Sample Cases

Strategy & Operations

Deloitte Consulting LLP

Mini Case and Full Case Overview

Mini cases are designed to take 15-20 minutes while Full Cases take 30-40 min and additionally
includes a data sheet
Cases focus on showcasing the interviewees ability to work through a problem (not get to a
mathematical answer)
Tests ability to think strategically and also to structure a competitive analysis

-2-

Round 1: Mini Case Example

Deloitte Consulting LLP

Payments Provider: eCommerce Strategy

Business Situation
Our client owns one of the largest global card payments networks. As of 2007, the consumer card payments business had reached
maturity in the US and Europe, with annual revenue growth barely above the growth rate in GDP. However, the market has priced
the clients stock at a P/E ratio that resembles that of a growth stock. To meet investor expectations, the company is now looking
for real growth options outside of its core business.
eCommerce has been identified as a key growth driver. The eCommerce industry has grown at 20% and is expected to grow at a
15% CAGR over the next five years. PayPal, Amazon 1-Click and Google Checkout dominate the industry, controlling over 50% of
the market share. Our clients Senior Executives feel that they need a capability in eCommerce, an area where they have
historically lagged.
The client has identified a small start-up as a potential acquisition target. The target has an innovative business model and has
grown rapidly. It is a provider of micro payments for social networks, which is used to pay small amounts to publishers of online
content and for downloadable media. Industry leaders such as PayPal find it inefficient to manage these small transactions and
charge disproportionately high fees, making traditional online payments unfeasible.

Problem Statement
Deloitte Consulting has been called in to evaluate the potential acquisition, and provide guidance on the integration of these two
companies, should the merger occur.

How should a large organization such as our client evaluate this acquisition opportunity?
What data would you need and what analyses would you conduct to develop a recommendation?
The client does not have a track record of acquiring and successfully integrating small, innovative companies. What cultural
differences will the client have to overcome? How would you advise the client to overcome them?

-4-

Payments Provider: eCommerce Strategy

Solution Considerations
This is a strategic fit / merger feasibility dilemma. Successful answers will focus on:
Identifying whether this acquisition will allow for future eCommerce growth, or simply exist as a related business unit
Identification of the key elements of the business case (revenues, growth, costs, market size assumptions)
Possible synergies between the two companies
Future growth options in core payments business
Identification of qualitative aspects of strategic fit
Competitive analysis of the industry consideration of competitor reactions
Customer analysis - are they serving the same, similar, or different customers
Some data that can be used to structure analyses includes:
information about the size and history of the target
growth rate information for the target
information about the leadership and culture of the target
financials about the level of commitment and level of gain, and whether this could even "move the needle" from a growth perspective

Candidate Evaluation
A strong candidate will address:
Fit with existing business. Can a company focused on security and reliability successfully integrate with a start-up focused on peer-to-peer payments,
which are notorious for fraud? How similar are the business models (i.e. both generate revenues as a percentage of transaction amounts)?
Overall business case. Growth in target revenues, possible synergies in external settlements, options for cross-selling with existing business, obtaining
deep consumer behavior insights in a segment of current non-users, organizational synergies.
Qualitative aspects. Can the entrepreneurial spirit of a start-up be combined with the clients behemoth organizational bureaucracy? What will be the
keys to success? (May include holding the company as a separate unit, or giving it complete autonomy for a finite period)
Customer analysis. Will the combined company serve more customers, or the same customers in different ways? The targets customers are typically
younger, but may be in households with the clients existing customers.
Technology considerations. Is the new technology for micro-payment clearing compatible with the Clients payment systems, and can they be settled
profitably on the Clients network given the small size of the transactions (and, hence, small per-transaction revenues)?
An excellent candidate might discuss:
Brand synergies or negative considerations: if, for example, the combined company alienates the core customers of the target company
Developing a presence now will enable learnings that lead to future innovations in eCommerce, enabling disruption of existing technologies once the two
firms are combined.
Longevity of the business model. Is the targets service protected from intellectual property infringement, and what is preventing another company from
copying them? How viable is a second player in the PayPal space?
Alternative strategies, such as investment in several micro-payment companies, to build more strategic flexibility than outright acquisition.

-5-

Round 2: Full Case Example

Deloitte Consulting LLP

Telecom Video Project

Business Situation
Our client is an integrated wireline and wireless telecommunications services provider that recently began offering
wireline video services in a portion of its geographic footprint in response to competitive pressure from cable operators
offering triple-play bundles with video, broadband and voice services.
Thus far, complexity, technology and cost issues have limited the rollout and adoption of this service and reduced our
clients ability to effectively counter the competitive threat. Some terms key to understanding the client are as follows:
Video offerings: Our client currently offers video services across its wireline footprint in partnership with a national satellite operator
(DBS); the satellite operator is the largest source of new subscribers to our clients wireline geography.
Buildout costs: Cost of putting in place the delivery infrastructure that must be incurred before service is delivered to that neighborhood.
Programming costs: Cost of procuring and packaging content.
Installation costs: The cost to connect a subscriber to the delivery infrastructure.
ARPU: Average Revenue Per Unit
Churn: Loss of customers as they switch to other service providers

Problem Statement (A question is typically first discussed with the candidate and then the next question is asked)
Deloitte has been hired to advise the Chief Strategy Officer (CSO) on options to improve the economics and
performance of the video strategy. Specific questions to address include:
1. What are our clients options to quickly gain scale in video services?
2. What are the benefits and deficiencies associated with each option?
3. What is the value of a video subscriber? What is the incremental value of a triple play subscriber?
4. What is the value of scale in video to the client?

