Strategy and Competitive

AnalysisCSCA ®
Learning Series:
Sample Case Studies
What is Strategy?
• Dante Pharma Inc.
• QualChem Inc.
• Advoguard Insurance Company
• Schmidt Elektro AG (SEAG)
• HVC Technologies
• Intergistics Solutions

Note: The requirements of the case study in the CSCA® exam may differ from the requirements of the sample
case studies represented here.
 CSCA®
Sample Case Study
Dante Pharma Inc.

© Copyright 2017 Institute of Certified Management Accountants 2

Dante Pharma Inc. Scenario:
Dante Pharma Inc. is a large global pharmaceutical company based in the U.S. The company is one of the 10
largest pharmaceutical companies in the world with $60 billion in sales revenue last year. Dante has several
best-selling prescription drugs, and its most profitable product is a diabetes medication with the brand name of
Suganon. The patent on Suganon is expiring in less than two years. The company has many patents, and the
company’s top 10 patents generate over $20 billion in sales and account for one-third of its revenue. In addition
to Suganon, several other medications are facing “patent cliffs.” The company believes it can weather these
expiring patents with a new pipeline of drugs, but there are concerns. Dante has state-of-the-art research
capabilities, with an innovation funnel that, at one time, was the best in the industry. Lately, it has been lagging
behind several other competitors. Dante does have several new prescription drugs in the research phase, but the
effectiveness of these drugs is still uncertain. Investment in R&D takes many years to recoup, but successful
products can be extremely profitable.

Last year, there was some controversy surrounding one of Dante’s products, and the company settled a lawsuit
that was filed on behalf of several individuals who claimed to have severe nerve damage as a side effect. The
controversy surrounding this issue has quieted down, and there has not been any adverse publicity of late or
additional lawsuits. The company also faces other risks, including competition from sales of generic
prescription drugs to U.S. customers from Canada. These generic drugs are produced in Turkey and India.
Government regulation is another risk. Recent changes in the health insurance laws in the U.S. have impacted
profits negatively, but the uncertainty surrounding possible changes to the laws is an even greater risk. As a
global business, the company does have foreign exchange risk, but since 70% of its current business is in the
U.S., the foreign exchange risk is limited.

The company’s consumers tend to be older, retired individuals, primarily in the U.S., but also in Europe and the
Gulf countries in the Middle East. These consumers are relatively affluent and have excellent health insurance.
The demographic trend is favorable for Dante, as the U.S. market is an aging population, with a growing
number of retirees living longer and needing medication to control health issues.

Dante’s senior leadership team is discussing the possibility of acquiring another firm in the same industry, a
company that seems to have a promising pipeline of new products and a similar corporate culture. See Exhibit 1
for a memo summarizing the financial analysis of this acquisition opportunity. There are a number of strong
competitors in the industry. Summary financial ratios for Dante, the target company, its main competitors, and
the industry averages are shown in Exhibit 2.

The world economy has been growing, but the growth is uneven and there are many pockets of instability. The
U.S. economy is growing at a 4% rate, but the European economy is experiencing very slow growth. The
economy in the Middle East, Dante’s other major region, is strong, but there is considerable volatility because
of the political situation and the volatile price of crude oil.

Dante’s senior leadership team is planning an off-site meeting to perform a strategic analysis and set its plans
for the next three years. In addition to considering the acquisition, management will also be considering the
level of investment in R&D and diversification of products and markets.

© Copyright 2017 Institute of Certified Management Accountants 3

Exhibits:
Exhibit 1. Summary Financial Analysis of Acquisition Opportunity

Memo

To: Ellen Hayes, CFO

From: Roger Chen, Director of Financial Analysis

As requested, my team has prepared a financial analysis of the proposed acquisition of Target Co. In summary,
the results show a NPV of $3.5 billion, an IRR of 12%, and a payback period of five years. Target Co. has $20
billion in revenue, but has reported a loss on its financial statements in each of the last three years. There is,
however, a promising pipeline of new products that should result in new patents with a significant annual cash
flow. We assumed a purchase price of $80 billion and a weighted average cost of capital of 8%.

The full report that the team has prepared includes a detailed financial analysis, as well as an evaluation of the
risks and intangible factors that we should consider.

Please let me know when we can meet to review this analysis.

