He wants to know what you think he should do about it.
Where do you start? How would you help your classmate to turn around his burger restaurant?
Suggested Approach:
This is an example of a profitability case where virtually no information is provided and the candidate
needs to take a minute to figure out where to start probing. In this type of case, the candidate is evaluated
based on the number of factors questioned up front plus the ability to logically pare down that list to get at
the heart of the matter.

Since Profits = Revenues – Costs = Price * Volume – Costs, here are some of the initial questions the
candidate could ask to probe for more information:
 Have revenues decreased?
 Have costs increased?
 Have prices increased?
 Was the store making money 6 months ago? What has changed?
 Is there new competition?
 Has there been a major economic change in the area?
 Was there a major event like someone getting sick? Health code violation? Crime?
The answers to these questions will help to frame the extent of the required analysis.

Possible Answer:
Candidate: First of all, what do you mean by “losing money”? Have profits declined or is the business in
the red?

Interviewer: Profits have declined.

Candidate: Have revenues decreased? Or, have costs increased? Or both?

Interviewer: Revenues have decreased.

Candidate: Well, if revenues have decreased, there are either fewer paying customers or the customers
are spending less when they visit. Which is the case?

Interviewer: While they could both play a role, in this case, there are actually fewer customers.

Candidate: Fewer customers could be due to external factors like new competition, change in eating
habits, local changes like a major business closing in the area. There are also internal factors to consider
such as poor food quality, higher prices, or a major event like someone getting sick or a health code
violation. Recognizing that there are likely many factors involved, is the issue primarily internal or
external?

Interviewer: The issue is external and is driven by a new competitor that opened just across the street.

Candidate: This new competitor must be offering a better value to have made such an impact on our
client’s burger joint.

 What is their value proposition?

 Are they offering a different type of food?
 Is it better quality?
 Is there a price disparity?
Interviewer: The new competitor serves chicken dinners and appear to offer a completely different
experience. How would you get a deeper understanding of their value proposition?

Candidate: First, I would visit and learn everything that I can from what I see and experience first hand.

 How is the quality of the food?

 Are the prices reasonable?
 Do they offer healthier options and more variety?
 How is the service? How is the cleanliness?
 How is the facility laid out?
 Do they have more parking? Easier access?
Once I get a first hand view of the competition, I would take a hard look at the Whataburger burger joint
and the value proposition they are offering. The same questions would apply.

Next, I would do some primary research including customer interviews at both locations. The focus of
these interviews is to discern the differences in perception between the two locations. I would pay some
customers to go to each restaurant and rate the food and experience. I would also determine how many
of the customers are former Whataburger burger joint customers but now exclusively chicken customers,
versus how many visit both and how many are completely new to the chicken place but would not visit the
Whataburger restaurant.

Armed with the data on what customers’ value, I would then create a set of options to evaluate. There are
likely a number of areas that need improvement including new menu options, improved facility layout,
better taste/quality.

 Which will drive most traffic back into the restaurant fastest?
 Which give the largest return on investment?
After analyzing the alternatives based on the chosen criteria, I would prioritize them and develop an
action plan to include timing and responsibilities.

Interviewer: Very good. Sounds like you know the fast food restaurant business pretty well. What else
would you do?

Candidate: (At this point the case could go in several directions from leadership and project management
issues, to brand marketing and promotion, to financial decisions whether to close the facility).

Summary Comments
This type of case can be very intimidating since it is very broad and ill-defined up front. The interviewer
may not provide much guidance or detail, increasing the stress level. When faced with a case interview of
this type, the candidate should try to remain calm and methodical. Writing down the alternatives and
crossing them out as they are ruled out is a good way to show their thought process. Thinking aloud is
encouraged. The candidate should take a little time in the beginning to frame the issue so as not to
develop a hasty hypothesis and head down the wrong path.

Church Attendance Keeps Falling Despite New Pastor’s Effort

Case Type: business turnaround.
Consulting Firm: Mars & Co first round summer internship job interview.
Industry Coverage: non-profit organization.
Case Interview Question #00664: Assume that you are the new pastor (parish priest) of a rural English
church in the late 19th century. Over the last three years attendance to your church has been steadily
going down. Your boss has just come to town to tell you that if the downward trend continues, she will

have to consider  shutting down the church.

You have only two weeks to diagnose the problem and go to your boss with possible solutions. How
would you think through what these problems might be? What are some of the possible solutions to turn
around the downward trend of church attendance?

Possible Answer:
There are many potential reasons why the church goers of the parish have stopped going to the church.
First, I will talk about the possibility of competitive churches; secondly, I will talk about the possibility that
people in the area have simply stopped going to church.

First, I will talk about competing churches. There are three primary reasons why competing churches
could be taking our parishioners away :
 better location,
 “better” (more popular) religion,
 or better services.
I remember from my history classes in college that some churches were located far away from pockets of
the population, and church goers often would establish churches closer to home. Also, sometimes people
change what they believe or newfangled ways of thinking emerge. This could also be driving people to
other churches.

I would also want to figure out if the nearby churches are preaching different religions. There is at least a
chance that these churches are offering parishioners different kind of religious viewpoint that is more
attractive than the religion we have been preaching. Their rules regarding behavior, for instance, may be
different from ours.
Lastly, I would want to understand the different services being offered at “competing” churches. There
may be different things these other churches offer that we do not. For instance, these churches might
offer childcare, adult education and job training, or singles dances. These churches may offer more
personal attention and guidance from the pastors.

Now I would like to talk about the possibility that people who live in the area around the church simply
may have stopped going to church. Off the top of my head, I can think of two reasons why people may
stop going to church: progress and inconvenience. As science and communication advance, people may
rely less on the church to explain the world and more on scientific findings and written forms of
communication such as books and newspapers. This could be happening in our parish. On the other
hand, going to church may be becoming inconvenient or economically nonviable. Maybe our parishioners
feel that they need to stay at home or work in the fields in order to maintain subsistence. I would want to
talk to these parishioners to find out why they have stopped going to church.

There are many ways I could test my hypotheses. I think the most important thing is to talk to the former
parishioners to ask them why they have left the church and what we would need to do to entice them
back. After that, I would want to send someone (or myself) to the other churches in the area during
services to understand what is being preached at these churches. To help prove if the issue is location, I
would draw a map of our current and former parishioners and analyze how distance from the church
affects attendance. To understand if there are other churches in the area taking away our parishioners, I
would also map these new churches on my newly created map.

Once I understand why people are leaving, I would devise a plan to turn around the downward trend and
bring the parishioners back to my church. I would want to be focused on the needs of my parish, by
offering enhanced services, such as day care as well as flexibility, such as offering services at different
times of the day. If distance is a factor, I may want to consider having services at different locations at
different times, making our church more accessible.

Summary Comments
This would be a very good answer. The candidate came up with a number of hypotheses, identified ways
to test those hypotheses, and formulated an action plan to address the issues. This answer shows
thoughtfulness, creativity, and structured thinking. While there may be some issues that this candidate did
not identify, he/she does a good job structuring a comprehensive answer. For a 3C’s (Customer,
Competitors, Company) answer to be good, a candidate does not have to address every single issue.

Georgia-Pacific to Buy Additional Paper Mill in Midwest

Case Type: business turnaround; merger and acquisition (M&A).
Consulting Firm: Cognizant Business Consulting (CBC) first round full time job interview.
Industry Coverage: forestry, paper products.
Case Interview Question #00647: The client is the CEO of Georgia-Pacific LLC, an American pulp and
paper company based in Atlanta, Georgia. The company is one of the world’s leading manufacturers and
distributors of tissue, pulp, paper, toilet and paper towel dispensers, packaging paper, building products
and related chemicals.  As of Fall 2010, the Georgia-Pacific company employed
more than 40,000 people at more than 300 locations in North America, South America and Europe. It is
an independently operated and managed company of multinational conglomerate Koch Industries.
In the US, the paper industry generally has over-capacity. Recently the industry has also seen a trend of
consolidation. This year, the client Georgia-Pacific paper company has seen 2 consecutive losing
quarters. Your consulting team has been hired by the CEO of Georgia-Pacific to turn around his
company. What should the company do?
Question #1: What factors would you consider in turning around the paper company?
Possible Solution:
A good structure will include the following elements (3C’s framework).

1. Company

 What are the products the client is currently selling?

 How do their products fit into the overall market?
 What is the value chain for our client and where is the problem that causes the loss in
profitability?
2. Market for the products

 What is the size of the overall market?

 Are there any overall growth/shrinkage of the market?
3. Competition

 Fragmented market or big competitors dominate?

 What are the competitions doing currently?
 Substitutes for the products in the market
4. Customers

 Who are the client’s customers?

 What are the need of these customers?
 How does our client meet customers’ needs?
Question #2: Ask the candidate to look at the company’s profitability and assess how much we need to
increase revenues or decrease costs to become profitable.
Additional Information provided upon request:
1. Products:
 Book paper, considered their core product – 90% of the revenues
 Carbonless paper, used in credit card machines – 10% of the revenues
 The cost to change manufacturing lines from one product to another is minimal
2. Industry:

 Book paper market is stagnant, the client is #2 in market, and there are 3 main players
 Carbonless paper market is shrinking, but profits are slightly rising, the client is #5 in market, and
there are many players
3. Customers:

 Book paper customers are publishers

 Carbonless paper customers are large distributors
4. Company:

 The client currently has 2 plants in Wisconsin and Pennsylvania

Possible Answer:
Looking at the revenues coming from the two products and the situation in their respective markets, there
appears to be little opportunity for improvement in revenues. Although the profit in carbonless paper is
higher, the market is shrinking.

In order to look at the cost side I would like to better understand the value chain for the products.

Procurement -> Manufacturing -> Distribution -> Sales and Marketing

Additional Information provided upon request:

 Procurement: Inputs are raw materials (pulp) and chemicals; the prices of both are generally
rising
 Manufacturing: The client’s 2 plants are generally old and unsophisticated
 Distribution: Currently, the client uses 45% rail and 55% trucking; the price of rail is on average
50% lower; trucks are typically running ~40% empty
 Sales and Marketing: the client differentiates on their service level, e.g. next day delivery, 2nd day
to west coast, etc; competitors differentiate on brightness and price of paper
Note: The candidate should notice that the client has little room to move on the purchase of commodities;
upon further questioning, the candidate should be told that the service level is important to their
customers; a manufacturing discussion is important, but should be saved for the next part. Therefore, the
important point here is the wasted money in distribution.
Based on these additional information it seems there is a lot of waste in their cost structure and there are
lots of ways to decrease costs:

 Purchasing the raw materials at lower costs (new contracts / consolidate suppliers for more
buying power, etc)
 New technology could help them reduce the cost of manufacturing paper
 Distribution seems to be the quickest win that can provide great savings by moving from trucking
to rail and/or by making sure that trucks run at full capacity.
Question #3: The CEO of Georgia-Pacific paper company notifies you that he is considering purchasing
up to 3 additional paper mills
 East Coast Mill: has 2 manufacturing lines that are older technology, the mill comes with its own
distribution center
 Mid-West Mill: has 4 manufacturing lines that are state of the art, and produces its own pulp
 West Coast Mill: similar to East Coast Mill
How does this affect the analysis? The candidate should provide a final recommendation to the client.

Additional Information provided upon request:

 Prices for each paper mill:
 East Coast Mill $70 million
 Mid-West Mill $80 million
 West Coast Mill $60 million
 To update the firm’s Wisconsin mill to the technology level of the Mid-West mill will cost $120
million
 The Mid-West mill has easy access to rail and truck transportation
 The client’s current Wisconsin plant has rail access only with Wisconsin Central, essentially a
monopoly that charges high freight rates
 75% of the firm’s customers lie east of the Mississippi
Possible Answers:
Good answers:

At this point, it should be clear to the candidate that the firm’s major problems lie on the cost side and that
the two largest buckets that need to be addressed are raw materials and distribution cost; plant efficiency
is also a tertiary issue.

