Disclaimer: Again, this is by no means the correct or complete framework to solve cases. Its just something that I have come up when practicing case interviews. It best suits my logic and thinking and anyone on the same wavelength is welcome to use it.
Sometimes you get long cases, like really long cases. One where you do a market sizing, then a valuation followed by a session of strategy brainstorming. I think MBA students get cases which combine all of the above, while undergrads or those applying for pre-mba analyst positions get a version without (probably) the valuation aspect. (Undergrads are generally not expected to know the term valuation)
Okay so situation is something like this – company wants to grow. You are asked to provide some strategies to grow a company.
First of all – What is meant by growth? I never really understood this. A company can experience different kinds of growth – profit growth, revenue growth, market share growth, employee growth, market or share value growth. Verify company growth objectives before proceeding.
I generally assume growth to be 2 things – increase in customer base & increase in sales. Although an increase in either does not necessarily ensure that the company is profitable either. A great example would be Facebook – it was growing at an aggressive pace, yet it did not have a positive cash flow until recently. Amazon took around 7 (or more) years to become profitable. An obvious reason would probably be that one needs cash to grow a business in the first place, right?
Anyhow, I digress. Just trying to introduce some very basic ideas and outlines to address different growth strategies a company can employ. I like the Ansoff Product-Market Growth matrix because it is simple and gives a good base to start off with when thinking of growth strategies during an interview. The matrix considers 4 ways to grow a business – through existing and/or new products in existing and/or new markets. Given below is the matrix and translated examples of growth.
Bear in mind the examples are pretty simplistic to give a general idea of how these growth strategies translate in to real life examples.
These growth strategies can be implemented in 2 ways.
Inorganic Growth – Meaning you buy another company to achieve your growth goals. (Acquisitions) HP buys Palm to gain entry into the smartphone market.
Organic Growth – You invest your own company money to grow your company by increasing sales etc. Apple is an excellent example of Organic Growth.
Inorganic growth can be in the form of strategic alliances, mergers or acquisitions. The objective could be any of the following 3 –
Integration – This is when a company buys out its suppliers (or some other company along its supply chain). Large retailers often buy out their suppliers to remove the middle men and consolidate profits or improve efficiency along its supply chain.
Horizontal Growth – This is when a company buys out its competitors to increase market share, achieve operational synergies (lower costs) or both.
Vertical Expansion – This is when a company buys another firm in a completely unrelated business, probably to diversify. Examples are conglomerates such as GE, Virgin Group (UK), Tata Group (India).
Getting back to growth strategies – I like to look at growth = sell more products. Here is a chart to look at ways to increase sales.
Lets start at the top – what is our objective – Increase Sales! We can do this in 4 ways –
Increase sales per customer – In short, make each customer buy more products. This can be done by giving volume discounts to large customers (buy more strategy) or introduce loyalty programs (buy often strategy).
Steal customers from competitors – Pretty self explanatory. How to do this would depend on the industry. In a price sensitive industry (commodities), cutting prices would be a great start to steal market share. Else a good marketing campaign would probably work as well.
Introduce new products – This can be done in 2 ways. Introduce a new or improved product in the current market ex. HP rolls out a faster computer. Or introduce a completely new product for a completely new market ex. Microsoft when it first launched the XBOX.
Expand in to new markets – The new market could be a new geographical area, outside of what the company currently caters too. Like McDonald’s entering a new country. Or one could tap into potential customers within their own geographical boundaries by expanding their distribution channels. Most apparel retailers have taken their business online where they can target a lot more consumers compared to traditional brick & mortar stores. Or traditionally gender specific domains such as gaming and cosmetics are now targeting the opposite sex to boost sales can also be a form of expansion within the same geographical market.
Notice that the outline above pretty much encompasses the principles of the Ansoff Matrix. I generally like to think of it this way because it is more intuitive now that all the jargon is gone. =) Again, this outline will not necessarily work in every case, it is possible that your case constitutes a company in an extremely bizarre and niche industry where these concepts wont really help, but it is generic enough to work out for most cases. Ideas and opinions are welcome!!
Life is a sine wave 