© Copyright 2017 Institute of Certified Management Accountants 4

 Exhibit 2. Summary Financial Ratios

Return on Dividend Debt to Net Profit

P/E ratio Equity Yield Equity Margin
Industry 20.5 25% 4% 73% 21%
Dante Pharma 17.1 110% 4% 235% 34%
Company 2 26.4 15% 6% 81% 13%
Company 3 21.3 18% - 101% 9%
Company 4 67.1 11% 2% 46% 5%
Company 5 32.2 16% 3% 53% 9%
Company 6 NA -25% - 187% -6%
Company 7 19.6 22% 3% 28% 18%
Company 8 32.3 9% 4% 58% 10%
Company 9 10.7 10% 4% 28% 8%
Target Co. NA -10% - 58% -1%

Requirements for this case:

There are five (5) elements that are evaluated in determining the total score for the case study section of the
exam: four (4) required questions and an assessment of the overall writing skills and presentation quality. The
percentage contribution of each element to the total score is as follows:

40% Question 1.
25% Question 2.
20% Question 3.
10% Question 4.
5% Writing Skills/Presentation
100% Total Score for Case Study

1. Perform a strategic analysis of the company. Include in your analysis each of the following, if applicable,
and use an appropriate strategic planning tool/model to support your analysis.

a. Evaluation of the company’s strengths and weaknesses

b. Scan of the environment
c. Identification of the critical strategic decision(s) that should be addressed
d. Identification of additional information that would be helpful in preparing your strategic analysis

2. Formulate one or more strategies for the company that you believe would create competitive advantage.
Support your recommendations with specific reasons and analyses.

© Copyright 2017 Institute of Certified Management Accountants 5

3. Identify and explain how you would implement the recommended strategy or strategies. Factors that you may
want to consider include the following:

• Leadership and communication

• Prioritization, overcoming challenges, and change management
• Organizational structure
• Linking strategy to the strategic financial plan
• Aligning tactics with long-term strategic goals
• The role of the Board of Directors, the CEO, the CFO, and the management accountant
• Incentives

4. Recommend a performance measurement model to report on the results of the strategy. Explain your
recommendation.

© Copyright 2017 Institute of Certified Management Accountants 6

 CSCA®
Sample Case Study
QualChem Inc.

© Copyright 201 Institute of Certified Management Accountants

QualChem Inc. Scenario:
QualChem Inc. is a small, U.S.-based manufacturer of chemical products, with 65 employees and
$10 million in annual sales. The mission statement prominently displayed in the company’s lobby
and on its website reads, “To provide expertise to our customers through high-quality, efficient
chemical services and manufacturing.” The business began as a contract manufacturer hired by
other firms to blend and package chemical product to custom specifications. QualChem’s
capabilities include formulating, manufacturing, packaging, distribution, laboratory services, and
supply-chain management. The company also processes raw materials for other chemical
companies.

As an established specialty supplier to a number of larger companies, QualChem has, until very
recently, enjoyed a steady stream of repeat orders and has been a preferred vendor for its
customer base. Fierce competition in the legacy contract chemical manufacturing business,
however, has resulted from consolidation in the industry and a movement by customers to
purchase product overseas. Recently, pricing pressure has been so extreme that the controller has
recommended turning down several contracts because they would not cover the total cost of
manufacturing, which includes depreciation. As a result of these trends, the legacy business is in
decline.

The employee base includes an experienced production team with an average tenure of 12 years
with the company. The purchasing team has strong competence in sourcing component
chemicals. The quality control lab and the product formulation team are staffed with a Ph.D.
chemist and degreed associates. There is a well-staffed customer service team that answers emails
and telephone inquiries. Until recently, the founder and CEO, a chemical engineer, had been the
only person making sales visits to customers.

Over the past 20 years, QualChem has processed chemicals for many start-up companies. One
early start-up customer patented a specialty chemical, Blue Miracle, which safely and effectively
kills Salmonella, E. coli, and other bacteria. The customer was not successful in bringing the
product to market and went out of business. QualChem obtained the patent, and the company’s
founder began investing his personal wealth in order to develop this product. Special equipment
was required to produce commercial quantities of Blue Miracle using the proprietary process.

There are many approaches to bacterial control in poultry plants. Blue Miracle is unique in that it
makes cleansing more effective at lower temperatures. Lower temperatures reduce energy use and
improve the quality and yield of the finished poultry product. Blue Miracle also has the advantage
of being odorless. The component chemicals are readily available at stable prices, and the
formula is considered a safe organic acid blend.

Three years ago, after a long, expensive, and arduous process, QualChem successfully gained
U.S. Department of Agriculture (USDA) approval for the use of Blue Miracle as a disinfectant in
poultry processing plants. This was the significant breakthrough the founder was hoping for. On

© Copyright 2017 Institute of Certified Management Accountants 8

the advice of his attorney, the founder immediately hired a professional management team
including a Vice President (VP) of Business Development and a CFO experienced in raising
capital.

One year after receiving USDA approval, the company raised $5 million in an initial public
offering (IPO). The funds were used to retire debt and to launch an aggressive business
development campaign. Shortly after the

IPO, the stock was trading at $5.00 per share, but the price has dropped to $1.25. Investors are
increasingly vocal about the need to increase the return on investment.

