Improve Profits Case #1

From: http://consultingcases.blogspot.com/2012/09/improve-profits-case-1.html

White & Case to Boost Profits for Its New York Office

Case Type: improve profits.

Consulting Firm: Compass Lexecon first round job interview.

Industry Coverage: law & legal services.

Case Interview Question #00566: The client White & Case LLP is one of the world’s most prestigious global law firms. Headquartered in New York City, New York, the firm has practice groups in emerging markets including Latin America, Central & Eastern Europe, Africa, the Middle East and Asia, as well as in Europe. As of 2012, White & Case has 38 offices in 26 countries around the world, employing more than 2,000 attorneys.

For this case, we are only concerned with White & Case’s New York City office. The company’s New York office sells to several industries and mainly to its local region: New York City. The New York Office’s Managing Partner has just reviewed the office’s performance in last year and projections for this year and next year, and he is not happy – he wants your ideas in helping boost profits. What do you recommend?

Additional Information: (to be given to you if asked)

• Revenue (Last Year) = $46 million.
• Profits (Last Year) = $4.5 million.
• The client company’s New York office lawyers bill $300 per hour on average.
• The industry is growing slowly, which is better than we can say for our firm.
• White & Case New York office’s industry focuses are healthcare, energy, financial services, and telecommunications.
• The law firm’s New York office sells almost entirely to the greater New York City region.

Exhibit 1: White & Case LLP New York Office Revenue Breakdown (Last Year)

Exhibit 2: White & Case LLP New York Office Operating Costs

Operating costs	Last year	This year (projected to year end)	Next year (projected)
Sales and marketing	4393110	4612770	4843410
Rent	1535090	1535090	1535090
General and administrative	686720	721060	757110
Research and development	36000	36000	36000
Personnel	31513850	40968010	61452020
Depreciation and amortization	581820	581820	581820
Interest	225000	225000	225000
Taxes	2696970	3368810	4804830
Total operating costs	$41668560	$52048560	$74235280

Exhibit 3: White & Case LLP New York Office Employees By Industry

* Note: Total number of lawyers in New York office = 77. The office’s lawyers bill (bring in revenue of) $300 per hour on average.

Exhibit 4: White & Case LLP New York Office Billable Hours Per Employee

Billable hours	Last year	This year (projected to year end)	Next year (projected)
Healthcare	2101	2150	2123
Energy	2077	2032	2049
Financial services	1800	1676	1372
Telecommunications	2140	2142	2147

* Note: lawyers bill almost 100% of their total hours worked. They charge an average of $300 per hour.

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case obtained from

http://www.consultingcase101.com/white-case-to-boost-profits-for-its-new-york-office/

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SUGGESTED ANSWER:

me: interviewee

I: interviewer

me: i would first ask : So the client want me to increase the profitability of the law firm for the new york office, is there any other objective that i should be aware of?

I: the company’s profitability is the only objective to be considered.

me: I would like to know if the market overall is doing? is this an industry wide problem or a problem that is company-specific?

I: the industry overall is growing slowly, but is better than our client’s firm.

me: I would approach this problem from two aspects. I will try to boost the revenue, then I will try to cut costs. First, may i know the revenue for the client for the last year?

I: $46 milllion

me: what is the company billing its clients on a per hour basis?

I: $300 on average.

ask myself: May I know the revenue breakdown for each of the sectors that our client company serves?

exhibit 1

healthcare: 22,141,931

telecom: 12,826,521

financial services: 7,501,926

energy: 3,598,520

me: why is a new york based law firm has such a small share in financial services? possible strategy would be to boost this sector of the client’s firm.

I: what else?

ask myself: do we have data on how the revenue for each sector has changed? up or down? do we have projections?

exhibit 4: billable hours per employee

healthcare: gone up a small percentage this year, but expected to decline next year. can we do something about this?

energy: declining by a small amount. can we do something about this?

financial services: declining sharply. considering the strategic location of new york, I would recommend try to boost the revenue here at this sector. possible strategy would be to lower the price for this sector, try more effective marketing, build relationship with existing clients to try to secure long term contracts.

ask myself: May I look at the cost please?

exhibit 2 operating costs

the total operating costs are going up sharply. Total operating costs rising : 25% this year, projected 43% next year.

me: do you want me to run some numbers and break down the costs of each factor? in this way we could possibly find out which factor has the most shoot-up in costs.

I: yes pls.

me:  let’s break down the different parts of the costs:

sales and marketing: not much difference in there. small amount of increase

rent: remains the same for the three years.

general and admin: this part has gone up. 5% increase this year, 5% next year.

• this part is not going up too bad, but probably we could cut costs by implementing better management system? there are successful corporate management systems out there.

research and development: remains the same

personnel: this part has gone up dramatically. 30% increase this year, 50% next year

• definitely have to do something here. how about switching salary to per-hour basis? this would encourage the lawyers to try to work longer hours to boost revenue. (I’m pretty sure your employees are gonna hate me.)

you probably wanna ask the number of employees and their work hours. depreciation and amortization: not changed.

interests: not changed

taxes: gone up. 25% increase this year, 40% next year

• normally I would assume nothing much can be done here. but some firms do consider hiring professional accountants and accounting consulting firms to look at their books. 

ask myself: how many employees are there at your firm? their salary structure?

exhibit 3 employees by industry

the billable hours overall declined over the last year as compared to the previous. I would suggest we try to boost the financial services sector, while trying to hold the other sector constant.

the bonus is not telling much information, but we should probably switch to per-hour based bonus to encourage employees to work longer hours and bring more revenue.

total number of employees = 77

total revenue $46 million

$300 per hour billed to clients

total work hours: $46 million/$300 = 153,333 hours of work

work per employee: 153,333/77 = 2,000 hours per year = 38 hours per week (or if you are not allowed to calculators, say there are roughly 50 weeks year, then it is a little less than 40 hours per week work hours for the lawyers.)

• this is a very small amount of work time devoted. 
• should try to encourage employees to work longer hours.
• probably structure the bonus in a per-hour basis

I: summarize for me

me: there are several problems here with the firm.

first, looking at revenue, the financial sector is weak, especially considering this is a NY based law firm. and the billable hours are declining.

second, looking at the cost side, the firm is paying a lot of money on personnel costs, which is increasing. and the work hours for the employees are 38 hours per week, which is not much. the taxes are also going up, but that might not be something we have control over. (ask the interviewer, is this assumption right.)

actions:

first, i would recommend strengthen the financial sector. possible strategies are to lower the price, conduct better marketing research and launch better marketing and sales campaigns. also try to at least hold the other sector constant, don’t let them slip.

second, i would switch the salary and bonus structure to per hour based. this could save us a lot of money on personnel costs, while encouraging employees to work longer hours.

third, the marketing at the firm needs revisiting. costs are up but the revenues are falling. that does not make sense to me.

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