The Consulting Timetable

One of the frustrating things about the consulting recruitment process is how structured it is. In the United States, the recruiting cycle looks as follows:

1. September – November: Interviews for Full Time Positions

2. December – February: Interviews for Internship Positions

3. Rest of the Year: Ad- Hoc Recruiting for Experienced Hires

and positions don’t typically start until June – September of the next year.

If you are an undergraduate, graduate student, or only a few years out of school you should pay very close attention to these timings. There’s nothing more frustrating than missing the prime recruiting season and having to hope and dream that things will open up off cycle.

Respect the cycle and it will reward you.

Most people start preparing for cases and networking in the August – September time frame if they’re aiming for full time and later if they’re aiming for internships. Because these positions are so competitive I would recommend starting earlier.

The *best* time to network in my experience is March – June. By then, internship recruiting has finished and people are no longer being barraged by networking requests. At the same time, people haven’t left for their vacations yet (many people take vacations during the summer).

There are two main risks with starting the networking process early:

1. You may end up making connections with people who are planning to leave in June (when many people leave) and if you’d started in the summer you wouldn’t have this problem. However, this is relatively easy to deal with – choose to network with people who are farther along in their careers and less likely to leave. Plus, you can gauge how likely they are to be around in 6 months when you talk to them.

2. Your connections may forget about you, or not do as promised. The remedy here is to ask for the referral now. Get your contact to pass your resume to HR now and you’ll be on their list. If you need to remind the firm you exist in a few months, fine. It’ll be easier to get your contact to help you again if they’ve helped you before.

Starting early will give you a big leg up on your competitors. When recruiting season comes and everyone else is scrambling to get their resumes in before midnight deadlines you’ll be sipping martinis on the beach and watching the interview offers roll in.

And make sure you’ve got something to do between when the offers come rolling in and your proposed start date 🙂

Tech Industry Insights: The War for the Cloud

Data Storage Center

(credit: NPR)

The picture above looks like something you may see in a science fiction movie. Perhaps it’s a spaceship, the interior of a living computer, or something else entirely that we can’t even imagine.

It turns out that this is the inside of a data center owned by Google in Oklahoma. On each one of the computers built into the side of these walls is data hosted from companies all around the world.

And, as it turns out, the price to rent out storage in one of these data centers has been dropping rapidly over the past year. The big three in cloud storage (Amazon, Google, and Microsoft) have been cutting their prices 30-60% in an effort to stake their claim as the new landlords of data storage.

The war for the cloud has begun.

History

Back in 2006 Amazon launched Amazon Web Services (AWS) which allowed companies to rent space in their data centers. This was a great boon for small and medium sized companies especially, because they no longer had to spend a substantial amount of money up front to host their own data.

The prototypical example is Netflix, which hosts all of its video streaming on AWS (and, by the way, makes up 1/3 of all internet traffic during peak hours).

It’s pretty strange that Amazon came to dominate this market (they are larger than the next 14 cloud providers put together). Certainly there were other tech companies that had the infrastructure to take this market way before Amazon ever dreamed of it (ex: Google). But for some reason they didn’t.

Why a Price War?

There seem to be three main reasons why cloud storage is entering a price war:

1. The Major Players are Diversified. Each of the Big 3 players makes their money elsewhere (Google on advertising, Amazon on retail, and Microsoft on software). They can afford to take hit on profitability today for a future payout. Some of the niche players in this industry (Box and Dropbox), may not be so lucky.

2. Market Share is Extremely Valuable. The money isn’t in renting out the infrastructure but the applications and services that runs on top of them. Once you’re a customer of AWS, Amazon has the possibility to sell you a whole suite of services. Not to mention it’ll give them access to all of your data and they’ll be able to see what’s going on in the market and which companies they should buy. There’s a tremendous advantage to having more customers.

3. This is a High Fixed Cost Industry. Building a data center is expensive. Once you have it, to recoup costs it makes sense to try to sell as much service as you can, even if you’re making a slim margin or taking a loss. You need to recoup your fixed costs somehow.

Conclusion

The price of cloud storage has been decreasing drastically as each of the Big 3 try to dominate the market. This could be potentially a great thing for internet companies as a whole, which now don’t have to put up a substantial amount of money to get off the ground.

The question becomes, what occurs in the long term? Who ends up dominating this market and what happens when the price war ends?

 

The Importance of Segmentation

Banking Profit

If there’s one business concept that you need to get familiar with to be successful in case interviews, it would be segmentation.

To segment a market is to break it up into different parts that have common needs and objectives. The purpose of segmentation is to devise individual offerings for each part of the market. And in the context of case interviews almost all of the insights are found by segmenting your data and figuring out the behavior of different customer segments.