While sales of Blue Miracle have doubled since the IPO, increased revenue has not covered the
costs of manufacturing and business development plus the increased overhead related to being a
publicly-traded company. The cash from the IPO has been exhausted, and the company has
recently raised additional funds with a convertible bond offering. These funds will keep
QualChem afloat for a maximum of 12 months unless there is a breakthrough in sales with a
significant contract win.

To manage its cash flow, the executive team and several other employees have been paid lower-
than-market salaries and have relied on stock grants and options as a significant part of their
compensation.

The founder is also the Chairman of the Board. He and his family members, the new VP, and
other senior managers own 30% of the outstanding shares; the other shares are held by
individuals and institutional investors. The founder has assembled a Board of Directors consisting
of five men and women from among his personal contacts. All members of the Board have
excellent business reputations.

Poultry production is a $45 billion industry in the U.S., led by five major poultry processors that
control 65% of the market, compete fiercely with each other, and are highly motivated to keep
costs low. The new VP was formerly employed as a sales executive by one of the “big five”
poultry producers and seeks to leverage his contacts to penetrate these largest potential
customers. It has been harder than expected to execute this strategy. The other 35% of the market
includes smaller regional producers and natural and organic brands. Selling to these producers
requires time-consuming effort, travel, and personal contact. So far, only two small, regional
producers have adopted Blue Miracle as a significant factor in their operations. Supplying to
these producers has revealed the complexities of replacing current bacterial control systems with
Blue Miracle.

Supply of chemicals to the largest poultry producers is dominated by three well-established

competitors who protect their market share fiercely. The large poultry producers recognize the
theoretical advantages of using Blue Miracle, but they are reluctant to go through the extensive
regulatory approval process and reengineering to replace existing chemicals in their plants. If one

© Copyright 2017 Institute of Certified Management Accountants 9

of the major poultry processors adopted Blue Miracle, others would likely follow. The VP has
attempted to strengthen his connections by becoming an approved supplier of chlorine and
common acids to these dominant plants. While QualChem has received and filled some orders,
they have been priced at QualChem’s variable cost for the commodity chemicals.

The executive team understands that meat and poultry consumption is increasing rapidly in
developing and emerging economies with a rising middle class, but they have no knowledge of
the regulatory approval process in foreign markets and are hesitant to venture outside of their
domestic territory. Other potential domestic markets for Blue Miracle include beef, pork, dairy,
and seafood production. These markets would require regulatory approval.

The founder has assembled the leadership team to create a strategic plan that will bring Blue
Miracle market success and solve the current cash flow crisis.

Requirements for this case:

There are five (5) elements that are evaluated in determining the total score for the case study
section of the exam: four (4) required questions and an assessment of the overall writing skills
and presentation quality. The percentage contribution of each element to the total score is as
follows:

40% Question 1.
25% Question 2.
20% Question 3.
10% Question 4.
5% Writing Skills/Presentation
100% Total Score for Case Study

1. Perform a strategic analysis of the company. Include in your analysis each of the following, if
applicable, and use an appropriate strategic planning tool/model to support your analysis.

a. Evaluation of the company’s strengths and weaknesses

b. Scan of the environment
c. Identification of the critical strategic decision(s) that should be addressed
d. Identification of additional information that would be helpful in preparing your strategic
analysis
2. Formulate one or more strategies for the company that you believe would create competitive
advantage. Support your recommendations with specific reasons and analyses.

3. Identify and explain how you would implement the recommended strategy or strategies.
Factors that you may want to consider include the following:

© Copyright 2017 Institute of Certified Management Accountants 10

 • Leadership and communication
• Prioritization, overcoming challenges, and change management
• Organizational structure
• Linking strategy to the strategic financial plan
• Aligning tactics with long-term strategic goals
• The role of the Board of Directors, the CEO, the CFO, and the management accountant
• Incentives

4. Recommend a performance measurement model to report on the results of the strategy.

Explain your recommendation.

© Copyright 2017 Institute of Certified Management Accountants 11

 CSCA®
Strategy
Sampleand Competitive
Case Study
Analysis Learning Series:
Advoguard Insurance Company
What is Strategy?

© Copyright 2017 Institute of Certified Management Accountants 12

Advoguard Insurance Company Scenario:
Advoguard Insurance Company is a medium-sized U.S. property and casualty (P&C) insurance
company, with headquarters in New York City. The company has been in business for 55 years
and has been moderately successful. Advoguard has shown steady growth in net premiums and
regularly reports a small gain from operations. Over the last several years, premiums for P&C
insurance have declined, which has made it more difficult to maintain profitability. Deregulation
has led to mergers and acquisitions and the creation of very large firms that compete on price.
Investment income is another component of Advoguard’s earnings, but since the company has a
very conservative investment philosophy, investment income is a relatively small percentage of
total income. A majority of the company’s investments are in fixed-rate securities, and with
declining interest rates in the U.S., total return has been relatively low.

