Category Archives: Candidate Led Cases

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.

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!

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!

Answering the “How Would You Do This in Practice?” Question in Cases.

Sometimes when you’re in the middle of a case you’ll get asked a question about how you’d do something in practice. For example, you may be talking about growth rates and the interviewer could ask you how you’d figure out a growth rate for a particular product in real life.

These questions are designed to test if you understand if you could quantify an unknown without spending countless hours tracking down the information.

In general there are three ways to do this:

1. Choosing A Proxy.

2. Internal Benchmarking.

3. External Benchmarking.

Choosing a Proxy

As we discussed in the article on market sizing, choosing a proxy is one of the most efficient ways to quantify something. In the example of growth rate for a specific product, the best proxy depends on what the product is.

If it’s a product for which the market is saturated the growth rate may just follow population growth or GDP growth rate (both of which are readily available quantities).

If it’s a product for which the market is new and unsaturated, you’d have to use one of the benchmarking techniques most likely.

The key to using proxies is to use something that is easy to look up (like the change in GDP. population growth, etc.)

Internal Benchmarking

Internal benchmarking is looking at data you have from inside your company. For example, if you’re trying to quantify the growth rate for a new product you could look at the growth rate of an existing product you already sell.

The product you look at could be complementary to the new product (such as razors and shaving blades) or just within the same class (sofas and lamps for example).

Or, you could look at the growth rate of the same product in a different market (if you have access to it) if the two markets are similar.

This data would also be easily available.

External Benchmarking

If you can’t find a good proxy or internal benchmark, use an external benchmark. This would be things like looking at the growth rate of your competitors (based on yearly sales numbers, if available), analyst reports, newspaper articles, business journals, etc.

Conclusion

If you’re asked how to quantify something in a case, don’t panic. This is an opportunity to show off your ability to efficiently discover unknown information. Your best bet is to identify an easy to quantify proxy (such as GDP). If that doesn’t work you could look for internal benchmarks (such as data from other countries or complementary products that you’d have access to) or external benchmarks (such as competitors growth rates, newspaper articles, market research reports, etc.).

I’ve had this question come up many times so, hope it helps!

 

The Rule of 72

The-Rule-of-72

(credit: Swan Retirement)

Compound interest – Albert Einstein once called it one of the most powerful forces in the universe. But it’s extremely difficult to deal with in cases (and on the McKinsey PST for that matter) because you don’t have access to a calculator.

So what do you do if you’re asked to deal with compound interest in a case? Easy, use the Rule of 72!

Continue reading The Rule of 72

How a Candidate Led Case Should Flow

I can usually tell within the first 5-10 minutes of giving someone a case how it’s going to go. How is this possible you ask? It’s really simple; there’s a certain flow that you feel with people who are experienced.

It’s hard to describe, but the best way to put it is that you can tell there’s a certain process that they’re following. You can tell that they know all of the steps, know how to do each step properly, and that they will reach the answer given enough time.

Continue reading How a Candidate Led Case Should Flow

Using the Five Whys in Cases

Five Whys

(credit: Velaction)

The Five Whys is a technique used to figure out the root cause of a problem. You’ve probably used it unwittingly many times in your life. The general idea is when you come across a problem, keep asking “why” it exists until you narrow things down to a process that is malfunctioning or nonexistent. If you find a malfunctioning or nonexistent process, all you need to do is redesign the process (or implement one) to handle the problem in the future.
Continue reading Using the Five Whys in Cases

How to Structure Comparisons in Cases

In cases, it’s pretty common where you have to structure an analysis of several options (i.e. should the client enter the market organically, by acquisition, or through a joint venture).

I’ve noticed that most people seem to struggle mightily with keeping track of all of the information and making a convincing final decision (usually because they lose track of critical pieces of information, or forget the relative importance of each piece of information).

So, how do you make comparisons properly?

Simple, make a table!

Continue reading How to Structure Comparisons in Cases