Juniper Networks to Grow Its Services Business

Case Type: increase sales or revenues; improve profitability.
Consulting Firm: Boston Consulting Group (BCG) first round full time job interview.
Industry Coverage: telecommunications, network.

Case Interview Question #01342: Our client Juniper Networks, Inc. (NYSE: JNPR) is a large telecom equipment provider headquartered in Sunnyvale, California, United States. The firm develops and markets telecom and networking products, including routers, switches, network management equipment, network security products, and software defined networking technology.

The client Juniper Networks was founded in 1996. It grew to USD $4 billion in revenues by 2004. In recent years, however, the company has seen its profitability decline. The CEO of Juniper Networks has hired our consulting firm to find out why and help it turn around its profitability. How would you structure our response?

Additional Information: to provide to candidate upon request

* The client Juniper Networks is a global telecom equipment and services provider. It is based in the U.S., but it serves a global customer group.

* The client Juniper Networks serves primarily business customers, like large global corporations that need their own global networks, dedicated lines, etc. However, it has started to serve home offices for global business customers and developed small office/home office product lines and operations in markets where those are quite prevalent.

* The global telecom industry surged in the 1990s, but in recent years, due to a tremendous supply in global telecom capacity, demand for telecom equipment dropped quickly. All traditional global telecom manufacturers and suppliers were hit hard by this turn in the market.

* The client Juniper Networks has traditionally gotten 80% of its revenue from its telecom equipment manufacturing business and 20% from its installation/maintenance and services business.

Possible Answers:

1. Case Overview

While this is a profitability case, and the candidate should layout the case structure in terms of the two levers of profitability (profits = revenues – costs), an industry analysis using Porter’s Five Forces or the Three Cs is really the only way to drive to the actual answer to the case. Both frameworks are laid out, though using the Three Cs is probably the simplest. Hypothesis generation and testing is one of the other tools used in this case. Consultants frequently use this with clients; so, the interviewer brings it up here to see how adept the candidate is at applying it in this situation.

This is not a quantitative case. There’s also not a lot of information in this case. The candidate really has to use his or her imagination to keep generating ideas, no matter how frustrating that gets, in order to get to an answer. Using several frameworks to structure the problem and generate ideas is really the way to get at the answer.

2. Detailed Solution (including both quantitative analyses and qualitative evaluations)

Candidate: First, let me just make sure that I understand the case setup correctly. Our client Juniper Networks is a large telecom equipment manufacturer and provider that has seen its profitability decline in recent years, and it has hired us to help them figure out how to turn that around?

Interviewer: Yes. That’s right. How would you approach that problem?

Candidate: Can I take a moment to structure my thought?

Interviewer: Sure, take a few minutes if you want.

Candidate: Well, this seems like a standard profitability case to me. The two levers of profitability are revenue and costs.

Within revenue, you want to look at whether the price of our offering has changed, or whether the volume of how much we sell has changed.

Within costs, you can look at whether the fixed costs of the company have changed, or whether the variable costs have changed. Or, we could run down the items of the income statement to see if there are any major changes there.

Profits = Revenues – Costs

REVENUES
* Price
* Volume

COSTS
* Fixed costs
* Variable costs
* Items on income statement

Interviewer: That’s right. Now, I can tell you from the client’s own knowledge that nothing has changed on the costs side.

Candidate: So, the changes have definitely happened on the revenue side.

Interviewer: Correct. Where does that take your thinking?

Candidate: Well, then either the volume has decreased or the price has decreased. I imagine that the client would know if price had decreased; so, I’ll assume that volume has decreased.

Interviewer: That’s right. So, how would you evaluate looking into why volume has declined for the client?

Candidate: Can I have a few minutes to collect my thoughts?

Interviewer: Of course. Just let me know when you’re ready.

Candidate: Well, you would need to do some sort of industry analysis to understand why the client’s sales volume is declining. I tend to approach these things by dividing my analysis into four main buckets:

(1) company/product changes,
(2) customer satisfaction,
(3) competitive landscape, and
(4) overall market dynamics/setting.