A good candidate will suggest purchasing at a minimum the Mid-West plant for the distribution advantage
and possibly the East Coast plant because of the distribution center. The West Coast mill is a red herring.

Better answers:

 Better answers would recommend purchasing the Mid-West plant and closing down the current
Wisconsin plant since over-capacity is an issue
 This enables more efficient production and better access to cheaper distribution
 The firm should set up distribution centers to allow slower & cheaper distribution by rail but at the
same time enable the maintenance of the high service level that customers require
 Any distribution centers should be geographically located near high concentrations of
customers; since the plants will be in the Mid-West & Pennsylvania, this would likely be in the
South
 The East Coast plant should not be purchased since the real attractive piece is the distribution
center, not the plant itself, and it is much cheaper to set up distribution centers than spend $70 million
on purchasing a new plant.
Diesel Engines Manufacturer MTU Posts Net Loss
Case Type: business turnaround.
Consulting Firm: Siemens Management Consulting first round job interview.
Industry Coverage: industrial equipment.
Case Interview Question #00585: Your client MTU (derived from Motor Engine and Turbine Union)
Friedrichshafen GmbH is a leading manufacturer of heavy duty commercial diesel engines for ships.
Headquartered in Friedrichshafen of Germany, the company had $500 million in revenues last year

(2011) and they make 50 marine diesel engines per year.

Currently MTU Friedrichshafen has 90% of the German market share for marine diesel engines. This past
year, however, they posted a net loss of $60 million. You have been brought in as a consultant by the
CEO of MTU Friedrichshafen. Specifically, the CEO has two questions that he would like you to address:

1. What are the causes of the $60 million net loss?

2. What are the options for this company to turn around?
How would you go about the case? What recommendations will you give to the MTU CEO?

Possible Answer:
Suggested framework: Profit = Revenues – Costs
1. General Company Information

 The client company MTU Friedrichshafen currently is operating at full capacity.

 The company’s products, marine diesel engines are mainly used to power ships for commercial
use.
 The client does not design the engines, they are made based on blueprints supplied by a design
firm that the company pays a licensing fee to.
 The marine diesel engines are not going to be replaced anytime soon, and therefore can be
considered commodities.
2. Revenues

 The number of engines sold has not decreased during the past year.
 Unit price of the client’s diesel engines has not gone down substantially.
3. Costs
 The company’s costs have not gone up.
 The company has just built a new modern factory taking advantage of all the cost savings of
better production processes and automation.
 Labor costs have gone down as well.
 Cost structure of the client company:
 60% materials
 20% labor
 10% overhead
 5% licensing fee
 5% other
4. Competitions

 The client’s market share has declined from 100% a few years ago to the current 90%
 Cost structure of one major competitor who recently entered the German market:
 55% materials
 15% labor costs
 10% overhead
 10% licensing fee
 10% other
5. So, what’s going on?

 The client’s labor is in a union and the company just negotiated a better deal for themselves.
That’s why the labor costs have gone down.
 However, one major competitor recently entered the German market, stealing the market share
from the client.
 The competitor makes 200 diesel engines per year.
 The competitor’s material costs are lower because of volume discounts.
 The competitor is located in South Korea where the labor is much cheaper.
6. What should the client do?

To turn around the company, the client could:

 Increase capacity, build more engines per year

 Expand geographically, sell engines outside of Germany
 Expand product lines, e.g. make diesel engines for trains, heavy military vehicles, agriculture,
mining and construction equipment
 Form a “buying consortium” with other companies that use the same materials in order to get the
volume discount
 Lastly, if it is possible, the client may consider selling the company to a competitor since the
South Korean competitor has significant cost advantages
Verizon to Turn Around Directory Assistance Business
Case Type: business turnaround.
Consulting Firm: Deloitte Consulting (Strategy & Operations) second round job interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00571: Your client Verizon Communications Inc. (NYSE: VZ, NASDAQ: VZ)
is a global telecommunications company. The company’s headquarters are located in the Verizon
Building in Lower Manhattan, New York City, United States. Verizon provides directory assistance

services in the $50 billion United States telecommunication market. They also
offer standard telecommunication services, including telephone, broadband internet, wireless, and
television connectivity.
In recent years, there has been a growing threat from electronic competitors (like Skype, Google) who
provide the same directory assistance services, but for far cheaper. In the past five years, your client
Verizon has lost 4.5 million customers and their revenue from directory assistance services has declined
at a 20% CAGR (Compound Annual Growth Rate) in the past three years. They’ve approached you to
help them turn around the directory assistance segment only. What should they do?
Additional Information: (to be given to you if asked)
1. Product

 Verizon charges $1 per call for directory assistance services.

 Their service consists of basic directory assistance: customers call and receive address and
phone number, that’s it.
 Directory assistance calls are either answered by a person or picked up by an automated
answering system.
2. Company

 Verizon has a unionized workforce

 Verizon is using an old data system
Exhibit 1: Number of Unique Callers from Year 2004 to 2008 (in millions)

Exhibit 2: Information About Calls Received

Average calls per caller

Type Number of calls % of total

High volume 50 5%

Mid volume 10 15%

Low volume 11 80%

Exhibit 3: Costs per Call

 Variable costs
 Staffing (Only applies to calls answered by staff): $1
 Software licensing (Only applies to automated calls): $0.10
 Fixed costs
 Utilities: $1 million / year
 Capital upgrades: $250,000 / quarter
 SG&A: $3 million / year
Exhibit 4: Automated vs. Staffed Calls

% of calls that are automated

 State 1: 25%
 State 2: 50%
 State 3: 25%
 State 4: 75%
 State 5: 75%
 State 6: 50%
Notes to Interviewer:
This is largely a numbers case. The interviewer should focus the initial conversation on the market,
competitors and the company to help the interviewee understand the issue. Then ask the interviewee
what information would be needed to estimate profits for the next few years.

As the interviewee asks for additional information, provide the four Exhibits. Collectively, the 4 exhibits
allow the interviewee to construct an income statement (See the one in “Possible Answer” section). After
an income statement has been generated, ask him/her: how long until the company’s profits in directory
assistance business become negative?

Then, ask how to turn around that trend. After the interviewee brainstorms, see if “sell the business” is an
idea. Then ask about the possibility of selling the business, such as:

 How much would the business be purchased for?

 What are some challenges in selling this sort of business?
 What are some possible response from competitors?
Possible Answers:
Exhibit 1:

 The number of subscribers from year 2004 – 2008 can be used to estimate the number of
subscribers in the next two years.
 It is safe to assume the downward trend will continue and round to even numbers, so 5 million in
2009, 4 million in 2010.
Exhibit 2:

 Average calls received can be used to estimate the average number of calls made per
subscriber: (50 * 5% ) + (10 * 15% ) + (1 * 80% ) = 4.8 calls per subscriber,
 It is safe to round 4.8 calls to 5 (even just from eyeballing)
From Exhibits 1 and 2, we can derive revenues for year 2009 and 2010.

 Year 2009: 5 million subscribers * 5 calls per subscriber * $1 per call = $25 million
 Year 2010: 4 million subscribers * 5 calls per subscriber * $1 per call = $20 million
Exhibit 3: Costs

 Fixed cost = $1 million + $250,000 * 4 + $3 million = $5 million per year

 Variable cost = cost of automated calls + cost of staffed calls
 Automated call cost = $0.10 * number of automated calls
 Staffed call cost = $1.00 * number of staffed calls
But, we need Exhibit 4 to get the number of automated calls and staffed calls first.

Exhibit 4: Calls Breakdown

It is safe to assume each state has a uniform number of calls, so the average of numbers means (25% * 2
+ 50% * 2 + 75% * 2) / 6 = 50% of calls are automated, and 50% are staffed.

Take the total # of calls from Exhibits 1 and 2, divide into automated and staffed calls, then multiple by the
cost of each type of calls, we can set up an income statement table:

Year 2009 2010

Total Revenues $25 million $20 million

Fixed cost $5 million $5 million

Variable cost

Cost of automated 25 million * 50% * $0.10 = $1.25 20 million * 50% * $0.10 = $1.0
calls million million

20 million * 50% * $1.0 = $10.0

Cost of staffed calls 25 million * 50% * $1.0 = $12.5 million million

Total variable cost $13.75 million $11.0 million

Total Costs $18.75 million $16.0 million

Profits $25 – $18.75 = $6.25 million $20 – $16.0 = $4.0 million

Recommendation
Based on our analysis, Year 2009 and 2010 will have projected profits of $6.25 million and $4.0 million,
respectively. However, due to the steep downward trend in the number of unique callers, the profit will
vanish in about 2 – 3 years. In order to turn around the directory assistance business, the client could
take the following measures:

 Upgrade their data system

 Cut cost by pushing more calls to automated system
 Increase price per calls
 Add additional services, such as direction assistance, traffic monitoring assistant, etc.
 Imitate competitors like Skype or Google
 Acquire new competitors
 Sell the business
However, there are certain risks associated with the above mentioned measures:

 It may be difficult to reduce unionized workforce

 Customer response from re-pricing calls
 Customer user experience difference between automated calls and staffed calls
Hormel Foods to Sell Spam Luncheon Meat Division
Case Type: business turnaround; merger and acquisition (M&A).
Consulting Firm: Bain & Company second round job interview.
Industry Coverage: food and beverage.
Case Interview Question #00502: Our client Hormel Foods Corporation (NYSE: HRL) is a $8 billion food
processing company based in Austin, Minnesota, United States that produces mainly raw meat. Hormel
sells food under many brands, including the Chi-Chi’s, Dinty Moore, Farmer John, Herdez, Jennie-O,

Lloyd’s and Stagg brands, as well as under its own name Hormel. The company
is listed on the Fortune 500 and is one of the S&P 500 Components.
Five years ago, the client has acquired a branded pre-packaged prepared meat company named Spam
(derived from SPiced HAM) that produces packed pre-cooked meat product such as sausage, hot dogs,
ham, etc. Soon after the acquisition, the parent company Hormel noticed that the branded, pre-packaged
meat division Spam was losing money. You have been hired to diagnose the problem. How would you go
about it? What recommendations would you provide them to turn around the pre-packaged meat division?
Possible Answers:
This case starts off as a business turnaround scenario, later on changes into a “selling business & exit”
case.

Candidate: From a macro level, there are several issues we can examine here. Let’s start by looking into
profitability of this pre-packaged meat division. First of all, I would like to look into the revenue drivers and
the cost drivers. Can you tell meanything regarding the trend in sales and prices for this division?
Interviewer: The sales have dropped from $500 million to $400 million due to a product rationalization.
The prices have remained constant.

Candidate: Well, has the client rationalized the proper products? How did the client come to these
decisions? Were they based on a percentage of sales or on true profitability such as a measure like EVA
(Economic Value Added)? Perhaps we can examine by what instrument/metrics the client rationalized its
product base.

Another possibility is to examine the product mix and compare them to customer preferences and market
positioning. How has overall profitability of the division improved from the product rationalization?

Interviewer: This is a good question. It turns out that the client was very successful with the product
rationalization. Our brand is a lower end brand and customers are satisfied with the product. The product
rationalization was very successful – the client was able to cut out the correct products. Profits for these
products went from ($20M) to $80 M. But, overall, the division is still losing money.

Candidate: So, the cost side of the equation is our next step. How has the cost structure changed for the
division?

Interviewer: The costs have remained constant as a percentage of sales since the acquisition.

Candidate: Costs have remained constant? Well, this could mean that the company is not taking into
account the synergies from the merger & acquisition. Let’s examine a series of costs that could be
optimized. Let’s start with overhead. Have the overhead costs and central functions been merged where
necessary? What is the overall divisional structure of the firm?

Interviewer: The management is very lean in this division. There is one marketing executive, one finance
executive, one operations, etc. They share legal assistance and some other general functions with the
parent company. This is not an area of large costs and not really an area of concern – in fact, costs in this
area have slightly decreased.

Candidate: All right, let’s now look at manufacturing costs. How have manufacturing costs changed? Has
the firm taken advantage of economies of scale, capacity utilization, and other synergies in
manufacturing?

