Business Case Challenge for

The Maverick Season 3

Team Members
Ashish Mehta, IIM Raipur
Hemant Nagalkar, IIM Raipur
Gurjot Singh, IIM Raipur


Brainsters
Executive Summary
Three perspectives chosen based on the framework:
Framework: Formulation Of Future Strategy-The Balanced Scorecard
Perspectives
1. Financial Perspective,
2. Growth Perspective,
3. External Perspective
Financial perspectives: Performed As-Is analysis to-
Derive basic income statement for Milco
Assess each product of Milco
Potential areas of growth for Milco in US has been found by
Using ADL matrix to figure out strategy for Milco for each product segment
Devising Milcos preferable response to Competitors Strategy
4 Emerging Markets have been chosen on the basis of:
Military Expenditure
Political System
Openness to business
Labour Market
Capital Market
Recommendations in terms of Practical Implications suggested using RAT CAT tests
It has been found that Military Flight Simulator, MRO IT System and MRO IT System Services products are best
suited for long term benefit in China



Customer Perspective
Goal
To acquire new capabilities and
provide best product offerings

Key Performance Indicators
Routine quality checks
Customer complaints
Customer satisfaction surveys
Financial Perspective
Goal
To achieve a substantial increase in
revenue
Key Performance Indicators
Profitability
Gross Margin
Costs
Total Cost of Ownership
External Perspective
Goal
To explore the opportunities outside
US in emerging market

Key Performance Indicators
Time to market for products
Expected ROI
Future Growth Potential


Learning and Growth
Goal
To review current product and
services for enabling value creation
to preempt competition
Key Performance Indicators
Operating Performance
Non Financial indicators
Learning and Training
Strategic
Planning
Defining goals and
KPIs for Milco
using Balanced
Scorecard
Identifying the
Critical Success
Factors
The 3 Phases
Formulation Of Future Strategy-The Balanced Scorecard
Choosing The Best
Strategy For Milco
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Hybrid View
Except Customer
Perspective, analysis
will focus on all other
3 parameters
Objective
Financing in Construction Industry
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Issues Being Faced
Lenders do not understand dynamics of construction
sector
Lack of adequate safeguarding for the banks about the
credibility of the Industry
Banks have better options to lend money to sectors
having assured returns.
State Governments do not make funds available after
they approve the projects
BOT funding issues

Type of Financing Required
Working capital requirements
Capital requirements for
modernization of equipment and/or
expansion of industry
Project specific bridge loans
Loans for BOT projects
Equity for BOT and real estate
project

Short Term
Sources: Team Analysis ,India Rating and Research
Enhancing flow of finance through
grading of construction companies
Construction industry-specific lending
norms
Setting up of a Mortgage Refinance
Company
Letter of Credit for contractors
Single Window Clearance
Sector Specific innovative financial
instrument can be launched.
Access to international finance market
to generate funds

Long Term
National Investment Board
Credit Enhancement
Developing long term Bonds Market
Policy Initiatives
Financial:
o Implement uniform stamp duty across the
states
Regulatory:
Allow banks and domestic FIs to provide
credit enhancement for the infrastructure
bonds
Develop regulatory framework for multi-asset
CDOs
Securitization
Currency & Derivatives Market Development

Construction Industry Financials
Item FY10 FY11 FY12 FY13 PFY14
Receivable Days 105 105 116 123 129
Inventory/WIP Days 71 75 73 64 71
Leverage 2.83 3.15 3.14 3.84 4.81
Interest Coverage 3.92 3.41 2.69 2.15 1.7
EBITDA Margins 11.47 11.86 11.94 10.79 10.2
2950.0
1573
426
262
220
85
35
349
Construction Sector Financing 2013-
23(Projected)

Financing Funding USDbn
Objective
Construction employs an estimated 35 million people
second only to agriculture
Infrastructure account for an estimated 49% of demand
for construction in India.
Real Estate and housing account for a 42% while
Industrial projects account for an estimated 9%.
Order booking is stagnant at 2.5x-3.5x
Industry expects a growth rate of 7-8% per annum over
the next 10 years.
The forward and backward multiplier impact of the
construction industry is significant.
Highly unorganized sector with over 95 per cent of the
enterprises employ less than 200 persons.










Construction Sector
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Growth Drivers
Real estate
construction segment
forecast 13.6% CAGR
for 2012-16
Infrastructure target
for 12
th
five year plan
is 1 trillion dollars
Focus on affordable
housing projects by
government.


