Consulting Frameworks - A Reference

1. STRATEGY
FRAMEWORKS
CONSOLIDATOR : NITIN MISRA
(HSG MBA CO2012)

2. Decreasing
Comp. pressure?
Price
- Market Conditions
- Competition
Decrease
Higher Marg. Costs
- Org. Dysfunction
- Overtime
Increase
Volume
Selling Less
Profitable Items
Product Mix
Revenues
- Added Capacity?
Fixed Costs
- Raw Material Prices
Variable Costs
- Writeoffs
- Lawsuits
Unusual Expenses
Expenses
Analyze Using
Profit Equation
Gather Information
What's Driving
the Decline?
DECLINING PROFITS

3. Price Sensitivity
- Elasticity
Competitive Environ.
- Substitutes
Price
Existing Market
- Promotion
- Place
New Markets
- Geographic
- Economies of Scope
Unit Volume
Revenues
Scale Economies
/Diseconomies
- Supply Constraints
Inventory Mgmt.
- Carrying Costs
- Shrinkage
Direct Material
Replace w/machines
- Union?
Direct Labor
Cost Acctg.
- Allocation Drivers
- Does pricing
reflect Cost
Variable O/H
COGS SG&A
INCREASE PROFITABILITY

4. Competitors Plans
Global Competition
Substitutes
Threats
Industry Capacity
Cyclical / Seasonal
Economy
Consumer tastes
Market Trends
Market Demand
Bottlenecks
Design for manuf.
Improve Productivity
Add shifts
Acquire
Outsource
Add Capacity
Investment vs. Improvement
Should We Increase Capacity?
INCREASE CAPACITY

5. Product
Is quality sagging?
Price
Have sensitivities changed?
Overpriced versus our competition?
Place
Is our distribution getting squeezed out?
Are Customers Changing Channels?
Promotion
Are we spending?
Push vs. pull?
Has public image changed?
Company
Tastes changing?
Disposable income?
Demographics of our target?
Do new substitutes exist?
Customer
Are low cost competitors
stealing from us?
Are diffentiated competitors
stealing from us?
Are competitors integrating
into distribution and
shutting us out?
Are they offering our customers
special incentives to switch?
(particularly with substitutes)
Competition
Do new tax
incentives exist?
Any new regulations
restricting the use of our
product and favoring substitues?
Regulatory
What Has Changed in
the Following Environments?
CUSTOMER TURNOVER

6. Susbsitutes
Demographic changes
New customers?
Values/Tastes
Disposable income
Mature market?
Price Sensitivity
Distribution channel
Bundled product?
Normal good?
Purchasing Habits
Customer
- What do they want?
- How do they choose?
Product
Place
Price
Promotion
Competitor
- Where are we positioned?
- Where is the competition?
Cost structure
Tangible
Intangible
Finances
Resources to respond?
Distributor
Vendor
Customer
Business relationships
Company
- How do we add value?
COMPETITIVE RESPONSE

7. Product
Have we done homework?
What does the segment want?
Proliferation of products already?
Price
Have we explored sensitivity?
Can we make a profit at this price?
Promotion
Push or Pull?
Cost of launch?
Will current promotions help?
Place
Is distribution aligned with customer?
Are we experienced in this channel?
Customer
Does product met a need?
Is market growing?
Can we eat the young?
Many
What wil be the strategy?
Low cost or Differentiated?
Few
Yes
Yes
Can we beat them?
No
Can we erect some?
Are there barriers to entry?
Any precious resource
that we own?
(Ricardian rents)
Will we be first movers?
No
Competition
Is there any?
Finance
Are we able to finance the launch?
Should we buy an existing producer?
Operations
D0 we have capacity?
Supply network?
Marketing
Will we cannibalize existing products?
Is this a complement / bundled good
Does it build on resources?
Company
Can we do it?
NEW PRODUCT INTRODUCTION

8. Doesit match our growth strategy?
- ROE/ROI
Alliance with local firm?
- Joint venture/distributor
Can our resources succeed overseas?
- Flexible enough to adapt?
Is organization consistent
with overseas 'autonomy'
Corporate Values
- Bribery
Worker's conditions / child labor
Internal
Cultural Differences of Customers
- Tastes / product preferences
- Values / gender roles
Methods of Conducting Business
- Introductions
- Government contacts
Educational Differences
Economy & Exchange Rates
Seasonality
- Weather
Distribution system
- Transportation infrastructure
- Different channels
Political Climate
- Instability
Local Market
- Size
- Competition
External
Amount
Timing
- Startup / disposition
- Operating
Discount Rate
Cash Flows
ROI / Hurdle Rate
Quantitative
INTERNATIONAL EXPANSION

