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Consulting case interviews: 8 must-know scenarios

GradAustralia

Preparation for case interviews is essential. Here are 8 types of business cases that you might be asked and tips on how to answer.

Business cases

This is exactly as it sounds. In the business case, you’ll be presented with a business scenario that you’ll have to analyse, find a solution and make recommendations. The interviewer may provide a substantial amount of data either verbally or in the form of charts or graphs. In some instances, they may provide zero information and ask you to make reasonable assumptions for all facts used.  

Remember though, ask questions and for more information when you need it. It’s up to the interviewer if they want to answer your questions or provide further information but don’t be deterred! Simply state that the lack of information has meant you will come up with your assumption and continue along your line of reasoning.

Again, as we noted earlier, it’s important to note that there is no right or wrong answer. You will have to make a conclusion but remember the interviewer is simply testing to see your ability to logic your way through a problem with reasonable assumptions.

Types of business cases

You will find business cases typically fall into one of the following categories.

Falling profits

In this case, you’re trying to figure out why a company’s profits are falling. An example question might be, GoodCo, an organic baby food company has had three straight quarters of growth. However, in its most recent quarter, GoodCo saw a 30 per cent fall in profits. What happened?

New product

Here you’ll be expected to evaluate a new product and decide if the company should launch it and if so, potentially come up with a go-to-market strategy. For example, GoodCo wants to launch a new product line, the ultra-vitamin and mineral enriched organic formula for babies. Is this a good idea? Why or not why not? And if so, how should GoodCo launch it?

Entry into a new market

Similar to the new product question, a company may be looking to enter a new market. Perhaps it’s looking to diversify or to vertically integrate such as becoming its own raw materials supplier rather than relying on another party. For example, GoodCo is considering launching an organic pet food range. Is this a good idea? Alternatively, GoodCo is considering buying a cattle farm in northern NSW so that it has a continuous supply of milk for its organic baby food products. Should it do it?

Entry into a new geographic market

Rather than seeking to launch a new product line, in this case, the company is looking to enter a new geographic market. For example, GoodCo believes it can replicate its Australian success by selling its organic baby food range in China. Should it do it and if so, how?

Mergers and acquisitions

The reasons why a company may seek to merge or acquire another are varied. Perhaps it’s to grow and rapidly expand, maybe it’s to crowd out or remove competition, or perhaps it makes good economic sense to join forces with another. Whatever the reason, your role as a consultant is typically to help with the due diligence and appraisal of this M&A. For example, GoodCo has an opportunity to buy out a new competitor that poses a particular threat in its market. Assess the viability of this proposal.

Site location

In these cases, you will be asked to evaluate possible sites for a company’s new facility, which may even involve a complete relocation of operations. For example, GoodCo has outgrown its existing food manufacturing plant. There is an option of buying a new piece of kit at their current plant that will help to increase their capacity but only to a certain extent, or instead they could move their operations entirely to a new area. What factors should be considered in making this decision?

Competitive response

In this case, you will need to determine the best course of action following a move by the client’s competitors. For example, GoodCo’s competitor has recently decided to take its entire product range online. How should GoodCo respond?

Changes in government / regulatory environment

Companies often face changes in their regulatory environment. This may have an impact on the way that a company operates. The interviewer may ask you to determine how your client should respond to the new circumstances. For example, recent regulation has meant an increase in tariffs on all exports. GoodCo recently entered the Chinese market and has seen a decline in profits. What should GoodCo do?

Maximising value created

It’s important to remember that most business cases at their core can be linked back to one overarching aim – value creation. Value creation is the primary aim of any business entity. Value is created when a business makes a return on capital that exceeds its cost of capital.

Let’s give a quick example. Say you want to launch your own startup but it requires $100k of your own savings to fund the launch costs until the point where business is profitable. The alternative is that you could choose to invest the $100k in your friend’s startup, which has a similar risk profile and promises a 20 per cent return.

If you decide to invest in your own startup, your ‘cost of capital’ is 20 per cent, as this is ‘opportunity cost’ of choosing to invest in your own startup rather than that of your friend’s. Your startup will only ‘create’ value for you if it makes a return on capital greater than 20 per cent over the life of the business. Any less than 20 per cent and it has destroyed value – you should invest your money elsewhere. Once you’ve decided to launch your own startup, naturally you want to do everything possible to maximise the value it creates!

Consulting firms will offer advice across a huge range of situations, but the clients will always have a personal motive, if not a legal responsibility, to maximise the value created by their business and for their shareholders. There are very few business problems (and therefore case study problems) that can’t be tied back to this overarching aim. Remember how we outlined the different types of business cases? Let’s take a few of these and see how they stack up against this value creation aim.

Q. Should the client do a merger?

While brands, egos and politics will often take centre stage in merger discussions, a good consultant will see through this to focus on what matters – does the merger increase the value for the client (or their share of the combined entity). Factors like customer fit, synergies, and market share are all assessed to see if the profit can be increased or the invested capital used more efficiently such that the value created post-merger is a case of 1+1 = 3.

Q. Should the client consider offshore manufacturing?

It’s a sticky subject but executives have an obligation to put aside their personal bias and make decisions to maximise the value created by the company. The decision will need to account for political, ethical and other considerations outside the immediate P&L. Has Apple sourcing iPhone components from China decreased the value of the brand in the eyes of some customers? Could this impact revenue? Take a look at the driver tree – these considerations all ultimately flow up the driver tree to impact value created by the company.

Q. How can the client increase market share?

Again, a good consultant will pare the problem back to its fundamentals – does the additional market share ultimately increase profits and company value over the longer term? Market share is a means to an end. Recommending that a client can increase market share by focussing on an unprofitable segment is clearly not in the best interests of the client. Similarly, if increasing market share requires an enormous investment that ultimately has a return below the company’s cost of capital, it’s a bad business decision.

Q. What programs should the client run to improve staff satisfaction?

This is a good example of how the end goal to maximise value created by the company is not always immediately obvious in a problem. Can a particular program increase productivity, retention, or have other positive flow-on effects? Can these be quantified? And do the benefits of the program outweigh the costs? Whilst it may appear on the surface to be a ‘soft’ problem unrelated to maximising the value of the business, a program that leads to more productive staff who are on board longer can still be justified with cold hard numbers!

We could go on, but hopefully, the point is clear. All business decisions should be considered in the context of how they can maximise value created by the company. By understanding the drivers that create value in a business, you have a handy structure that can be applied to a range of different business case study problems.