Problem Definition
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?
Comments
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.
Short Solution (Expand)
Detailed Solution
I. Background
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.
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.
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.
Difficult Questions
If the interviewee solves the case very quickly, you can come up with more challenging questions.