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Construction
Value in USDbn
Growth Rate
1028
162
119
166
83
498
Total Loss in GDP Tendering Non Financing Subotimal Design
and Engineering
Procurement Construction
practices
Projected GDP loss(2023) due to current inefficencies in system
Loss GDP USDbn
Source: Team Analysis:Mckenzie:Building
Objective
Year
Military Flight
Simulator
MRO IT
System
Military Flight
Simulation
Instruction
Military
Flight
Simulator
Service/Ma
intenance
MRO IT
System
Services
Military
Facility
Constructi
on
Return on Assets 2014 14.516% 7.258% 6.452% 17.419% 9.194% 1.000%
Return On Invested
Capital
2014 2.00% 1.00% 3.29% 2.40% 1.27% 0.11%
2019(P) 1.53% 1.18% 2.55% 1.86% 1.42% 0.97%
Operating Margin
2014 15.00% 15.00% 42.29% 27.00% 24.78% 4.00%
2019(P) 14.76% 16.25% 42.12% 26.83% 26.00% 21.85%
Company Specific % of
Business 2014 30% 15% 17.50% 20% 11.50% 6%
Market Share 2014 20% 10.20% 20% 30% 20% 0.10%
Growth Rate Expected 2014-2019 0.66% 7.96% 0.90% 0.86% 7.49% 16..65%
Military Flight Simulator
High Return on invested capital but
declining from 2% to 1.53%
Operating margin lowest among
products of 14.7%
Growth Rate expected 2014-19 of
.98% (Very Low)
High market share 20%
Company specific 30%

MROIT
Operating margin low among products
of 15.%
Low Return on invested capital but
increasing from 1% to 1.18%
Operating margin low of 15% among
products but increasing to 16.24%
High Growth Product 7.9%
Military Flight Simulation
Instruction
Providing high gross margin of
42.285%
Return on invested capital is high
3.29% though declining but still high at
2.55%
Low growth product .98%
High Market share 20% low
competition from other competitors
Military Flight Simulator
Service/Maintenance
Low growth rate at .86% for next 5
years
Medium Level operating margin of
around 27%
Return on Invested Capital Medium
2.40%
Market leader with 35% share no big
competition being faced.
20% of companies revenue
MRO IT System Services
Providing high gross margin of 24%
Return on invested capital is low 1.27%
though increasing to 1.42%
High growth rate for the product 7.49%
High Market share 20%
High competition from other
competitors.
Potential market to capture more
market share as market is fragmented
among 15 players
Military Facility Construction
Highest growth rate in EBIT of 16%
expected CAGR
Providing low gross margin of 4%
Return on invested capital is low .11%
High Market share 20%
Very Fragmented market
High competition and low ROIC

Product-Wise Analysis
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Objective
Military
flight
Simulator
MRO
IT
system
Simulation
instruction
Simulator
Maintenance
MRO
IT
service
Facility
Construction
Revenue
over Milco?
Competitors Strategy Elevate
Fixed
Cost
Look for
JV/Acquisition
Look for hostile
takeover
Strengthen
marketing
Milco --- ---
Competitor
A
X X X X Seeks international
growth

Competitor
B
X X X X X Expanding MRO
offering

Competitor
C
X X X X X Seeks to expand IT
solution

Competitor
D
X X X X X Abandoning MRO line
Competitor
E
X X X X X Entering into military
market

