Case

GamingHub

Solved 900+ times

Problem Definition

Our client, GamingHub, is a large diversified entertainment corporation that received a request to approve a $200 m capital allocation from its video game manufacturing division. The division wants to triple the capacity.

The client hired us to help him decide if he should approve this capital request and have asked you what critical issues are to be looked into to decide if the division's market is attractive enough to expand.


Comments

This is a candidate-led interview, so the candidate should take the interview from start to finish.

This is a qualitative case where the emphasis lies more on understanding the market dynamics and the client's business. The aim of this case is for the candidate to process a lot of information and convert that into a structured game-plan.


Short Solution

  • Not clear if division's position will be sustainable with the expansion.
  • Not clear if the market is moving into the right direction to justify an expansion.
  • Additional unclear issues on profitability, pricing & cost advantage.

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.

The following framework/structure provides an overview of the case:

I. Background

The candidate should ask for more background information on the division. The interviewer should provide all available information & data to candidate and it is up to candidate to define the issues that should be looked into based on the data/info provided.

Information that should be shared with candidate:

Market share

  • Division is 3rd largest manufactuer of hardware in the industry with a 10% market share.
  • Top two competitors A & B have a 42% and 38% market share respectively.
  • Division sells to broad range of consumers.
  • Division makes up for 20% of the company's total sales.

Sales

  • Division sells 500,000 units per year.
  • Total industry sales are 5 m units per year.
  • Total industry growth has been strong but slowed down in last few months.
  • Price per unit is $45, while the two competitors A & B sell for $44 & $47 respectively.

Cost

  • Current unit cost is $30 while competitor A & B's unit cost is $27 & $24.
  • Division wants to achieve a 5-7% cost reduction through the expansion.
  • Main cost components are assembly & labor.
  • Main competitors have 10-15% cost advantage.

Customers

  • The main user segment are young families with at least one child.

Distribution

  • Primary distribution channels are electronics stores.

Profitability

  • Division has so far exceeded corporate return targets, but margins have recently started falling.

Product

  • Hardware standards are determined by the market.
  • New product features are developed on a constant basis to appeal to the user segment.

II. Analysis

Candidate should take clear notes during the interview. In case the candidate got lost with the quantitative data, interviewer can share Table 1.

Share Table 1 with candidate if deemed necessary.

Items candidate should point out for discussion:

  • Candidate should note that the future market potential isn't very clear with the industry slowing down.
  • The competitive outlook is also not clear as there could be a concentration of market shares to control retail channels & control pricing.
  • Profitability is also an issue, since margins have been falling.
  • Proposed cost reduction of 5-7% isn't enough given the cost advantage of competitors and their pricing strategy.

III. Solution

Candidate should note that so far it is very unclear if the capital expansion will help the division grow and stay profitable. Candidate should recommend to client that there is a need to address these critical issues:

  • What is the cause of the decline in profitability?
  • How will the cost reduction improve division's position in comparison with its competitors.
  • How will the increase in capacity affect the industry's volume/pricing and overall profitability.

Difficult Questions

  • Which issues would you deem more important to analyze first in this scenario?
  • How would you respond to the client if he asked you to provide a Yes/No answer?
Related consulting question(s)
Best answer so far out of 3 answers:
McKinsey / Accenture / More than 300 real MBB cases / Collected all Big 3 offers / Harvard Business School

Hi, Focus on the most common industries in the followingpriority (sorted by probability of geting a case): 1-retail and CPG; 2-airlines; 3-Telecom; 4-banking; 5-natural resources; 6-tech There a... (more)

Anonymous, Case questions will obviously depend on the interviewer and the group you are trying to join. When I looked st the credit card side for example, I wasgiven credit card related questions.... (more)

Related BootCamp article(s)

CAGR - Compounded Annual Growth Rate - CAGR

The Compounded Annual Growth Rate (CAGR) Is a theoretical steady growth rate over a specific amount of time, not the average of the Y-o-Y growth rates. It can mask sub-trends within the period

5 Comment(s)

Cost-Benefit Analysis

Investments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in most cases you need to have an idea about future financial impacts. A key tool to asses this impact is the cost-benefit analysis which is used to determine the net effect of potential revenues and costs.

4 Comment(s)

Benchmarking

Benchmarking can be very useful for a case interview. You can benchmark internally (comparing your own plants) or externaly (comparing to competitors)

0 Comment(s)

The Value Chain

The Value Chain - as e.g. by Porter - is a classic framework to structure the activities of a business and add value to products by transforming resources.

3 Comment(s)

Growth Strategy

Growth questions are among the most common questions in consulting case interviews: gather the necessary Information about volume and price to find the best growth lever

4 Comment(s)
4.9 (400 ratings)
4.9 5 400
Case exhibits