Interviewer: Manufacturing costs have remained constant.

Candidate: Well, this could be one of the potential problems. Manufacturing costs should decrease as a
percent of sales from synergies. Post merger synergies should be realized and manufacturing costs
should somewhat decline. Other post merger synergies such as overhead and management costs could
also be realized. Economies of scale and capacity utilization should improve from mergers and therefore
costs should decrease as a percent of sales. Other issues could be culture fit between the two firms. We’ll
start with the manufacturing costs remaining constant. Let’s take a look at how many plants are in this
division and what the capacity utilizations are for these plants.

Interviewer: There is one manufacturing facility with high capacity utilization. Do you think that there are
any opportunities to reduce costs within manufacturing?

Candidate: There is still a possibility of moving the production of the processed meats to each raw meat
plant and increasing the vertical integration at each facility. Perhaps we can examine the investment
required at each plant and the exiting costs for the existing plant to the benefits of transportation costs
and inventory costs.

Interviewer: Suppose this is true and after implementing these changes, we discover that there is a $10
million improvement to the EBITA (earnings before interest, taxes and amortization) for a $40 million
investment. What would you recommend now? Would you implement these changes?
Candidate: I would now compare the improvement in earnings to the loss from operations. What is the
loss in operations annually?

Interviewer: The operations loss is $20 million per year.

Candidate: So, this means that the division is still losing $10 million annually plus a $20 million dollar
investment. Now, let’s look at selling the business. Who are our potential buyers and how much are they
willing to pay? (don’t forget that selling the business is always an option that you should be prepared to
bring up if you seem unable to find a path to profitability)

Interviewer: There are no potential buyers. You cannot sell this business.

Candidate: Then, we must look at exit costs. Perhaps we should not be in this business. How much would
it cost to close down the plant? We would want to know the total cost of severance and the value of the
assets we currently have.

Interviewer: The cost of exiting is $100M.

Candidate: If we do an NPV (net present value) calculation on the cash flow improvements, we would see
that we would lose almost the same amount by staying in business. You can now make an argument for
exiting the business based on core competencies and focusing on core businesses.

Interviewer: OK, I think we have covered all. Can you summarize your findings for me?

Rohm and Haas to Turn Around Specialty Chemical Business

Case Type: business turnaround.
Consulting Firm: LEK Consulting 2nd round summer internship interview.
Industry Coverage: chemical industry.
Case Interview Question #00471: Our client Rohm and Haas is a specialty chemical manufacturer. The
company is a wholly owned subsidiary (since 2008) of Midland, Michigan, United States based chemical
corporation Dow Chemical Company (NYSE: DOW). It primarily produces specialty chemical products to

meet the needs of different markets.

Rohm and Haas runs one chemical plant near Philadelphia, Pennsylvania, with common facilities in terms
of vats, mixers, etc., to produce chemicals for four major markets:
 First is textiles, which are chemicals that are dumped into large vats with cloth designed to leech
out unwanted minerals from cloth.
 Second is fibers, which assist in the extension and spinning of fibers and add lubricity.
 Third is metal working, which again creates chemical additive fluids designed to soften metals for
shaping.
 Fourth is oil fields, which has chemical products that also add lubricity to the oil wells and drilling
equipment.
This chemical plant is currently losing $15 million per year. Our consulting firm has been hired by Rohm
and Haas to determine whether or not the business can be turned around, and help the client determine
how to do it if possible. How would you go about the case?

Possible Answer:

Candidate: I’d like to examine this problem using a matrix of different criteria to compare each of our
products in these four different markets.
Growt
Market size (USD/Total) h Capacity Profitability Competition Customer Opinion

Textiles

Fibers

Metal

Oil fields

I’d like to start by learning more about the size of these various markets, in terms of total sales for the
industry and also the market share our client commands.

Interviewer: In textiles, the total market is well over $1 billion annually, and our client sells about $30
million here. In fibers, our client sells about $20 million in a total market size of $600 million. In metal, our
client sells about $30 million in a market of about $600 million. In oil, our client sells about $20 million in a
$180 million market.

Candidate: Are the growth rates in these markets significantly different?

Interviewer: No. Each market tends to grow or shrink with GNP.

Candidate: Is capacity an issue for us, if we were to increase production of any product line or eliminate a
product line? Is the industry overcapacity? Is our production technology up-to-date?

Interviewer: There really aren’t any productivity or capacity problems for us, since we can use the same
facilities to produce most of our products. Each product is basically mixed in 10,000 gallon vats. If we do
run out of capacity due to huge surges in demand, we’re usually able to outsource production to third-
party manufacturers at a reasonable price.

Candidate: That suggests that we shouldn’t look at making large investments in PP&E. Now, l’d like to
know more about the competition in each of these markets.

Interviewer: Textiles is a highly fragmented business, with hundreds of companies making hundreds of
products for hundreds of customers, and thus it tends to be a hustle business. Fibers has five major
players including us, and eight large customers. Metal has about twenty large firms involved. Oil is much
like fibers, with very few significant players.

Candidate: Next, I’d like to know how customers feel about our client’s products as compared to the rest
of the industry.

Interviewer: In textiles, our client seems to be at about parity with the competition. It’s hard to tell in the
fibers market, since about half of our sales go to an internal client in another division of the company. Our
metal products are very well received, and customers tell us that they’d like to see our sales force more
often. Also, our oil products are the top of the line in the industry, but they are very expensive. Our
product here is like a “silver bullet” in the industry – it works extremely well, but it’s so expensive that you
only purchase it when you absolutely need it.

Candidate: Next, I’d like to know about how profitable each of these product lines is for our client.

Interviewer: Metal is profitable, oil is about break-even. Textiles is somewhere between break-even and
slightly negative, and fibers is very negative.

Candidate: I’d like to start my further analysis in the fibers market. Why are we unprofitable here?

Interviewer: Our facilities don’t seem to be able to produce the type of reactions needed to continuously
generate a large volume of the fibers chemicals effectively. Our yields are poor when compared to the
rest of the industry.

Candidate: Is there any chance our parent firm can purchase this product from one of the other
producers, given that we might be able to put the capacity to more profitable use in a different product?

Interviewer: Sure. Our money is as good as anyone else’s.

Candidate: My first recommendation is to discontinue producing the fibers product for our internal client,
and have them purchase the product on the market. Now, I’d like to look more into the metals product.
What sort of customers are purchasing this product, and why is our product so well received?

Interviewer: Customers are large industrial clients who use this chemical as an additive to metal working.
For us, the production cycle is easy and logistics are no problem in shipping the product through our
established sales network. This has made the product profitable for us. Customers have also responded
well to our service, which is regarded as superior to our competitors.

Candidate: How is our service superior?

Interviewer: We handle delivery, production planning, and handling charges for our large customers. We
have also been very reliable in on-time delivery.

Candidate: How important, on a cost basis, is our product to our clients? In other words, is our product a
large percentage of their materials costs or a small percentage.

Interviewer: Very small.

Candidate: In that case, I’d like to explore charging more to clients for our product in return for even better
service. Our goal is to capture higher profits through improved service by ensuring that the management
of these clients does not ever have to worry about the reliability or quality of our product. By minimizing
the hassle our clients have by purchasing from us instead of competitors, we should be able to leverage
our superior service into increased profits. Next, I’d like to look more closely at the oil product. Why is our
product so much more expensive than competitors’?

Interviewer: We are able to command a disproportionately large market share in oil because we have a
proprietary technology that greatly enhances the operations of drilling equipment for exploration
companies. We really have the only product on the market that can serve the needs of these customers
when their drilling equipment fails.

Candidate: Since We have an effective monopoly on this type of product, customers will have to buy from
us whenever they need it and won’t be able to go to competitors. Since customers don’t purchase this
product unless they absolutely need it now, I recommend we look closely at the value our product
provides to customers and possibly raise prices to capture more consumer surplus. Of course, if a
competitor is able to duplicate our product, we will have to lower prices as a result, but for now, we should
be able to raise price. Finally, I’d like to learn more about the textile market.

Interviewer: Textiles has hundreds of producers, and customers vary from huge textile companies, to
small die-tool houses, down to “mom and pop” establishments who require very little product on a regular
basis. Many different segments of customers exist.

Candidate: Given that this is such a huge market, I recommend our client look for a way to differentiate
and provide a superior value proposition to a particular segment. The best way to do this would be to
determine which segments our client can actually serve well first. For example, we may never have
enough capacity to serve the huge customers, but perhaps we can allocate all of our capacity to a few
mid-sized firms which provide us with profitable sales. Then, we should rationalize all of our efforts to
producing for a few, profitable customers rather than selling product to the market at large.
Interviewer: Great job. Could you summarize your recommendations for me?

Candidate:

 Exit the fibers market.

 Emphasize superior service to customers to charge higher prices in metals.
 Raise the price in oil in order to capture monopoly profits.
 Establish a customer focus and segment the textile market to focus on a few highly profitable
customers.
National Oilwell Varco to Turn Around Declining Share Price
Case Type: business turnaround.
Consulting Firm: Schlumberger Business Consulting (SBC) first round job interview.
Industry Coverage: oil, gas & petroleum industry; manufacturing.
Case Interview Question #00468: Our client National Oilwell Varco (NOV, NYSE: NOV) is a
multinational corporation based in Greater Sharpstown, Houston, Texas, United States which
manufactures land-based and offshore oil drilling rigs as well as all the major mechanical components for

such rigs. They are a worldwide  leader in the design, manufacturing and sale of
oil well completion equipment and components used in oil and gas drilling and production operations.
In petroleum production, oil well completion is the process of making a well ready for production (or
injection). This principally involves preparing the bottom of the hole to the required specifications, running
in the production tubing and its associated down hole tools as well as perforating and stimulating as
required. Sometimes, the process of running in and cementing the casing is also included.
The oil well completion products manufactured by the client are fairly generic, but are quite capital
intensive. The client has been making profits, but their share price has been tanking lately. I want you to
examine the case from two angles: first of all, is it possible for a company to make operating profits and
still see its share price tumble? Secondly, what would you suggest they do in order to turn around the
declining stock price?

Possible Answer:
This mini “turn around a business” case tests the candidate on a very fundamental financial concept: the
returns from the investment should exceed the company’s cost of capital. In this situation, the interviewer
was looking for a specific answer, not just the issues. What has been presented below is only the nutshell
version. As the interviewer, you should feel free to engage the candidate in discussions before leading
him or her to the correct answer.
Candidate: Very interesting case! I would like to take your first issue first. It is very possible that share
prices can go down even if the company is making operating profits. If the return on the company‘s
investments does not exceed the cost of capital, the company does not make any “economic profit”. In
other words, the company is not probably making the kind of returns expected by the shareholders.

Interviewer: Bingo. Now, tell me how this situation can apply to this particular company.

Candidate: Well, you mentioned that this company’s investments in its equipment are very capital
intensive. This probably means that the fixed costs are high compared to the variable costs. I would
therefore look at some capacity issues. Are they running up-to capacity?

Interviewer: Well, the problem is, they have their operations in different locations. Each place invests in
additional capacity as need arises.

Candidate: Does this mean that there are situations when one of the locations is in need of equipment, it
is possible that the other location may actually have it available?

Interviewer: Very much so. When one location needs equipment, they just go buy it. Since demand has
been robust lately, the company has made significant investments lately.

Candidate: That probably explains the declining stock price. The company has been making capital
intensive investments, probably creating excessive capacity overall. This creates undue stress on cash
flow to shareholders, who then dump the stock.

A possible solution to turn around the declining stock price is for the managers of different locations to
communicate more freely with each other. One may want to look at how the managers are incentivized. It
is very likely that the managers have no incentives to borrow equipment from different locations.

Interviewer: That’s correct! Our findings were actually on similar lines (followed by a 5 minute detailed
description of the actual recommendation). You did an excellent job.

