First, we should identify areas with no existing distribution network, water scarcity, and a large population. Next, we should analyze local regulations and explore potential synergies with the client’s existing distribution network. In the long term, the client could benefit from setting up plants and sourcing networks in regions where water sources are likely to run dry, using their current pipeline network to transport and purify water from other areas.
Enhance your problem-solving skills with this medium-level practice case. This sample will familiarize you with question types and boost your readiness, preparing you for the interview process.
Understanding the client’s goal
Your client is an Indian oil and gas company. They have approached Oliver Wyman to develop strategies for boosting their revenues growth.
Description of the case situation
The client operates in the midstream sector, focusing on the transmission and marketing of oil and gas. What growth strategies can help them increase their revenues?
Helpful hints:
- Identify the main objective
- Write down key facts and important information that may be used now or later in the case
- Feel free to ask the interviewer for an explanation of anything that is not clear to you
- Ask for a few minutes to gather your thoughts and write down a framework for addressing the main case question/objective
Evaluation criteria:
- Ability to identify the key question and pertinent information
- Ability to structure a problem in a clear and effective manner
- Ability to verbally communicate problem structure in a succinct format
Question 1: Growth strategy
The client has identified the drinking water distribution business as a promising new venture. With their interest in entering this market, a strategy centered on establishing water purification plants to serve municipal corporations shows potential.
What key factors should the client consider before moving forward?
Helpful hints:
- Take time to organize your thoughts
- Develop and communicate your overall approach
- Ask the interviewer for information or data points you need to effectively answer the question
Evaluation criteria:
- Ability to develop and verbally communicate a thought-out approach
- Ability to identify and ask for key information needed, for example the size of the addressable market
- Ability to perform calculations and quantitative analysis
- Ability to synthesize information into a meaningful insight and drive the case forward
Question 2: Market sizing
The client team did a similar analysis and identified Bangalore as a potential location. They’ve asked us to assess the size the domestic potable water market in Bangalore. How would you approach this analysis?
Helpful hints:
- Take time to organize your thoughts
- Develop and communicate your overall approach
- Ask the interviewer for information or data points you need to effectively answer the question
Evaluation criteria:
- Ability to develop and verbally communicate a thought-out approach
- Ability to identify and ask for key information needed, for example water consumption levels or different income groups
- Ability to perform calculations and quantitative analysis
- Ability to synthesize information into a meaningful insight and drive the case forward
- Bangalore population: 12 million people (3 million households)
- Municipal corporation buys water from the client at Rs. 10 / kL
- Municipal water supply coverage: 20% for low-income households, 50% for medium-income households, and 100% for high-income households
- Daily water consumption: 1 kL for low-income households, 2 kL for medium-income households, and 4 kL for high-income households
The estimated total water demand of 2,500,000 kL per day indicates a substantial market size. This market also represents strong growth potential, especially since low- to medium-income households, which constitute 90% of the population, have a low penetration rate of municipal water supply. This indicates significant opportunities for increased market penetration and growth.
Question 3: Evaluate internal capabilities
Does the company have the necessary internal capabilities to enter the market? What factors would you evaluate to determine this?
- Operational capacity: Evaluate whether the client has the infrastructure and expertise to establish and manage water purification plants.
- Regulatory compliance: Determine if the client can navigate the regulatory landscape and secure necessary permits and licenses.
- Financial resources: Assess if the client has sufficient capital to support the new venture.
- Human resources: Verify if the client has or can acquire the skills and expertise within its workforce.
Additional insight: A more advanced analysis might suggest that, given the client’s experience in managing large-scale operations and fluid management, they are well-positioned to enter this market, as long as they bolster their regulatory and technical capabilities.
Question 4: Evaluate financial viability
What are the estimated costs and revenues for entering the new market, along with the forecasted payback period and return on investment (ROI)? The client requires a five-year payback period.
- Initial market penetration assumption: 10% market share
- Daily sales volume: 250,000 kL/day
- Fixed annual costs: Rs. 20 crore (1 crore = 10 million)
- Variable costs per kL: Rs. 5
Estimated revenue calculations:
Revenue generation:
- Daily revenue: Rs. 2,500,000/day
- Annual revenue: Rs. 750,000,000, assuming 300 operational days per year (accounting for weekends and holidays)
Operational costs:
- Annual variable costs: Rs. 375,000,000 (daily sales volume * days worked/year * variable cost * crore conversion rate)
- Annual fixed costs: Rs. 200,000,000 (20 crore)
- Total annual costs: Rs. 575,000,000 or 57.5 crore
Annual profit before tax
- Annual profit before tax: Rs. 17.5 crore (Rs. 175,000,000) calculated as (annual revenue * working days) minus total annual costs
Payback period calculation:
- Initial capital expenditure: Rs. 200 crore
- Payback period: 11.4 years
Conclusion:
The estimated payback period is around 11.4 years, which is longer than the client’s target of five years. As a result, the proposed entry into the drinking water distribution market may not align with the client’s short-term financial goals.
Question 5: Determine execution strategies and potential risks
How can the company expand into the new market, and what are the potential risks involved with entering a new market?
Execution strategies for market expansion:
- Conduct comprehensive market research and analysis to identify high-potential areas
- Secure necessary licenses and establish purification plants
- Leverage the existing distribution network for efficient water delivery
Potential risks of market entry:
- Navigating regulatory compliance and obtaining the required permits
- Facing competition from established players
- Managing operational challenges associated with the new business
- Financial risks due to potentially long payback periods
Question 6: Provide a recommendation
What is your final recommendation to the client?
Helpful hints:
- Take a moment to gather your thoughts and review your findings from each part of the case
- Start with a clear answer and then follow with supporting details
- Keep it concise (30-60 seconds)
Evaluation criteria:
- Ability to synthesize information from the entire case and highlight the most critical components
- Ability to verbally communicate a concise recommendation in an effective, confident, and persuasive manner
Based on our analysis, entering the drinking water distribution market presents a long-term growth opportunity but does not align with the client’s investment criteria for a five-year payback period. The estimated payback period of 11.4 years is significantly longer than required.
Next steps
1. Explore alternative growth opportunities
Given the current financial outlook, the client should consider other growth opportunities that offer a quicker payback period, such as:
- Increasing penetration in the existing midstream oil and gas market
- Expanding into new geographic markets where the client already has a presence
- Developing or enhancing products or services that better align with the client’s core strengths
2. Reassess market entry strategy
If the drinking water market remains a strategic priority, consider a phased approach to reduce upfront costs or explore partnerships to share the financial burden.
3. Broaden revenue streams
Identify additional ways to enhance revenue, such as offering value-added services or targeting higher-margin customer segments.