CDC

Assessment Centre
Case Study
- Obsidian Ltd -

Introduction

Welcome to the CDC Assessment Centre Case Study.

As Management Consultants, you are often tasked with analysing various types of information and data.

Within this pack you will find information relating to a new wearable tech company – Obsidian Ltd. It
includes a summary of its business model, financial performance, operations, marketing and planned
future developments. Analyst and employee feedback gives some insight into how it is perceived in the
market and its company culture.

You are tasked with analysing this information and preparing for a 20 minute meeting with a Capgemini
Consulting Project Lead, who will subsequently be meeting with the senior leadership team from Obsidian.
In your meeting, the Project Lead will be particularly interested in the following:

• What are the key issues facing the company?
• How the company could increase revenue?
• What opportunities are there to increase efficiency and / or reduce costs?
• What internal barriers does Obsidian have which might prevent them implementing your plan?
• What further information might you need to support your conclusions?

The venue for the meeting is not yet clear, but you can assume that there will at least be a flip-chart, but
not necessarily any computer or projection facilities. However, you must ensure that the Project Lead
leaves the meeting with all the materials necessary for the important meeting with Obsidian.

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Company Overview and Products

Having come into being following one of the largest and most successful crowdfunding campaigns,
Obsidian Ltd rocketed into the wearable tech space with its leading smart watch, ‘Onyx’. Its unique design
and open source development platform have resulted in a rapid up take amongst technology enthusiasts
globally, acquiring substantial market share in this rapidly growing market. Obsidian also produces a
second product – Mica – a fitness tracker band.

Shortly after launching the Onyx watch, the founders brought in private equity money to significantly scale-
up their R&D, marketing and distribution. They retained a personal major shareholding in the company
and influence on the Obsidian board, which now includes two Non-Executive directors representing the
major private equity backers.

The first few years of operation has produced incredible growth and Obsidian became highly profitable,
producing almost £80m of profit in year three. However, the company has recently entered a period of
sales inertia. Over the last 18 months, its growth rate has drastically reduced as the company strives to
transform itself from an edgy start-up, to a lean, efficient technology business. This has been reflected in a
reduction in profitability over the last year.

Obsidian is now looking to boost growth and improve its market share. At the same time, they need to
start to understand the reasons behind their increasing operational costs and recent profit decline. Their
new smartwatch, Onyx 2.0, is close to launch and sales of this new product are expected to outshine those
of its predecessor. This will require substantial marketing funding and investment in both widening its
customer base and geographical distribution. The board is acutely aware that success with Onyx 2.0 could
double the current turnover. This would produce a company with sales in excess of £500m, and one that
could start to compete with the major industry players.

Financial Performance

The table below shows a number of key Financial Performance Indicators for Obsidian, from the company’s
inception to present day.
Financial Performance Indicators (£ / thousands)

Financial Performance Indicator Year 1 Year 2 Year 3 Year 4
Total Revenue 21,200 162,400 241,600 269,600
Onyx Sales 20,000 146,400 200,000 216,000
Mica Sales 1,200 16,000 41,600 53,600
R&D Costs 8,000 8,000 8,000 20,000
China Production Costs 300 3,840 9,200 10,200
Germany Production Costs 4,400 32,240 46,000 54,000
Staff & Facilities Costs 7,420 41,200 56,000 64,800
Recruitment Costs 800 1,200 4,000 9,000
Other Business Costs
2,720 21,100 38,700 45,800
(inc. marketing, distribution & customer support)
Total Costs 23,640 107,580 161,900 203,800
Gross Profit -2,440 54,820 79,700 65,800



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Sales Performance (£ / thousands)

300000

250000

200000
£ / thousands

150000

100000

50000

0
Year 1 Year 2 Year 3 Year 4
Year


Profit Performance (£ / thousands)

90000

80000

70000

60000
£ / thousands

50000

40000

30000

20000

10000

0
Year 1 Year 2 Year 3 Year 4
-10000
Year







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Supply Chain & Operations

Obsidian Ltd. currently manufactures its Onyx smart watch in Germany, whilst its Mica fitness tracker is
produced in China. Both Onyx and Mica product lines are imported into the UK via a major London hub
airport. From the airport, the products are then transported by rail to Obsidian’s distribution centre in
Manchester. Product shipments are unpacked and undergo sorting at the Manchester distribution centre.
The smart watches are loaded onto HGVs and driven to the Onyx warehouse in Greater London. The
fitness trackers are packaged onto pallets and then transported to the Mica warehouse in
Buckinghamshire.

