MBB Final Round Case - Smart Education

Information to be shared only under request:

• SmartBridge offers tutoring services for students in Middle and High Schools. It is currently present in 4 major cities in the US, New York, Boston, Los Angeles and San Francisco
• The client is sustainable thanks to government funding and donations, and offers its service for free to the students. The client rents physical spaces where tutors perform teaching for selected candidates
• The goal of the client is to reach a minimum of 1.000 students at risk in the 1st year in Chicago and minimize the monthly cost per student
• The client has a budget constrain of $5M per year to invest in the project

Ask clarifying questions and/or present the structure.

GOAL CLARIFICATION

An excellent candidate would clarify the objective in terms number of students, budget constraints and understand the source of revenues is from donations.

STRUCTURE

A great candidate would include in the analysis the following elements:

1. Market potential. The potential of the Chicago area in terms of students at risk. Key elements to derive the market potential are:
   1. Possible barriers that would not allow to enter the market – eg current legislation
   2. The size and growth of the market of students at risk
   3. The concentration of competitors and substitutes in the market
2. Client potential. The potential of the client in that market. Key elements to consider are:
   1. Calculation of the number of students at risk the client may reach, without considering its current operations in other cities
   2. Positive and negative externalities in terms of additional students that can be reached, related to the presence in other cities
3. Capabilities. Analysis of the resources needed for the client to start operations. Key elements to consider are:
   1. It is possible to satisfy the budget constraint of $5M
   2. Are there any other relevant resources needed and are they available to the client
4. Risks and next steps. Key elements to consider are:
   1. Implementation of the entry strategy
   2. Analysis of possible risks that could negatively affect the objective

The candidate may include additional elements, but there should be a rational related to the objective of SmartBridge.

COMMUNICATION

An excellent candidate should present clearly the different areas in a structured way.

Moreover the candidate should clearly present the rational why he/she wants to explore a particular point, connecting the answer to the objective of the client.

An excellent candidate should:

1. Clarify the goal of the client
2. Include the main elements in the structure as presented above
3. Communicate the structure in a clear way

Recommended score calculation: starting from 2, decrease the score by 0,5 points down to 0 for any of the following:

• The candidate did not clarify the objective
• The candidate missed point 1, 2 or 3 in the structure (not including risks and next steps is tolerable)
• The candidate included several useless elements in the structure (ie boiling the ocean)
• The candidate communicated the structure in a disorganized way or without a clear connection to the goal

After the presentation of the structure, show the following graph to the candidate, asking which district they believe is the most attractive for the client, based on the goal.

"We have some information on the number of students for four districts in Chicago. Based on this graph, which area would be more attractive in terms of the number of students our client could reach? Assume they can enter one district only."

The graph does not contain enough information to provide a conclusion. Indeed, the objective of the client is to have at least 1.000 students at risk. The candidate will need information on the percentage of students at risk and the percentage of market share the client may be able to get.

Once received the table, the candidate should calculate the expected number of students the client may reach in the four districts, to calculate the ones that would meet the objective.

If needed, clarify that the market share refers to the students at risk that SmartBridge can reach.

Following the math computation, the candidate should identify that the districts meeting the goal are A, B and C.

INFORMATION REQUEST

An excellent candidate would ask information on the percentage of students at risk and the expected market share.

MATH STRUCTURE

A great candidate would present the logic of the math before performing the actual math.

The correct formula to use is the following, for each district:

Number of students = (Low performer*Percentage at risk + Average performer*Percentage at risk + High performer*Percentage at risk) * Expected market share

MATH COMPUTATION

An excellent candidate would perform the math correctly, aligning with the interviewer, identifying the districts which allow to reach the target are A, B and C.

Applying the previous formula, the math to perform is the following:

• District A = (14.000*0,4 + 49.000*0,1 + 7.000*0)*0,2 = 10.500*0,2= 2.100
• District B = (35.000*0,3 + 50.000*0,05 + 15.000*0)*0,1 = 13.000*0,1= 1.300
• District C = (11.000*0,5 + 16.500*0,2+ 27.500*0)*0,3 = 8.800*0,3 = 2.640
• District D = (15.000*0,2 + 15.000*0,1 + 45.000*0)*0,15 = 4.500*0,15 = 675

NEXT STEPS

A great candidate would connect the numbers with the client’s goal, saying that the next steps for the winning options would be to identify if the resources available ($5M) are sufficient and use that to identify the ideal districts.

