Preparing a Winning Case

1. Preparing a Winning Case © George Leng Cisco Systems Posted with permission – March 2006.

2. What Are We Looking for? Creative Analytics Soft Skills • Apply a unique perspective to business situations • See the big picture • Draw conclusions from partial information • Make assumptions, see patterns, and generate hypotheses Provide structure to unstructured problems Break problems into components Apply transparent, logical thinking to each component Synthesize discussion into solution Time management skills and awareness Communication skills Interpersonal skills and personality Performance under and reaction to pressure

3. To be successful, you must: • Play the role stated in the case. • Make a decision and support it. • Make reasonable assumptions • Support your recommendations with detailed qualitative and financial analysis • Financial Analysis it is not that hard. • Just ask “what numbers do I need to crunch to figure out what is going on with the firm?”

4. What is the Right Answer? • There isn’t one in most cases. • There are, however, very bad answers. • Make sure your B.S. meter is functioning. • The solution must be realistic given: • the power of the company, • the resources she can control, • the time frame for solving the problem and • the expected competitive response.

5. Understand The Business • What Business Are We In? • Who Are Our Customers? • What Are They Buying? • Who Are Our Competitors? • How Do We Make Money? • How Does $ Go Through Our Company?

6. Approaching the Case Dissect Structure Analyze Conclude • Develop approach to solve problem • Be hypothesis-driven • Communicate approach and assumptions (if necessary) • Prioritize hypothesis • Ask questions to test hypothesis • Perceive possible solutions in the decomposition • Perform “reality check:” Did you address the key problem? • Synthesize findings and their relation to the question • Make recommendations • Identify implications • Ensure complete understanding of question • Distinguish relevant issues from “red herrings” • Identify root causes of problem

7. The Issue Tree Analysis Issue Tree Methodology Basic Issue Tree Structure Characteristics of Good Issue Trees Subissue • Elements at a given level are logically part of prior level • No overlap of elements (mutually exclusive) and thorough representation of contributing elements (collectively exhaustive) • Elements are useful, observable, measurable and can be delegated • Can be easily communicated Issue/Cause Subissue Subissue Problem Subissue Issue/Cause Subissue Subissue

8. Leveraging Common Business Frameworks • Frameworks are used to help guide and present analysis in a logical fashion • There is no exhaustive list of frameworks or analytical tools • Frameworks can be expanded and changed • Not all frameworks can be applied to all situations • The key is to understand which framework works best with the situation in question

9. Leveraging Common Business Frameworks • Product Life Cycle • Porter's 5 Forces: Barriers to Entry, Bargaining Power of Buyers, Bargaining Power of Suppliers, Availability of Substitute Products, and Level of Competition Among Firms • 3 C's: Cost, Customers, Competitors (Capacity sometimes added as a 4th C) • Value Chain • 4 P's: Product, Price, Place, Promotion

10. Sample Case Cisco Systems has experienced the third consecutive drop in home networking sales. What should Cisco do to overcome this declining trend?

11. Process Hypothesis Research Solution Implementation Enter Adjacent Markets Declining Market Digital TV Video/ Entertainment Take Market Share Increased Competition Divest Handheld Devices Flattening Sales Product Quality Electronic Appliances Sales Strategy Distribution Channels

12. ProblemDefinition Implement-ation Plan Financials StrategyFormulation Cohesive Storyline Research Six Elements of a Winning Case

13. Top 7 things to DO • Tell a story. Develop a logical flow. • Answer the questions stated in the Case. • Tie your strategy back to your problem statement. • Be realistic, given the constraints of money, customer readiness, and technology limitations. • Summarize your slides. • Manage your time • Leverage visuals to bring out your points.

14. Do Use Visuals to communicate broad trends 2X2 matrix Cost Millions Revenue Millions 50 80 Seg A 70 ‘01 100 50 Revenue Potential Seg B 70 ‘00 70 20 70 ‘99 50 % of Profit % of accounts Year Service Rating Risks Impact

15. Example of Visuals

16. Top 7 things NOT to do • Recommend something that the company has already done • Try to force-fit a framework to the problem • Label your frameworks • Hide from the details or numbers • Forget what question you’re trying to answer • Crowd your slides • Panic

17. Common Frameworks

18. The Product (Industry) Life Cycle • Describes the stages that a new product goes through from the beginning to the end Sales Maturity Growth Decline Introduction Time

19. The Product (Industry) Life Cycle • Each phase within the product life cycle is defined by certain characteristics Introduction Growth Maturity Decline • Definition of users and uses • Low competition • High risk • High investment • Technical period • Growth of competition • High profits • Strategies are defined • Legends develop • Dynamic period • Profits level/decline • Marketing plays key role • Manufacturing economics are key • Mergers • Stable period • Sales decline • Eroding profits • Products perceived as commodities • Market exit • Mergers

