Case Statement:
Your client is a CCTV installation and maintenance service provider and their profits are not comparable with their competitors. Diagnose the problem and suggest ways to turnaround the situation
C: For how long has this been an issue?
I: Since the inception of operations.
C: Could you tell me a little about the company and which part of the value chain do they lie in?
I: The client has one office situated in Mumbai. It is involved only in the installation and the maintenance of the CCTV set up but do not manufacture the cameras.
C: Who constitutes our customer base?
I: We majorly cater to office complexes and other commercial buildings which have continuous demand for our service.
C: Alright! So, in order diagnose the issue, I would like break profits into revenues and costs. Do we know if our revenues are not comparable with the competitors or our costs?
I: We can start with looking at costs.
C: So, we can segment costs into fixed costs and variable costs. The monthly fixed costs would entail a) Rent b) Employee costs (consisting of full time and on demand employees) c) Software costs if any d) any other administration costs
Other fixed costs a) IT Infrastructure b) Vehicle c) Other Infrastructure
The variable costs would include a) Transportation (like fuel, repair etc.) b) Marketing c) Office Supplies d) Spare parts
Do we have any information about which cost head is not comparable
I: Okay! Could you look deeper into full time employee costs.
C: The employee costs would depend on number of employees and the average amount paid per employee. Are both the components comparable to our peers
I: There is an inherent assumption and flaw in your analysis could you figure that out?
C: Alright! So since different competitors would have different scales of
operations comparing based on absolute numbers will not be right.
I: Exactly! So how do you want to proceed?
C: Okay! So, based on per client basis are we employing more employee-hours than the competitors?
I: On per client basis, we are efficient in the installation and maintenance part and there we do not employ more employee hours.
C: I would now like to look into the organizational structure. So dividing based low middle and high-level employees, do we know how many employees do we have on each level and how much do we pay them?
I: What is your hypothesis behind asking this question?
C: I would like to understand the employee mix and compare it to a competitor to see if there are any anomalies in our employee hierarchy structure.
I: Alright! So, we have 100 employees in the lower level, 30 in the middle level and 5 in the top management. The market leader has 800 employees in the lower level, 120 in the middle level and 30 in the top management. The amount we pay them is comparable to the industry standards.
C: The Market leader has a lot more employees that is indicative of a higher scale of operations. The interesting thing to note here is that the ratio between the middle to lower-level employees in the case of our client is 3:10 and the same for the market leader is 3: 20. Clearly, we seem to be overstaffed in the middle level.
I: Bingo! What would you suggest the client?
C: We have 2 options either retain the number of employees or reduce the number of employees. First, we should forecast the future demand and look into alternative areas of expansion that could make the middle level managers instrumental in the near future because of the improvement in the scale of operations. If such expansion is not foreseen, then the company might need to take a tough decision to lay them off.
I: Good! Thank you for your time.
Background Information:
Company: Located in Mumbai. Do not manufacture CCTVs.
Product: Service. Involved in installation & maintenance of CCTVs
Customer: Office complexes and commercial buildings
Competitors: Client specific issue
Case recommendations:
Forecast the future demand and look into alternative areas of expansion that could make the middle level managers instrumental in the near future.
If such expansion is not foreseen, then the company might need to take a tough decision to lay them off.
Case tips:
This case was related to understanding that comparisons are made relatively and not on absolute numbers when working with companies of different sized.
Its important not to suggest laying off managers without providing an alternative route.