An excellent candidate should:

• Ask information on:
  • the percentage of students at risk and
  • the percentage of relevant market share the client may get
• Present the structure upfront before performing the math
• Correctly calculate the areas with the number of students at risk
• Propose next steps related to the budget – that is, check if Districts A, B and C require more or less of the $5M budget

Recommended score calculation: starting from 2, decrease the score by 0,5 point down to 0 for any of the following:

• The candidate did not ask additional information on market share and/or percentage of students at risk to calculate the target areas
• The candidate did not present a structure before performing the math
• The candidate did mistakes performing the math
• The candidate did not suggest to move to the next steps analyzing the budget available

"Which would be the cost per student per month for the options feasible for our client, considering all the costs involved?"

If asked, clarify that the costs refer to serving the students previously calculated in a District.

After completing the computation, District C will result too expensive given the $5M budget of the client. However, a great candidate will notice that not all the costs have been reported. Since our client serves students in face-to-face, at least the cost of real estate should be added to the list.

Some candidates will move immediately to the computation of the average cost per student.

However, a great candidate will notice that District A and C are not suitable given the budget of the candidate, since the yearly cost will be above $5M there; moreover District D is not suitable given that we cannot reach 1.000 students there. This means that the computation is needed only for District B, where the monthly cost per student is approximately $258.

INFORMATION REQUEST

An excellent candidate would ask information on the additional costs, at least for real estate.

ELIMINATION OF ALTERNATIVES

A great candidate would identify that District A and C do not respect the $5M budget, and that District D is not suitable given the number of students is too low.

MATH STRUCTURE

An excellent candidate would clearly present the logic of the math before performing the actual math.

The correct formulas to use are the following:

• Total costs: Cost of Equipment + Marketing + Staff + Rent + Other costs
• Cost per student: Total cost / Number of students

MATH COMPUTATION

A great candidate would perform the math correctly, aligning with the interviewer and avoiding computations for options not feasible. Following the previous formula, the math computation is the following:

(Computation for District D is not required, since it doesn’t reach the target of 1.000 students)

NEXT STEPS

An excellent candidate would conclude that with the information achieve so far the best district according to the objective of the client is B and suggest to move to consider the possible next steps to implement the entry.

An excellent candidate should:

• Ask information on the additional costs
• Identify District A, C and D are not suitable
• Present the structure upfront before performing the math
• Correctly calculate the average cost per district for District B
• Conclude that District B is the most suitable

Recommended score calculation: starting from 2, decrease the score by 0,5 point down to 0 for any of the following:

• The candidate did not present a structure before performing the math
• The candidate did mistakes performing the math
• The candidate performed calculations not strictly necessary
• The candidate was not proactive in proposing next steps related to District B

If the candidate recognizes that some costs are missing, you may add back 0,5 points up to 2, as this is a good observation that few candidates make.

"Our client is considering launching an e-learning system to simplify the access to students. Which advantages or disadvantages do you see with this option?"

"The following graph shows the increase in the number of students that we could serve and the expected decrease in rent cost thanks to the e-learning platform. The graph is divided in ranges of 6 months.

The IT investment required is $2M. Assuming the government will subsidize 30% of the IT investment, would it be feasible for the client to launch the e-learning platform within the next year?”

"The client is wondering how they could be able to make the investment feasible with the current constraints. What would you suggest?"

The candidate should present a structured approach considering at least 3 of the 4 options available, related to:

• Decreasing the investment
• Negotiating a higher subsidy
• Increasing the savings from the e-learning
• Increasing the budget
• Decrease other costs

An optional difficult question is the following (ask it only if there are at least 5 minutes left to complete the case or if you want to challenge a particularly good candidate):

"Can you quantify the exact amount needed for each option to make the e-learning investment feasible?"

PLUS AND MINUS OF THE INVESTMENT

An excellent candidate would identify at least 6 reasons. Possible answers are the following:

Number of students

• Plus
  • Increase the number of students involved in District B
  • Expand outside District B
  • Create marketing opportunities for friends of friends (eg via social media)
  • Simplify the onboarding process, increasing the number of attendants
  • Differentiate against competitors, possibly stealing market share
• Minus
  • Create risk of churn of students due to lack of contact or perceived inferior quality, affecting the brand of SmartBridge
  • Create risk of cannibalization of traditional face-to-face activity
  • Create bottlenecks due to lack of resources to manage the new IT infrastructure, leading to fewer students than estimated and affecting the brand of SmartBridge

Budget

• Plus
  • Decrease future costs for rent, equipment and possibly staff
• Minus
  • Surpass the budget for the first year due to initial investment
  • Surpass the budget for the first year due to ongoing costs

MATH STRUCTURE

A great candidate would clearly present the logic of the math before performing the actual math.