Obsidian Ltd sell their products either directly to the consumer (via their website), or to one of their
selected retail partners in the UK, Germany or France.

Upon arrival at the Onyx or Mica warehouse, each product is sorted according to whether its final
destination is UK or International. National UK orders are sent out via courier, either directly to the
consumer, or to one of Obsidian’s selected UK retail partners. Retail partners in Germany and France are
supplied by standard courier. International orders from the website are sent via priority airmail directly to
the customer. Currently, the UK accounts for around 25% of Obsidian’s total sales.

Obsidian UK Operations Map

Hub Airport
(London)

Distribution Centre
(Manchester)

Mica Warehouse
(Buckinghamshire)

Onyx Warehouse
(Greater London)

Obsidian Headquarters
(Central London)

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The distribution centre in Manchester is currently capable of sorting 15,000 Obsidian product units (SKUs)
each day. However, both the smaller Onyx and Mica warehouses are only able to process 6,000 product
orders each day. Insufficient capacity during peak times has recently led to major delays in customer
deliveries, with some international customers complaining that their orders are taking over a month to
reach them.

Obsidian does not own any of the properties that it utilises. Both the China and Germany manufacturing is
sub-contracted to facilities that are owned and operated by third parties. Neither is currently at full
capacity.

Production costs vary by site of manufacture. German lead times are short, with both quality and
production flexibility being excellent. Tech reviewers have commented that the Onyx product has
exceptional build quality. Obsidian Ltd is not majorly exposed to currency movements; however, the
Chinese government remains under increasing pressure to allow the RMB to be freely traded on
international Forex markets.

The Manchester distribution centre is a large, state-of-the-art facility on the M56 motorway. Obsidian Ltd
rents a section of this facility and has recently been offered the chance to rent additional space if required.

The Onyx warehouse, which was leased shortly after Obsidian Ltd was founded, is an older facility in
Enfield (Greater London) near the M25 motorway. It was taken on a ten-year lease, with a five-year break
clause provision. The landlord has recently applied for planning permission to extend the Onyx warehouse,
which has been turned down by the local council.

The Mica warehouse is on an established mixed-use industrial park (warehouses and offices), near the M1
in Milton Keynes (Buckinghamshire). The Mica warehouse was leased on a fifteen-year term, with a break
clause at year seven.

Obsidian Ltd’s headquarters are in Old Street (London), where they rent office space in Tech City. Obsidian
was attracted to this location due to the start-up culture, ready availability of highly qualified young
graduates and office space flexibility.

People

Obsidian was founded by its current Chief Executive Officer (John Barfield) and current Chief Scientific
Officer (Martin Whitehead), who initially developed the technology that underpins both products. John
and Martin brought in a Finance Director (Gillian Wade), who completes this small senior management
team. These are the three Executive Directors of Obsidian Ltd, who together with representatives from the
two major private equity investors, hold the majority of the share capital. John and Martin have a strong
vision for the potential development of Obsidian. However, both come from an academic background and
neither has ever run their own company before, or had experience of commercial operations. Their
concentration on product development has led to people management and effective communications
being neglected.

In recent years, Obsidian Ltd’s staff turnover has increased exponentially from 4% (two years ago) to 20%,
which is the highest it has ever been.



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Staff turnover at Obsidian Ltd’s Central London Headquarters is almost non-existent, and many have
worked for the company since it was founded. However, turnover is particularly high amongst staff
located in the Onyx and Mica warehouses. Recently, company surveys have been conducted to try to
better understand employee concerns. Overall, this has indicated that employee dissatisfaction is due to
staff feeling disconnected from the company culture, combined with practical problems in distribution.
Employees feel that the energy and drive so evident at HQ, is sorely lacking at the warehouses and in the
Customer Service teams located there. In particular, the Customer Service teams aspire to develop expert
knowledge relating to the products, meaning that they would no longer have to refer questions to head
office experts, who often take weeks to reply.

Current Obsidian Employee Breakdown (by site)

Location Total R&D Distribution Sales / Manufacturing Admin / Customer
Employees Marketing Ops / Liaison Directors Services
Head Office 92 48 2 20 5 15 2
Manchester 57 0 40 0 5 10 2
Enfield 191 0 150 5 1 5 30
Milton
95 0 60 4 1 5 25
Keynes
Total 435 48 252 29 12 35 59

In the UK, the majority of employees working at Obsidian Ltd’s distribution centres and warehouses earn
the minimum wage and are paid by the hour. In addition to their basic salary, managers at the distribution
centres receive a significant performance related bonus that is affected by three main criteria – the
number of customer complaints received, average distribution cost per item and feedback from within
their operations.

