The Consulting and Strategy Interest Group, IIM Kozhikode

Anchal | Gauri | Ghazal | Mohit | Pulokesh

Preparatory Material- II
Hello PGP 22!

This is second in the series of the preparatory study material by Konsult- the
consulting and strategy interest group of IIM Kozhikode.
Once you are done with the reading, you have to complete the assignment based on
the reading.*
Let’s get started!

*It has to be noted that it is mandatory that you study the material and complete the assignment.
 Pestle Analysis
It is a framework that strategy consultants use to scan the external micro-environment in which the firm operates. PESTLE is an
acronym for the following factors:
P olitical E conomic S ocial T echnological L egal E nvironmental
Significance

They play an important role in the value creation opportunities of a strategy

Involves the collection and portrayal of information about external factors which have, or may have, an impact on business
They are usually outside the control of the cooperation
Must normally be considered as either threats or opportunities.
The macro economical factors can differ per continent, country or even region, so normally PEST analysis should be performed per country

Political(incl. Legal) Economic Social Technological

Environmental regulations and
Economic Growth Income distribution Govt. Research spending
protection
Demographics, population growth
Tax policies Interest rates & monetary policies Industry focus on technological effort
rates,Age distribution
Internal trade regulations and
Govt. Spending Labor/ social mobility New inventions and development
restrictions
Contract enforcement law
Unemployment policy Life style changes Rate of technology transfer
Consumer protection
Govt. Organization/attitude Exchange Rates Education Energy use and costs
Competition regulation Inflation rates Fashion, hypes (Changes in) Information technology
Political Stability Stage of business cycle Health consciousness, welfare, safety (Changes in) Internet
Safety regulations Consumer Confidence Living conditions (Changes in) mobile technology
 E- Commerce Industry Analysis
E-
Commerce Step 1: Conduct a generic study of an industry-different
sectors, growth rates, major players in the market,

Digital
Online
Online Retail Online travel Download
Classifieds
Sites
There has been wide array of policy support in terms of
Overview: Growth Rates(FY 11-16): SOP, taxes and FDI encouragement

Geographical Advantage
Online travel-largest domestic Online travel market CAGR
B2B e-Commerce segment-81% 30.6% over Online retail growth
revenues in 2011 at 39% over FY Online clasified
Revenue: USD17(2013) growth at 23% over FY

(India)
Technology advances and declining prices of PCs. Tablet
CAGR 54.4% over next 5 years
market increasing
• Certain segments command a significant share of organized
Under-
retail market are underpenetrated in the online retail
penetrated
• Food service and beverages are still at are at the nascent
segments stage in the online retail world.
Payment landscape undergoing change
Better • COD is necessary evil. Though it has improved customers
Payment and volume, it has led to increase in transaction costs
options • Increase in Debit/Credit Cards usage will help e-commerce

More • Reduction in time of funding rounds Step 2: Determine drivers contributing to the growth of the
Investments industry you can use PESTLE ,SWOT
• Vertically focussed niches are preferred investments for VC

There is no specific format unless mentioned to conduct an industry analysis. This is just an example illustrating what parameters can be included.
 Mckinsey’s way of handling a consulting problem

Work through the politics Follow the 80/20 rule

Redefine the problem Ex. 80% of the sales come from
An ideal solution which faces
20% of the your sales force.
opposition by many, a client may
Find the true problem. Some times Follow the 80/20 rule to start with
refuse to accept. Consensus
the problem presented by the however to find the 80 and the 20
building may require you to
client is not the actual problem you have to dig into data. They
change your solution to make it
may mean problem but they also
acceptable
mean opportunities

The Elevators test

Find the key drivers Don’t Boil the ocean
Know your solution so thoroughly
that you can explain it clearly and Many factors affect your business. Work Smarter and Not harder. Be
precisely to your client/customer in Focus on the most important selective. Figure out the priorities
30 seconds ones- The key drivers of what you are doing
 Mckinsey’s way of handling a consulting problem

Pluck the low hanging fruit Make a chart everyday

During the problem solving
Put your learnings down on paper.
Hit Singles
process, opportunities may arise
It will push your thinking. You may You cannot do everything, so don’t
for easy win, to make immediate
or may not use it but once you try. Just do what you are supposed
improvements. Seize the
have crystalized it on a page you to do and get it right
opportunity!. They create little
will not forget it
victories for you an your team

Don’t Accept “ I have no

idea Just Say, “ I don’t know” Look at the big picture
Maintain professional Integrity- Be Take a step back from what you
People always have an idea if you honest to your client, your team
probe just a bit. Ask a few pointed are doing and ask basic questions.
members and yourself. It includes
questions- you will be amazed at recognizing when you have not got a
How does your solution sole the
what they know. Combine that with clue. Admitting that is a lot less problem? How does it advance
some educated guessing and you costly then bluffing your thinking?
will be on the road to solution
Source: The mckinsey Way . For more details refer to the book “ The mckinsey way”
Guesstimate
What is it?
–
1 Market-sizing or Guesstimate is one of the most popular question types you will get in consulting
case interview. These questions ask you to estimate or to smartly guess a quantitative variable
relevant to the case solving
–
2 When a guesstimate question asks you to estimate the size of a market, it is called a market-
sizing question. In term of approach, there is no difference between guesstimate and market
sizing questions.

