Tec.Line Case Study: Profitability Strategies
Tec.Line Case Study: Profitability Strategies
Case Book
Complimentary cases
April 2021
1
EXAMPLE CASES FROM
THE HIGH BRIDGE CASE LIBRARY (40+ CASES)
CASE 1
[Link]
CASE 2
African Jackals
2
EXAMPLE CASES FROM
THE HIGH BRIDGE CASE LIBRARY (40+ CASES)
CASE 1
[Link]
CASE 2
African Jackals
3
Case
[Link]
Industry: Airline/Industrial goods
1) Structuring question: “[Link]’s finance department decided to improve its profitability and asked your team for help?”
2) Graph question: “Extract insights or make hypotheses based on the chart (Exhibit A)”
3) Graph question: “What can we do about the capacity utilization (Exhibits B and C)?
4) Math question: “Which option is the most attractive (which plants to close)?”
5) Brainstorming Question: “What are the possible risks from the initiative of closing plants?”
5
[Link]
• They have a strong brand and have Business Model The client buys raw materials, Correct
mainly grown through five key manufactures components and sells to
acquisitions aircraft engine manufactures – is this
• [Link] has three plants running at an the Business Model?
average capacity utilization of ~60%.
Plants are independent profit centers. Industry Issues with profitability are the industry Airline industry is not at its peak anymore,
• The average price of the component is trend or relate only to the client? but the client is clearly in bigger trouble.
40,000 USD
• [Link]’s finance department decided
to improve its profitability and asked
your team for help.
6
[Link]
The candidate should start from a quantitative structure to help guide the profitability improvement initiative
After the Structure presentation provide the candidate with Exhibit A “Profits oscillate much faster than revenues,
and ask to extract insights from the chart which means it’s more of a fixed cost industry.
20
Sales 7% 19%
15
10
5 Pre-tax
profit
17% 32%
0
1978 1980 1982 1984 1986 1988 1990 1992e
9
[Link]
• Otherwise provide them the information anyway (Exhibit B), and ask the question: “What can we Since we cannot act on increasing the
do about the capacity utilization? production, we might shuffle the production
around to decrease our overall production
• Based on the Exhibit B the candidate should come to the conclusions: costs.
– All 3 plants do not use 100% of capacity.
Next, I’d like to see the costs we have in each
– Plant 2 has the lowest utilization and the highest absolute spare capacity. plant to look for opportunities.”
The interviewer should say Option 1 is not feasible, because there’s no additional demand for that.
The candidate should show interest in the cost structure of each of the plants,
to look for consolidation impact.
20.000
17.000
15.000 Unused capacity
12,000 Used capacity
10,000 2.000
10.000
2.000
-
Plant 1 Plant 2 Plant 3
11
[Link]
6.000
100
4.000
50
2.000
- -
Plant 1 Plant 2 Plant 3 Plant 1 Plant 2 Plant 3
12
[Link]
• Based on the Exhibit C candidate should quickly come to the conclusion that Plant 2 has a lower “Underutilized capacity for 17,000 items
variable costs than Plants 1 and 3 and might be the best plant to concentrate production on. together with the lowest variable costs of
production = 9,000 USD makes Plant 2 the
Tell the candidate: “Assume all has already been done to decrease Fixed and Variable costs in each of most attractive option for production
the plants, what should the client do?” concentration.
Based on data from Exhibits B and C the candidate should This initiative allows to increase profits from
propose exploring closing plants.
87 MM to 596 MM USD”
The candidate should run calculations on the current profitability of the plants,
and simulate scenarios where some plants are closed
and production is transferred elsewhere.
Maximum Profitability (Closing Plants 1 and 3 and moving production to Plant 2) “For maximum short-term profitability we need
to close plants 1 and 3 and concentrate
• Profits before optimization = 87 MM USD production on plant 2.
• Profits before optimization = 596 MM USD
Profits would skyrocket from 87 MM to 596
MM.
Best balance between improving profitability and leaving some spare capacity (closing only However, to leave capacity room for growth,
Plant 3 and moving production to Plant 2) the client could just close Plant 3 because if it
unprofitable.
The perceptive candidate should recommend expanding the capacity of Plant 2 to the point that
we can also shut down Plant 1 and focus all the production on Plant 2.
14
[Link]
Profitability of the three plants today (USD): 87 MM Impact of closing plants 1 and 3 (most profitable option but leaves no extra capacity
28 MM + 69 MM + (-10MM) = 87 MM available for [Link] to grow). Profits = 596 MM
Plant 1 ********
28 MM = 208 MM – 180 MM Impact of closing plant 3 only (allocate plant 3 production to plant 2 while leaving plant
1 as it is. This leaves extra capacity available for [Link] to grow). Profits = 379 MM + 28
208 MM = 8k x 26k
MM = 407 MM
26k = 40k – 14k
Plant 2
Plant 2
379 MM = 598 MM – 210 MM
69 MM = 279 MM – 210 MM
589 MM = (10k+9k) x 31k
279 MM = 9k x 31k
31k = 40k – 9k
31k = 40k – 9k
Plant 1
Plant 3 –Unprofitable
28 MM = 208 MM – 180 MM
(-10 MM) = 250 MM – 260 MM
208 MM = 8k x 26k
250 MM = 10k x 25k
26k = 40k – 14k
25k = 40k – 15k
(when at full capacity in the future, profit from plant 1 is 80 MM)
15
[Link]
Brainstorming question
16
[Link]
Recommendation
The recommendation should include the following:
• Our client’s finance department decided to improve its profitability and asked your team for help.