Swiss Food Giant Nestle Losing Its Innovative Reputation

Case Type: business turnaround.
Consulting Firm: IBM Global Business Services (GBS) 2nd round job interview.
Industry Coverage: consumer products; food & beverage.
Case Interview Question #00398: The client Nestle S.A. (SIX: NESN) is a large multinational diversified
foods and consumer products company, founded and headquartered in Vevey, Switzerland. Nestle
originated in a 1905 merger of the Anglo-Swiss Milk Company and the Henri Nestle Company.
Today,  the company operates in 86 countries around the world and employs
more than 280,000 people. Revenue is CHF 109.72 billion in fiscal year 2010.
You have been brought in as a consultant because recently Nestle is experiencing stagnant market
share. What’s worse, the client is quickly losing its innovative reputation as it is more frequently merely
adding product line extensions rather than new products. This loss of innovation has been well
documented. What are the drivers of this trend? What would you do to turn around the trend?
Additional Information: (to be provided to candidate if requested)
1. Customers
Market research has shown that customers do value innovation.

2. Competitors
Other companies are still being innovative. In fact some of the innovations of other companies are similar
to new products which the client Nestle worked on, but discontinued.

3. Company
The Nestle company has over 10,000 products, including baby food, coffee, dairy products, breakfast
cereals, confectionery, bottled water, ice cream, pet foods, etc. About 50% of their products have an
unchanging market share. 40% have declining market share (largely due to offbrands) and 10% have
increasing market share. Some of the products, but not all, are in mature product lines. It has been well
documented that mature product lines seldom result in innovations.

The Nestle company has a reputation for producing the highest-quality products.
Nestle spends a great deal on research & development (R&D). There has been no decrease in the
percentage of sales spent on R&D, but is now much more fragmented. R&D used to all be co-located,
and a study showed that scientists spent 30 percent of their time on research. The directors desire to be
in the middle of everything has resulted in scientists spending a lot of their time preparing reports about
what they are doing.

The company has become much more risk-averse over the past few decades. Failures are penalized
much more heavily than they used to be. Great disincentives exist to share information.

The company has no formal process in place for developing new product, and is largely driven by the gut
instincts of directors of the division. There is no focus on product potential or the development paths to
pursue for promising candidates.

Possible Solution:
At a minimum, the candidate should discuss the following areas:

Address the need for new product development. Create processes for assessing which products to
pursue and which not to not pursue. These processes may include analysis of cost structure, market
dynamics, revenue stream, cannibalism, etc. Also ensure that any new processes are monitored to
maintain accuracy.

Create a more innovative and friendly environment. The culture has created disincentives to be innovative
and take risks, a trend that needs to be reversed.

Investigate ways to create incentives to share information and take educated risks. Investigate ways to
get more bang for the research buck. One possibility is finding ways to focus more scientist time on
conducting research instead of writing reports.

Focus product development efforts on non-mature product lines. Suggest doing more investigation on
which product lines have the highest probability for successful innovation.

Emerged from Bankruptcy, Tronox Looks Ahead to the Future

Case Type: operations strategy; business turnaround
Consulting Firm: Deloitte Consulting final round job interview.
Industry Coverage: chemical industry.
Case Interview Question #00372: Tronox Inc. (NYSE:TRX) is an Oklahoma City, Oklahoma based
chemical company involved in the manufacturing of titanium dioxide (TiO2) pigment. The company is the
world’s fifth-largest producer and marketer of titanium dioxide pigment, holding a 12% market share

worldwide and serving customers in more than 100 countries.

Titanium dioxide is an inorganic pigment that whitens and brightens hundreds of consumer products –
from paint and plastics to paper, cosmetics and more. Tronox produce a full range of superior pigment
grades for a variety of end-use markets.

In January 2009, Tronox filed Chapter 11 bankruptcy protection. Recently, it successfully emerged from
bankruptcy. They have hired you as a consultant to help them chart a future course of action. First of all,
they want you to evaluate if their current products are viable. How would you go about this case?
Possible Answers:
This case tests how a candidate thinks about the fundamentals of turning a company around. For this
purpose, the candidate has to understand the current situation first.
Suggested Structure:
Overall the candidate should explore if the client can generate positive cash flow in the future. If not the
candidate should look at options to generate cash flow.

Step 1: Understand what led to client’s bankruptcy.

Step 2: Understand the products and the industry.
Step 3: Understand the current product economics and future projections.
Step 4: Propose recommendations – Both for top line and bottom line improvement.
1. What led to bankruptcy?

Simple the company was not making money and was incurring losses. This led to default of loans and
resulted in Bankruptcy. They refinanced the company through some means and have very limited
funding. Additional funding is not possible.

2. Products and Industry:

 Their main product is Chemical X (titanium dioxide TiO2) and the by-product is Chemical Y (iron
sulfate, FeSO4).
 Both products X & Y are commodity chemicals.
 The chemical industry related to Chemical X & Y is highly cyclical and now it is at its peak.
 The industry related to Chemical X & Y is highly competitive.
 Client’s customers are other large chemical companies.
3. Product economics: data to be given only when the candidate asks.

 Annual production capacity: Totally 500,000 tons per year.

 Price of Chemical X = $95 per ton. Price of Chemical Y = $75 per ton.
 The end product from the manufacturing process is a combination of Chemical X and Y. It has to
be separated into X & Y. Each ton of the end product they produce has X and Y in the ratio of 1:1.5.
 Client’s manufacturing facility has a fixed cost of $25MM per year.
 Variable costs of production are $60 per ton of end product.
At this stage of the case, the candidate has to perform the following calculations to quantify whether
client’s current products are viable.

Annual production volume in tons 500K

Chemical X in tons 500K * (2/5) = 200K

Chemical Y in tons 500k * (3/5) = 300K

Price of X per ton $95

Price of Y per ton $75

Fixed Cost $25MM

Variable Cost per ton (X&Y) $60

Annual Revenue 200K * $95 + 300K * $75 = $41.5MM

Total Annual Cost $25MM + $60 * 500K = $55MM

Net Annual Profit $41.5 – $55 = – $13.5MM

From the calculations, it is clear that the current products are making losses. The interviewer should
provide the following response for questions that may arise.

 Can we raise prices? – No, we cannot. Industry is very competitive and also is at the peak of its
cyclical. This means that going forward the price will only go down.
 Can we exit the business? – It is a possibility. But push the candidate to look at ideas to turn the
company around.
Question #2: How can we increase the top line?
Possible Answer:
Assume that both Chemical X and Y have a saturated market and the market has several competitors.
With the cyclical demand and a downward trend expected in the future it is difficult to sell more. So the
candidate has to look for opportunities to launch new products or services.

Question #3: What new products or services can the client company launch? Allow the candidate to
explore options creatively. However, the candidate should remember that funding to invest is very limited.
Possible Answers:
 Products that can be manufactured without major modifications to existing plant set up.
 Products that can be bought from manufacturers outside the US but can be sold in US.
 Products that will hedge against cyclical business issues. For example: if the chemical is used in
the cooling systems of machines, then the customers would like the manufacturer to administer the
chemical into the cooling system on a routine basis. The client can look at any such opportunities.
 Start a chemical distribution company.
 Start a chemical research laboratory and provide R&D advice to other large chemical companies.
 Move into chemicals retailing business.
Question #4: It is obvious that the cost of production for client is higher than the price they can
command. What are the areas they should look at to reduce costs?
Possible Answers:
 Improve plant efficiency
 Reduce raw material cost by changing suppliers or negotiating costs down
 Reduce the fixed costs like corporate workforce and so on
 Outsource manufacturing to low cost countries
 Reduce energy costs by improving the energy efficiency
Question #5: Why can the client not exit the business? Sell this business to someone else and start
something that is profitable? What issues do you foresee if the client has to do so?
Possible Answers:
 Who will want to buy this business?
 How much can the client sell the business for?
 Issues with laying off people.
Question #6: Ask the candidate to give a final recommendations to client.
Avery Dennison to Turn Around Specialty Label Business
Case Type: industry analysis; business turnaround.
Consulting Firm: FTI Consulting 2nd round job interview.
Industry Coverage: manufacturing; office products.
Case Interview Question #00333: Our client Avery Dennison Corporation (NYSE: AVY) is a global
manufacturer and distributor of self-adhesive specialty labels, office products, and various other paper
products. The client company is currently headquartered in Pasadena, California, United States, with

manufacturing and distribution facilities in over 60 countries.

The client Avery Dennison has been losing money in their specialty label business for the last three years.
They have brought you in as an outside consultant to help address the problem. There are two questions
for you:

(1) Should the client Avery stay in this industry or not?

(2) If the client has decided to stay in this industry, how can you quickly help them turn around their
unprofitable business?
Possible Solution:
First, I would like to understand whether specialty label is an attractive industry to be in the long run. One
of the possible approaches here is to understand current industry structure and the industry trends by
applying Porter’s Five Forces analysis.
1. Current industry structure

 Rivalry: The client company Avery is the largest player in the market, responsible for 54% of
sales; other competitors are primarily small “mom and pop” producers.
 Customers: High-end cosmetic companies prepared to pay premium for the client’s color
matching ability.
 Barriers to entry: Low, competition may increase in the future.
2. Next issue to consider: industry trends

 is it a growing industry;
 how is competition likely to evolve;
 what capabilities are required to compete in the future and does the client company possess
them;
 are substitutes likely to evolve (other materials, other technology);
 how powerful and concentrated are our suppliers;
 how high are the exit costs.
Next, I’d like to develop business turnaround and profitability improvement strategy. Profit = Revenues –
Costs. A poor profitability means that either revenue goes down, costs go up, or both.

1. Let us look at Revenues first.

Revenue = number of units sold * price per unit. It turns out there were no changes on the revenue side.

2. Costs = fixed costs + variable costs

What are the major cost drivers for specialty labels? They are labor (variable) and artwork (fixed).

 It turns out client’s variable costs are the same as industry average and have been constant over
time.
 Client’s fixed costs are quite significant, therefore there are significant economies of scale in this
business.
Recommendations for Client:
The costs will be brought down if sales go up because of economies of scale. Therefore, the client should
spend heavily on marketing to help spur sales.

Emerged from Bankruptcy, Chemtura Seeks Strategic Alternatives

Case Type: operations strategy; business turnaround
Consulting Firm: Deloitte Consulting final round job interview.
Industry Coverage: chemical.
Case Interview Question #00255: Our client Chemtura Corporation (NYSE: CHMT) is a manufacturer of
basic commodity chemicals, specialty chemicals, polymer products and processing equipment for a
variety of industries, with a single-digit market share. The company was formed in 2005 from the merger
of Great Lakes Chemical and Crompton Corporation. Headquartered in

Philadelphia,  Chemtura employs about 6,000 people internationally and had

sales of USD $3.7 billion in 2007.
Currently Chemtura possesses no other competencies or capabilities other than as a chemicals
manufacturer. It recently emerged from bankruptcy reorganization and financial restructuring. Having
limited access to capital, the client has asked for our help to evaluate the sustainability of their business
and recommend some strategic alternatives to their current business model. How would you go about the
case?
Additional Information:
 Prices for client’s chemical products are cyclical and run in seven-year cycles (peak to peak). The
client is currently at the top of the pricing cycle.
 The primary chemical produced is Chemical X, of which the client produces 100,000 tons
annually.
 A by-product of the production of X is the production of Chemical Y, which is produced at a ratio
of 1.5 Y : 1.0 X.
 The current price of X is $150/ton. This will fall to $100/ton in 2008.
 The current price of Y is $175/ton. This will fall to $100/ton in 2008.
 Variable costs are $50 for every combined ton of X & Y. This will rise to $95 in 2008.
 Fixed costs are $20 MM.
Question #1: Keeping in mind that the client will be unable to endure any net losses, can the client
survive 2008 (which will be the bottom of the pricing cycle)?
Possible Answer:
 Chemical X Revenue: 100,000 ton * $100/ton = $10 MM.
 Chemical Y Revenue: 100,000 ton * 1.5 = 150,000 ton; 150,000 ton * $100/ton = $15 MM.
 Total Revenue: $10 MM + $15 MM = $25 MM
 Variable Costs: 100,000 ton * $95/ton = $9.5 MM.
 Fixed Costs: $20 MM.
 Total Costs: $20 + $9.5 = $29.5 MM.
 2008 Net Income = $25 MM – $29.5 MM = – $4.5 MM.
Answer: No, the client has a net loss in 2008 and cannot survive the bottom of the pricing cycle.