9. 4 Approaches to Pricing:
 Demand Oriented Approaches:
 Price Skimming
 Penetration Pricing
 Prestige Pricing
 Price Lining
 Odd-Even Pricing (99c pricing)
 Target Pricing
 Bundle Pricing
 Yield Management Pricing
 Cost Oriented Approaches
 Standard Markup Pricing
 Cost Plus Pricing
 Experience Curve Pricing
PRICING STRATEGIES
 Profit Oriented Approaches
 Target Profit Pricing
 Target Return-on-Sales Pricing
 Target Return-on-Investment
Pricing
 Competition Oriented Approaches
 Customary Pricing
 Above, At or Below Market
Pricing
 Loss Leader Pricing
 Predatory Pricing

10. Useful Life
Timing
- Opportunity Cost
Size
- Market Potential
- Outflows
- Working Capital
Cash Flows
- Risk Free Rate
- Inflation
- Risk Adjust
Discount Rate
NPV Analysis
Strategic Fit
- Missing Links
of Value Chain
Synergies
- Seasonality
- Volatility
- Inflation
Demand Cycle
Environmental
Stability
Regulation
Political
- Current Supply
Potential Demand
Competitors
Other Factors
Investment Decision
INVESTMENT DECISION

11. Strategic Objective Strengths & Weaknesses
Resources Acquisition Fit
Internal Factors
Porter's Five Forces
Three C's
Industry Attractiveness
Soft Issues
- Culture/Fit
- Management
Hard Issues
- Price
- Balance Sheet
Identify Acquisition
Candidates
External Factors
Analyze Opportunity
Understand Purpose
Diversification?
Gain Market Share?
Geographic Expansion?
COMPANY ACQUISITION

12. Yes
Then Buy Back Stock
to Raise Stock Price
No
Can We Release Good News
to Raise Stock Price?
Do We Have Cash?
Yes
Issue Debt, Buy Back Stock
No
Are We Highly Levered?
(Relative to the Industry)
Self-Help
Has Financial Strength
Strategic Compatability
Cultural Fit
Classic M&A
Is there a Firm That...
White Knight
Two Options Both
Designed to Raise the
Value of the Company
HOSTILE TAKEOVER DEFENSE

13. ENTERING A NEW MARKET
CURRENT MARKET
• Size
• Growth Rate
• Customer
Segmentation
Major Players, Market Share,
Strengths & Weaknesses
Product Differentiation
Barriers to Entry / Barriers to
Exit
ENTERING
If YES,
How?
NO
Start from Scratch
Acquisition
Joint Venture
Cost Benefit
Analysis of each
Determine why? What’s
our objective/goal? Does it
fit into our overall strategy?
Determine the state of the
current and future market
Investigate the market to
determine whether entering
it would make good
business sense
If we decide to enter, we
need to figure out the best
way to become a player
(Cost-benefit analysis)

14. INDUSTRY ANALYSIS
CURRENT MARKET
• Life cycle (Emerging? Maturity? Decline?)
• Performance (Growing or Declining?)
• Client’s position within the industry
• Major players and their market share
• Industry changes (New players, Technology, Regulations)
• Drivers (Brand, Size, Technology)
• Profitability, Margins
SUPPLIERS
• How many?
• Product availability?
• What’s going on in their market?
FUTURE
• Are players Entering or Leaving the market?
• Mergers & Acquisitions?
• Barriers to Entry / Exit?
• Substitutes?

15. MERGERS AND ACQUISITIONS
Objectives,
WHY BUY?
• Market Access
• Diversify Holdings
• Pre-empt Competition
• Taxes
• Synergies
• Boost brand
• Increase Market Share
• Cost Savings
• Cultural Integration
• Distribution Channel Expansion
• Reduction of Fixed &
Variable Costs
Acquisition
Costs?
• Fair Price? Is it
affordable?
• Can we afford it?
How to pay for it?
• Reintegration
costs?
• What if economy
sours?
Due
Diligence /
Risks
• What shape is the
Economy in?
• A market leader?
• Industry overall /
Technology risks
• Margins
• Competitive response
• How secure are
markets & their
customers
Exit
Strategy
• Hold for how long?
• Break it up & Sell off its parts

