WINNING CONSULTING CAREER INFORMATION
1) A major film entertainment company wants us to assist them in building a distribution network for home video. They want to know
Start by asking your interviewer some basic questions:
• What are other entertainment companies doing?
• What are the current costs?
• Does the company have the staff and resources to create its own distribution network?
• Of the major entertainment companies producing videos, do most distribute through their proprietary supply chains or through third parties?
• What is the client’s current cost of distribution through its contractual partner(s)?
• Has the client considered building its own distribution network before retaining us? If so, what were its findings?
• Does the client have a dedicated functional staff assigned to the project?
If so, what functional areas do they represent?
After establishing some basic facts, ask more detailed questions. Your interviewer might allude to certain avenues to discuss or shut down others. If the interviewer confirms the company has enough staff to handle setting up its network, stop delving into the ramifications of reassigning personnel.
If, through questioning, you decide that staying with a third-party distributor makes the most sense, ask the next logical question: Should the company stay with its current distributor or choose a new one?
• Who are possible alternative partners? Who uses them?
• Could you characterize the relationship between the client’s distribution partner and the client? Is there a possibility of retaliation on the part of the distribution partner if the client severs its ties to this party?
• How many weeks of supply are currently in the distribution partner’s pipeline?
• How receptive are the client’s accounts to changing distribution partners?
Has a value proposition been created to show that a client-owned supply chain would be more efficient or valuable to the accounts?
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• Does the client have any financial interest in the distribution partner that might have to be severed?
When you feel ready, make a recommendation. You might be asked a more qualitative case question as well. (Recruiting insiders tell Vault that undergraduates and graduate candidates without MBAs are more likely to receive qualitative cases.) Qualitative business cases determine if you can discuss a company intelligently and analytically and use business concepts and terminology naturally in conversation.
2) We’ve seen a lot of consolidation in the pharmaceuticals industry over the last 10 years. What factors do you think drive this activity?
You don’t have to know anything about the pharmaceutical industry or even companies like Pfizer or GlaxoSmithKline to do well with this question. On the other hand, you want to show that you can think through a complex industry using some basic analytic thinking. (Still, we recommend that you read The Wall Street Journal on a daily basis in the weeks before your interviews.)
If you are unfamiliar with the pharmaceutical industry—and if you are, you can say so to your interviewer without penalty—ask some questions to orient yourself. What exactly do pharmaceutical companies make? How large is the industry? How do products originate? Are there a few major players or is the industry more fragmented? How do consumers choose among different drugs that offer a similar treatment?
At a very high level, you should be able to ascertain or confirm the following pieces of information:
• Pharmaceutical companies develop and market drugs that help people with a wide variety of medical conditions, such as cancer, influenza or nasal congestion.
• Given the recent consolidation, the industry is dominated by several large players. The list includes Pfizer, GlaxoSmithKline and Bristol Myers Squibb.
• Pharma companies have increased recent usage of direct-to-consumer ads to market their drugs. One major reason for this shift is that in 1997, the Food and Drug Administration (FDA) relaxed its restrictions on the extent to which pharmaceutical companies could advertise on the airwaves, particularly television and radio.
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• Market research suggests that direct-to-consumer ads have been fairly effective. Consumers are indeed requesting prescription drugs and purchasing over-the-counter drugs on the basis of advertising.
• All new drugs undergo several expensive stages of testing by the FDA before they can come to market.
• Few drugs pass all phases of FDA testing. Successful drugs take many years (six to ten) to complete the full cycle of testing.
• Drugs can be patented, but most patents expire in 17 years. At this point, the drug will be subject to generic competitors. Many drugs are patented before the full cycle of FDA testing finishes.
• While all of the major pharmaceutical companies have their own R&D departments, most partner with biotechnology companies, which specialize in the research and development of new life science technologies. Biotech firms usually restrict their attention to the discovery and preclinical stages of the R&D process, and the pharmaceutical companies carry the drug through the last stages of FDA test.
A good answer to this question might suggest that mergers are either revenue- enhancing or cost-reducing to the parties involved.
•Revenue-enhancing—One company might buy another because it wants access to a larger revenue base. When its patent expires, a drug becomes subject to generic competitors, and the drug will make less money for its parent company. This is why drug companies are constantly on the prowl for new drugs to develop.
• Cost-reducing—A big reason for pharma companies to merge is to save costs. Many companies save money by combining overhead and R&D expenses and reducing headcount. Sales and marketing are enormous expenditures for pharma companies.
An even better answer would incorporate some more advanced reasons.
• Mergers in the pharma industry can reduce risk because the combined drug pipeline will be larger. Very few drugs in the R&D stage pass the FDA tests and make it to market. Each stage of FDA testing (Phase I/II/III) has a historically low probability of success, so if one multiplies out the probabilities, there is a very low overall probability of success for any given drug. So, a pharma company wants to have as many products in development as possible to ensure that a few will make it to market and that perhaps one over a given timeframe will become a real hit.
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• A company might want to capture the revenue from a competitor’s winning drug. For example, Pfizer purchased Warner-Lambert mainly for its leading drug, Lipitor. Pfizer also made a bid to purchase Pharmacia largely because of Pharmacia’s strength in oncology.
• Companies might also merge because of irrationality. Companies in the 1990s believed that scaling up was the way to go.
• Because marketing and brand awareness is so important, a larger pharma company can join two strong brand names with joint advertising and create an even larger market power than the two companies individually could have had before.