Note: Candidates will often be asked to perform some basic calculations during a case interview. In real
client situations, consultants are frequently required to process data and make estimates in real time,
without the aid of a calculator or spreadsheet. It is important not only to correctly perform the calculation
(e.g., net loss of $4.5 MM), but also to understand the business implication (e.g., the client cannot survive
the bottom of the pricing cycle).

Question #2: What could be the underlying reasons for the client’s inability (for the first time) to survive
the trough of the pricing cycle?
Possible Answer:
It is important to consider what has changed during this cycle that may not have changed (or changed as
dramatically) in previous cycles. One way to approach the question is to evaluate the sides of the revenue
/ cost equation.
Revenue Factors:

 The trough of the pricing cycle is deeper (lower) than ever before.
 Production volume is lower than before, thereby not providing enough income to cover the fixed
costs.
Cost Factors:

 Variable costs have increased to a greater percentage of revenue than ever before.
 Fixed costs have increased – perhaps b/c of outside issues (i.e. environmental issues) requiring
more expensive equipment to produce the same volumes.
Note: Questions like this help the interviewer assess the candidate’s understanding of profitability. The
interviewer can evaluate the candidate’s approach to breaking down the components of profitability and
identifying the underlying factors affecting the client. Having a structured approach to thinking through
these factors is critical as it demonstrates logical thinking and ensures the candidate has completely
thought through the problem.

Question #3: Discuss the opportunity and risks associated with each of the following strategic
alternatives:
a. Acquire / move into a counter-cyclical chemicals business.
b. Provide additional products / services relevant to one or more of its key customer segments (i.e. in
addition to selling X and Y, sell Products A and B, and perhaps Services C and D).
Possible Answer:
a. Acquire / move into a counter-cyclical chemicals business:

 Potential Opportunity: To balance the existing cyclical nature of the client’s core products,
resulting in a potential scenario where one core product is always near the top of its pricing cycle
while the other is near the bottom of its own unique cycle.
 Potential Risks: Unlikely to find a chemicals business that is purely countercyclical to the client’s
existing business. Industries such as these tend to move in tandem – there may be some lag
between various products, but a complete inverse of cycles is unlikely.
 To enter such a business fast enough to avoid bankruptcy in 2008 would require an acquisition in
addition to any efforts to enter new markets organically. This may stretch current resource
capabilities.
 Such an acquisition would require capital, which would be difficult to obtain given the dire
financial situation of the client
b. Provide additional products / services relevant to one or more of its key customer segments.

 Potential Opportunity: Leverage an existing set of relationships to provide a greater share of their
chemicals or chemicals-related needs. This would provide the catalyst to enter new businesses that
would potentially prop up the client’s income statement while its core business is suffering through
the bottom of its price cycle.
 Potential Risks: The organization has no skills or capabilities to leverage beyond its core
manufacturing competencies. It is unlikely that its leadership would successfully evolve the business
away from a volume focus to a relationship / service focus.
 Once again, the need to move quickly and get this strategy producing results would require a
quick acquisition. This is unlikely given the client’s recent emergence from bankruptcy, poor
prospects, and limited financial position.
Note: The above-listed question allows the candidate to demonstrate an understanding of strategic
alternatives and formulate an approach to identifying the opportunities and risks associated with each.
Consulting firms are frequently hired by clients to provide an unbiased assessment of their strategic
options – thus the ability to create a logical, clear approach to such issues is a skill we look for in a
candidate.

Question #4: If neither of these alternatives is viable, what strategic options would you recommend to the
client?
Possible Answer:
Although there could be a number of options, a strong answer would include the following:

 Sell the company.

 Liquidate plants and other fixed assets – essentially, perform a managed bankruptcy.
 Reduced debt, improved cost structure and resolve a considerable amount of environmental and
other liabilities.
 Perform some type of profitability analysis and identify plants / assets that could be shut down so
that the anticipated net loss in 2008 does not occur.
Note: This question tests a candidate’s ability to develop strategic options with limited information.
Consultants are often asked to identify viable options for clients with minimal direction and limited data. A
strong candidate must be comfortable offering recommendations under these conditions.
Lucent Technologies to Reverse Trend of Declining Profits
Case Type: business turnaround; industry analysis.
Consulting Firm: Parthenon Group first round internship interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00244: The client Lucent Technologies, Inc. is a technology product
warehouser that purchases a range of voice/telephony telecommunication and network technologies
(both simple and complicated) from original manufacturers, and then sells them to a group of resellers,

who in turn sell them  to end consumers. The supply chain structure is like the
following: Manufacturer –> CLIENT –> Reseller –> End Consumer.
The reseller market can be divided into 3 segments: Corporate (largest), Value-Added (medium), and E-
tailer (smallest). Our client has experienced eight quarters of declining profit. You have been hired to find
out the cause and provide recommendations to reverse this trend. How would you go about it?
Additional Information: (provided to you if asked)
The client is the largest company in the industry, with a number two competitor almost as large and
several smaller players. There have been no new market entrants in recent years and all firms sell at
industry-wide prices. The industry can be divided exclusively into three segments, for which the following
data exist:

Table 1. Market segments and client’s market share.

Client Industry Client Industry

Market size unit avg. price Market size unit avg. price
Year 2000 ($ million) sales ($) Year 2002 ($ million) sales ($)

Corporate 20 1,000 5,000 Corporate 15 1,000 3,000

Value-
Value-Added 45 1,500 10,000 Added 40 1,250 8,000

E-tailers 10 2,500 2,000 E-tailers 5 2,000 1,000

Total/Averag
e ??? ??? ??? ??? ??? ???

The interviewee will be asked to do some calculations and complete the above table.

Possible Solution: 

After some calculations, the data from the completed Table 2 should lead the interviewee to the following
conclusions:
 The overall industry has shrunk, both on a price and volume basis, indicating it’s a bad business
to be in.
 Overall market size has declined 20%: 1 – (60/75) * 100% = 20%.
 Average price has declined 28%: 1 – (4,000/5,555) * 100% = 28%.
 The client’s overall market share has shrunk from roughly 33% in Year 2000 to 25% in 2002.
 Year 2000: (1*5 + 1.5*10 + 1.5*2 ) / (20 + 45 + 10) = 25/75 = 33%
 Year 2002: (1*3 + 1.25*8 + 2*1) / ( 15 +40 +5 ) = 15/60 = 25%
 Value-added is the largest segment and client has lost the most market share in it, down from
33% in Year 2000 to 25% in 2002.
The falling prices can be interpreted to mean that a price war has begun in the industry, perhaps due to
short-sighted competitive responses to new technologies. The falling volume can be interpreted to mean
that the client and its competitors are getting cut out of the value chain, as manufacturers have begun to
sell directly to resellers and end consumers.

Based on the available data, deteriorating metrics across the board suggest that the voice/telephony
technologies industry is mature and rapidly approaching obsolescence. Absent novel opportunities for
differentiation, there is little that the client can do to return to profitability under these market conditions.
Recommendations should recognize this reality and likely address options for exiting the industry via
diversification, firm sale, and/or closure.

Table 2. Market segments and client’s market share (completed).

Market Client Market Client

size ($ unit Year size ($ unit Industry avg. price
Year 2000 million) sales Industry avg. price ($) 2002 million) sales ($)

Corpora
Corporate 20 1,000 5,000 te 15 1,000 3,000

Value- Value-
Added 45 1,500 10,000 Added 40 1,250 8,000

E-tailers 10 2,500 2,000 E-tailers 5 2,000 1,000

1*5 + 1*3 +
1.5*1 1.25*
0+ 8+
20+45+ 1.5*2 75,000/ 15+40+ 2*1 = 60,000/
Total/Avera 10 = $75 = $25 (20/5+45/10+10/2) = 5 = $60 $15 (15/3+40/8+5/1) =
ge M M $5,555 M M $4,000

How to Turn Around a Failing Start-up Software Company?

Case Type: business turnaround.
Consulting Firm: ZS Associates 1st round internship interview.
Industry Coverage: software, information technology (IT); small business, startups.
Case Interview Question #00222: Suppose you are a first-year associate working with one of the top
management consulting firms specializing in business turnaround and corporate restructuring. A friend of
yours has just inherited a failing start-up software company from his parents and came

 to you for advice. On which fronts do you anticipate problems? How would you
help your friend turn around his software company?
Possible Approach:
 How would you evaluate the sincerity, honesty, and integrity of the owner of the business? Do
others that they deal with (employees, suppliers, customers) value them as partners or are there
character issues?
 Are there any legal actions pending against the business?
 Does the mission of the start-up make sense? Is their business concept sound?
 What is the timeline/progress of development, coding, testing, and production as originally
conceived in the business plan? Does it make sense?
 What is the previous track record of each of the principals of the startup?
 What is the plan for producing the product when the code is ready? Is outsourcing stamping,
packaging, and shipping an option? Is capacity an issue?
 What is the makeup of the initial seed capital to start the business? Personal assets, small
business loan, venture capital funds?
 What is the debt structure like if it exists? Interest rates, due dates, rollover ability, secured
assets, etc.?
 Have any patents been applied for? What is their status?
 What has been done to protect the intellectual capital/property associated with the software
design?
 Describe the market space the business occupies. Why did the business come into inception?
 What defines dominance in this market? Cost? Economies of scale? Speed to market?
Relationships with customers? Where does this business fall against the aforementioned metrics?
 Is the market for this type of product saturated? Is there a particular unfulfilled segment where
this product fits or will it be competing against other already established products?
 What is the advertising and promotional activity planned for this product?
Kodak to Improve Profit Margin for Digital Cameras
Case Type: business turnaround; business competition/competitive response.
Consulting Firm: Booz & Company final round job interview.
Industry Coverage: electronics; consumer products.
Case Interview Question #00205: The client Eastman Kodak Company (NYSE: EK) is a multinational
consumer good / consumer electronics company headquartered in Rochester, New York, U.S. Long
known for its wide range of photographic film products, Kodak is re-focusing on two major markets: digital
photography and digital printing.

One of Kodak’s products, Digital Camera has never made a profit since its inception although the division
has enjoyed double digit growth in the last 4 years. Investors are getting impatient with the negative
earnings. Questions to you, a turnaround specialist hired by the CEO of Kodak are the following:
1. What is a good target profit margin for the client (can be zero)?
2. Should the client exit the digital camera business?
3. What recommendation would you make to the CEO regarding the digital camera division?
Additional Information: (to be given to you if asked)
 Kodak sells digital camera through various retail channels: Wal-Mart, Best Buy, RadioShack,
Circuit City, on-line stores like Amazon, photo shops, etc.
 Kodak does have different segments of digital cameras, but for the purpose of this case, we will
assume that on average Kodak digital camera is priced at $200.
 Quantity sold has been increasing, but client has been losing market share across all segments.
 There are 4 major competitors for the client in digital camera market:
Firm % Market Share Average Price

Canon 40% $220.00

Sony 15% $300.00

Samsun
g 10% $260.00

Nikon 10% $250.00

 3 factors affect customer buying decision: brand image, good resolution and good lenses.
 Kodak has brand equity because of its presence in related markets (imaging and photographic
materials and equipment, camcorder, etc) and also use similar lenses to its competitors.
 Unlike large conglomerate competitors, e.g. Samsung and Sony, Kodak is not involved in any
other auxiliary product or services.
 Client’s cost per camera is the same as biggest competitor Canon – $205 per camera.
 Cost structure for Kodak and for biggest competitor Canon are:
Client
Cost Description Competitor Canon Kodak

Direct material 60% 40%

Direct labor 15% 40%

SG&A (Selling, General & Administrative Expense) 10% 15%

R&D 10% 7%

Profit Margin (to be calculated by candidate) 5% -2%

 Client’s assembly is done in the U.S, while competitor Canon’s assembly is done in a plant in
Shanghai, China.
Possible Answers:

1. Candidate may want to use a REVENUE/COST or similar framework to structure his/her analysis.
2. Do not try to probe the digital camera “average price” issue – this is a simplification, but the other
issues are more important in this case.
3. Conclude that client is losing share because of its poor resolution problem and determine by comparing
costs that this is most likely due to inferior material.
4. Use the numbers and table to quickly determine that the client is making a loss due to the expensive
labor – assembly in U.S. This is also why the client is forced to buy inferior materials.
5. Determine that by outsourcing client can upgrade its direct material quality to be competitive with
market leader Canon and make a 3% margin (R&D structure is fixed for client).
Outstanding Answer:
1. Note that closing plant will have union issues and outsourcing will have an initial investment, so a 3%
margin may not be worth the effort.
2. A low cost player (with inferior parts and outsourced assembly) may fetch high margins but margins are
not likely to last.
3. Probe marketing synergies with other units – Does a presence in digital camera help the camcorder, or
digital printing and photographic film division?
4. Do not be afraid to suggest exiting the business if your analysis does not find any ‘nuggets’.
5. If you do recommend staying in the business make sure you outline why staying in a commodity type
business will help the client.

