Basic MECE Approaches for Consulting Cases

Profitability Cases (Typical question: Revenue is going , Cost or Profit . How to fix?)
Buckets to Consider: Company, Product, Market (& Competition), Customer
Approach
The 3 Must Knows:
Internal to Company External to Company 1. Are there multiple revenue streams? (identify loss account)
2. Are there different customer segments? (F500 vs. small)
Company (Profit tree) Market or Industry 3. Is there a geographical split? (e.g. towns vs. cities)

Profit Points to Ponder:

Market CAGR/ Market Size/ Macro-eco
If the word ‘Sales’ is used, is it volume or revenue?
Competition: Could it be a product mix problem?
Revenue - Cost Competitor market share, size Theory questions:
Fixed Cost Ways to increase revenue? (Increase price, M&A, improve
Price x Volume Rent, Emp Benefits, Admin
Customer distribution channel to increase accessibility, marketing etc.)
Think: Ways to increase Ways to increase price? (Have unique selling point, price
price and volume? Variable Cost What are the customer segments? discrim, repackage, limited edition)
Labour, Material, Inventory Customer feedback?
Ways to reduce variable cost? (Reduce labour cost by: Using
Retention rate? technology, cross train employees, pay decrease, incentive to
Product or Service perform. Reduce material cost by: JIT, negotiating with
Does the product achieve its aim?
suppliers)
Is service bad? (E.g. Customer Service) Ways to increase volume? (Distribution channel improvement)
Think: What aspects of Prod/ Service Profit = (# x Price) – (# x VC) – FC
could be a problem? # = Volume, VC = Variable Cost, FC = Fixed Cost Always compare current values of revenue, cost, price etc.
with historic and competitor values in order to bench mark
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Mergers & Acquisitions (Typical question: Should we acquire/ merge or not? Areas to consider: Synergies, cost, cannibalization)
Buckets to consider: Market, Company (being acquired), Synergy, Risk (also good to think of acquiring company)
Think: Can we do it? (Do we have finance and expertise?), Should we do it? (Profitable?), How can we do it? (Recommendations, Next steps)
Approach (A buying/merging B) Victor Cheng Method of 3CP Comparison: Think about Company A+B (Below)
Market
A B Company Customer Competition Product
If merger is in a new industry: what is market growth,
size, competition, market share of competitors, supply- Company A
demand
Company B Similarities? Similarities? Advantageous? Complementary?
Company B (Being acquired)
Points to Ponder:
Revenue/ costs/ margins/ growth, geographical locations, - What is the aim of the M&A: Profit, market share, brand shareholder value?
valuation, customer segments, brand value, distribution - Does company A have experience doing M&A? Are they financing with debt?
- Can the following be leveraged after M&A: New distribution channels, new customer base
Synergy or geographical coverage? (What does the data indicate)
- Are assets of Company B leased/ owned? Liabilities of merging or acquiring with B?
Product, Revenue and Cost Synergies (Important) - What value does B bring to A? What is the strategic fit i.e. synergies?
Cultural and Management fit of the two firms (Important)
Synergies: (The most important word in M&A – Find the synergies to support your recommendation)
- Revenue increase or Cost reduction opportunities after M&A?
Risks - Can costs be reduced after M&A: Supplier base consolidation? Raw material consolidation?
Cannibalization, regulations, tax, legal, competitor response Centralization of activities? Training to reduce Company B’s cost? SG&A reduction?
- Can revenues be increase after M&A: Cross selling products, increased reach (distribution)
Valuation if relevant only = (Either Profit/year or FCF) / (r–g) Training to improve efficient of company B? (Sharing A’s management skills to B)
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Investment Cases (Typical question: Should company invest in ABC or should they enter market XYZ?
Buckets to consider: Market, Company, Customer, Finances, Risk (Usually these question need you to calculate breakeven)
Think: Can we do it? (Do we have finance and expertise?), Should we do it? (Profitable/ breakeven?), How can we do it? (Recommendations, Next steps)
Approach Points to Ponder
Market What is market growth, size, competition, market share of What is the aim of the investment?
competitors, supply-demand scenario. If it is in a new geography consider How can we enter a market – Strategic options? M&A, Organic, Partnering
geo-political factors etc. Any substitutes? – Do we have a parent company’s brand or network to leverage?
For questions on ‘Should we invest in technology?’ do a cost benefit
Customer Who are target customers? What segments exist? analysis (When will savings help break even investment cost?)
Price willing to pay for target segments? Switchability of customer to our For investments in products (computers etc.), think what is the life of the
products: Easy or difficult? product after which the investment cost is incurred again (e.g. life of 5 years)

Finances Calculating Breakeven: There are 3 types of costs to consider to calculate

Investment cost? Fixed cost/ Variable cost? Revenue? breakeven: Fixed Cost, Variable Cost an Investment Cost or Set up cost or
How long would it take to breakeven all our investment costs upfront cost.
(Yearly Profit/ Investment). Is the period reasonable? Annual Profit is Revenue less Fixed and variable cost for the year. Divide
investment by yearly profit to get breakeven period. Use judgment to decide
Company Our capabilities to make the investment if this is reasonable.
Availability of resources, capital, suppliers, marketing Think about exit strategy, competitor response and competitor strategies
capabilities etc.

Risks Regulations, demand volatility, inflation, supply disruption

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OBN 2015-2016