Advoguard’s book of business is exclusively in the United States, and primarily focused on
individual consumers. The company does, however, sell commercial P&C policies as well. One
specialized insurance line for home-based businesses has not done well. Premiums for home
business insurance have been low and losses high; however, this is a small percentage of the
overall book of business.

The insurance rating agency, A.M. Best, gave Advoguard a rating of A, or Excellent, one level
lower than A+, or Superior. In addition to other factors, A.M. Best evaluates leverage, liquidity,
and profitability when evaluating insurance companies. Advoguard has a solid reputation and has
never had a problem paying claims. For high-risk policies, the company enters into reinsurance
contracts with several large reinsurance companies.

In general, the insurance industry is becoming highly competitive. Although it is not easy to enter
the insurance business from the outside, other financial services firms can create competing
products. Also, other insurance companies can offer comparable products at low prices to capture
market share. Individual consumers do not have a significant impact on prices, but they do have a
choice and often move their insurance needs to the company with the lowest price. Large
corporate consumers do have influence on the price of insurance and have negotiated their
liability premiums down to historically low levels. Capital and employee expertise are the
resources that drive success for insurance companies.

The longtime CEO of Advoguard has recently retired and the Board of Directors has hired
Cynthia Barnes as the new CEO. The Board wants Barnes to deliver higher earnings growth and a
higher stock price. The shareholders enjoy a steady but moderate annual dividend, but the stock
price lags the overall market and underperforms compared to some of the other insurance
industry stocks. Its price earning (PE) ratio is 8.4, while the average industry PE ratio is 23.2. The
average return on equity (ROE) for the insurance industry is 12.1%, and Advoguard’s most recent
reported ROE is 4.6%.

© Copyright 2017 Institute of Certified Management Accountants 13

The VP of Planning met with Barnes and recommended that the company diversify into other
related business, such as life insurance and investment products. He also recommended
expanding into markets outside the U.S, like Europe, the Middle East, and Asia. He believes that
becoming a multiline global insurance company is the only way to grow as a business and sustain
that growth well into the future. Life insurance companies, many of which have global business
customers, are currently undervalued, according to several industry securities analysts. Many of
these life insurance companies have also diversified into investment products, such as annuities.

Barnes shares the recommendations with the company’s Chief Risk Officer (CRO). The CRO
believes that although there is additional profit potential in diversification of products and
markets, the risk would be too high for Advoguard. The company recently added to its loss
reserves because management initially underestimated losses on a particular piece of business.
The CRO argues that insurance is an inherently risky business and adding new unfamiliar
businesses and selling into unfamiliar markets would increase the company’s risk profile.

© Copyright 2017 Institute of Certified Management Accountants 14

Requirements for this case:
There are five (5) elements that are evaluated in determining the total score for the case study
section of the exam: four (4) required questions and an assessment of the overall writing skills
and presentation quality. The percentage contribution of each element to the total score is as
follows:

40% Question 1.
25% Question 2.
20% Question 3.
10% Question 4.
5% Writing Skills/Presentation
100% Total Score for Case Study

1. Perform a strategic analysis of the company. Include in your analysis each of the following, if
applicable, and use an appropriate strategic planning tool/model to support your analysis.

a. Evaluation of the company’s strengths and weaknesses

b. Scan of the environment
c. Identification of the critical strategic decision(s) that should be addressed
d. Identification of additional information that would be helpful in preparing your strategic
analysis

2. Formulate one or more strategies for the company that you believe would create competitive
advantage. Support your recommendations with specific reasons and analyses.

3. Identify and explain how you would implement the recommended strategy or strategies.
Factors that you may want to consider include the following:

• Leadership and communication

• Prioritization, overcoming challenges, and change management
• Organizational structure
• Linking strategy to the strategic financial plan
• Aligning tactics with long-term strategic goals
• The role of the Board of Directors, the CEO, the CFO, and the management accountant
• Incentives

4. Recommend a performance measurement model to report on the results of the strategy.

Explain your recommendation.

© Copyright 2017 Institute of Certified Management Accountants 15

 StrategyCSCA
and Competitive
®
Analysis Learning Series:
Sample Case Study
Schmidt Elektro
What AG (SEAG)
is Strategy?

© Copyright 2017 Institute of Certified Management Accountants 16

Schmidt Elektro AG (SEAG) Scenario:
Schmidt Elektro AG (SEAG) is a manufacturer of electric power tools based in Germany. The
company produces only electric power tools and sells them to distributors within the European
Union. Although SEAG competes with larger companies, it has been able to achieve a moderate
level of success.