-7-

Telecom Video Project - Data Sheet

Data Sheet (Should be provided during Question 3)
Miscellaneous Information

Programming Costs

Clients subscribers

50 Million

Buildout costs

$1500/household

Programming cost

25% above competition

Installation cost

$500/new subscriber

Video ARPU

$75/month

Triple play ARPU

$120/month

% of new video subscribers

who take triple play

90%

% of triple play customers who

churn relative to voice only
Market Information

50% less

Operator
Comcast
Time Warner
Charter
Cablevision

-8-

2006 cost per

subscriber/month
$17.91
$18.45
$22.97
$31.40

Subscribers as of
12/31/05
24.2M
13.4M
5.4M
3.1M

Telecom Video Project Solution Guidelines

Prompt Questions & Responses
1.

What are our clients options to quickly gain scale in video services?
A good answer should consider both organic and inorganic options with preference to inorganic due to the desire to
acquire scale rapidly. Additional consideration should be given to the geographic coverage of each option with
preference given to national coverage first and the clients wireline geography second.
Inorganic:
Acquire current satellite distribution partner, cable operator (e.g. Comcast), or disruptive competitor (e.g., Vudu, Veoh, etc.)
Organic:
Increase speed of video build out/rollout schedule for client video offering
Offer significantly lower promotional pricing for video services to increase penetration in available markets

-9-

Telecom Video Project - Solution Guidelines

Prompt Questions & Responses
2. What are the benefits and deficiencies associated with each option?
A good answer will identify appropriate benefits and deficiencies for each option:
Acquire current satellite distribution partner:
Benefits: provides a large number subscribers quickly, national footprint, expanded footprint to new geographies and savings on cost
of installation

Deficiencies: price, potential loss of distribution from other telcos, integration challenges (not wireline)
Acquire cable operator:
Benefits: expands footprint to new geographies, wireline video offer
Deficiencies: price, potential mismatch in geographic coverage, savings on cost of installation
Acquire disruptive competitor:
Benefits: lower price, national coverage, rapid roll-out
Deficiencies: may not be considered a true substitute to traditional video services, may require higher speed connections
Rollout owned service faster:
Benefits: lower operating costs due to one network / optimal network design
Deficiencies: time to market, proof of success at scale
Lower pricing:
Benefits: increase penetration in target markets, rapid implementation (only in areas where service currently offered)
Deficiencies: margin implications, devaluing service in customer perception, risk of churn when prices rise, competitive response

A great answer might note that getting people to sign up for triple play if they currently have nothing might be even
more expensive than converting the households currently with MVPD.

- 10 -

Telecom Video Project - Solution Guidelines

Prompt Questions & Responses
3a. What is the value of a video subscriber?
A good answer will provide the appropriate framework to calculate the lifetime value of a video subscriber based on
the value of the video product:
Pull from Misc Info table ARPU line
Pull 25% from Misc Info table, $20 from Programming Cost
line on Market Information

Pull 2.7% from Mkt info monthly Churn Rate

Pull from Misc Info table Installation Cost

Additional assumptions may be made regarding other costs not provided (e.g., cost of sales, cost of care, etc.) that
would alter the lifetime value calculation
3b. What is the incremental value of a triple play subscriber?

Pull 2.75 and .5 from Misc Info Churn #s

In addition to the incremental value from video services, a superior answer Pull
would
mention the incremental voice and
90% from Misc Info Triple Play line
broadband revenue due to expected slowing in access line losses

- 11 -

Telecom Video Project - Solution Guidelines

Prompt Questions & Responses
4. What is the value of scale in video to the client?
A good answer will identify some of the following value drivers related to scale:
Increased bargaining power with video programmers
Retention benefits from triple play subscriptions leading to fewer access line losses
Faster realization of video revenue streams

A superior answer will identify most of the above value drivers related to scale and provide some quantification:

$5 is difference between estimated $25 programming cost and $20 cost for competition
$45 is the difference between the $120 and $75/month ARPU from the Misc. Info table.

- 12 -

Telecom Video Project - Solution Guidelines

Wrap Up

While the values and specific projects descriptions are fictitious, this situation and strategy work that we performed for
this client is real

Deloitte Consulting was engaged on a project to help the client evaluate strategies to effectively offset access line
losses and compete with cable competitors that ultimately led to the clients investment in network expansion and
video services

We are viewed as a trusted advisor by this client and their executive team. Ultimately, they have continued to rely on
Deloitte to help them evaluate changes in the industry and to help define strategies that will lead to the greatest value
creation for the client and its shareholders

Candidate Evaluation
1.

Was the candidate able to identify reasonable strategic options for the client to gain scale?

2.

Was the candidate able to logically reason through the benefits and deficiencies of each option to gain scale?

3.

Did the candidate provide appropriate quantitative frameworks to derive the customer value and benefits of scale?

4.

Was the candidate successful in making basic financial manipulations and working with data provided in the business
situation and data sheet?

5.

Did the candidate consider indirect benefits that would also be derived from video subscribers and scale?

6.

How successful was the candidate in summarizing their findings / quantitative results?

- 13 -