Case

Water flows

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Problemdefinition

We are a German owned water provider company based in the south west of the United States. As the biggest water provider in the region we serve the majority of the south west region.

We measure our performance using the Economic Value Add (EVA) valuation technique. We are currently at a negative EVA level; what do you think we should do to achieve a positive EVA?


Kommentare

The case is designed to be presented to the candidate by an interviewer, who plays the role of a representative of the German owned water company.

There is no real answer to the problem, hence the candidate should be evaluated on the type of suggestions he makes.


Kurzlösung (Ausklappen)


Detaillierte Lösung

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

I. Background

EVA = Net Operating Profits – (WACC*Capital Asset Base); the unlevered operating income after tax less the fair return on invested capital.

It is important to understand that Net Operating Profits should be in general easier to adjust and thus have a more direct impact on the EVA. As un utility your capital base is more or less fixed. Ideally the candidate should come to this conclusion on his own but in case he doesn't, help him out.

Provide the following information to the candidate if requested:

  • Revenues have been more or less constant over the past couple of years
  • More than 80% of the revenue comes from residential and commercial water usage
  • Billing is done monthly according to the consumption of the customer. It is difficult to change the pricing due to certain government regulations
  • The capital base has remained the same over the past 5 years
  • Costs also have been relatively stable
  • The company can serve more customers if required

II. Recommendations

1. Different Channel

For example, the firm could start selling bottled water.

The interviewer should keep challenging the candidate for more ideas. For instance you could reject this idea saying it would be difficult to implement without incurring additional costs for distribution, packaging, branding, etc.

2. Expand into other regions

Currently the firm serves the south west region of the USA. Since the company has additional capacity, they should consider expanding into other regions of the country. Regulatory concerns come into play when discussing such a geographical expansion.

Past history suggests that local people and businesses are not very supportive with respect to expansion of German firms.

3. Merge with another firm

Merging with a local firm and dropping the German name should be considered.

III. Conclusion

The company should either start a new sales channel (for example, bottled water) or expand into new regions by merging with a local firm.


Schwierige Fragen

If the interviewee solves the case very quickly, you can come up with more challenging questions.

Verwandte Consulting-Fragen
Bisher beste Antwort von 4 Antworten:
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi! It depends very much on the industry. In some cases (Growth strategy) I will use a broad structure, in others (e.g. “how to increase the excessive luggage revenues for an Airline”) I will use P... (mehr)

Hi Elisey, I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easil... (mehr)

Bisher beste Antwort von 2 Antworten:
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 50+ candidates secure MBB offers

Hi Anonymous, let me illustrate how I would approach the low-profits scenario that you are describing. You should start to clarify the profit expectations and how much the company is actually underpe... (mehr)

Beste Antwort bisher:
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi! Similar to other typical McKinsey price factors cases (factors influencing Oil Prices, Real Estate Prices, etc) you should approach it with the supply - demand framework: Supply factors:... (mehr)

Bisher beste Antwort von 4 Antworten:
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 50+ candidates secure MBB offers

Hi Giuseppe, short answer: the fair price of a company (assuming that you keep running the company) is its stand alone value (profits) PLUS synergies that can be expected over a certain investment ho... (mehr)

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