SEAG manufactures and sells four electric power tools: a drill, a saw, a sander, and a router. The
products have experienced varying levels of success in the marketplace, and the market growth
rate of each product segment is also very different. SEAG’s drill and sander have both captured a
relatively large market share; however, while the market growth rate for drills is very high, the
market growth rate for sanders is extremely low. The company’s saw and router have not been as
successful in establishing market share, as both have captured a very small percentage of their
respective markets. The market growth rate for saws is high; however, the market growth rate for
routers is low and continues to decrease.

Overall, the company has been operating at a moderate profit and produces a stable, positive cash
flow; however, the Board believes there is significant room for improvement. Many of the
manufacturing processes experience slowdowns and bottlenecks. The factory’s layout has not
substantially changed from when the company originally fabricated basic hand tools. When plant
workers are producing the electric power tools, they have to manually move the work-in-process
tools across the plant floor several times before the production process is complete. The current
layout of the manufacturing facility is simply the legacy of the old hand tool business and there is
no practical reason for this workflow. SEAG has often been unable to meet customer demand in a
timely manner due to delivery inefficiency. Only 75% of deliveries from SEAG are on time, and
this has caused some customers to express dissatisfaction.

The company has recently experienced a high turnover in production workers and does not
provide formal initial or ongoing training. At the same time, SEAG has seen a small increase in
the quantity of defective products coming off of the company’s production floor. The result of
these issues has been a small increase in customer complaints and product returns.

Currently, SEAG purchases the electric motors, which are contained in the company’s electric
power tools, from Paragon Electric Motor Company (PEM). PEM produces a quality electric
motor and has been the sole supplier of electric motors to SEAG since SEAG began
manufacturing electric power tools.

PEM is a relatively small company and generates nearly all of its revenue from SEAG. The
owner of PEM has decided to retire and sell the business. The ability to count on PEM’s electric
motors has been vital to SEAG’s business, and the Board of Directors of SEAG is concerned
about how new ownership of PEM may affect SEAG’s operations. This concern led the board to
consider the possibility of acquiring PEM. To finance the acquisition, the company is looking at
two alternatives. The first option is for SEAG to take on new debt. SEAG has very little debt and

© Copyright 2017 Institute of Certified Management Accountants 17

could obtain a loan at a very reasonable interest rate. The second option is for SEAG to raise the
funds needed to complete this acquisition by issuing additional shares. Exhibit 1 provides
financial data related to PEM and its competitors.

Exhibit:

Exhibit 1: Financial Data for Electric Motor Industry

Return on Debt to Gross Net

Equity Equity Profit Margin Profit Margin
Industry 19% 66% 31% 9%
PEM 24% 75% 38% 12%
Company 1 10% 60% 20% 7%
Company 2 15% 50% 26% 10%
Company 3 25% 80% 39% 7%

Although SEAG’s operations have several problems, the CEO, who has served the company for
over 20 years and has experience in all areas of the company’s operation, believes there is
significant opportunity for growth. The CEO believes the future market potential is strong for the
overall electric power tool business. Ideally, the CEO would like to see the company in a position
to effectively enter the global market and compete internationally. Specifically, the CEO has
recently read that emerging market economies may be poised for dramatic growth. The CEO
believes there are viable opportunities in emerging markets and would like to expand into these
markets, but he also realizes that SEAG would face significant challenges.

To align the business on a path to future success, the management has been considering many
new initiatives to improve strategy and performance. With regard to performance evaluation,
SEAG would like to implement a more disciplined performance management process.
Additionally, the company would like to improve the strategic planning process and the decision-
making process by using traditional strategic planning tools. Finally, SEAG wants to evaluate the
opportunities for expansion, including the potential acquisition of PEM, as well as international
expansion.

© Copyright 2017 Institute of Certified Management Accountants 18

Requirements for this case:
There are five (5) elements that are evaluated in determining the total score for the case study
section of the exam: four (4) required questions and an assessment of the overall writing skills
and presentation quality. The percentage contribution of each element to the total score is as
follows:

40% Question 1.
25% Question 2.
20% Question 3.
10% Question 4.
5% Writing Skills/Presentation
100% Total Score for Case Study

1. Perform a strategic analysis of the company. Include in your analysis each of the following, if
applicable, and use an appropriate strategic planning tool/model to support your analysis.

a. Evaluation of the company’s strengths and weaknesses

b. Scan of the environment
c. Identification of the critical strategic decision(s) that should be addressed
d. Identification of additional information that would be helpful in preparing your strategic
analysis

2. Formulate one or more strategies for the company that you believe would create competitive
advantage. Support your recommendations with specific reasons and analyses.

3. Identify and explain how you would implement the recommended strategy or strategies.
Factors that you may want to consider include the following:

• Leadership and communication

• Prioritization, overcoming challenges, and change management
• Organizational structure
• Linking strategy to the strategic financial plan
• Aligning tactics with long-term strategic goals
• The role of the Board of Directors, the CEO, the CFO, and the management accountant
• Incentives

4. Recommend a performance measurement model to report on the results of the strategy.

Explain your recommendation.