16. GROWTH STRATEGIES
 Ask feeler questions. Growth could mean focusing on a certain
product, division, or company overall. Determine direction of
questioning.
 Choose a growth strategy based on situation and explain why.
 Increase distribution
 Increase product line
 Diversify
 Etc.
GROWTH
STRATEGIES
• Increase distribution channels
• Increase product line
• Invest in major marketing campaign
• Diversify products and services
• Acquire competitors

17. STARTING A NEW BUSINESS
Competition
• Who is our competition?
• What size market share does each competitor have?
• How do their products/services compare to ours?
• Are there any barriers to entry? (Capital requirements, access to
distribution channels, proprietary product technology, govt. policy)
Management
• What is management team like?
• What is its core competencies?
• Have they worked together before?
• Is there an advisory board?
Market &
Strategic
Plans
• What are the barriers to entering this market?
• Who are the major players?
• What will the competitive response be?
Distribution
Channels
• What are our distribution channels?

18. STARTING A NEW BUSINESS CONTD.
Products
• What is the product & technology?
• What is the competitive edge?
• What are the disadvantages of this product?
• Is the technology proprietary?
Customers
• Who are out customers?
• How can we best reach them?
• How can we ensure that we retain them?
Finance
• How is the project being funded?
• What is the best allocation of funds?
• Can we support the debt? (What if interest rates change? What if the
economy sours?)

19. COMPETITIVE RESPONSE
Competitive
Analysis
• Competitor’s new products?
• What’s changed?
• Have they picked up market share?
Responses
• Acquire the competitor
• Merge with the competitor
• Copy the competitor
• Hire the competitor’s management
• Increase our own profile with PR campaign

20. REDUCING COSTS
 Type A:
 1. ask for breakdown of costs
 2. investigate any abnormalities
 3. benchmark competitors
 4. determine any labor-saving technologies that
help reduce costs
 Type B:
 Internal costs: union wages, suppliers,
materials, economics of scale, etc.
 External costs: economy, interest rates, etc.

21. INCREASING THE BOTTOM LINE: PROFITS
Analyze the
revenues
• What are the revenue streams?
• What percentage of the total revenue does each stream
represent?
• Does anything seem unusual in the balance of percentages?
• Have the percentages changed lately? If so, why?
Examine
your Costs
• ID major costs
• Any major shifts in costs?
• Do any costs seem out of line?
• Benchmark costs against competition
Volume
• Expand into new areas
• Increase sales force
• Increase marketing
• Reduce prices
• Improve customer service

22. TURNAROUNDS
 1. gather information
 Why is it failing?
 Industry analysis
 Tell me about the company
 2. Choose appropriate action
 Learn as much about the business as possible
 Review services, products, and finances
 Secure sufficient funding so your plan has a chance
 Review talent and temperament of employees, get rid of deadwood
 Determine goals (short and long term)
 Business plan
 Visit clients, suppliers, distributors and reassure them
 Prioritize goals and get some small success.

23. CAPACITY CHANGE FRAMEWORK

24. BCG 2 X 2 MATRIX
Some limitations:
• High market share is
not the only success
factor
• Market growth is not
the only indicator for
attractiveness of a
market
• Sometimes Dogs can
earn even more cash as
Cash Cow

25. NEW BCG MATRIX

26. GE-MCKINSEY MATRIX

28. ANSOFF STRATEGY FOR BUSINESS GROWTH

30. PORTER’S DIAMOND FRAMEWORK

31. MICHAEL PORTER'S VALUE CHAIN
INCREASE EFFICIENCY, EFFECTIVENESS, AND COMPETITIVENESS

32. Six sources of
Profits from
operations in
emerging
markets
Volume
Margin
Knowledge/
resources
Uncertainty/
risk
Competitive
advantage:
•Costs
•Differentiation
Industry
attractiveness/
leverage
1
3
4
2
6
5
ADDING FRAMEWORK
6 potential sources of profit can be identified -
• Adding volume or growth
• Decreasing Costs
• Differentiating
• Improving industry attractiveness or bargaining power
• Normalizing for optimizing risk
• Generating knowledge

33. 4IS, MARKET & NON-MARKET ENVIRONMENT
4 Is Non-Market
Environment
Market
environment
ISSUES:
threats to profits or
opportunities
Regulations, proposed
laws, court judgments
Porter’s 5 forces.
INSTITUTIONS:
relevant decision-makes &
their processes
Regulators, legislatures,
courts etc. Collective or
non-unanimous decisions
Customers. Voluntary
decision making.
INTERESTS:
goals of those with a stake
in the issue
Goals can include
‘fairness’, ‘harmony’,
‘inclusion’
Rival firms seek to
maximize profits
INFORMATION:
beliefs, knowledge of
actors
Prejudices, rumor, state
reports, press coverage
etc.
Market research,
reputation, advertising