2014 Total Revenue # Companies Milco's share Milco's Revenue Industry Lifecycle
Stage
Milco's Competitive
Position
Preferable Strategy
Segment
Flight Simulator 3 5 20% 0.6 Mature Strong
Hold Position.
Be Patient.
MRO IT System 3 15 10.20% 0.306 Mature Favorable
Maintain original.
Find niche & protect
it.
Flight Simulator Service 1.12 5 20% 0.224 Growth Strong Push for share.
Flight Simulation Instruction 1.75 5 35% 0.6125 Mature Dominant Hold Position.
MRO IT Service 1.15 15 20% 0.23 Growth Strong Push for share
Military Facility
Construction 125 100 0.10% 0.125 Growth Tenable
Find niche & protect
it.
Else Abandon.
ADL Matrix Application: Growth Perspective
Milcos Response
Analysed available data to
know Milcos current
competitive position,
and used ADL Matrix for
growth path analysis to
define the most preferred
strategy Milco to opt for each
segment in US.
Post analysing available information for different segments applied market entry strategy to suggest preferable moves for Milco.
Milcos Response to Competitors Strategy:
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Objective
Criteria Russia Brazil India China
Political
System
Centralized
government
Regional fiefdoms
Stifling
bureaucracy
Corruption
perception index
90
Strong democracy
Rampant bureaucracy
Corruption perception
index 59
Strong democracy
Highly bureaucratic
government
Corruption perception
index 90
Communist party maintains
political monopoly and
maintains central military
Corruption perception
index 71 [1]
Openness
/ Barriers
Possible but hard
to establish a
foreign venture
Need alliances to
gain access to
government and
local expertise
Possible but hard to
establish a foreign
venture
Need alliances to gain
local expertise
Restrictions on greenfield
investments
Joint ventures necessary
Poor reliability, red tape
hindrances [2]
New bill of 49% FDI in
defence
Permits greenfield
investments and
acquisitions
Alliances let companies to
align with governments [3]
Labour
Markets
Large pool of
English proficient
managers, key
positions held by
expatriate
managers
Declining trade
unions
Large pool of English
proficient managers,
key positions held by
both local & expatriate
manager
Strong but cooperative
trade unions
Highly liquid pool of
English proficient
managers
Local hires preferable
over expatriates
Volatile labour unions
with political
connections
Small & static pool of
managers
Small pool of English
speakers
Need large number of
expatriate managers
Very few occurrences of
union strikes
Capital
Markets
Strong state
owned banking
system
Disappointing
growth rate of
1.2% [4]
Good banking system
Low and
comparatively
stagnant growth of
1.9%
Well developed and
reliable banking system
Positive sentiments over
surpassing current
growth of 4.7%
Undeveloped banking,
foreign companies need to
rely on home country for
financing
Very strong GDP growth
rate of 7.5%
Group1: China, France, Japan, Russia, UK
Group2: Australia, Brazil, India, Canada, Germany,
Israel, Italy, Saudi Arabia, South Korea, Turkey
External Perspective: Emerging
Market Analysis
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
Stage Exploit Enhance Renew
Strategic objective Existing capabilities in
new markets.
Develop complementary
capabilities
Create a virtuous cycle to renew its capabilities
Boundary conditions Existing capabilities: RELEVANT,
APPROPRIATE Transferable
Complimentary new found Capabilities
which are:
APPROPRIATE & Transferable
New capabilities set off a new round of
upgrading of capabilities.
Best for Milco: Internationalizing by entering
new markets
Milco can enter this market without
building overall competitive advantage
This can be termed as Milcos advanced stage of
global strategy development
Organizational
architecture
Milco s entire operation
handled from US headquarter
Milcos strong operational relationship
with business units in emerging markets
Milcos fully distributed network
Relationship between
headquarters
and subsidiaries
From the centre to the
subsidiaries
Local market capabilities
to substantiate global core capability.
Bidirectional
Sustainability Short-term: Emerging markets
are not meant for short term
focus
Medium-term: Focus on India Long-term: Focus on Brazil and China
Tests RAT Test CAT Test RAT + CAT Tests
Challenges markets where existing
advantages are relevant.
capabilities that can complement the
existing core competencies
Maintain the continuous reinvention cycle
CAT + RAT Framework for Identifying Practical Implications of entering into Emerging Market
Source: Global Strategy for the 21
st
Century The RAT/CAT Capabilities Perspective, Donald Lessard
Balanced Scorecard As-Is Analysis Competitive Analysis Opportunity Analysis Practical Implications
RAT TEST CAT TEST
Relevant Appropriate Transferrable Complementary Appropriate Transferable
Military Flight Simulator: Y Y Y
Military Flight
Simulator: Y Y Y
MRO IT System Y Y Y MRO IT SYSTEM Y Y Y
Military Flight Simulation
Instruction Y Y Y
Military Flight
Simulation Instruction N N N
Military Flight Simulation
Service Y Y N
Miltary Flight
Simulation Service N Y N
MRO IT System Services Y Y Y
MRO IT SYSTEM
SERVICES Y Y Y
Military Facility
Construction N N N
Military Facility
Construction N N N
Post Emerging market analysis it is very important to identify whether the product portfolio is transferrable to another geographical
location or not. Above said tests helped us to come up with below implications.
Short term strategy: Is to promote Military Flight Simulation Instruction as it is passing the RAT test but failing the CAT test
Long term strategy: Military Flight Simulator, MRO IT System and MRO IT System Services need to be looked from long term
perspective as it is passing both RAT and CAT tests.
From our analysis we find China the most lucrative country to enter into if the problem of talent crunch is handled properly.


