Hello and welcome to this video on
case analysis and critical thinking.
This video will provide a short history of
the case method and discuss
business case types and characteristics.
The bulk of the presentation will cover our
recommended process for case analysis.
And then we will finish
with some concluding thoughts
and recommendations.
The uses the case method
as a pedagogical tool was
invented for legal education
by Christopher Columbus Langdell,
who was the dean of
the Harvard Law School from
1870 to 1895.
He also wrote the first case book called "A
selection of cases on the law of contracts."
In this context, the case method
involved the examination and analysis of
resolved court cases and
their judicial decisions, where Langdell
would employ a Socratic style
questioning with his students during classes.
In the 1920s, the
Harvard Business School adapted
the Langdellion method into what we
now regard as business case studies.
These cases are narrative rich,
active learning activities where
participants are given the opportunity to
apply business principles to
real-world style business examples.
Typically, these business cases
fall into three primary buckets.
The first is the problem diagnosis case,
where participants are presented with
the symptoms of an issue and are
asked to diagnose the problem
and then possibly recommend solutions.
Then there is the decision or
dilemma case where the problem is more
defined and the participants are
asked to recommend a solution
or choose the best course of action from
a finite set of
distinct decision alternatives.
Finally, the analysis case
is similar to the Langdellion method.
Or participants analyze a business situation
that has already been resolved and
then evaluate the course of action taken
and consider alternative approaches.
While business cases may
vary in their approach,
many contain predictable elements,
such as background or contextual information,
specific case information
outlining the problem or issue.
Assigned roles for you
and your audience or judges,
explicit tasks and guided questions,
and then supplementary data and exhibits to
help inform your analysis
and recommendations.
When you're first looking at a business case,
it is very easy to get overwhelmed
by the amount of information provided.
But just like any big task,
it becomes more manageable when you
break it down into smaller parts.
Here's one recommended strategy
that consists of four phases.
Getting oriented, identifying problems,
performing analysis, and action planning.
Now, while these phases are
listed in a linear order,
approaching the phases sequentially
might not always be
the most effective method of
completing the business case.
In fact, I would even recommend that
you reflect on and revisit
prior phases as it
can lead to a deeper level of
analysis and ensure that you are on
the right track with your action planning.
So now let's take a look
at these phases individually.
Getting oriented phase is
your first pass at the case where
you begin to familiarize
yourself with the information provided,
identify what is being asked of you
and begin your preliminary analysis.
Some questions that you might ask
yourself are, what is your role?
What is the case asking you to do?
Is this a real or fictional company
which could inform your research approach.
What information is most
relevant at this stage?
What additional information is
provided such as supplementary data
or exhibits. You may also want to
reflect on
your existing knowledge on the topic.
And if you're in a team,
discuss the knowledge and skills
that each member brings to the group.
You may also want to start planning
your research approach and consider
what information you would
like to know and whether it
is possibly available
through external sources.
Once you're feeling a little more
grounded in the case,
you should then reread the information
carefully to identify
the problem or issue that should
be addressed in your analysis.
If you have not done so already,
you should consider highlighting
important or salient information
and take some notes as well.
Then ask yourself, is there
a stated problem or symptoms of a problem?
Who are the stakeholders in this case?
In other words, who is affected by
the problem and who might be
impacted by the solution?
What are the implications of the problem?
Put another way.
What are the potential outcomes
if the problem is not addressed?
Once you have some idea
of what the problem is,
you can begin performing your analysis.
Depending on the details of the case.
There are different approaches
that you can take.
If you don't know where to begin,
simply organizing your information and
prioritizing facts can help you get started.
There are also many strategies
and models that you can
employ that may provide additional insights.
Some of these strategies
include a SWOT analysis,
Porter's Five Forces model,
timeline analysis, financial analysis,
and a cause and effect analysis.
And I'll describe these in a bit more detail.
SWOT analysis is the process of identifying
internal and external factors that
affect
the competitive positioning of a company.
The SWOT
mnemonic stands for strengths,
weaknesses, opportunities,
and threats, which helps
individuals identify and succinctly
organize information
so that their decisions and
recommendations leverage
a company's strengths and opportunities,
will also overcoming
their weaknesses and possible threats.
When individuals conduct a SWOT analysis,
they usually create a matrix
like the one shown here on the slide.
And then through reading the case
and conducting supplementary research,
you can begin filling in each section.
The strengths refer to what
the company does well,
their internal sources
of competitive advantage
or functions that create value.
You can ask yourself, what makes
the company stand out to its customers?
How does the company differentiate
itself from its competitors?
What assets or intellectual
property does the company have?
Or do they utilize
a process or have a system in
place that make operations
more efficient than other companies?
Then the weaknesses are the internal factors
that are not going so well.
You could consider performance
or efficiency issues,
legal or image problems,
or other characteristics are systems that are
done better by a company's competitors.
Opportunities refer to external areas
of growth for the company.
This could relate to possible
strategic partnerships and agreements,
favorable consumer trends,
advances in technology,
or areas of geographic and market expansion.