Additionally, outside of the Central London office, there appears to be no major training opportunities or
career development. Few senior figures appear to be interested in “boring distribution” and never seem to
venture outside of HQ.

Given the magnitude of the upcoming Onyx 2.0 launch opportunity, the Non-Executive directors have put
pressure on Obsidian’s founders to improve and optimise commercial operations. They have recently
hired Capgemini to assist with the transformation of the business into a lean and sustainably profitable
technology company for the future. As part of this process, consultants have begun to interview a number
of key staff members in order to gain initial insights into issues that have been negatively affecting recent
profitability.

Initial Feedback From Consultant Interviews

“I have worked for Obsidian since its inception and was initially so excited about
becoming park of this innovating new start-up. My opinion has now changed – we
are not listened to by the HQ management anymore. Our goals of increased
customer interaction are being ignored, and our aim to increase customer
satisfaction through better communications – starting with internal improvements
– are pushed to the side.”

Edward – Operations Manager (Milton Keynes)

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“I joined Obsidian straight after university as a development engineer. This was
two years ago, but I don’t plan to stay with the company much longer. We now
receive so much poor customer feedback and are not listened to when proposing

solutions. I feel that my ideas are no longer valued and that my career is not
progressing at the company.
Mark – Development Assistant (London HQ)




“I have worked here for the past four years. At the beginning, I was proud to be
associated with this leading edge British company. Now, I want to leave. The
company need to invest in new distribution systems to replace the old, mainly
manual processes we took over when we moved into this warehouse.

Tracey – Warehouse Operations Manager (Enfield)

Marketing
Founded four years ago, the Obsidian brand is perceived as young and trendy. Its two biggest customer
segments are adolescents and young professionals. The Obsidian brand is perceived as innovative and of
high quality by its target audience. However, it is not recognised by an older professional audience.

Obsidian Ltd. is hoping to improve its brand awareness by opening a three flagship stores in London, Paris
and Berlin. They have already established a number of concessions within larger department stores, such
as Selfridges, Galeries Lafayette and KaDeWe.

Obsidian is aware that it does not have a strong presence on social media. They hope to create a buzz
around their new Onyx 2.0 smart watch. They are evaluating all potential channels, including social media
such as Twitter and Facebook. This could also generate cost-effective early stage market research. In
particular, Obsidian are keen to understand what new features customers would like to see in future
models and how they would use the watch on a daily basis.

Ultimately, Obsidian aims to provide quality products at a lower price than many of their international
competitors. They hope that the open source nature of their platform will encourage third party
development of apps, to make their products even more attractive and useful to the consumer.

Above all, it is Obsidian’s vision for its brand to be associated with innovation, efficiency and great value.

Analyst Views & External Feedback

Some insight can be gained from recent financial analyst and specialist Tech website comments. There has
been some helpful feedback on social media recently, which could prove useful to Obsidian’s management.
These comments are shown on the following page.





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I think Obsidian’s contribution has always been at its most Analysts are suggesting that Onyx 2.0 could
significant when it is making innovative, personal products. be a legitimate challenger to the Apple
The soon-to-be released Onyx 2.0 takes this to the next watch. With its unique user interface, it
level. Its Mica fitness tracker has proven to be popular and challenges the current offerings from the

reliable. New products promise significant new growth for larger wearable tech companies. Obsidian’s
Obsidian if they can sort out their recent problems with open source development language is easy
distribution and customer service. to learn and allows for creation of custom
apps. Could this give Obsidian the edge and
Financial Times
allow it to become the marker leader?

TechRadar Review

People often prefer mechanical watches, as they say that
they have a life and charm to them. People like to hear
them tick and to see the movements in the back of the The potential for Onyx 2.0 is huge.
watch – they have become a fashion statement. Onyx 2.0, However, its success will depend on the

with its stylish design and quality build, combines traditional company’s ability to work with the
values with the advantage of also being much more open source community to drive new
practical than a conventional timepiece. Properly and innovative ideas.

positioned and funded, it could become the market leader.
At this stage, Obsidian looks an investable proposition and DataMonitor

could produce great future returns for investors.

Merrill Lynch / Bank Of America

Onyx 2.0 could be a world-beater in the wearable tech space – it could spell the start of Obsidian’s

transformation into a competitive global player. It all depends on whether the company can build on its
founders’ energetic and innovative culture and become good at the boring management stuff, such as
distribution, employee development and customer engagement.

VentureBeat

Copyright © 2015 Capgemini. All rights reserved. Page 9