© Copyright 2017 Institute of Certified Management Accountants 19

 CSCA®
Strategy and Competitive
SampleLearning
Analysis Case Study
Series:
HVC Technologies
What is Strategy?

© Copyright 2017 Institute of Certified Management Accountants 20

HVC Technologies Scenario:
HVC Technologies is a large machine-tool manufacturer in the business of manufacturing lasers
and coatings equipment. It has a broad, international focus with production sites throughout the
world. While HVC’s lasers are used to produce a new machine component, coatings machines are
used to spray a thin film of material onto existing components in order to boost the component’s
durability. When HVC was initially founded, it decided to focus on these two technologies
because they were related to machine components. Since then, however, the technologies have
diverged considerably and there are limited synergies between the two.

The key facts about HVC’s lasers business are as follows. HVC has approximately 25% of its
business in lasers, and a 5% share of the overall market, which is a fast-growing and high-margin
business that is expected to grow by 20% on average over the next five years. Most of this
growth, however, is in market segments where HVC is not represented. HVC focuses on high-
margin, customized lasers while the industry’s growth is primarily in the growing use of
standardized lasers, which have lower, although still attractive, margins. HVC has recently
considered making incremental investments to extend the product portfolio of its laser business to
include product lines in the high-growth segments of the market. That would position HVC as a
full-range supplier of lasers, and enable it to take advantage of the industry’s strong growth. As
HVC is the market leader in terms of quality and innovation, the firm believes that even though
standardized machines are a commodity product, it could still realize a superior return on sales of
standardized products by exploiting the reputation it has achieved with customized lasers. HVC,
however, has not yet made a decision about this alternative because it would require a
considerable financial investment in the lasers business and would divert resources from its
coatings business.

The key facts about HVC’s coatings business are as follows. HVC has about 75% of its business
in coatings. The business consists of two aspects: manufacturing coatings machines and
providing coatings services. The manufacture of coatings machines is a capital-intensive business
with high margins and minimal growth. HVC is one of the market leaders in this oligopolistic
industry, and has a 30% market share. The market is expected to stagnate over the next five years.
HVC’s business with coatings services involves rendering coatings services to customers using
the coatings equipment it manufactures. This activity, which is quite small, is a fast-growing
business in a highly-fragmented, regional market. The market is expected to grow by 20%
annually over the next five years and realize operating margins of 30% on average. There are no
significant global companies providing coatings services. The providers are generally regional
companies that work on an outsourcing basis. Many customers of coatings services have decided
coatings technology is too specialized to master on an ongoing basis. In addition, the technology
is new, so it is unclear whether its use will be more widely adapted over the long term.
Outsourcing, therefore, is the preferred approach for new customers. Besides the cost of the
machine, the expense to actually render the coatings service is low and the expertise needed to
manage the process is limited. The main value-add for the customer is to configure the coatings
material to achieve the customer’s requirements. This value-added activity takes a long time to

© Copyright 2017 Institute of Certified Management Accountants 21

realize and requires significant up-front investments in research and development, making it a
highly-specialized activity. HVC, however, has developed this expertise due to its core
competence in manufacturing coatings machines. This distinguishes it from other coatings
services providers that buy the material from the customer, and has thus enabled HVC to realize a
gross profit on coatings services of 40%, far more than the industry average.

HVC’s CEO is working with the Board of Directors and senior leadership team to reevaluate and
update the company’s strategic plan. HVC’s stock price has languished for several years and has
underperformed its peers during this time. The board wants the CEO to submit proposals for the
company’s strategy. To that end, the CEO has commissioned a market research firm to analyze
the future growth potential and profitability of HVC’s markets. Exhibits 1 and 2 summarize the
outcome. HVC has largely exhausted its sources of external financing, so its strategy going
forward must rely on internally generated funding. The company must make some hard decisions
about its existing businesses in the new strategic plan.

© Copyright 2017 Institute of Certified Management Accountants 22

Exhibits:
Exhibit 1: Financial forecasts (figures in US$ million)

LASERS MANUFACTURING |-------------------------------figures in USD million----------------------------|

Current Current Current Current
Prior year year year +1 year +2 year +3

Revenue 248,000 250,000 255,000 260,000 265,000

Operating profit (EBIT) 24,400 25,000 25,500 26,000 26,500

COATINGS EQUIPMENT MANUFACTURING

Current Current Current Current
Prior year year year +1 year +2 year +3

Revenue 720,000 726,000 732,000 739,000 745,000

Operating profit (EBIT) 71,000 72,800 73,600 73,700 74,500

COATINGS SERVICES FOR THIRD PARTIES

Current Current Current Current
Prior year year year +1 year +2 year +3

Revenue 10,000 24,000 60,000 100,000 150,000

Operating profit (EBIT) 3,000 6,600 15,000 26,000 43,000

TOTAL COMPANY
Current Current Current Current
Prior year year year +1 year +2 year +3