Finally, threats relate
to external factors that
could negatively affect the
company's sales and market share.
Such as a change
in competitive landscape with
companies fighting for
a limited consumer base,
products and services becoming obsolete.
Social changes, threatening or
stringent government policies
and regulations,
changing economic conditions and others.
Once you've filled in your SWOT matrix,
you can begin making assessments about
its competitive positioning and use
that information in
your decision-making process.
When completing the SWOT matrix,
you may also want to consider
the Porter's Five Forces model
in your external analysis.
This model helps individuals
look at competitive forces within
an industry, which can help
inform a company's business strategy.
In the center of this model, we have
the competitive rivalry
within an industry that
refers to the number of competitors
with equivalent products and services.
When the competitive rivalry is high,
many companies have to find
ways of differentiating
their products and services in
terms of quality, price, or both.
However, if the competition is low,
companies have more opportunities to charge
higher prices and then
therefore gain higher profits.
At the top of the model,
we also have the threat of new entrants,
which refers to the ease in which
new companies can enter the market.
If there are high barriers of entry,
an existing company will have
an easier time holding
onto their competitive position.
But if the barriers are low,
a company will have to continue to do
more to maintain a competitive advantage.
Related to this is the threat of substitutes,
which evaluates the level to
which substitute goods and services
may be used as an alternative to
an existing company's products or services.
An example of this could
be books versus eBooks,
where books were an existing product and then
e-book devices were offered
as a substitute product.
When an industry has no close substitutes,
existing companies have
more opportunities for profitability than
those companies within industries
were close substitutes are available.
This model also considers
the power of suppliers and buyers.
The supplier power refers to
the number of suppliers in an industry
and their power and setting
high prices for raw materials and inputs.
When there are fewer suppliers,
there are less options to choose from.
And suppliers can get away with
charging more for their materials.
If there are many suppliers,
companies will have more options and
can benefit from competitive pricing.
Buyer power is concerned with
the buyer's ability to drive
down or negotiate prices.
Buyers have the most bargaining power
when specific types of
buyers in a market account for
a large percentage of sales revenue.
Put another way.
If there are customers that are fewer in
number but highly concentrated,
they have more power to negotiate prices than
widespread and individualized
customer groupings.
To conclude on this, it's
important to have a good sense of
the industry conditions and
environmental threats
that accompany is facing.
Because it will ultimately impact strategic
decision-making and long-term profitability.
Researching information for
Porter's Five Forces model
can be a little challenging
because you need to have
a good understanding of what
to look for and how the industry works.
Census data can show
the number of companies in an industry.
And you can look up governmental policies and
regulatory information online as well.
Business news sources and
trade publications can also give you
insights on emerging trends
and major players in an industry.
However, Purdue also subscribes to
a useful resource that includes a lot of
comprehensive information
and an added layer of
analysis that can be
helpful and ultimately save you time.
It's called IBISWorld industry reports,
and this can be found on
the Purdue Libraries A-Z Database list.
IBISworld contains industry reports that
comprise elements from
the Porter's Five Forces,
as well as a lot of other information.
Each of these reports follow
a standardized format
of chapters, subsections,
and visualizations that are consistent
across all of their industry reports.
On this slide, I've included
the most relevant chapters and
subsections for each of the five forces.
For example, if you're
curious about the threat of new entry,
you might want to check out the barriers to
entry section or
the regulations and policy section.
It is always good to supplement
your research with other sources as well,
but this is an excellent starting point to
familiarize yourself with an industry.
When you are analyzing a case,
he may also consider organizing
your information in the timeline.
That only does this help you summarize
a series of events in your case,
but it also may highlight
positive and negative trends and
expose information gaps in your chronology.
A timeline analysis can be done by
simply writing it out on a piece of paper.
But there are also
many timeline templates and
programs that can organize
and visualize events,
especially for cases that are
a little more complicated.
It's just a matter of finding
the right strategy for you.
Now, if you're not a finance person,
financial analysis may
be pretty intimidating.
Sure you've been given
this beautiful table of
company financials,
but what do you do with it?
Fortunately, there are a number of
fairly straightforward financial ratios
that allow you to
garner some useful insights.
And these ratios can be
divided into five different classes.
The first is profitability ratios,
which measure how efficiently a company can
generate profits or
value for their shareholders.
Usually this is the most
useful if you're able to compare one of
these ratios with the company's
own historical performance
or with their competitors performance.
I will note though,
that if you're evaluating startups or
companies that are early in their life cycle,
profitability ratios may not
be the most appropriate measure of
success because these companies
might not yet be making a profit,
which can be totally acceptable
in these early stages.
Liquidity ratios show the degree to which
a company can meet or cover
their short-term debt obligations.
So if you have
a balance sheet from a company,
these ratios show whether they're
current or liquid assets
can cover current liabilities.
If you're working on a case where you are in
the role of an investor or creditor.
These ratios are useful
because they can show the health of
a company and whether they are
worthy of investment or credit.
Activity ratios show how effectively
a company manages its assets
to generate revenue,
which can show the operating
efficiency of a company.