Polaroid Facing Challenges of Digital Photography

Case Type: business turnaround.
Consulting Firm: Roland Berger Strategy Consultants final round job interview.
Industry Coverage: Electronics; Office Equipment; Consumer Products.
Case Interview Question #00197: The client Polaroid Corporation is an international consumer
electronics company most famous for its instant film cameras. It is one of the leading manufacturers of
instant and single-use cameras, instant movie system, as well as one-hour photo finishing machines.

The client is facing a dramatic downturn in business due to the rapid growth in digital camera market and
digital photography. What’s making it worse is that Polaroid’s core business is eroded by the increasing
popularity of social networking and people sharing photos over the Internet (Flickr, Picasa, Facebook,
Myspace, etc). The client has hired you to develop a strategic plan to turn around their declining business.
Specifically, what are the critical market issues associated with this digital photography revolution? What
strategic actions should Polaroid take to ensure both short-term and long-term viability?
Possible Frameworks:
 3Cs (Company, Competitors, Customers)
 SWOT – Strengths & Weaknesses (internal); Opportunities & Threats (external)
 Supply and Demand
 Industry analysis (e.g., Porter’s Five Forces)
 Decision trees
 New approach outlined below
Questions that the interviewer may want to ask the interviewee:
 How would you go about finding (or estimating) that information?
 What challenges would you face as you tried to move from traditional photography technologies
to digital?
 Do you believe the convenience of digital photography will increase the overall demand for
photography?
 Are there certain consumer segments that might still prefer traditional cameras and print photos
over digital photography?
 What are the key differences between the traditional photography and digital photography
markets?
 What other unexpected factors might have an impact on this business?
 What happens when a new foreign competitor comes into the industry?
 How do you respond to a dramatic and sudden change in consumer preferences?
Possible Answers:

Market Issues
 Supply shrinks dramatically
 New equilibrium will be lower price, lower quantity (Draw the new demand curve and show how
the new equilibrium might change depending on how the supply reacts in the short and long run).
Note: Ask the interviewee how he/she would estimate the future demand in this industry.
 Competitor response
 Possible substitute markets
Strategic Alternatives
 Fight it out for existing markets.
 Find new markets for products, e.g., less developed foreign markets where digital technology is
unaffordable, but the idea of cheaper instant cameras may be of strong appeal.
 Find new products to be made with existing assets.
 Facilities that can be shifted into production of digital cameras or related critical
components (e.g., camera lenses, flash technology)
 Proprietary technologies and expertise in photo finishing to develop high-quality personal
printers – meet potential demand for printed digital photos.
 Becoming the lowest-cost provider of photo-finishing machines, allowing them to achieve
a dominant position as others are forced to exit.
 Focus on niche areas of demand, such as passport and ID photos, movie set usage for
ensuring consistency between takes, humorous photo souvenirs at carnivals, etc.
 Acquire capabilities linked to digital photography. Strategic acquisitions that could help strengthen
its entry into digital photo business, such as an digital camera manufacturer or an Internet site
specializing in photo sharing.
 Exit from the business entirely
Company Issues
 How will the change in market affect the client? (Depends on position in the industry)
 Product mix (decline in demand unlikely to be uniform)
 Competitive position (is client in low-cost position? High-quality position?)
 How will it fare relative to other competitors facing a similar challenge?
 Customer mix
 Pricing, margins, costs.
Company Strategy Issues
 What are the other businesses of the client?
 How reliant is it on its traditional photography business?
 What are its strengths and resources?
 How flexible are facilities/employees? Could they effectively adapt to change?
 How should the company best create value for the shareholder?
Interviewer’s Notes: The interviewee should ask clarifying questions that prompt the interviewer to
gradually reveal the additional information provided in this case. Please do not divulge all of the
information at the beginning of the interview. The key to cracking this business turnaround case is to look
at both what is happening in the marketplace and how the client is prepared to respond. Be creative!
NYC Carnegie Hall to Turnaround Declining Business
Case Type: business turnaround.
Consulting Firm: KPMG Consulting final round job interview.
Industry Coverage: entertainment & performing arts.
Case Interview Question #00187: Imagine that you are a consultant hired by Carnegie Hall, a large
concert hall in New York City’s Midtown Manhattan. Carnegie Hall is one of the most prestigious venues
in the world for both classical music and popular music. It has its own artistic programming, development,
and marketing departments, and presents about 250 performances each season.

For the past several years, Carnegie Hall’s profits have been steadily declining and management is quite
concerned. They want you to help them determine out how to reverse this trend and restore Carnegie
Hall’s profitability.

Possible Approach:
This is a business turnaround and restore profitability type of case. The interview will be carried out like
an interactive conversation in which the interviewer will answer your queries, ask you some questions,
and provide guidance as you solve the problem.
Most case interviews proceed similarly. Your interviewer first sets up the problem. Sometimes, the
interviewer will introduce the problem specifically and narrowly, so that your task is clear. Other times, the
case will be more open ended, and it will be up to you to introduce greater structure.

From there, you should follow four basic steps: clarify, structure, analyze, and conclude. Let’s look at
each step in detail.

Step 1: Clarify the problem. Take a few minutes at first to ask some clarifying questions or restate the
problem in your own words to make sure that you understand it well. When you are clear about what you
are being asked to do, move on.

Step 2: Structure the problem. Perhaps the most important step is structuring the problem. Think about
what the major components of the analysis should be. For instance, if the question asks about
profitability, the major components would be revenues and costs. Alternatively, think about the series of
questions that you have to answer in order to make a recommendation. For example, if the case is about
entering a new market, some of the questions that you would have to answer to make that decision
include what the company’s capabilities are, how lucrative the market is, and what the competitive
landscape is like. In any event, the idea is to organize your thoughts—then you can dive in and analyze
each major category.

Step 3: Analyze the problem. As you conduct your analysis, keep in mind whether the information you are
receiving and the conclusions that you are drawing really answer the question. Try to think about what
information you will need and ask your interviewer questions to get that information. If you are trying to
increase profitability and have found out that to do so, you must increase the quantity of goods sold,
brainstorm ways that you can do this, and run your ideas by your interviewer.

Step 4: State your conclusion. Finally, at the end of the interview, take a minute to summarize the
analysis you have conducted and the conclusions that you have drawn.

Possible Answer:

The following steps describe one possible answer to the Carnegie Hall turnaround case. There are many
other possible answers! The important thing is to keep a logical structure in your head as you go through
the case. Keep your thoughts in order, and think carefully about what information you need, or what
questions you should be asking next.
Let’s run through each step of the analysis:

1. Because this is a profitability case, break the issue down into two parts: revenues and costs (Profits =
Revenues – Costs). You might decide to start with revenues, so ask your interviewer whether Revenues
have been declining. The interviewer says yes.
2. There are many possible sources of revenues for Carnegie Hall, such as advertising income,
donations, and ticket sales, so list a number of possibilities and run them by the interviewer. She says that
most have remained steady for the past six years, except for ticket sales, which have declined.

3. Knowing that ticket sales are declining, you determine that there can be two causes for this decline
(Revenues = Price x Volume). Carnegie Hall is either failing to attract audiences or it has been lowering
its price. You might first consider audiences, so ask the interviewer if box office sales have been
declining. It turns out that they are.

4. Next, you might push this a little, and try to figure out which people are no longer coming to Carnegie
Hall. You might ask about age groups, and be told that there has been a decline across the board. You
might then ask about what kind of music people have been coming to hear. The interviewer tells you that
classical music makes up the bulk of Carnegie Hall sales.

5. Suppose that younger audiences favor rock music and that older audiences favor classical. The
interviewer agrees. So, one reason why younger people are no longer coming could be the lack of
popular rock music. But that still doesn’t explain why older people aren’t turning out. So ask about the
competition … specifically, what mix of shows Carnegie Hall’s competitors are showing. Radio City Music
Hall, the closest competitor, shows many more rock shows than Carnegie Hall—explaining, you might
surmise, the decline in Carnegie Hall’s market share among youth. Radio City Music Hall shows a lower
percentage of classical shows, but the same number of shows overall. So why are audiences going
there?

6. Thinking that there is another factor at play here, you might shift to talking about price, and you may
find out from your interviewer that Carnegie Hall charges 30% more for tickets than Radio City. No
wonder the classical audiences go there— same number of shows, but they cost less. How can this be?

7. Staying with price, next ask about the ticket prices for rock shows. Here, Radio City is able to charge a
50% premium because younger audiences are willing to pay more to see their favorite stars. This means,
you surmise, that Carnegie Hall can afford to charge less for its classical shows.

Conclusion: To sum it up, it looks like there are several options for Carnegie Hall to increase its
revenues, and therefore (assuming costs stay constant) its profits:
 It can introduce rock shows and use the ticket premiums to subsidize classical music, or
 It can increase the frequency of shows at a lower price, or
 It can engage in a marketing campaign to promote classical music and draw younger audiences
willing to pay their prices.
Note: This business turnaround case is somewhat simplified, but it addresses most of the major issues.
In reality, costs would be a factor, especially in the second recommendation, and a good interviewer
would likely want you to address that. But this should serve as a basic model of the thought process that
goes into cases.
California to Woo Japanese Business Investors
Case Type: business turnaround.
Consulting Firm: KPMG Consulting second round job interview.
Industry Coverage: Government & Public Sector.
Case Interview Question #00160: Your client is Arnold Schwarzenegger, Governor of the state of
California. Hit hard by the recent financial crisis, California is projected to have a budget deficit of at least
19 billion dollars this year, and next year the budget gap is projected to grow to 37 billion

dollars.  Also, California’s credit rating is the lowest of all 50 states in the US,
and there are persistent rumors that it is about to go even lower.
To turn around the struggling economy, Governor Schwarzenegger is trying to attract wealthy Japanese
business investors to California. He wants the Japanese to open new businesses here to increase jobs
and to improve the economy. How would you help the governor to market this concept to Japanese
businessmen so that they are willing to invest in California?
Possible Answer:

For any marketing case question like this one, a fail-safe framework is an analysis of the 3Cs.
Customers: What does California have that Japan needs – look for links in the economy. For which
sector(s) would it be cheaper for Japanese manufacturers to build in CA, e.g. computer hardware.
Financial considerations: which companies can afford to open new plants or establish operations? They
should be exclusively targeted. Also examine companies that already have existing business relationships
or investments in California.
Competitors: What other regions could Japanese businessmen go to and are they going there? Why or
why not? What other states/countries are trying to attract Japanese investments? What are their tactics,
and what will their reaction be to California’s bid? What Japanese firms already have strong alliances with
other territories? These firms should not be at the top of the target list.
Company: In this case, the State of California. Any solution should highlight California’s competitive
advantage. Consult a marketing and advertising firm to identify and promote the most attractive aspects
of having a business venture located in California. Illustrate positive economic trends, the fact that
Southern California itself generates one of the top ten GNPs in the world. Highlight the climate, access to
raw materials (port of San Francisco and Los Angeles), strong Asian and other cultural consumer base,
access to various distribution channels, etc.
How to Turnaround NewYork-Presbyterian Hospital?
Case Type: business turnaround.
Consulting Firm: Advisory Board Company 2nd round job interview.
Industry Coverage: Non-profit Organization; Healthcare: Hospital & Medical.
Case Interview Questions #00118: Your client for this case is New York-Presbyterian Hospital (NYPH).
NYPH is a prominent not-for-profit university hospital in New York City affiliated with two Ivy League
medical schools: Columbia University’s College of Physicians and Surgeons and Cornell University’s

Weill Medical College.

