0The focus of this session is to bring to your notice case solving skills so that you can incorporate them from the very start of your preparation.
The following are the skills which would be explained further:
1. Asking Preliminary Questions.
2. Having and Conveying an Overall Strategy & Sub-Strategies.
3. Problem Isolation Tools:
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Segmentation.
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Company Specific or Industry wide issue.
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Hypothesis driven approach.
4. Improving Drill Speed (If there are 4 possible causes to a problem, knowing how to assign priority to the investigation process to reach the solution faster).
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Using the 80/20 rule.
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Benchmarking with competition.
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Using Business insights.
1. Asking Preliminary Questions: You’re given a problem statement like “Client ABC which is part of the X industry has lost 20% profits, please suggest recommendations to turnaround the problem”. The next thing to do is ask some preliminary questions. This is the most underestimated part of the case interview. Its importance cannot be stressed enough.
Preliminary questions help you to scope out the problem, setting the boundary walls in which analysis needs to be done. It also enables you to get a ‘look and feel’ of your client’s company. At the same time it communicates to the interviewer that you're thinking of the different angles to the problems and are checking what needs to be done. Here are different types of preliminary questions to ask:
i) Clarifying the objectives: In standard profitability cases, usually, there is little ambiguity like "Our client is an electronics manufacturing company. You are hired to find out why our profits in the mobile division have decreased by 20% in the last year". However there are ambiguous questions also for example, "Our client is an electronics manufacturing company with a sales stagnation issue in its mobile division. Find out what is happening". There are several ambiguities here. Sales could mean revenues or #units sold. You don’t know what are the different divisions of the company and if the mobile division’s sales can be treated and analysed independently. You’re not sure of why stagnation of profits is even a problem, because at the end of the day the company is still profitable. These can be good questions to ask:
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What are the different divisions of the company?
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Do I have to look at stagnation in the mobile division only?
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How much were our sales growing by earlier, since when has there been stagnation?
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Why is stagnation of sales even a problem?(Did the company expect them to keep growing, why didit have this expectation.)
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By sales do you mean revenue or #units sold?
A typical market entry case statement looks like this, "Our client is X company and they are wondering if they should enter the Y market? This is a very ambiguous question. The problem here is that the decision to enter Y market can be based on different reasons such as:
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Client’s ability to capture a market share target in the first year.
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Client’s ability to achieve a profit target in the first two years.
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Strategic reasons (long term profit); Example- Amazon entered the e-reading market through Kindle even though it was a zero profit venture. The price of Kindle was so low that they were just breaking even. The strategic reason for entering the e-reading market was so that they can push sales of their digital books.
A good clarifying question to ask to find out what an interesting market means according to the client is:
a) “What metric should we use to decide if we should enter the market or not?”
b) “Is there any reason why the company is considering market Y in particular?”
ii) Understanding Client’s company:
1. Product
2. Geography
3. Value chain
This is a simple value chain:
Production --> Distribution --> Retailing
It is useful to know upfront which part of the value chain the company operates in as it better helps you figure out what the company can control and what it can’t. Together-product, geography and value chain-give you a good ‘look and feel’ of the company, makes it easy for you to visualize the company and puts you in a comfortable spot to analyze the rest of the case.
2. Having and conveying overall strategies: After asking the requisite preliminary questions to understand the problem statement and the Client’s company, you must proceed by laying out the Overall Strategy to solve the case. Typically, it is simply a breakdown of the case into simpler parts, the analysis of which will help you give direction to the subsequent parts you are tackling and eventually to the final recommendations.
Example : Let’s say there is a market entry case about introducing a luxury car in the Indian market. After asking the requisite preliminary questions, you can state your overall strategy as follows: “First, I will estimate the potential profits that can be made in the Indian market for the Car. After establishing that this will be a sufficiently profitable venture for Company, I will find out the feasibility of setting up the entire value chain. Finally, we can discuss the potential challenges after which I will give my final recommendation to the client.”
3. Problem Isolation tools:
i) Segmentation: Segmentation is breaking a problem into smaller, simpler parts.
Example: Narrowing down the broad problem of “Revenues guitar sales is down by 10%” to a specific problem of “sales having declined of the electric guitar segment due to a production issue”. Segmentation can be done in different MECE (Mutually Exclusive & Comprehensively Exhaustive) ways:
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Geography.