Revenue 978,000 1,000,000 1,047,000 1,099,000 1,160,000

Operating profit (EBIT) 98,400 104,400 114,100 125,700 144,000

Exhibit 2: Forecasted product-line gross margins

Product line gross margins

Prior year Current year Current year+1 Current year+2 Current year+3

Laser business - HVC's current product line 30% 30% 30% 30% 30%
Laser business - Standardized products 16% 17% 18% 19% 20%
Coating business - machine manufacture 30% 30% 30% 30% 30%
Coating business - coatings services 40% 40% 40% 40% 40%

© Copyright 2017 Institute of Certified Management Accountants 23

Requirements for this case:
There are five (5) elements that are evaluated in determining the total score for the case study
section of the exam: four (4) required questions and an assessment of the overall writing skills
and presentation quality. The percentage contribution of each element to the total score is as
follows:

40% Question 1.
25% Question 2.
20% Question 3.
10% Question 4.
5% Writing Skills/Presentation
100% Total Score for Case Study

1. Perform a strategic analysis of the company. Include in your analysis each of the following, if
applicable, and use an appropriate strategic planning tool/model to support your analysis.

e. Evaluation of the company’s strengths and weaknesses

f. Scan of the environment
g. Identification of the critical strategic decision(s) that should be addressed
h. Identification of additional information that would be helpful in preparing your strategic
analysis

2. Formulate one or more strategies for the company that you believe would create competitive
advantage. Support your recommendations with specific reasons and analyses.

3. Identify and explain how you would implement the recommended strategy or strategies.
Factors that you may want to consider include the following:

• Leadership and communication

• Prioritization, overcoming challenges, and change management
• Organizational structure
• Linking strategy to the strategic financial plan
• Aligning tactics with long-term strategic goals
• The role of the Board of Directors, the CEO, the CFO, and the management accountant
• Incentives

4. Recommend a performance measurement model to report on the results of the strategy.

Explain your recommendation.

© Copyright 2017 Institute of Certified Management Accountants 24

 ®
CSCA
Sample Case Study
Intergistics Solutions

Strategy and Competitive

Analysis Learning Series:

What is Strategy?

© Copyright 201 Institute of Certified Management Accountants

Intergistics Solutions Scenario:
Intergistics Solutions is an international freight forwarder. Freight forwarders are companies that transport
goods throughout the world using ocean, air, and land freight. The industry consists of several large global
providers, including Intergistics, and many regional providers. Freight forwarders do not own or operate the
actual means of transport. They lease the capacity needed from airlines, ocean shipping companies, and trucking
firms. This makes freight forwarding a service activity that requires limited capital investment.

Intergistics focuses on air freight and the transport of small-scale, high-value machine and electronic parts. Its
customers are all manufacturers. Intergistics benefits from the economies of scale it can achieve in negotiations
with transportation providers, its expertise at managing vast global supply chains, its highly-regarded reputation
as a business-to-business service provider, and the network effect it creates by being embedded at the heart of a
global manufacturer’s logistics processes. It has grown steadily by regularly acquiring smaller regional
competitors with the same product segmentation and focus, and then integrating them into its network. It has
been quite successful at applying its business model to the target companies. This acquisition-based growth
strategy, which is funded using stock and not cash, has enabled Intergistics to grow faster than the overall
market. This, in turn, has boosted its stock price enabling further acquisitions. The company has aimed to be the
provider of choice for companies that depend on the fast and reliable shipment of small-scale, high-value
manufactured goods. This strategy has been successful, and Intergistics is the recognized market leader in this
segment of the market.

Intergistics has avoided freight forwarding for other goods, such as bulk manufactured goods, food, and
commodities, preferring instead to focus on enhancing its existing segments. It is, however, closely observing
the growing volume of cross-border e-commerce for retail customers. This segment has some similarities with
its current business (shipment of small-scale, high-value manufactured items), but also important differences, as
e-commerce mostly involves land freight and less air freight, and shipment is usually to retail customers and not
businesses. Intergistics has also avoided partnerships with other freight forwarders, and has instead decided to
acquire companies completely, either through friendly or hostile takeovers.

The company’s organization is highly centralized, in contrast to competitors that traditionally operate as a
loosely organized network of relatively independent companies. Although this organizational structure provides
the competitors with greater geographic coverage and broader diversification, margins must be shared and
quality sometimes suffers.

