Leslie Pratch on Assessing and Developing Leaders

By Leslie Pratch

When I was getting my M.B.A., I outlined what I considered most useful to digest the curriculum and to help my classmates who were preparing to interview for consulting firms. Nearly a decade later, I realize these notes may be helpful to new M.B.A. students as well as to those in their second year at Chicago Booth who are boning up for interviews with consulting firms. I offer them freely and if they are helpful, encourage your use of them, especially if you are pursuing a leadership position in a consulting firm.

Market Structure

(1) The number and size distribution of the firms in a market

(a) Key determinant:  Magnitude of demand/minimum efficient scale = “natural” number of competitors in the market.

(b) Capital-intensive industries should have fewer firms because economies of scale exist, giving advantages to large firms (George Stigler’s “survivor principle”).

Fixed Costs/Variable Costs

(1) Fixed costs cannot be adjusted in the short term

(2) Variable costs are those that vary directly with the level of production

(3) If fixed costs are high, capacity utilization is the key to success

(4) Fixed costs may jump if capacity can only be added in large chunks

(5) If anticipated volume is low, AC may be minimized by investing in lower fixed costs (e.g., capital) and accepting higher variable costs per unit (e.g., labor)

(i) Examples of Fixed Costs:

(a) R&D Costs

(b) Rent

(c) Administrative salaries

(d) Interest on debt

(e) PP&E depreciation

(ii) Examples of Variable Costs:

(a) Raw materials

(b) Labor

BCG Growth/Share Matrix

Firm plays the role of a banker with cash cows funding Stars and Problem Children early in their product life cycles in order to promote learning economies rapidly.

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Leslie Pratch, Ph.D. is a clinical psychologist with an M.B.A. in Strategy and Finance and a B.A. in Religion from Williams College. She works with boards of directors and private equity investors to select and develop executives. She can be reached at (312) 464-7919 or email her at leslie@pratchco.com or visit www.pratchco.com.