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Value chain.
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Product parameter: (Color, Price, Size).
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Distribution channels.
Segmentation should be such that:
a) Segmentation is Simple: We will explain this through an example. Let’s say for a particular case, we want to segment the fuel transportation cost of trucks. This is the complicated way of segmenting all at once.
Transport Cost= (#Trucks) x (#Trips per Truck) x (Distance travelled per trip)/ (Avg. mileage) x (Cost of fuel)
While the above segmentation is correct, here is a simpler way of doing the same segmentation,
Transport Cost= (#Trucks) x (Cost per Truck)
= (#Trucks) x (#Trips per Truck) x (Cost per Trip)
= (#Trucks) x (#Trips per Truck) x (Fuel per Trip) x (Cost of fuel)
= (#Trucks) x (#Trips per Truck) x (Distance travelled per trip)/ (Avg. mileage) x (Cost of fuel)
b) Segmentation is Reasonable: When segmenting why Guitar Sales are down, unless there is sound logic it would not be reasonable to segment guitar sales by gender of customers.
c) Information of component parts is easily obtainable It’s better to break down monthly revenue of a coffee shop as,
Monthly revenue= (#Transactions in a month) x (Spend per transaction); instead of
Monthly revenue= (#Unique Customers per month) x (#Transaction per customer) x (Spend per Transaction)
Since it’s difficult to keep track of #Unique Customers but easier to keep track of #Transactions and Spend per transaction. Unless knowing #Unique Customers is crucial to your analysis avoid segmenting that way. Also notice that the former segmentation is ‘Simpler’ than the latter. How to use Segmentation? Ask “What has changed” within the segments.
Candidates when segmenting often lose track of why they are segmenting. Suppose if profits have changed (reduced), then something somewhere has gone wrong or changed to cause the change in profits. By segmenting we are trying to get at what specifically has "changed". So it’s important to not only segment but also ask "What has changed?".
For example: Let’s say profit margins (Profit margin = Profit/Revenue) for guitar sales has gone down and we know there are two channels for distribution, Company owned stores and third-party stores. Since overall profit margin will depend on profit margins of each channel as well as the revenue split across both channels.
Think about this, it’s not enough to know the current profit margin and split in revenues of each segment. You need to ask if the profit margin for each segment has "changed" or if the revenue split has "changed" to identify what is causing the problem.
ii) Company Specific or Industry Wide issue:
4. Improving Drill Speed:
i) Using the 80/20 rule: The 80/20 rule here signifies analyzing the branch responsible for 80% of the problem first and then analyzing the branch responsible for 20% of the problem.
In short, analyze the more important things first. You need to know the weights of sub-parts to a
problem and choose which sub part to analyze first. Let’s say costs are up by 50%. You need to find out why. You know that 60% of the cost is Raw-Materials and 40% is Manufacturing cost. If both costs have gone up by 50%, you should begin by analyzing why raw material cost has gone up rather than manufacturing cost since that is the bigger chunk of the problem.
ii) Competitor benchmarking: Benchmarking different metrics with respect to competitors better helps distinguish where we are lagging behind industry. Let’s say the reason why we are losing market share to competitors is because of a higher price of our product which in turn is because of a higher cost of our product.
Let’s say cost comprises of manufacturing, distribution and marketing related costs. Now it’s useful to benchmark each of these costs with respect to competitors to get a sense of where we are lagging behind industry. If our distribution cost is twice as much as industry but production and marketing costs are almost the same, then distribution cost should be analyzed further even if on an absolute scale our production & marketing costs are greater than distribution costs.
iii) Business Insights: Sometimes business insights can help you gauge which branch to drill first. This should be used carefully since your assumptions of the business may lead you to assign a wrong priority of drilling. It’s important to use this in conjunction with the previous two ways of drilling effectively. There could be several parameters which could be compared with competition for this:
Customer Characteristics:
i. Customer segments (age group, gender, income, geography, type of requirement) targeted.
ii. Product Characteristics:
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Laptop price
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Specifications-battery life, hard disk, RAM, graphics, monitor size, etc.
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After sales services, complimentary products
iii. Brand image.
iv. Sales and Marketing:
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No. of Retail outlets, location of outlets, visibility in stores, sales representatives.
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Discounts & offers.
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Online marketing.