Always, always, always ask for information about customer segments and make sure to segment the financial information you get (profits, revenues, costs) as well.

Some typical ways to segment include by location, race, gender, age, behavior, socioeconomic status, length of time as your customer, etc.

The above graph gives us a picture into why customer segmentation is so important. As you can see each segment of your customers has different profitability because they buy a different array of products.

Hidden amongst the aggregate revenue and cost data was the insight that this company takes a loss on the majority of its customers. That’s an extremely valuable insight, because you can now come up with a way to make those segments profitable by studying them further.

So, remember, always segment your customers and your financial data. You’ll be amazed what you find.

The Difference Between First Rounds and Final Rounds

One of the questions that seems to come up pretty frequently is, what’s the difference between first rounds and final rounds?

In this context I’ll define first rounds as the first in person interview (if applicable) and final rounds as the final in person interview.

My answer, based on experience (both my own and other people’s), is that it really depends on the company.

First off, most consulting firms won’t bring you in for multiple in person rounds anyway. The only ones that do are either boutiques or MBB. If I had to speculate as to why that is I’d venture that:

1. Boutiques want everybody who works at their firm to vet you.

2. MBB uses recruiting as a way to build their brand (as discussed in this article), so they’re willing to spend the extra money.

So, I think that it’s reasonable to conclude that:

1. For most mid sized consulting firms, there’s only one in person interview round (and probably multiple phone rounds). The format of these interviews depends on the firm, though most have at least one partner (part owner of the firm) involved to make a decision.

2. For MBB, there are multiple in person interviews. The main difference between first and final rounds for them seems to be the lack of structure. In final rounds, many of the interviewers go off script (whatever it is for that particular firm) and do / ask whatever they want. So, you might end up getting a candidate led case for a firm that only does interviewer led cases or you may get resume based questions for a firm that only does behavioral questions. Basically, just expected the unexpected.

Conclusion

There’s more difference in interview styles between firms than in between rounds. My advice would be to find someone you know who’s interviewed recently at the firm you’re going in for and just ask them.

But, I’d always be prepared for your interviewers going off script, especially in a final round interview. Make sure you can answer any type of:

1.  Resume based question.

2. Behavioral based question.

3. Interviewer led case.

4. Candidate led case.

…and you should be fine.

Consulting Industry Insights: Outcomes Based Pricing in Outsourcing

Outcomes based pricing is a bit of a trend right now. The Affordable Care Act has created incentives for health care providers to move toward measuring outcomes.

What’s interesting is that this trend is starting to pop up in other industries. Today’s article is going to be about how outcomes based pricing is changing the way outsourcing providers charge for their services.

Traditional Pricing Methods

Traditionally, providers have charged for their services based on the number of full time equivalents (FTEs). That’s just a fancy way of saying the number of employees that they need to allocate for whatever the client needs. For example, in a deal that outsources call center operations to India, pricing would be determined by the number of people needed to staff and manage the call centers.

It’s simple, straightforward, and the cost savings are easy to determine.

The only problem, is, of course, that pricing based on the number of FTEs may not lead to the level of service that the client wants. Yes, you do get a certain number of people working the phones for your call center in India but, frankly, they may or may not do a great job. Many of those call center facilities are not great places to work, there’s high turnover, and the level of service may not be to what the client desires.

That isn’t a knock against Indian call centers, by the way. It’s just a matter of incentives – there’s no real incentive for them to improve if they are being compensated on the number of FTEs. Their only incentive is to keep their staff count high.

Outcomes Based Pricing

Outcomes based pricing would be pricing based on how effectively a provider meets their client’s need.

The best metaphor I can come up with for this has to do with writing. Imagine you’re a publisher trying to draw up a contract with an author for him to write a technical manual. You could either pay him based on the number of words (FTEs) or how effectively he gets across his point (outcomes).

By the way, if you were wondering why technical manuals are usually so long and complicated, it’s probably because the incentives are not lined up toward rewarding the author based on outcomes.

Anyway, in the case of the call center outcomes based pricing would be something like paying the provider based on:

1.  Lowering the number of calls required to solve an individual issue.

2. Lowering the percentage of calls requiring in person maintenance.

3. Increasing customer satisfaction.

etc.

Essentially, something that can be measured and compared to a standard.

The advantages of outcomes based pricing are that it incentives creativity on the provider’s side and gives them a greater chance to realize a higher upside if they can solve their client’s problems.

Of course, the disadvantages are that the client can set unrealistic objectives that the provider can’t possibly meet (destroying the relationship), and that it creates less transparency (the client is less aware of what they’re paying for).