Example of a guesstimate question:

–
1 Number of people wearing red in New York on a typical Monday?

What will you be evaluated on?

–
1 The way you approach and solve the problem matters much more than the final
answer you come up with. Often, the interviewer do not have a number in mind;
he\she will be interested in your methodology
2
– Deeper the level of analysis the better it is
Guesstimate – an example
Estimate the number of pizzas served per day by Domino's to Kozhikode City
This Is how you can approach to it..
1. Assume that population of Kozhikode is 5 lakh (This also includes population of nearby places like
Kunnamangalam from where people buy Pizza)
2. Now consider that average price of pizza is Rs.200/-, So middle class and higher class only can only
afford pizza is an valid assumption. Assume population of this group to be 60%
3. Estimated ‘middle + upper’ class population= 0.6*500000 = 300000
4. Let’s assume that pizza consumer belongs to age group 6-50. Assume population of this group is to be
75% in Kozhikode.
5. Target age population : 0.75*3=225000
6. Considering within this population only 10% likes to have pizza
7. Number of people who like pizza=0.1*225000=22500
8. Pizza being a costly item, lets assume that people prefer pizza once a month
9. Per day that pizza count could go to =22500/30=750
10. Which is 750 pizza per day
 Porter’s Diamond Framework
Porter diamond illustrate the determinants of national advantage and represents the national playing field that countries establish for their
industries

Firm Strategy, Structure, and Rivalry

Firm Demand Conditions
• Local conditions affect firm strategy
Govt. Strategy, • Demanding local market leads to
• Low rivalry made an industry attractive. However, Structure, national advantage
over the
and Rivalry • Strong, trend-setting local market
long run more local rivalry is better
helps local firms anticipate global
• Local rivalry forces firms to move beyond trends
basic
advantages that the home country may
enjoy

Factor Demand
Factor Conditions Condition Conditions Related and Supporting Industries
• Country creates its own important • When local supporting industries are
factors competitive, firms enjoy more cost
• Stock of factors at a given time is less effective and innovative inputs
important than the extent that they are • This effect is strengthened when the
upgraded and deployed suppliers themselves are strong
• Local disadvantages in factors of global competitors.
production leads to innovation
Related &
Government's Role Supporting
• Encourage companies to raise their performance, Industries
• Focus on specialized factor creation.
• Stimulate local rivalry by limiting direct cooperation and enforcing
antitrust regulations.
Internal Environment: Resource Based View

Resource:
•1 All assets, capabilities, systems, processes, structure, firm attributes, information, knowledge etc.
controlled by the firm that enable the firm to conceive of and implement strategies that improve its
efficiency and effectiveness (Daft, 1983) (also understood as physical capital resources, human capital
resources and organizational capital resources)

Competitive Advantage:
•1 A firm is said to have a competitive advantage when it is implementing a value creating strategy not
simultaneously being implemented by any current or potential competitors. (Barney, 1989)

Sustained Competitive Advantage:

•1 A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy
not simultaneously being implemented by any current or potential competitors and when these other firms
are unable to duplicate the benefits of this strategy. (Barney, 1989)
•2 Not all resources create competitive advantages. Some are needed for the survival of a firm, for the firm to
just exist or be a going concern. They are important in their own way but not for fighting competition.
Strategic Growth Options for Firms
1 2 3

Organic Growth-Capacity- Inorganic Growth- Strategic Alliances & Joint

Building on one’s own Mergers & Acquisitions Ventures

Better suited when: Better suited when: Better suited when:

• There is self-sufficiency • Two foregoing options

• The firm doesn’t have do not work out
w.r.t requisite resources the capability (Residual Option)
and capabilities •
• The market window Both have a strong key
• The firm wants to won’t stay open capability
control / influence the
evolution of an industry • If there are reasonably
Example : Hero- Honda,
priced targets
• If the market window will Tata-Docomo
stay open • If the firm has the
capital
Example : Cisco, Tata
conglomerate Example : Facebook-
whatsapp
3 Resource Pathways Framework

•1 BUILD (Organic growth)

If your internal resources are capable of developing new set of skill
and achieve targeted growth

•2 BORROW (Semi-Organic growth)

If it is more cost and time effective to take help of outside domain
experts resources through alliances

•3 BUY (Inorganic growth)

If the targeted growth is critical and needs competitive advantage
with major control on resources in short span
 Stay tuned for more industry updates!
THANK YOU

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