Your client is the captain of the pirate ship Ocean’s Pearl. He currently discovered declining cash reserves.
The recent operations of his ships are not meeting his requirements and he is looking for options to generate additional cash.
He wants us to solve two problems:
- Assessing the reasons why the cash reserves are declining.
- Coming up with strategies to refill the cash reserves.
This case is made to be interviewer-led. Therefore the interviewer should guide the interviewee through the interview. The questions should be read out and shared with the candidate.
The case is split into two parts:
The first part describes more qualitative problems and has more open questions that should make the interviewee think about the problem and its solution.
The second part is more about quantitative problems and calculations. Here the interviewee should try to make his own calculations and solve the questions.
Kurzlösung (Ausklappen) (Einklappen)
The following framework/structure provides an overview of the case:
1. What are the possible reasons for the decline of the cash reserves?
Decrease of revenues
- Fewer ships to plunder
- All potential ships are plundered
- Merchants moved to other modes of transportation
- More safeguards against piracy
- Less revenue per plunder
- Ships carry less plunder
- Value of plunder (gold, etc.) is declining
- Other pirates have stolen from ships Ocean’s Pearl is attacking
Increase of costs
- Operating costs
- Labour, food, maintenance, cannonballs, parrots, etc.
- Decreased efficiency of sailors
- Too luxury lifestyle of the captain
- Debt payments are due on equipment
2. What do the following graphs reveal about the business?
- Revenues overall are increasing
- Most areas are growing relatively steady
- Revenues of slave sector are the only segment stagnating.
- The growth of slaves revenues might be affected by the growth of the population.
3. What are the required additional revenues from slaves?
First of all the interviewee should calculate the growth off all sectors excluding slaves from 1857 – 1859.
This growth rate should then be applied to the slaves sector in order to determine the necessary revenue increase in this segment.
Let the candidate present the structure first. The theoretical approach is more important than calculating the exact numbers.
Growth of sectors from 1857-1859 excl. slaves revenue:
Increased revenues from slaves:
= $10m * (1 + 0.4268) = $14.27m
Additional revenues from slaves:
= $14.27m – $10m = $4.27m
The revenue generated by the slaves sector has to increase by $4.27m over the next two years.
4. What is the expected value per plunder regarding the following information?
- $40,000 is spent per successful plunder (on average).
- $60,000 is spent per unsuccessful plunder (on average).
- The average revenue per successful plunder is $600,000.
- The plunders are successful in 30% of the time.
Expected value per plunder
The expected value per plunder is $126,000.
5. By how much per cent has the chance of a successful plunder to increase in order to achieve an expected value per plunder of $150,000?
Expected value per plunder
37.88% of all plunders have to be successful in order to provide the increase in the expected value per plunder.
6. What is your recommendation to the client about possible strategies?
- The captain should try to increase the capacity and equipment of Ocean’s Pearl. This would create additional costs in the short-term, but could lead to higher profits and higher chances of successful plunder in the long-term.
- The client could try more lucrative businesses like shipping goods and services, targeted plundering or expanding to new markets.
- The slave segment should be further investigated and ways should be found in order to increase the profit from this sector.
How could your client increase the revenue generated by the slaves segment?
- Expand to new markets with a higher share of population.
- Train the crew in order to increase their skills in capturing slaves.
- Capture only “high-quality” slaves that can be sold for more money.
More questions to be added by you, interviewer!
At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).