Leverage ratios can show
how much capital comes in the form of debt,
highlighting how a company's assets
and operations are being financed,
whether that be debt or equity.
Market value ratios can measure the return
earned from shareholders
holding stock and a company,
which can help in making
wise investment decisions.
And here are a couple of
examples of what these ratios
look like. First is the net profit margin,
which as I'm sure you can guess,
is a profitability ratio,
where the net income
is divided by sales revenue.
And this will give you
a percentage of the profits earned on sales.
The inputs for this equation can be
found on the company's income statement.
The current ratio is a liquidity ratio
that measures the degree to
which short-term debt claims can
be covered by liquid assets,
meaning that the assets can
easily be turned into cash.
The current ratio equals
current assets divided
by current liabilities,
which is information that can be found on
the balance sheet. What you're looking
for here is a ratio that is at least 1.
However, you do not want
the ratio to be too high,
which can show that a company is
not using its assets efficiently.
But a ratio between 1 and 3 is generally fine.
The inventory turnover ratio is
an activity ratio that
shows whether a firm is
carrying excess inventory or whether
their inventory is sold or
used within a particular period.
You can calculate this ratio by dividing
the cost of goods sold
by the average inventory.
This information can be
found on the balance sheet.
And generally speaking, the inventory is
reported as a current asset.
Though, depending on how it is reported,
you may need to add
the beginning inventory to
the ending inventory and divide that
by the number of periods to get an average.
A good inventory ratio
depends a lot on the industry.
Some sources recommended
inventory between 2 and 4,
while other industries may
be in the 5 to 10 range,
it probably would be useful to look at
industry benchmarks if you're
using this measure in your analysis.
The final example is
the debt-to-equity ratio,
which falls under the leverage ratio class
and shows the balance
between debt and shareholder equity
in a company's capital structure.
To calculate the debt to equity ratio,
just divide the total debt
by the total equity,
which can be found on the balance sheet.
The optimal debt to
equity value will again vary by industry.
Because some industries use
more debt than others.
But generally a good measure
is around 1 to 1.5.
This is obviously not an
exhaustive list of ratios,
and in reality, there are
a ton to choose from.
So I recommend exploring
the many free resources
that are available online.
Purdue libraries also has a number of e-books
that focus specifically on financial ratios.
So definitely do
a deeper dive if you're interested.
Another evaluative strategy is
the cause and effect analysis,
also known as fishbone diagrams because
they often resemble the
skeletal structure of fish.
This form of analysis
is useful because it gets people
thinking beyond the symptoms of a problem to
begin unwrapping the underlying causes.
When you're starting your diagram, add
the problem statement as
the mouth of your fish.
Then discuss major categories
that may include the causes of
the problem and create
diagonal branches for these categories.
Next, you can begin discussing supporting
the issues that may
contribute to the problem.
And our example here,
our problem is high employee turnover.
We then identify the organizational culture,
the marketplace,
company characteristics
and job characteristics
that might have underlying
causes for this problem.
We then fleshed out more specific information
which will make it easier to address
these causes and our action planning.
After conducting your analysis,
you should consider reflecting
on earlier phases of
this process to make
sure that you're on the right track.
You should ask yourself,
did different problems emerge
during your analysis?
Does the problem statement need to be
refined or expanded in scope?
Did new directions emerge and
what additional information do you need?
When you've reached
the action planning phase,
you can begin thinking about
possible decisions and recommendations.
With your team, you should develop
a list of decision alternatives and
evaluate these decisions in
order to find the best option,
you should ask yourself, what are
the strengths and
weaknesses of each decision?
What are the anticipated outcomes
and are these outcomes measurable?
How will your stakeholders be
impacted by these decisions?
Does your decision address
the identified problem?
Are these decisions supported by evidence?
And do they offer tangible,
actionable guidance that are realistic,
affordable, and scalable? To
make sure your decisions and
recommendations are comprehensive.
You can also consider applying
the SCEMES model,
which stands for space,
cash, helpers, equipment,
materials, expertise, and systems.
You will likely not need to incorporate
all of these elements into your action plan.
But it will help you make
sure that the firm has
the resources and infrastructure
to support your recommendations.
As you are going through the case,
it's important to keep in mind
that business cases,
our practice in managing uncertainty.
You might feel overwhelmed
or feel that you have
not been provided with enough information.
But managing uncertainty is
an important skill set that will help
prepare you for making
real business decisions in your careers.
You might also strive for
that single correct answer,
but this rarely exist.
Instead, you need to be creative,
do what you can with the information
that you have and support
your recommendations with evidence
from your own information gathering.
I also caution you to avoid
relying solely on gut feelings and
intuitions as these can
sometimes be the result of
red herrings that may mislead or
distract you from the real problem.
Also avoid confirmation bias,
which can lead you into seeking out
information that supports your ideas.
This can create significant
blind spots in your analysis.
So be sure to question your assumptions and
capitalize on the knowledge and
analytical power of your team.
Thank you for watching this video on
case analysis and best of
luck tackling your business cases.