Recently, NYPH has retained your consulting team to help them reduce the $10 million loss that the
organization was experiencing for the last 3 years. If the hospital continued this level of loss for 2 more
years, then the hospital’s entire endowment would be completely wiped out and the hospital would need
to close its doors. Therefore, quick action was necessary.

Question Part 1: The chairman of the NYPH hospital’s board asked you to help develop a plan to quickly
return the hospital to a small profit. What framework would you use to help you frame the issues?
Possible Answer:

The best framework for this case is probably the profitability framework (cost/revenue first branch). Try to
think through how this structure might apply to a hospital setting.
Question Part 2: Your consulting team quickly realized that the hospital’s loss was due to a new law
which basically fixed hospital prices because of the new DRG (diagnosis related groups) hospital
payment system in New York State (i.e. price per unit could not be changed). What profitability
improvement levers should the team focus on first if the team wants to quickly reduce the hospital’s loss?
What would you expect to find?
Part2 Possible Answer:
A good approach to this issue might discuss the different costs associated with performing the hospital’s
services and the current capacity vs. demand for the hospital. The correct conclusion is that it’s quicker
and easier to change the cost structure and capacity of an organization than to change the demand for
the hospital’s service (remember the price per unit is fixed, so the revenue lever remaining is increasing
the units of service). As it turned out, the hospital had more capacity than necessary and very high fixed
costs. Reducing the capacity and shifting some costs from fixed to variable would help restore the
hospital’s profit.

A more complete answer would be to discuss some of the revenue levers even though it may take longer
to work out a great solution. The interviewee could explore some of the marketing issues such as:

1. What draws physicians and patients to a hospital and from where do the patients come? (It turns out
that most of the patients come from the local communities surrounding the hospital and that focusing
efforts on local neighborhoods that are underrepresented by the hospital can increase patient volume.)
2. How does the client hospital compare to the competitors along service dimensions that are important to
patients and admitting physicians? (It turns out the hospital was outstanding at patient care but lacked
convenience.)

3. What are the trends in patient care and how should the hospital change to exploit the opportunities?
(Recent trends are toward outpatient services and away from admitting patients for long periods of time.
For example, cataract surgery used to be an inpatient procedure requiring a hospital stay of three days or
more. In the last few years, most of the cataract procedures performed require no hospital stay. There
seems to be an opportunity providing a very convenient outpatient facility to the community.)

Colgate Turnaround Toothpaste Business in China

Case Type: business turnaround.
Consulting Firm: Archstone Consulting 2nd round job interview.
Industry Coverage: Household Goods, Consumer Products.
Case Interview Questions #00093: Your client Colgate Palmolive Company (NYSE: CL) is an American
diversified multinational corporation focused on the production, distribution and provision of household,
health care and personal products, such as soaps, detergents, and oral hygiene products including
toothpaste and toothbrushes. The company’s corporate offices are on Park Avenue

in  Midtown Manhattan, New York City.

The consumer product division of Colgate Palmolive has a factory in China to supply toothpaste to the
local market. It has been losing money for the last 10 years. Senior management of Colgate Palmolive is
considering shuting down the factory in China. You are hired to find out whether there is any possibility to
turn around the failing toothpaste business. How would you go about the case?
Possible Answers:
I used a Cost/Revenue analysis. The only question the interviewer had on the cost side was how would I
determine if their cost is high. I would compare the cost structure of this plant in China with other plants in
the US or other countries.
One the revenue side, I used Porter’s Five Forces model. Issues I covered included the following:

 Consumer buying habits

 Consumer education
 Level of competition
 Market segments
 Market positioning
 Distribution
 Raw material supply
Then the interviewer said that their consumer survey indicated that their price was too high. However, in
reality, that was not true. Among the three foreign brands (Colgate, Crest made by Procter & Gamble,
Aquafresh made by GlaxoSmithKline), Colgate’s product was priced in the middle. So why is this and how
can the client correct it?

The reason was that their package size was slightly larger, so they charge more for their products. But
consumers think that they are more expensive. To correct that, I suggested they change their package
size, and lower their price to be the lowest, since the prices of the three foreign brands are very close.

Finally, the interviewer asked me how to estimate the overall market size for this client in China. After a
few different suggestions, he bought the idea that consumers start buying certain types of products when
their disposable income reaches certain levels. And data on disposable income is available in China.

Rio Tinto Alcan to Turn Around Aluminum Business

Case Type: business turnaround.
Consulting Firm: FTI Consulting 1st round job interview.
Industry Coverage: Mining & Metals Production.
Case Interview Questions #00080: Your client Rio Tinto Alcan Inc. (LSE: RIO) is a global leader of
aluminum mining and production and currently the second largest aluminum manufacturer in the world
(behind United Company Rusal). It was created in 2007 as the result of the merger between Rio Tinto

PLC’s  Canadian subsidiary Rio Tinto Canada Holding Inc., and Canadian
mining company Alcan Inc.
Although Rio Tinto Alcan’s unit costs are competitive, the company’s profit margins have been declining
every year in the last five years and the management is anticipating cash flow difficulties any time. What
would you advise them to do to turn around the business?

Additional Information: (to be provided to you if asked)

1. Demand for aluminum is growing slowly and prices have been stable. Demand is elastic in the short-
run because users will take advantage of low prices to make forward purchases, but is inelastic over the
medium to long run.

2. The supply of bauxite, the ore for aluminum, has been declining, which has driven up world prices.
3. The industry is very capital intensive and currently operates at 75% capacity. Distressed by declining
profits, Rio Tinto Alcan currently operates at 85% capacity.

4. Aluminum is sold on world markets at world prices stated in dollars. The dollar’s value has been
declining relative to other currencies.

5. 70% of Rio Tinto Alcan’s output is currently sold in the United States. It may be necessary to expand
into other emerging markets like China and India.

Possible Answers:

No answer is provided yet. Feel free to share your own answer/solution or any thought to this case by
leaving a comment below.
Consolidated Edison Turns Around Steam Boiler Division
Case Type: reduce costs; business turnaround.
Consulting Firm: Kurt Salmon Associates (KSA) 2nd round job interview.
Industry Coverage: Energy; Manufacturing; Utilities.
Case Interview Questions #00072: Your team was asked by Consolidated Edison, Inc. (NYSE: ED), a
diversified energy and manufacturing company to help turn around their steam boiler hose division. This

boiler hose division provides boiler hoses for both external customers and  the
client’s boiler division. Additional background information on the client and the steam boiler hose industry
includes:
 Boiler hoses are sold both with original equipment and as replacements.
 There has been increasing price pressure in the industry.
 The client is third of eight industry participants.
The following information is also available in response to questions asked by the candidate: Last year’s
Profit and Loss (P&L) showed (as a percent of sales):
Raw Material 70%

Labor 20%

Distributed overhead 10%

SG&A (Selling, General & Administrative Expense) 15%

Profit 15%
The raw material is a commodity petrochemical. At least two of the other companies in the industry are
making moderate profits.

How would you structure an analysis aimed at restoring profitability? Where do you expect to be able to
save costs?

Possible Solution:
The candidate should avoid getting bogged down in the following areas:
 Drop the product line (apparently not possible because hoses are necessary for boiler sales).
 Raw material prices (they are the same as everyone else’s)
 Allocation of overhead (no cash savings and provides little potential)
 (SG&A) Selling, General and Administrative Expenses (standard industry fee paid for
independent installers).
Better Solution:
Better answers will move beyond the previous answers to consider:

 Scale economies (client is big enough to achieve scale production).

 Production technology (client has a modern plant)
 Labor costs (wages rates and productivity are average for the Industry)
 Raw material purchasing practices (material are purchased through long term contracts with
prices based on the spot market minus a discount).
Outstanding Solution:
The best answers, following a logical progression, should stumble upon the actual answer: the product
has been over designed, requiring excess raw material. The answer should the following organizational
implications:

 How is our product engineering operation wired into the marketplace? (there is little contact
between the engineering and marketing/sales organizations)
 What kind of feedback are we receiving form our sales force? (customers are delighted with our
hoses, but require all the product features)
 Are there other areas in the company where similar problems exist?
Fertilizer Maker CF Industries Sales and Profits Decline
Case Type: business turnaround.
Consulting Firm: Parthenon Group 2nd round job interview.
Industry Coverage: Agriculture, Farming, Aquaculture.
Case Interview Questions #00056: You are hired by CF Industries Inc. (NYSE: CF), a fertilizer
manufacturer to help them out of a difficult situation. CF Industries is a North American manufacturer and
distributor of agricultural fertilizers, based in Deerfield, Illinois, a suburb of Chicago. It was founded in
1946, and for its first 56 years,  it was a federation of regional agricultural supply
cooperatives. CF then demutualized, and made an initial public offering of equity stock in 2005. Since
then, however, their market share and profits are in a free-fall decline and they can’t figure out what is
happening. What are you going to do to turn around their failing business?
Possible Answer:
There is no right or wrong answer here. The following are some of the basic issues to be flushed out and
the candidate should structure his/her analysis in a similar way:

1. Fertilizer is a commodity. Identify the basis of competition in the industry, i.e. competition is on a cost
basis.
2. Who are the major players in the industry? What is their cost position versus your client’s? It turns out
that your client CF is the high-cost producer (You will have to find this out with your questions and
approach).

3. Why is your client the high-cost producer? Examine the inputs to the process and analyze each one
v.s. CF’s competitors (a long drawn out process). Are there economies of scale and where do you stack
up on that dimension? It turns out that your client CF Industries is comparable on all dimensions except
for a key raw material (phosphate). You will also do not have any scale advantages. Again, you will have
to find this out with your questions and approach.

4. Examine key issues relating to your client’s disadvantage in raw material supplies? Why is it that CF
Industries is at a disadvantage? It turns out that your client probably can’t overcome this disadvantage.

5. What are the alternatives for CF Industries? (If you got this far you are probably doing fine!). Looks like
they could try and explore the possibility of competing on a scale basis. Then, what do you look at to
analyze the issue?

How to Save Bank One’s Retail Lockbox Services?