34. GYAN
 Porters 5 Forces: New Entrants, Substitutes, Customers, Suppliers,
Rivalry
 ADDING: 6 potential sources of profit can be identified –
Adding volume or growth, Decreasing Costs, Differentiating,
Improving industry attractiveness or bargaining power, Normalizing
for optimizing risk, Generating knowledge
(Volume, Margin [Competitive Advantage (Cost, Differentiation),
Industry Attractiveness / Leverage], Uncertainty / Risk, Knowledge /
Resources)
 4I - Businesses operate in 2 environments simultaneously - Market &
Non-Market.
 Issues (threats to profits or opportunities)
 Institutions (decision maker)
 Interests (stakeholders)
 Information (knowledge)

35. MARKETING GYAN
 Marketing Mix (4Ps) - Product policy, Price policy, Promotion
(communication policy), Placement (distribution policy);
 4Cs - Consumer, Cost, Convenience, Communication
 Firm Specific & Country Specific Advantages
 Product line analysis - Market profile, Product Line length, Line
stretch, Line filling, Line modernization & pruning
 Competitive Advantages - 2 types (Estimation better than
competitors & lower prices)
 Causes & Consequences of competitive advantages;
 Outside-In (classical marketing, competitive forces)
 Inside-Out (resource based view)
 DCOVA - Define, Collect, Organize, Visualize, Analyze

36. TYPES OF CASES
 Economics of Numbers
 Pepsi is planning to raise the price of its products by 50 cents. What will its
profits look like if it goes ahead with this plan?
 Your client is in the industry of making beef patties. The client’s factory
currently processes 10 cows per hour. He wants to know the economics of
increasing the processing speed to 25 cows per hour for the patties. (i.e. will
it be more profitable for him to put more cows/hour through his factory)
 Sales/Revenues related
 Our client is a rapidly growing company in the ice creams industry. The
client is looking to you for new ideas and strategies to increase sales by 10%
in the next 2 years.
 A leading manufacturer of granola bars is facing decreasing sales for 3
years now. What is happening?
 Costs related
 Our client makes carpets and rugs for major retailers like Walmart &
Target. Its margins are being squeezed out and it wants to improve profits
by cutting production costs.
 A leading electronics manufacturer is faced with increasing costs. They
want to know why.

37. TYPES OF CASES CONTD.
 Profits related (mix of revenues & costs)
 Our client is one of the top 3 internet service providers in the US. Recently
its profits have been increasing even though revenues are down. Why do
you think this is happening?
 The profits for a top cereal making company have been decreasing for the
past 3 years. What is going on?
 Our client, once a leader in the e-retail business has had a negative net
income in the past 2 years. How can we help the company return to
profitability?
 Our client is experiencing a major drop in profits even though revenues are
up. What is going on?
 Market Share
 A leading pharmaceuticals company has been losing market share for the
past 2 years. They want your help analyzing what is going on.
 Market Entry
 Our client currently leads the industry in all-natural organic face creams. It
is wondering if it should enter the seemingly lucrative organic sunscreen
market.

38. TYPES OF CASES CONTD.
 Product Development & Pricing
 Our client has developed a new type of baby diaper which can last for a
week. How should it price this product?
 Our client, a leading pet food manufacturer, has developed a product which
can identify the mix of breeds of a dog. Is there a market for such a product?
If so, what could be the potential earnings per year for such a product?
 Private Equity/Mergers & Acquisitions
 Burger King is wondering if it should buy Dunkin Donuts?
 A large private equity company is wondering if should buy a company that
provides online educational tools.
 Growth & Diversification Strategies
 A leading apparel company is flush with cash and is looking for growth
opportunities. What do you suggest?
 Our client is a leading chemical solvents manufacturer. The industry looks
extremely mature with limited opportunities for growth. The client is now
looking to expand in a complementary industry perhaps plastics and wants
your opinion.

39. PE FRAMEWORK – TO BUY OR NOT
1
2
3

40. INTERNAL/EXTERNAL PROFIT DRIVERS
1
2

41. PROFIT DRIVERS Profit = Revenues – Costs
1
2
Declining Profit can mean 3 things -
• Revenue is decreasing
• Cost is increasing
• All of the above