(Note: Below is an illustration of this approach using the 3Cs framework described, and an approach using Porter’s Five Forces framework. The Five Forces are not used throughout the rest of the case but are shown here as an example of another approach that an candidate could take.)

A. 3Cs Framework

COMPANY
* Has our company changed its products or services in some way that has made us lose business?
– Different product offering? Different product composition?
* Has our company failed to innovate in the market, or keep up with the competition?

CUSTOMERS
* Have the customers decreased?
– Have customers gone elsewhere?
– Have we stopped serving a customer need
* Have customers started spending less?
* Are there new customers that we should go pursue?

COMPETITORS
* Who is our competition?
– Are there numerous competitors? Or have market shares remained fairly stable?
* Has competition increased recently? Are new competitors predictable or unexpected?

MARKET SETTING/DYNAMICS
* Is the market for telecom equipment growing or shrinking?
– What’s been the recent trend? What’s been the long-term trend?
– Have there been market-changing events / inventions recently?
* Is this a local or global market? Are there new markets left to enter/expand into that are as yet untapped?

B. Porter’s Five Forces Framework

THREAT OF NEW ENTRANTS
* Are new entrants likely? Have there already been new entrants?
* Are there any barriers to entry?
* Patented technology?
* Government regulation?

BUYER POWER
* Are the number of buyers concentrated, or diffused?
* How many buyers are there in the market?
* Is the number of buyers growing or shrinking?
* Has negotiating power on the buyer side recently increased for some reason?
* Has there been government intervention to increase buying power?

RIVALRY
* Has rivalry increased in the market?
* Are market shares changing because of increased rivalry?
* Has competition increased?

SUBSTITUTES/COMPLEMENTS
* Are there substitutes to our product that now exist in the market?
* Are there complements to our product category that could stabilize our share, or that are increasing rivalry?

SUPPLIER POWER
* Have suppliers increased in power?
* Have the suppliers increased or decreased?
* Are key suppliers working more in tandem with our competition than with us?
* Are suppliers vertically integrating, increasing competition in the industry?

Interviewer: That’s great. You’ve brought up a lot of questions for analysis. But instead of just asking questions, do you have any hypotheses about what might be going on here in those four buckets: company, customers, competitors, market setting/dynamics?

Candidate: Sure. Can I take a few minutes just to write them out?

Interviewer: Of course, take your time.

Candidate: Well, I have several. They are…

List of Hypothesis:

COMPANY
* The company has changed its product offering and no longer meets customers’ needs.
* The company has failed to innovate to keep up with the competition

CUSTOMERS
* There are fewer customers because our typical customers have gone to the competition.
* Our customers have started to spend less on our category.

COMPETITORS
* Competition has increased, driving prices down.
* Competition has increased, fragmenting the market.
* Unexpected competition has entered our market with new substitutes for our category/product line.

MARKET SETTING/DYNAMICS
* The telecom equipment market is shrinking.
* The telecom equipment market is growing, but not in the markets that we are in.
* The telecom equipment market has slowed, due to a recession or some other unforeseen market force.

Interviewer: That’s a pretty comprehensive list. Now, before we dive into that list and get at the client’s problem, can you tell me what data sources you might look at to prove or disprove each of those hypotheses? Take a couple of minutes, or brainstorm out loud, whatever you’re more comfortable with.

Candidate: Sure, let me collect my thoughts for a minute…OK, so I have the following list:

COMPANY
* Company’s product offering over time vs. competition’s product offering over time
* Surveys of customer satisfaction
* Company’s market share

CUSTOMERS
* Customer surveys
* Customer annual reports
* Market research and analyst reports for industry
* Trade journals for industry
* Number of customer companies (has this grown, or shrunk?)

COMPETITORS
* Number of telecom equipment manufacturers from an industry board or trade publication
* Market shares from industry reports
* Market research and analyst reports on industry/competition
* Annual reports of competition

MARKET SETING/DYNAMICS
* Market research and analyst reports on industry/competition
* Interviews with industry thought leaders
* Interviews/surveys with customers
* Annual reports of competition

Interviewer: That’s great. Now, back to your hypotheses. Where would you like to start in tackling this problem?