Case Type: operations strategy; business turnaround.
Consulting Firm: PricewaterhouseCoopers (PwC) 2nd round job interview.
Industry Coverage: Banking.
Case Interview Questions #00050: Mr. Check is the Director of Retail Lock Box Services for Bank One,
a medium sized Midwestern bank. The Retail Lock Box Department consists of 100 clerks and 8
managers and supervisors. Each year, in addition to their handling of retail lock box transactions, the
Department generated $1.5 million of fee revenue processing retail credit card and mortgage payments
(“items”) for 75 commercial accounts.  The bank has many other commercial
accounts that use other companies of’ their item processing. In fact, the Bank recently lost the item
processing business for one of its largest accounts to Visa Inc., the largest item processor in the US.
The item processing industry has undergone dramatic changes in recent years. Types of items processed
include credit card, mortgage, and utility payments (checks), airline tickets, and coupons. In the past,
these items were usually processed by the issuing company (e.g., airlines would process their own
tickets) or by bank item processing departments like Bank One’s. At banks, the processing of payment
items was done more as a service to bank customers rather than as a profit making endeavor. Hence, it
received little focus from management. Historically, processing was accomplished by verifying the
correctness of incoming paperwork and manually sorting, filing, and totaling the items: only the largest
banks were highly automated.
Companies specializing in item processing have emerged in the past ten years. Visa, Inc., the largest
such company, is a subsidiary of a small bank in Georgia. Each year Visa processes millions of airline
tickets and retail payments for hundreds of companies, most of whom are not customers of its hundreds
of competitors most of whom are not, customers or its parent bank. Visa uses high speed processing
equipment and is highly automated. Processing time is rapid and processing costs are low. In fact,
because of this speed advantage, the parent bank is beginning to profit from the float of checks
processed. Although industry wide a majority of items are still processed by the issuing company or by
small processors, it is expected that large processors. Within five years, it is expected that most of the
business will continue to migrate to Visa and other large processors, such as MasterCard, American
Express and Discover. Within five years, it is expected that Visa and other large processors will dominate
this market.

Visa had a significant cost advantage over smaller operations, such as Bank One, because of the great
economies of scale they gain from processing such volumes of items. In addition, Visa benefits from a
more constant workload by processing both airline tickets and retail lock box receipts: airline tickets have
few peaks and valleys, whereas mortgage payments always peak early in the month with very low
volumes the rest of the month. Mr. Check believes that Visa quotes prices of 20 cents per item to large
prospective customers while Bank One processes items for 40 cents per item.

The President of Bank One Mr. McCoy, has asked Mr. Check to evaluate how the retail lock box service
can be made profitable; the service lost $100,000 last year. Mr. Check believes that the bank must offer
retail lock box services, and it must price the service to be competitive with companies such as Visa.
Recognizing that outside expertise will be needed, the President has given Mr. Check a budget to be
used to hire a consulting firm. Mr. Check has asked you to visit his office to discuss the proposed
engagement. While walking to his office, you observe that Bank One’s retail lock box operations remains
primarily a manual system, with limited use of modern, high speed equipment and methods. Once in Mr.
Check’s office, you note a picture showing the Department’s staff in 1965; Mr. Check was a supervising
clerks at that time. After reviewing some background information with you, Mr. Check asks you the
following questions:

Question #1: What do you see as your (the consultant’s) role at Bank One?
Question #2: What steps would you take and what information would you gather to diagnose the
problems facing the Retail Lock Box Department and to develop solutions to those problems?
Question #3: From what you now know, what are the problems facing the item processing service and
what recommendations would have the greatest impact on the performance of Bank One and the item
processing service?
Possible Answers:
In this case, we want to test the candidate’s ability to handle a case in which the events appear hopeless
until the end, when an apparently easy solution (automation) is made available. The candidates should
challenge the general premise of the case, and not simply believe that the business is necessary just
because Mr. Check says so. We also want to test creativity with this case. We purposely leave the case
rather vague, not suggesting any particular actions and offering little data. The candidate should be given
time to think about this case and propose solutions which are not readily apparent:
 Why not sell the business of these customers?
 Why not offer increased services to justify higher fees?
 What is the strategic plan for the bank, and how does this unit fit into it?
 What does Mr. Check feel his unit should be generating? (after all, $15,000 per employee is
pretty low!)
 Has he considered acquiring other banks’ customers to increase the economies of scale in his
own operation?
This case can also be used to discuss cost cutting. Again, creativity and sensitivity to the real issues
should be the goals of your probe; cutting 25% of the staff is too obvious and too easy.

Naked Juice Considers Selling Chilled Juices Business

Case Type: operations strategy; business turnaround.
Consulting Firm: LEK Consulting 2nd round job interview.
Industry Coverage: Food & Beverages.
Case Interview Questions #00009: You are consulting for the manager of a division of Naked Juice
Company, a wholly owned subsidiary of food and beverage giant PepsiCo (NYSE: PEP). Her division
produces fruit juices in three forms, all marketed under the same “Naked Juice” brand name: chilled
(found in the milk section  of the supermarket, usually), juice boxes, and frozen
concentrate.
This division has sales of $600 million per year. The entire company has sales of over $20 billion. The
chilled segment represents $120 million in sales per year. While juice boxes and frozen concentrate are
profitable, chilled juices are only breaking even in good quarters and losing money in bad quarters. The
division manager has just received a proposal from upper management to sell the entire chilled
juices business, but she is unsure whether this is the right decision. What would you advise her to do?
Should Naked Juice sell the chilled juices business?
Additional Information: (to be given to you only if asked)
1. Market Share: Chilled beverages is a $5 billion dollar industry nationwide. There are two large players
that have 40% and 25% of the market share, respectively. Your client’s market share, 12%, makes her
third in the industry.
2. Competition: The best available information indicates that the two market leaders are profitable. Also,
the two market leaders are able to fund more advertising and more promotion, trade and couponing than
your client.
3. Products: The two market leaders produce pure orange juice and blends that are based on citrus
juices. Your client’s product uses more elaborate blends of juices, usually with a base of pear or peach
juice (95% of the inputs) and flavored with cranberries, bananas, mangoes, etc. (the other 5% of the
inputs). Pear and peach juice are about the same price as orange juice, but the other flavorings cost
about twice as much.
4. Customers: The market for chilled juices is essentially mothers with school age children. This is a
highly price sensitive market that loves coupons, promotions, etc.
5. Price: Brand name is important in this market, as in juice boxes and frozen concentrate, as mothers
tend to prefer highly reliable products for their children. However, the brand premium must be in line with
other branded products. Therefore, all branded juices tend to sell in the same price range.
6. Company: The client has one plant in California that produces all of the product: chilled, juice boxes
and frozen. It would be difficult to find another use for the plant without a major conversion.
Possible Solutions:
Basically, there are three options for your client Naked Juice:
1. Sell the entire chilled juice business. This would, however, affect the juice boxes and frozen
concentrate businesses, as there are both advertising and manufacturing synergies.

2. Sell all of the juice business. This may be more feasible, as the buyer could capture the synergies, but
would not be too likely to turn the business around. The selling price is likely to be low.
3. Keep the chilled juice business and rework the ingredients and costs. This turns out to be the most
feasible option, as evidenced by the success of the competitors.

Cable News Network CNN Losing Money in Tucson

Case Type: business turnaround.
Consulting Firm: Monitor Group 1st round job interview.
Industry Coverage: Telecommunications & Network; Mass Media & Communications.
Case Interview Questions #00008: Your client Cable News Network (CNN) is a small holding company
that owns three cable television companies in the Northeast: (1) Rochester, New York; (2) Philadelphia,
Pennsylvania; and (3) Stamford, Connecticut. Each of these three companies is profitable, and each has

been experiencing steadily growing sales over the past few years.
However, the management feels that the Northeast is not the fastest growing area of the country, and,
therefore, acquired another cable television company in Tucson, Arizona a little over a year ago. Despite
every effort of management, the Tucson company’s sales have been stagnant, and the company has
been losing money ever since then. How would you analyze this situation? What might be the cause of
the poor performance of the Tucson cable company? What could be done to turn around the failing
Tucson cable company?
Additional Information: (to be given to you if asked)
1. Customers: The Tucson area is smaller than Philadelphia, but larger than Rochester and Stamford.
Tucson’s population is also growing at 12% per year on average. Per capita income is higher than in
Philadelphia and the same as in Rochester and in Stamford.
2. Costs: Operating costs in Tucson are essentially the same as in the other markets. The cost of
programming is based on number of subscribers and is equal across the nation. Operating costs are
composed of variable items: sales staff, maintenance, administration and marketing. Only maintenance is
higher that in the other markets, due to the larger land area serviced. Fixed costs relate to the cable lines,
which is a function of physical area covered.
3. Company: The Tucson cable company has attempted marketing efforts in the past, such as free
Disney programming for one month, free HBO for one month, free hookup, etc. These programs have
been modeled after the other three markets.
Cable penetration rates in the three Northeastern markets average 45%. The penetration rate in Tucson
is only 20%. These rates have been steady over the past three years in the Northeast. The penetration
rate in Tucson has only risen by 2% in the past three years in Tucson.
4. Competition: There is only one real substitute good for cable television: satellite dishes. However,
many communities are enacting legislation that limits their usage in Tucson. They are also prohibitively
expensive for most people.
Possible Solution:

The real error of management results from their failure to recognize another “substitute” good: no cable
television at all; television reception is far better in the desert Southwest than in Northeastern cities. The
lower penetration rate is most likely a result of different climate conditions and lower interference in
Arizona.
Kimberly-Clark to Increase Profitability in Paper Stationery
Case Type: business turnaround; operations strategy.
Consulting Firm: ZS Associates 2nd round job interview.
Industry Coverage: Household Goods & Consumer Products.
Case Interview Questions #00002: You are a management consultant hired by Ms. Pepper, the head of
a division of Kimberly-Clark Corporation (NYSE: KMB, BMV: Kimber), a large consumer products
company that produces mostly paper-based products. Her division produces paper products in

three  forms: toilet tissue, paper plates/cups, and stationery (writing paper, note
pads, decorative envelopes, blank cards, etc).
While toilet tissue and paper plates/cups are both profitable, stationery products are barely breaking even
in good quarters and losing money in bad quarters. Ms. Pepper has just received a proposal from upper
management to sell the stationery business and she wants us to help her determine if she should sell it.
Or if not, what she should do to turn around the stationery business to make it profitable. What would you
suggest she do?
Additional Information: (to be given to you only if asked)
1. Market Share: Stationery is a $15 billion dollar industry nationwide in the US. There are two major
players that have 30% and 25% of the market share, respectively. Your client’s market share, 12%,
makes her third in the industry.
2. Competitions: The best available information indicates that the two market leaders are profitable. The
two market leaders are able to fund more advertising and promotions, such as coupons, than your client.
3. Company: Ms. Pepper’s division has sales of $825 million per year. The entire company has sales of
over $35 billion. Stationery products represent $118 million in sales per year.
One plant in California produces all of the paper products: toilet tissue, paper plates/cups and stationery.
It would be difficult to find another use for the plant without a major conversion.
4. Products: The two market leaders produce pure stationery products using only cellulose, which is
derived from plant fibers. The cellulose is made by cutting down trees and then grinding up trees and
dumping the wood pulp in acid.
Your client’s product uses a more elaborate process to produce recyclable stationery paper. In addition to
the wood pulp in acid, the client’s product uses special fiber pellets. The wood pulp in acid is the same
cost as the competitors, but the other items necessary for creating recyclable materials cost about twice
as much.

Actually, the company does not have a real preference for which type of paper is produced. The
recyclable goods niche was at one time perceived to be an attractive market, but the high costs of
production have limited our profitability in that space.

5. Customers: The market for stationery products is essentially mothers with school age children, young
adults, and college and graduate students. This is a highly price sensitive market that loves coupons,
promotions, etc.
6. Price: Brand name is very important in this market, as in paper towels and paper plates/paper cups.
However, this market is also very price sensitive; as you may note earlier, it is very responsive to coupons
and other price promotions. Additionally, because this market is so responsive to price all branded
products tend to sell in the same price range. Kimberly-Clark is no exception, and their stationery
products are priced much like their competitors’ products.
Possible Answers:
Suggested Frameworks:
To solve this profitability case, the job candidate could explore the following in more details:
 The product mix and production process.
 The industry environment and competitive landscape.
 The customer base and consumer profile.
Possible Recommendations:
1. Sell the stationery business. This would, however, affect the toilet tissue and paper plates/cups
businesses, as there are both manufacturing and advertising synergies. Also, it would be difficult to get a
good price for the stationery business as it is currently not very profitable.

2. Sell the entire paper division. This may be more feasible, as the buyer could capture the synergies,
however the large consumer company would lose valuable revenue from the toilet tissue and paper
cups/plates divisions.

3. Keep the stationery paper business and rework the ingredients and recycling process. This could
potentially entail eliminating or replacing the unique fiber pellets which are driving higher costs.