As-Is Analysis Balanced Scorecard Competitive Analysis Opportunity Analysis Practical Implications
CAT + RAT Framework for Identifying Practical Implications of entering into Emerging Market
Source: Global Strategy for the 21
st
Century The RAT/CAT Capabilities Perspective, Donald Lessard
APPENDIX
Operating Margin Year wise and Productwise






Return on Capital Year wise and Productwise
2014 2015 2016 2017 2018 2019
Military Flight Simulator 15.0% 14.7% 14.7% 14.8% 14.8% 14.8%
MRO IT System 15.0% 15.1% 15.5% 15.8% 16.1% 16.2%
Military Flight Simulation Instruction 42.3% 42.1% 42.1% 42.2% 42.2% 42.1%
Military Flight Simulator Service/Maintenance 27.0% 26.8% 26.9% 26.9% 26.9% 26.8%
MRO IT System Services 24.8% 24.9% 25.3% 25.6% 25.9% 26.0%
Military Facility Construction 4.0% 5.3% 9.9% 13.9% 17.5% 21.9%
Operating Margin
2014 2015 2016 2017 2018 2019
Military Flight Simulator 2.00% 1.86% 1.74% 1.69% 1.59% 1.53%
MRO IT System 1.00% 1.04% 1.10% 1.14% 1.14% 1.18%
Military Flight Simulation Instruction 3.29% 3.14% 2.98% 2.85% 2.66% 2.55%
Military Flight Simulator Service/Maintenance 2.40% 2.31% 2.22% 2.11% 1.95% 1.86%
MRO IT System Services 1.27% 1.31% 1.36% 1.39% 1.38% 1.42%
Military Facility Construction 0.11% 0.14% 0.29% 0.45% 0.60% 0.97%
Return on Capital Invested
2014 2015 2016 2017 2018 2019
Revenue $600,000,000 $594,000,000 $588,060,000 $601,720,225 $615,697,768 $630,000,000
COGS $360,000,000 $356,400,000 $352,836,000 $361,032,135 $369,418,661 $378,000,000
Gross Profit $240,000,000 $237,600,000 $235,224,000 $240,688,090 $246,279,107 $252,000,000
SG&A $120,000,000 $118,800,000 $117,612,000 $120,344,045 $123,139,554 $126,000,000
Operating Profit $120,000,000 $118,800,000 $117,612,000 $120,344,045 $123,139,554 $126,000,000
Amortization $30,000,000 $31,666,667 $31,294,737 $31,500,378 $31,725,599 $33,001,904
EBIT $90,000,000 $87,133,333 $86,317,263 $88,843,667 $91,413,955 $92,998,096
2014 2015 2016 2017 2018 2019
Revennue $300,000,000 $323,882,542 $349,666,337 $377,502,740 $407,555,156 $440,000,000
COGS $180,000,000 $194,329,525 $209,799,802 $226,501,644 $244,533,094 $264,000,000
Gross Profit $120,000,000 $129,553,017 $139,866,535 $151,001,096 $163,022,063 $176,000,000
SG&A $60,000,000 $64,776,508 $69,933,267 $75,500,548 $81,511,031 $88,000,000
Operating Profit $60,000,000 $64,776,508 $69,933,267 $75,500,548 $81,511,031 $88,000,000
Amortization $15,000,000 $15,833,333 $15,647,368 $15,750,189 $15,862,800 $16,500,952
EBIT $45,000,000 $48,943,175 $54,285,899 $59,750,359 $65,648,232 $71,499,048
2014 2015 2016 2017 2018 2019
Revenue $350,000,000 $350,000,000 $350,000,000 $355,738,725 $361,571,544 $367,500,000
COGS $120,000,000 $120,000,000 $120,000,000 $121,967,563 $123,967,386 $126,000,000
Gross Profit $230,000,000 $230,000,000 $230,000,000 $233,771,162 $237,604,157 $241,500,000
SG&A $70,000,000 $70,000,000 $70,000,000 $71,147,745 $72,314,309 $73,500,000
Operating Profit $160,000,000 $160,000,000 $160,000,000 $162,623,417 $165,289,849 $168,000,000
Amortization $12,000,000 $12,666,667 $12,517,895 $12,600,151 $12,690,240 $13,200,762
EBIT $148,000,000 $147,333,333 $147,482,105 $150,023,266 $152,599,609 $154,799,238
