Case

PiedPaper

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Problem Definition

You have successfully completed your trainings for your new role as Consultant at a consulting firm from PrepLounge’s FastTrack Application pool. After a briefing done by the CEO of an internationally known, globally operating industry corporation regarding the upcoming examination of the commercial printer paper subdivision of the organization, you are discussing the project with your project manager during lunch. Specifically, the question at hand is, how to get back on the track of growth. The CEO is willing to invest and has asked your team to provide and evaluate opportunities for growth.


Short Solution (Expand)


Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

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. Structure

Share diagram 1 with the interviewee.

II. Background on the firm

To give our recommendations, we need a good understanding of our client, its market position and its customers. To tackle these questions, it is important to employ a structured approach and not ask questions “into the blue”.

The client produces self-adhesive sheeted papers to be used in several different labelling applications – including the printing of self-adhesive signs and the labelling of consumer goods.

The business is profitable, but growth is low to non-existent.

Refer to diagram 2 for an overview of primary processes.

Independent of the interviewee’s choice of a framework, here is the information available that you can give out. Don’t tell everything at once, but wait for appropriate questions.

Customers:

  • 24,000 commercial printers in Europe.
  • Three main categories for commercial printers: small, medium, large. They differ in terms of technology and maximum size of print jobs available.
  • Also, small printers prefer speciality paper in boxes, medium printer prefer cartons and large printers palletized shipments.

Client:

  • No capacity constraints to be considered.
  • Manufacturing and packaging is currently configured to packing in boxes.

Competitors:

  • 10% market share with medium and large printers.
  • 20% market share with small printers.
  • Management has spoken against price cuts to gain market share as competitors can match these price cuts.

III. Analysis

There are three major ways for growth:

  • Expansion of capacity
  • Extend product portfolio or other client facing activities
  • Acquire competitor

A good answer would, for example, consider internal and external factors to warrant a potential investment.

Internal:

  • No capacity limitations -> extend product portfolio
  • Manufacturing & Packaging is configured inflexibly -> invest in new packaging line
  • Size and aptitude of R&D department -> invest in internal function
  • Sales function in the firm -> professionalize sales & CRM
  • What are the firm’s distribution channels and which ones could we additionally tap into?

External:

  • No information on particular customer demands
  • No information on growth of overall market or market segments
  • No information on market consolidation (how many players, is one competitor dominating)
  • No information on industry trends
  • No information on competitors’ best practices

IV. Back it up with numbers

Now, for the sake of this analysis, tell the interviewee that you want to look into the packaging line expansion to better serve medium and larger printers.

Investment cost will be passed onto the yearly operating costs; hence the operation of a carton packaging line would cost 500,000€ per year and of a palletizing packaging line 3,250,000€ per year. It is for confidential reasons not possible to do both.

As we have no data on how our market share or sales will develop, we will have to make an assumption. To capture the same market share as with small printers seems fair.

We know from the available data that we are currently serving customers with a worth of 0.85m € in medium printers and 3.6m in large printers. If we double our market share and subtract the costs, both investments would yield a yearly plus of 350,000 € (revenue increase - cost = 850,000€ - 500,000€ = 350,000€ and 3.6m - 3.25m = 0.35m = 350,000 €)

Of course, other costs would need to be considered, like taxes, depreciation and selling, general & administrative costs (SG&A.) However, let’s ignore it here.

V. Recommendation

As the investment in the new palletizing packaging line is about 5 times bigger than in a packaging line for cartons, the client should favour an investment in the carton packaging line, as it is a less risky investment, but brings the same value-add.

This course of action builds on the assumption that the environment is static. Growth in market segments would change this analysis. Also, this investment will have to be compared to other opportunities, i.e. acquisitions and an extension of the portfolio.

Related consulting question(s)
MECE ways to grow market share
Anonymous gave the best answer on Jun 24, 2016 - 4 answers

Two frameworks here: 4 Ps (= price, place, product, promotion), or the Ansoff Matrix (grow with existing or new products in existing or new markets). Both are quite MECE. Word of caution however --... (more)

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Vlad gave the best answer on Feb 16, 2018 - 6 answers
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
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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... (more)

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Francesco updated the best answer on Mar 27, 2018 - 1 answer
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Sidi
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gave the best answer on Jul 04, 2018 - 2 answers
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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... (more)

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Case exhibits