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.
The following structure would be a good approach:
Important information that should be investigated:
- Company’s focus
- Projects investigated
- Split of R&D investments
- Duration of an average project
Information that can be shared if inquired:
- The company is a relatively new pharmaceutical player.
It’s been around for 20 years now.
- The R&D department is not expected to expand or shrink. Investments should be the same in the next years.
Share Table 1 if the interviewee inquires information about the projects.
The candidate should ask for the data and draw his / her own table (you can share the table gradually or afterwards).
- The company is active in 4 BUs (business units) and the main investments are in the “Anesthetic” and “Old women” BUs.
- Drugs for pregnant women can be created more than 3 times quicker than Anesthetics, which require the longest project duration.
- The first three BUs are very much topic-related: all of them regard women. The fourth BU seems a bit out of place in the company
Since R&D impact should be maximized, it is essential that we analyze the success of products already launched:
that can be shared if inquired:
- The profit margin of the commercialized drugs (each drug is developed as an independent project) is similar, unrelated to the BU they belong to.
As profit margin is the same, the candidate should reason that from the long project durations and high research cost in the industry the payback time of each BU is a good indicator of success.
Share Diagram 2 with the cash flows of the pregnant women and old women BUs.
The candidate can ignore discounting when calculating the payback time.
Investment costs = 7 + 10 + 14 = 31 monetary units (mu)
The payback time can be calculated by comparing all cumulated profits over the years with initial costs. Once cumulated profits are bigger than the initial investment costs all costs have been paid back (Profits ≥ Investment costs → Payback time ).
Payback time = 5 years (Profits = 1 + 4 +8 +11 + 8 = 32 mu)
Investment costs = 4 + 6 + 13 + 15 + 9 + 2 = 49 mu
Profits ≥ Investment costs → Payback time
Profits = 6 + 15 + 18 = 39 mu
There is not enough data yet to calculate the payback time for the BU “Old women” as the product is rather recent on the market.
The candidate should ask for more data of the other projects and competitors to compare.
Share Table 2 with the rest of the data, depicting the calculated payback time of the company and benchmarks.
- The “Pregnant women” BU is very favorable with a short average payback time of 5 years.
- “Anesthetic” has a very long payback time.
- Although the BU “Old women” is too recent for any calculations, Diagram 2 can be used to forecast an approximated paypack time. Table 2 can be used to compare the forecast with benchmarks.
The candidate should conclude that the payback time is probably much shorter than the benchmark’s. Competitors need 7 years. In our case, 3 years after launching, already 39 monetary units have been earned compared to costs of 49 monetary units.
The interviewee should have a closer look at the competitors and the economic forecast of the different customer groups.
This can be done with a BCG matrix:
Share Table 3 with an overview of the competitors if the interviewee inquires information.
The interviewee should create an own BCG matrix based on this data. If there occur big difficulties or the table is finished you can share Diagram 2 with an overview of the actual BCG matrix.
- “Anesthetics" and “Contraceptives” are positioned as dogs which is very negative for the client. In both markes the client is only a marginal player in relative terms.
- "Old women" are stars with a high market growth and a big relative market share.
- "Pregnant woman" can be considered as cash cows with a leading market position and stagnated growth.
After the analysis made so far, we can suggest the following actions in order to maximize the R&D return of investment of the company, taking into consideration its capabilities and the competitive landscape:
Gradually divest “Anesthetic” BU
- The BU turned out to be a dog in the BCG matrix analysis (low market share, shrinking market). That means that it only drains the company’s resources and does not return the investments made in it.
- The average time duration of a project is 10 years, more than 3 times that of BU “Pregnant women”. Payback period is of 15 years, much longer than for the other BUs.
- Differently from all other 3 BUs, “Anesthetic” is not directly related to women. By dropping “Anesthetic”, the company could take advantage of this specialization in women to exploit synergies and work on targeted marketing campaigns.
Further analysis about “Contraceptives” BU & consider quitting it in the future
- “Contraceptives” is also a dog in the BCG matrix (market is stagnated and client has low market share).
- It takes 8 years for projects to be launched and the Payback period is of 8 years (60% longer than for “Pregnant women” and twice as long as the expected Payback Period for “Old women”.)
Increase focus of investments on the new and promising “Old women” BU
- Although new in the market, the client already became the second company in market share (scale effect advantages).
- The “Old women” market is rapidly growing, which is a very good opportunity.
- It will however take a lot of investments in absolute terms for the client to maintain its market share and ideally even increase it.