MROIT
Military Flight Simulation Instruction
Military Flight Simulator
Income Statement -Product wise
2014 2015 2016 2017 2018 2019
Revenue $400,000,000 $403,922,319 $407,883,100 $411,882,719 $415,921,557 $420,000,000
COGS $200,000,000 $202,057,331.52 $204,038,664.83 $206,039,426.69 $208,059,807.62 $210,100,000
Gross Profit $200,000,000 $201,864,988 $203,844,435 $205,843,292 $207,861,750 $209,900,000
SG&A $80,000,000 $80,784,464 $81,576,620 $82,376,544 $83,184,311 $84,000,000
Operating Profit $120,000,000 $121,080,524 $122,267,815 $123,466,748 $124,677,438 $125,900,000
Amortization $12,000,000 $12,666,667 $12,517,895 $12,600,151 $12,690,240 $13,200,762
EBIT $108,000,000 $108,413,857 $109,749,920 $110,866,597 $111,987,199 $112,699,238
2014 2015 2016 2017 2018 2019
Revenue $230,000,000 $247,220,828 $265,731,034 $285,627,158 $307,012,967 $330,000,000
COGS $115,000,000 $123,610,414 $132,865,517 $142,813,579 $153,506,484 $165,000,000
Gross Profit $115,000,000 $123,610,414 $132,865,517 $142,813,579 $153,506,484 $165,000,000
SG&A $46,000,000 $49,444,166 $53,146,207 $57,125,432 $61,402,593 $66,000,000
Operating Profit $69,000,000 $74,166,248 $79,719,310 $85,688,147 $92,103,890 $99,000,000
Amortization $12,000,000 $12,666,667 $12,517,895 $12,600,151 $12,690,240 $13,200,762
EBIT $57,000,000 $61,499,582 $67,201,415 $73,087,996 $79,413,651 $85,799,238
2014 2015 2016 2017 2018 2019
Revenue $125,000,000 $125,000,000 $145,814,517 $170,094,987 $198,418,546 $270,000,000
COGS $75,000,000 $72,314,438 $81,335,383 $91,481,656 $102,893,637 $135,000,000
Gross Profit $50,000,000 $52,685,562 $64,479,134 $78,613,331 $95,524,910 $135,000,000
SG&A $25,000,000 $25,000,000 $29,162,903 $34,018,997 $39,683,709 $54,000,000
Operating Profit $25,000,000 $27,685,562 $35,316,231 $44,594,334 $55,841,200 $81,000,000
Amortization $20,000,000 $21,111,111 $20,863,158 $21,000,252 $21,150,399 $22,001,269
EBIT $5,000,000 $6,574,451 $14,453,073 $23,594,081 $34,690,801 $58,998,731
Military Flight Simulator Service/Maintenance
MRO IT System Services
Military Facility Construction
Income Statement -Product wise
2014 2015 2016(P) 2017(P) 2018(P) 2019(P)
Cash 400 500 625 781.25 976.5625 1220.703125
A/R 700 800 840 882 926.1 972.405
Inventory 500 400 400 400 400 400
Plant and Equipment 2000 2100 2099 2099 2099 2249
Total Assets 3600 3800 3964 4162.25 4401.663 4842.108125
A/P 500 600 600 600 600 600
Long Term Debt(Current Portion) 200 200 200 200 200 200
Long Term Debt 1600 1700 1864 2062.25 2301.663 2742.108125
Shareholder Equity 1300 1300 1300 1300 1300 1300
Total liabilites and Shareholder Equity 3600 3800 3964 4162.25 4401.663 4842.108125
Assets
Liabilities
Balance Sheet
Balance Sheet -Consolidated
References
[1] Transparency International, corruption perception index
[2] FWC Sector Competitiveness studies - Study on the Impact of Emerging Defence Markets and competitors on the
Competitiveness of the European Defence Sector, Final Report, 12th February 2010
[3] Strategies that fit Emerging Markets, Tarun Khanna, Krishna Papelu
[4] http://www.tradingeconomics.com/india/gdp-growth-annual