Conclusion

Outcomes based pricing is a growing trend in many industries and seems to be growing in the outsourcing industry as well. In theory, it should be a win-win for both the provider and the client but the process needs to be managed properly for that to occur.

Either way, it’s an exciting time in the outsourcing industry.

 

When Can You Stop Practicing Cases?

There comes a point in every person’s case interview career when it’s no longer worthwhile to practice any further. Most people don’t get to that point, but a small minority go way beyond it.

Today’s article will be about identifying when there’s no point continuing and how you can improve your case interview performance in other ways.

When Do You Stop?

The short answer is:

It depends.

To give a more precise answer we need to first understand what you actually get out of practicing cases.

I would argue that there are four main things:

1. Communication Skills. You learn to communicate in a structured, organized way.

2. Problem Solving Skills. You learn to work through a problem in a structured, hypothesis driven way.

3. Business Acumen. You get a basic understanding of business terminology, practices, and different industries.

4. Mental Math. You learn to do calculations quickly and accurately without the use of any electronic devices.

Now, obviously you stop when you aren’t learning anything more. But everybody is starting from a different point.

Many of the people who aim for these jobs are already familiar with many of the business concepts you find in cases. Maybe they are business / accounting / economics majors or maybe they’ve been reading the WSJ since they were 5 years old.

They will probably only have to focus on the problem solving, communication skills, and mental math.

For someone who is starting without any sort of business knowledge at all this is going to be much more difficult.

They have to learn everything from scratch.

I won’t give a specific number of cases to do because it depends. I’ve seen people get good with anywhere from several dozen to several hundred cases.

Everybody eventually figures it out if they are diligent enough but the time investment is different based on where you’re starting from.

You stop when:

1. You communicate in a structured way effortlessly.

2. You start thinking naturally in the form of hypothesis based reasoning.

3. You start to see the answer to a case right at the beginning and understand all of the business concepts that are thrown at you.

4. You can do mental math quickly, efficiently, and without errors.

5. You can teach others and do case interviews while executing other tasks.

How Do You Improve Further?

When you reach the point of diminishing returns it’s time to focus your energies elsewhere.

You can still improve, but not by doing more cases. Instead I’d recommend reading some of the papers put out by the major consulting firms (think the McKinsey Quarterly or BCG Perspectives), books about the consulting industry. and improving your behavioral interview skills (it will improve your ability to communicate in a structured way).

Conclusion

There comes a point of diminishing returns in practicing case interviews. It’s probably later than you think it is (most people go through a phase where they stop feeling like they’re improving, that’s usually just a plateau).

But, if you’re diligent enough you’ll get to a point where your performance is completely unconscious.

At that point, I’d recommend spending less of your time on these and more of your time reading articles, books, and practicing behavioral questions.

Good luck!

Consulting Industry Insights: Cost Allocation for IT Services

KPMG recently came out with a paper about how cost allocation for IT services needs to change because of the growing popularity of the cloud. Cloud IT services have the advantage of usage based pricing, quick scale up and down, and transparency about usage and pricing.

Essentially, they’ve observed that because of the option of cloud services exists shared services organizations need to up their game and provide more transparency about how and what they’re charging for.

What are the Users Looking For?

The users are looking for:

1. Pricing and charge back methodology. They want to know how and what they’re being charged for.

2. Value. They want to make sure they aren’t being charged for anything they aren’t using or don’t need.

3. Flexibility. They want to be able to scale up and down if necessary.

What are the Levels of Service Cost Allocation Maturity?

Levels of Cost Allocation Maturity

They also came up with a model for the different levels of cost allocation maturity and how a provider can transition between the levels. Next, we’ll walk through each of these transitions to see how a provider can bring transparency to cost allocation.

Sub-Optimized (Level 1) to Rationalized (Level 2) 

There seem to be two steps:

1. The provider needs to set up a concrete strategy to move toward cost allocation transparency. This would be things like putting in the technology to remove services as appropriate, having cost data sufficiently segmented to allow transparent allocation.

2. Track costs and segment them by category, geography, project, group, etc.

Rationalized (Level 2) to Sub-Optimized (Level 3)

Division Allocation

The goal at this stage is to allocate costs based on usage for both direct and indirect costs and show the customer it’s being done that way.

To do this, you need to implement and track resource units (RU). A Resource Unit is something you can use to measure how much service is being delivered. In the case of help desk services, it might be something like the number of help desk users, or for desktop computing it may be the number of desktops.

Once you establish the RUs, use them to track service volume and allocate cost.