An ideal structure to compare the new cost with the available budget is the following:

• New cost = Investment*Percentage to be paid by client – Savings in months 0-6 – Savings in months 6-12
• Available budget = Total budget – Old yearly cost estimate District B

MATH COMPUTATION

An excellent candidate would perform the math correctly, aligning with the interviewer, identifying that the investment is not sustainable.

From Exhibit 4, the current rent is equal to $72K. With the investment, the new rent would be $62K in months 0-6 and $52K in months 6-12.

As a consequence, the saving per month in the first 6 months will be $10K and in the second 6 months $20K.

Applying the previous formula, we get:

Since the new cost is above the available budget by $252K, the investment cannot be performed.

(Note that the information on the old yearly cost - $4.032K - should have been calculated already in Part 3).

OPTIONS TO MAKE THE E-LEARNING FEASIBLE

An excellent candidate would identify at least 3 of the following options:

Identify additional cost savings

Decrease the IT investment

Negotiate a higher subsidy with the government

Increase the budget available

Decrease any other cost affecting the budget

In case you want to challenge the candidate with the difficult questions, he/she should quantify the following:

1. Identify additional cost savings by at least $252K in the following 12 months
   • Reason: as calculated before, the difference between the remaining budget ($968K) and the cost ($1.220K) is $252K. Thus if we decrease costs by $252K we can match the goal.
2. Decrease the IT investment by at least $360K
   • Reason: the IT investment that would be sustainable can be calculated as follows:
     1. Feasible investment = (Available budget + Savings in months 0-6 + Savings in months 6-12)/ Percentage to be paid by client) = (968K+60K+120K)/0.7 = $1.640K
     2. Since the current investment is $2.000K, the decrease is $360K.
3. Negotiate a higher subsidy with the government of at least 43%
   • Reason: the percentage of subsidy can be calculated as follows:
     • Percentage to be paid by client = (Available budget + Savings in months 0-6 + Savings in months 6-12)/ Investment) = (968K+60K+120K)/2000K = 57.4%
     • Thus the new subsidy should be 43%
4. Increase the budget available in 12 months to at least $5.252K
   • Reason: as calculated before, the difference between the remaining budget ($968K) and the cost ($1.220K) is $252K. Thus if we increase the budget from $5.000K to $5.252K we can match the goal.
5. Decrease any other cost affecting the budget by at least $252K
   • Reason: as calculated before, the difference between the remaining budget ($968K) and the cost ($1.220K) is $252K. Thus if we decrease costs by $252K we can match the goal.

An excellent candidate should:

• Identify at least 6 advantages/disadvantages of the IT investment only related to the objective (number of students and budget)
• Identify the equation to calculate whether the investment make sense
• Present the structure upfront before performing the math
• Correctly calculate that the investment is not convenient as will exceed the budget
• Brainstorm at least 3 ways to make the investment feasible

Recommended score calculation: starting from 2, decrease the score by 0,5 point down to 0 for any of the following:

• The candidate did not provide at least 6 advantages or disadvantages for the IT investment related to the number of students and budget
• The candidate did not present a structure before performing the math
• The candidate did mistakes performing the math
• The candidate did not brainstorm at least 3 options to make the IT investment sustainable

"You have one minute to present your findings to the CEO. What are you going to say?"

RECAP OF THE OBJECTIVE

An excellent candidate would start with a small recap of the objective:

"Our client asked us to understand if it would make sense to start to operate in Chicago, given our goal of 1.000 students and $5M budget, minimizing the monthly cost per student"

CONCLUSION

A great candidate would provide and answer-first approach to the question asked.

"We would recommend to enter the Chicago market, specifically in District B, without the e-learning investment. The reasons for this are the following:

• We will be able to serve 1.300 students, 300 above our target goal
• We will be able to meet the budget, as the investment required is only $4.032K
• The e-learning investment would require an additional $252K above the budget, thus won't be currently feasible"

NEXT STEPS AND RISKS

An excellent candidate would mention risks and next steps to take:

"We would recommend to develop an implementation plan for the launch, evaluating possible risks to surpass the budget or reach fewer students.

Potentially, we may also explore whether we could make the IT investment feasible in the near future, which would allow to reach additional students, helping the client in its mission."

An excellent candidate should:

• Recap the objective of the case
• Explain the client should enter District B and the e-learning investment is not sustainable at the moment
• Propose next steps on an implementation plan, risk analysis and e-learning investment

Recommended score calculation: starting from 2, decrease the score by 0,5 point down to 0 for any of the following:

• The candidate did not have an answer-first approach and presented the conclusion in a disorganized way
• The candidate did not cover the reasons for the decision for both the number of students and budget
• The candidate did not have next steps and/or risks as part of the recommendation
• The candidate spent more than 1,5 minutes to deliver the recommendation