Candidate: In terms of the company, maybe it has changed its key product or service, which has led to a decrease in sales volume, or maybe it hasn’t changed its product offering to keep up with the competition or the innovation happening in the market.

Interviewer: That’s a good couple of hypotheses. Unfortunately, we looked a bit at that, and the client’s product offering is the same as its competitors in the market.

Let me tell you a bit more about the client. It’s a global telecom equipment/services provider based in the U.S., but it serves a global customer group. The client serves primarily business customers, like large global corporations that need their own global networks, dedicated lines, etc. However, it has started to serve home offices for global business customers, and developed small office/home office product lines and operations in markets where those are quite prevalent. Does that give you any further insight?

Candidate: Actually, yes. I take from that that competition isn’t really the problem here. I mean, one of my hypotheses had been that new competition had entered the market, taking customers away from us, or introducing substitutes in the market that has decreased demand. But now I’m thinking that the competition has little to do with the client’s problems.

Interviewer: You’re right. We looked there, too. And it seemed that the competition was facing similar problems to those of our client. What other hypotheses do you want to explore?

Candidate: Well, you mentioned that our client serves a global customer group, and that we’ve primarily served business customers, but are starting to serve consumers with home offices. Have we somehow driven our normal customer base away by starting to serve consumers? Or, if I go back to my hypotheses, are our business customers just spending less on telecom equipment than they used to?

Interviewer: Now you’re really getting somewhere. Customers are spending less on the telecom equipment category. You see, what we found was that the global telecom industry surged in the 1990s, but in recent years, due to a tremendous supply in global telecom capacity, demand for telecom equipment dropped quickly. All traditional global telecom manufacturers and suppliers were hit hard by this turn in the market.

Candidate: So, it’s my last bucket then – there are marketwide dynamics that have caused the client’s decline in volume, declines in sales, and decline in profitability.

Interviewer: Yes. But what do you suggest for the client to do to fix the problem? How do you suggest that it grows its revenue?

Candidate: Well, the first thing that comes to mind is targeting a new type of consumer. You mentioned that the client typically sold its equipment to business customers, but that it is starting to sell its products to consumers with home offices. Can it grow that business in any way?

Interviewer: That’s a good hunch. And yes, it can. But we didn’t want to just tell the client that for two reasons:

(1) it’s already growing its consumer segment; so, it doesn’t add much value for us to just tell the client to continue doing something that it is already doing, and
(2) because of its product line and the size of the two markets, there’s no way that it could make up for all of its lost revenue from the business customer market in the consumer market.

Any other ways that it might be able to restore its revenue?

Candidate: Well, if it can’t just restore revenue by targeting a different customer type, is there a new geographic market that it could enter for its business customers?

Interviewer: That’s a good thought, too. But unfortunately, the client is already a global player, meaning most markets have already been tapped.

Candidate: Can it start to do something that it hasn’t done before, like manufacture a different type of product?

Interviewer: That’s another good thought, too. But it needs solutions for its profitability now, and changing what it manufactures and brings to market will take years for it to see substantial revenue from that investment.

Candidate: Well, if it can’t enter a new product market and can’t enter a new customer market, is there something else that it’s now doing that it could grow, which I haven’t considered?

Interviewer: You’re on the right track. What capabilities, other than manufacturing telecom products, does the client have?

Candidate: If I review my notes, I believe you said that it’s a global telecom equipment manufacturer and services provider. Wait, that’s it. What kind of services does it provide?

Interviewer: Good question. The client has traditionally gotten 80% of its revenue from its telecom equipment manufacturing business and 20% from its installation/maintenance and services business. What does that make you think?

Candidate: Is there any way that it can grow its services business? I mean, business customers may have enough capacity and equipment, but maybe the client could use more servicing and maintenance of that equipment?

Interviewer: You’re right. That’s it. And that’s what we recommended to the client.