Optimized (Level 3) to Strategic (Level 4) 

To make the transition toward strategic cost allocation, you need to implement more communication between the provider and the user. This would include things like forecasting usage of resource units (so the user isn’t faced with sudden price increases) and performing periodic price comparisons with industry standards.

Strategic (Level 4) to Differentiated (Level 5)

To make the final transition to the highest level of cost allocation maturity an organization must:

1. Optimize its operations to lower taxes / tariffs.

2. Implement tiered offerings.

3. Implement automated processes and tools to assist with the cost allocation process.

Conclusion

For provider organizations to survive the challenge of the cloud, they must provide transparency to their cost allocation process.

In this article we have touched on how a provider organization can do just that. Ultimately the users want to know how much they’re being charged and why, that they aren’t being overcharged, and that they can scale up or down service quickly if necessary.

If the provider can offer that, they can likely retain customers despite the challenge of the cloud.

Don’t Forget You Can Raise Prices

In the classic profitability decline cases usually there’s only a few possible solutions:

1. Lower your costs.

2. Sell more of your products.

3. Raise your prices.

Most people talk about the first two, but you’d be surprised at how few people mention the third.

I think it’s because usually in these cases you’re seeing a loss of volume or maybe prices went down or something like that. The intuitive response is simply to forget about prices because if they’ve gone down for everybody you probably can’t do much.

But, I’d argue if you automatically cross out this option you may be losing out on some really good solutions.

The reality is that raising your level of service or focusing on a specific customer segment along with raising your prices can be a good strategy to restore profitability as well.

Keep this one in the back of your mind for your next profitability decline case.

When can you Conclude a Case?

Back in February I wrote an article on how you should conclude a case. I consider that the definitive guide on how a conclusion should sound. But it does beg another question:

How do you know when you’re ready to conclude a case?

And my answer is very straightforward. You can conclude a case when:

1. You’ve isolated what the problem is.

2. You’re sure that the problem you’ve identified completely explains all of the symptoms the client is seeing.

3. You’ve proposed a solution to the problem that treats the underlying issue.

What does this look like in practice?

In a typical case you’re presented with a set of symptoms your client is facing (i.e. profits are down in my business).

Your goal is to isolate the problem (#1), and we’ve talked extensively on how to do that.

Once you isolate the problem you need to quantify the extent of that problem and see if it explains everything.

The classic example is a case where your profits are down. You find out it’s because the raw material costs are up. You could conclude now but it’s premature. You need to verify that the reason profits are down is only because raw material costs have gone up.

So you quantify the profit decline and the cost increase and see if they match. If they don’t, there’s another problem that you need to isolate before you can go to the solution stage and conclude.

And what if the case is purely qualitative? Then I would argue you aren’t done until you cross off all high probability hypotheses off of your list. Even if you stumble upon one problem it doesn’t mean that it’s the only problem.

You need to check this with your interviewer (“could this completely explain the client’s drop in profitability?”), and if not keep going.

Conclusion

You can conclude a case when:

1. You’ve isolated what the problem is.

2. You’re sure that the problem you’ve identified completely explains all of the symptoms the client is seeing.

3. You’ve proposed a solution to the problem that treats the underlying issue.

Usually you accomplish step # 2 by quantifying the symptoms (i.e. profits have declined) and the problem (costs have gone up) to see if the problem you isolated completely explains the symptoms. If it does, go to step 3 and afterwards conclude.

If the problem you discovered doesn’t completely explain the symptoms there’s probably another issue or you haven’t used the five whys effectively enough to discover the underlying problem.

If you can’t quantify the symptoms and the problem you need to ask your interviewer if your problem completely explains the symptoms, and if not keep digging.

Good luck!

Consulting Industry Insights: Why is India Losing out on BPO Work to the Philippines?

If you’ve been following the outsourcing news as of late, you’ve no doubt heard the rumors that India is losing out on business process outsourcing (BPO) work to the Philippines and Eastern Europe.

The Economic Times reports that India may lose up to $30 billion in voice and call center work over the next decade.

There are several reasons India is losing out on call center work to the Philippines:

1. The Philippines has better infrastructure. As it turns out, much of the telecomm infrastructure was built by the US army during the occupation (unlike India, which is still working on improving their infrastructure).

2. The Philippines has more compatible culture. Filipino workers require less training because of greater similarity to US culture and less accented English.

3. Turnover is lower in the Philippines. At this point, a call center job in the Philippines is more valued than one in India because the wages for a call center job are relatively better.

On the bright side, India is dominant in the high end of BPO work such as application development, and has a much larger potential workforce. Time will tell how it all plays out.