Case Type: math problem; organizational behavior; operations strategy.
Consulting Firm: PricewaterhouseCoopers (PwC) final round job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00200: The client Microsoft Corporation (NASDAQ: MSFT) is a multinational corporation headquartered in Redmond, Washington, USA. Microsoft develops, manufactures, licenses, and supports a wide range of software products and IT services predominantly related to computing through its various product divisions.
One particular division of the client makes a software product called Microsoft System Manager (MSM) that manages desktop applications across different machines. There are 2 broad categories of customers – large organizations (with 1000 + computers) and small organizations (with 100 – 1000 computers) that use the MSM software. Microsoft has a strong presence in the small customer segment but has not been able to penetrate the large segment. Question: 1. Why is Microsoft not able to have a footprint in the large segment? 2. What recommendations would you have – stay or exit the large segment? 3. What tactics would you use if the client decides to stay/exit?
Additional Information:
Note to case giver/interviewer: This is a quantitative numbers case – so guide the candidate appropriately.
- The Microsoft System Manager (MSM) desktop application software reduces system crashes and calls to system administrator. It is a background application so the end-user does not even know that it exists on his / her computer.
- Microsoft sells the software through computer retail stores that sell software products. There are over 2,000 such retail stores across the country.
- Large segments are more profitable than small segments, and currently the small segment market is almost saturated. So from the client’s perspective, they clearly need to sell more to large segment. The question is: How do we sell more?
- No other player operates in this niche market – however an open source system application manager is in the cards.
- Microsoft’s MSM software is extremely stable and has clear benefits because of reduced system outage. These benefits are more for large companies than for small companies.
- Client sells the software, retail stores sell support services at time of sale. Retail stores sell using a direct sales force that visits the large / small companies.
- The average license price for small firm is $2,000. Stores sell 100 licenses a year and get a 10% margin. In addition, retail stores sell support services 100% of the time for each license, each of which produces another $2,000 in revenue with a total margin of 10%.
- The average license price for large firm is $20,000. Stores sell 12 licenses to get a 25% margin. In addition, retail stores sell support services 20% of the time for each license, each of which produces another $20,000 in revenue with a total margin of 25%.
- The actual sale is made by sales representatives who get 1% of every $1 in revenue they bring in to the store. A sales representative can either make 8 small company sales or 2 large company sales in a given month.
Possible Answer:
one question…I probably missed something. When they say that “sales representatives get 1% of every $1 in revenue” why am I suppose to take 1% out of the net profit instead of 1% of the total revenue they brought in?
Good question, I think the correct calculations for sales representative incentive should be:
Small firm: 8 x ($2,000 + $2,000×100%) x 1% = $320 per month.
Large firm: 2 x ($20,000 + $20,000×20%) x 1% = $480 per month.
Thanks for pointing it out!
The system of an organization has capacity. Once the capacity is exceeded, there will be no more single integrated system, or we may say that the system should be divided into several sub-system …
One point, the number and life time of Large companies is limited because of heavy investment requirements and economical conditions, but small ones are available for ever. So playing about small ones looks like a long term strategy. Besides, If Microsoft decides to use their own sales force and offer good technical support service, e.g. guarantee of replacement for two years, it will increase sales even if they offer higher prices
However seem microsoft on the move..