© Copyright 2017 Institute of Certified Management Accountants 26

Recently, problems have arisen for Intergistics and the company’s stock price has started to suffer. The
company has encountered unexpected difficulties in integrating a large, recent acquisition, resulting in high
costs and frequent distractions for management. In addition, there are growing signs of stagnation in
Intergistics’ market segments. Air freight has become increasingly expensive because of a rapid, unexpected
rise in fuel costs. Concerns about climate change and the impact of aircraft on global warming weigh on air
freight, too. In general, concerns about globalization and protectionism create questions about the viability of
global supply chains going forward. Also, Intergistics is starting to lose business to high-tech companies that
provide 3D printing equipment and services. These companies create digital production networks that use the
parts designs of Intergistics’ customers and coordinate with the parts suppliers to have the part produced via 3D
printing at the manufacturer’s plant. This completely eliminates the need for shipping services. Finally, the
pressure on global trade in general has forced competitors to become increasingly aggressive. Competition has
been mounting from freight forwarders who have traditionally avoided Intergistics’ market segments.
Companies that offer customers a complete suite of transportation alternatives (ocean, air, and land freight)
have become a particular threat.

These problems have created some tension between the CEO and the Board of Directors. The CEO believes the
company’s problems are mostly short-term in nature and due to the difficulties integrating the recent
acquisition. The board, however, is unsure whether the company’s business model can remain sustainable given
the longer-term issues it is facing. This disagreement about the path forward has become public and is
beginning to affect staff morale. In addition, the company’s stock price has been declining for the last several
months.

The CEO has decided to convene a meeting of key executives to discuss the state of the business. To support
this meeting, he engaged a market research firm, which provided an analysis of the market’s prospects (Exhibit
#1) and a benchmarking of Intergistics against the average for its peer group (Exhibit #2).

© Copyright 2017 Institute of Certified Management Accountants 27

Exhibits:
Exhibit 1: Market analysis – Global freight forwarding: Forecasted growth rates

Current Current Current Current

Prior Year Year Year +1 Year +2 Year +3
Food 2% -1% -1% 0% 0%
High-value small-scale items 1% -4% -3% -1% 0%
Bulk manufactured goods 2% 2% 3% 3% 3%
Commodities and raw materials 2% 2% 3% 3% 3%
Total global trade volume 2% -1% 0% 1% 2%

Ocean freight 2% 4% 3% 3% 3%
Air freight 3% -4% -3% -3% 0%
Land freight 3% 3% 3% 3% 3%
Total global trade volume 2% -1% 0% 1% 2%

Cross-border e-commerce 3% 4% 7% 7% 8%

Airline fuel 2% 15% 20% 7% 5%

Exhibit 2: Competitive benchmarks

Peer Group
Intergistics Benchmark

Diversification of business volume

% of business in air freight 95% 30%
% of business in ocean freight 0% 40%
% of business in land freight 5% 30%

Revenue growth - actual and forecast

Previous 5 years - organic (CAGR) 1% 2%
Previous 5 years - total (organic and acquisitions) (CAGR) 7% 3%
Future 5 years - organic (CAGR) -3% 1%
Future 5 years - total (organic and acquisitions) (CAGR) -1% 2%

Earnings growth - actual and forecast

Previous 5 years - estimated organic (CAGR) 2% 2%
Previous 5 years - reported total (organic and acquisitions) (CAGR) 10% 3%
Future 5 years - estimated organic (CAGR) -4% 1%
Future 5 years - reported total (organic and acquisitions) (CAGR) -7% 2%

NOTE: CAGR = compound annual growth rate

© Copyright 2017 Institute of Certified Management Accountants 28

Requirements for this case:
There are five (5) elements that are evaluated in determining the total score for the case study section of the
exam: four (4) required questions and an assessment of the overall writing skills and presentation quality. The
percentage contribution of each element to the total score is as follows:

40% Question 1.
25% Question 2.
20% Question 3.
10% Question 4.
5% Writing Skills/Presentation
100% Total Score for Case Study

1. Perform a strategic analysis of the company. Include in your analysis each of the following, if
applicable, and use an appropriate strategic planning tool/model to support your analysis.

e. Evaluation of the company’s strengths and weaknesses

f. Scan of the environment
g. Identification of the critical strategic decision(s) that should be addressed
h. Identification of additional information that would be helpful in preparing your strategic analysis

2. Formulate one or more strategies for the company that you believe would create competitive
advantage. Support your recommendations with specific reasons and analyses.

3. Identify and explain how you would implement the recommended strategy or strategies.
Factors that you may want to consider include the following:

• Leadership and communication

• Prioritization, overcoming challenges, and change management
• Organizational structure
• Linking strategy to the strategic financial plan
• Aligning tactics with long-term strategic goals
• The role of the Board of Directors, the CEO, the CFO, and the management accountant
• Incentives

4. Recommend a performance measurement model to report on the results of the strategy.

Explain your recommendation.

© Copyright 2017 Institute of Certified Management Accountants 29