• Recommendation – The client should perform contraction of current production capacities by closing Plant 3 and allocate its production on Plant 2.
– Argument 1: Plant 2 has lowest variable cost, and most of the available capacity (17,000)
– Argument 2: Plant 3 is unprofitable, at -10 MM USD
– Argument 3: Profits would skyrocket from 87 MM to 407 MM USD if we consolidate production
• Risks:
• Internal example: Logistical complications in delivering the components
• External example: The negative reaction from Trade Unions
• Next steps:
– Check what can we do to increase revenues
– Check feasibility and economics of increasing production capacity in Plant 2
– Eventually close Plant 1 as well and focus on Plant 2
– Assess any impacts of the closure of plants to create a transition plan
17
EXAMPLE CASES FROM
THE HIGH BRIDGE CASE LIBRARY (40+ CASES)
CASE 1
[Link]
CASE 2
African Jackals
18
African Jackals
Industry: Non-profit
Level of difficulty: Medium
• Structure – 8
• Calculations – 6
Type: Turnaround
Business concepts tested:
• Multiple business units
• Operations
• Inflow / Outflow
19
Case Abstract (for Interviewer only)
Summary of Case Topics
African Jackals is a case about the declining number of jackals in an African country that has an important tourism
sector. The candidate has to help understanding why jackals are disappearing and fix the issue. A major problem are
roads that prevent males and females to meet, as well as hunting licenses.
20
African Jackals
Structuring question
Why is the number of jackals in decline?
Male/Female ratio
Natural Predators
Natural causes
Age
Fights
22
African Jackals
A strong candidate will present the structure and ask if the interviewer has any data to share.
23
African Jackals
24
African Jackals
Exhibit A Exhibit B
Exhibit A: Jackals’ population is currently split into three zones. Exhibit B: Jackal population per zone at the beginning of the year
Assume animals cannot cross the roads, as they are protected with barriers
The government has conducted a demography research of jackals in respect
to each of the zones and created a summary table.
25
African Jackals
Math question
• From the exhibits the candidates should point out unbalances in population distribution, gender ratios and hunting licenses.
• Ask the candidate: “What is the population change in each of the zones in the next year?”
• A strong candidate will want to understand:
− How exactly hunting licenses work.
• If the candidate asks for time to structure the plan before asking for all the information above, stop them and provide any information they are missing.
26
African Jackals
Math question
The candidate should ask for time to structure the math plan, that
should look resemble the below. If not, wait until the end of the
presentation and suggest it.
• “First, I will calculate how many male and female jackals • “Fourth, I will calculate how many pups are born in December”
exist in each of the zones.”
− Pups born in Zone (A,B,C) = (Number of the Bottleneck Gender) x
− Population of Zone (A,B,C) = (Males) + (Females) = Number of pups per litter
(Total Population x Zone % x Male %) + (Total
Population x Zone % x Female %) − The perceptive candidate will see the natural deaths will also impact
10% of the pregnant females, and will apply this reduction in the
• “Second, I will calculate how many jackals are killed in the number of pups (unborn as their mother died during pregnancy)
hunting season.”
• “Finally , I will calculate the population change of jackals in the year”
− Jackals killed in Zone (A,B,C) = Number of Hunting
Licenses − Population change = Deaths – Births = (Hunting kills + Natural
deaths) – Pups born
• “Third, I will calculate the number of natural deaths
happening that year”
27
African Jackals
Math question
• “First, I will calculate how many male and female jackals exist in each of the zones.”
− Population of Zone (A,B,C) = (Males) + (Females) = (Total Population x Zone % x Male %) + (Total Population x Zone % x Female %)
• “Second, I will calculate how many jackals are killed in the hunting season.”
− Jackals killed in Zone (A,B,C) = Number of Hunting Licenses
• “Third, I will calculate the number of natural deaths happening that year”
− Natural Deaths in Zone (A,B,C) = Number of Jackals After Hunting x Natural Death Rate
# of
jackals # of male Natural Adult jackals
Hunting After After # of female Deaths by the end of
Zone # of jackals # of male # of female Licenses hunting hunting After hunting the year
A 500 350 150 80 420 310 110 42 378
B 200 80 120 20 180 70 110 18 162
C 300 240 60 100 200 190 10 20 180
28
African Jackals
Math question
• “Fourth, I will calculate how many pups are born in December”
− Pups born in Zone (A,B,C) = (Number of the Bottleneck Gender) x Number of pups per litter
Females that
# of jackals # of male # of female Pups survived
After After After % that per Natural Number of
Zone hunting hunting hunting Bottleneck mates litter Death pregnancies Pups born
A 420 310 110 Female 30% 3 99 ~30 90
B 180 70 110 Male 30% 3 Not bottleneck 33 99
C 200 190 10 Female 30% 3 9 ~3 9
29
African Jackals
30
African Jackals
Brainstorming question
31
African Jackals
Final recommendation
32
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