20. SWOT Analysis • Used to understand how internal/external factors interact to create competitive advantage or competitive pressure • Strengths • Cost advantage • Financial resources • Customer loyalty • Modern production • facilities • Patents • Opportunities • Add to the product • line • Enter new market • Acquire firms with • needed technology Leverage Vulnerability • Weaknesses • Too narrow a product • line • Lack of management • depth • High-cost operation • Inadequate financing • Weak market image • Threats • Shifting buyer tastes • Likely entry of new • competitors • Potential for • technology to • radically change • industry Constraints Problems

21. Porter’s Five Forces New Entrants Government Forces Macroeconomic Forces Suppliers Industry Competitors Buyers Distribution Channel Dynamics Substitutes Technology

22. Porter’s Five Forces Model • Each of the five forces shapes various aspects of an industry and must be taken into account in strategy formulation • New entrants are companies from a different industry offering products within the same class as competitors • High threat if: low barriers to entry, high industry profitability and/or growth, and/or low buyer switching cost • Substitutes are products of a different class that offer a similar value proposition as the industry product class • High threat if: low substitute cost-to-benefit trade-off, rapidly-changing technology, and/or high buyer willingness to substitute • Suppliers provide the inputs (labor, material, equipment, infrastructure, etc.) to the competitors • High power if: few suppliers with no available substitute inputs, high supplier switching costs for industry competitors, and/or other markets for suppliers’ products • Buyers are the purchasers of industry product class • Power is high if there is/are: a relatively small number of informed buyers or buyer groups purchasing high volume, little or no perceived product differentiation, and/or low switching costs • Competitors are those companies offering products within the same product class • Competition is high if there is/are: numerous or equally balanced competitors, mature market growth, and/or high exit barriers

23. The Marketing Mix: Four P’s • Is used as an approach for crafting and implementing marketing strategies, usually for new products • Quality • Features • Warranties • Brand • Services • Options • Payment Period • Credit Terms • Discounts • Allowances • List Price Price Product Marketing Mix • Channels • Coverage • Location • Inventory • Transport • Publicity • Partnering • Advertising Place Promotion

24. Understanding Financials

25. Key Financial Statements • The following three financial statements are available for any public entity and can be used to assess the financial health of the entity

26. Balance Sheet • Provides a snapshot of an entity’s assets and liabilities at a given point in time Assets = Liabilities & Shareholder Equity Current Liabilities Current Assets Where the money is coming from Where the money is going to Long-term Liabilities Liquidity Fixed Assets Shareholder’s Equity & Retained Earnings Intangible Assets Off-Balance Sheet Items

27. Income Statement • Reflects the financial results of a an entity over a period of time, typically one year Revenues COGS SGA Interest Expenses Net Profit

28. Net Present Value • NPV is a quantitative way to evaluate strategic choices. • PV = FV (1+r)n PV = Present Value, FV = Future Value, r = discount rate, n = time in years • NPV = FV0 + FV1+ C2+… (1+r)2 (1+r)3 • Perpetuity: C r C = Cash Flow, r = discount rate Note: First payment is one year from today, not today. • Payback Method: How long will to take to recover the initial investment?

29. NPV and Payback Example NPV Example: Payback Example: NPV = $285

30. Ratio Analysis • The following are some common ratios used to analyze a company’s financial health

31. Other Analytical Tools

32. Break-Even Analysis • This is used to understand the relationship between costs and helps identify the point at which an investment will receive a positive return

33. Solution Scenario Analysis • You expect a certain outcome based on the current market environment, trends and your current assumptions. • But Wait! Your solution may have several outcomes due to “uncontrollable” variables: • Competition, consumer preference, economy, energy costs, process complications, delays, new technologies, regulations, etc.

34. Stakeholder Analysis Consider the following questions: • Is the stakeholder part of the decision making? How influential is the stakeholder? • How does your strategy affect the stakeholder and how does the stakeholder affect your strategy? • Is the stakeholder a possible supporter or a possible hurdle? • What do you need to achieve with the stakeholder to make sure your strategy is a success?

35. Implementation Timeline • Your strategy should be accompanied by a realistic timeline • Consider the following questions: • What kind of a time scale does it take to implement your strategy? • 6 months, 1 year, 2 years, 5 years, etc. • What happens at each milestone? • How realistic is your implementation milestones? What kind of research have you put in to your estimates? • How much money is required for each step?