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Cracking The Case PDF
Cracking The Case PDF
2
Preface
When I applied at the top strategy firms, I quickly learned that many
best-selling books on case interviews are severely lacking. They are
based on interviews with ‘industry insiders’ instead of intimate personal
experience, focus only on one part of the interview process and do not
prepare you at all for the tough selection process employed by these
firms.
• Everything you need to know to write the cover letter that gets you
invited, including templates, examples and expert tips.
• The truth on resumes and how they are used, including what you can
do to make sure you stand out.
• The two essential consultant skills you need to communicate during
the interview and how to answer any other question they throw at you.
• The best way to prepare for the McKinsey PST and other written cases,
including a unique practice PST question.
• A complete tutorial on solving guesstimates and how to avoid its
pitfalls, including 3 fully elaborated example questions.
• Three frameworks and four golden principles to help you crack the
business case confidently.
• Thirty pages with three fully elaborated practice cases including
example frameworks, riddled with tips and best practices.
• A solid approach to even to most difficult brainteasers.
That I promise.
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Table of contents
Introduction!..........................................................................................................7
Cover Letter! .........................................................................................................9
How they use your cover letter: the 30 second rule!.................................................9
Five ways to make your cover letter stand out!........................................................10
How you should use your cover letter!......................................................................11
How to structure the cover letter!.............................................................................12
Resume!.................................................................................................................15
The truth on resume formatting!..............................................................................15
The format that works!..............................................................................................16
Writing the perfect consulting resume!....................................................................18
Things to avoid in your resume!.................................................................................21
The Interview!......................................................................................................23
Before the interview!..................................................................................................23
The typical interview!.................................................................................................25
The ‘Airport Test’!........................................................................................................25
Resume walkthrough!.................................................................................................26
How to best answer interview questions!.................................................................27
The two skills the interviewer will be looking for!..................................................30
All the questions you’ll get (and answers too!)!.........................................................33
Your questions!...........................................................................................................40
Written Cases!......................................................................................................43
McKinsey Problem Solving Test!...............................................................................43
Other Written Cases!.................................................................................................46
Practice PST Case!..............................................................................................49
Guesstimates!........................................................................................................55
Four Golden Guesstimate Principles!........................................................................55
Guesstimates: Basic Structure!..................................................................................57
How to support your assumptions!...........................................................................58
Refine Assumptions!..................................................................................................60
Guesstimate Pitfalls!...................................................................................................61
Practice Guesstimates!........................................................................................63
London Eye!................................................................................................................63
Hearing Aids!..............................................................................................................66
Romanian Coffins!......................................................................................................70
Business Cases!.....................................................................................................73
Four Golden Business Case Principles!.....................................................................73
The Basic Structure of Business Cases.!....................................................................78
Three frameworks with broad application!.............................................................80
Business Case Pitfalls: Data!.......................................................................................85
Business Case Pitfalls: Structure!..............................................................................86
Business Case Variants: Group Cases!......................................................................90
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Business Case Variants: Presentation Case!..............................................................91
Practice Cases!.....................................................................................................93
Indian Whisky!............................................................................................................93
Coffee shop!...............................................................................................................105
Brazimao!....................................................................................................................112
Brainteasers!.......................................................................................................129
Brainteaser approach!...............................................................................................129
Brainteaser examples!...............................................................................................129
Brainteaser solutions!................................................................................................131
Appendix A:!.......................................................................................................135
Solutions to the PST-practice case!..................................................................135
References!..........................................................................................................137
Acknowledgements!...........................................................................................137
6
Introduction
This book will guide you from the first line of your cover letter to the
last question you ask at your final case interview. It was written with a
clear goal in mind: getting you through the selection process. To that
end, it follows the standard procedure from start to finish: from cover
letter and resume, to written test and case interview.
While reading this book and going through the selection process
yourself, it’s important you keep your goal in mind: with sufficient
talent, preparation and maybe a little luck you are to become a
consultant at a top (strategy) consulting firm. The whole process is to
determine whether you have it in you to become successful as a
consultant. At every step, the question will be “Is this candidate a good
consultant?”. To answer this question, these firms will look at your cover
letter, your resume and use case interviews, selecting only the best at
every step.
They use the case interview for a specific reason: there’s no better test
to determine whether you are fit for real-life consulting work. The case
interview is a consulting project in a nutshell: a difficult question, lots of
data, high uncertainty and high pressure. Without preparation, this can
quickly become overwhelming.
The material in the first two chapters is meant to get you to the
interview and revolves about making sure your cover letter and resume
get noticed and do not end up in the ‘reject’ pile. Chapter three and
onward cover the interview itself: the basic structure, the resume
questions, guesstimates and business cases.
You can practice the techniques with the example questions, in which
you can compare your approach with the candidate’s. Throughout these
elaborated cases you’ll find the structure and framework used to solve
the case, including tips on what you should copy from the candidate and
what not.
This book will make sure you have all the tools and necessary
preparation to get an invitation to the interview and confidently ace
every question they throw at you.
Good luck!
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Cover Letter
We will start with the first step of the consulting application process: the
cover letter and resume. Both will travel with you through the case
interviews: every interviewer will have a copy of it and ask some
questions on your previous (work) experience or education. But it’s also
the first thing on which you’ll be selected. Before you write any of these
two documents, it’s important to ‘crawl inside the head’ of the person
that is going to read them and decide whether they’ll invite you or not.
So before we start, we will take a look at the selection process used by
these firms.
First of all, you want to make sure you do not disqualify yourself.
Spelling and grammar should be checked by someone else (because
you’ll always make a spelling mistake in that very first sentence), the
formatting should not be too fancy, your letter should not be six pages
long (1 page is enough), no pictures of the family dog, etc.
Expert Tip:
“You would not believe how often we [at BCG] get applications with
cover letters directed to McKinsey or Bain. We know that people often
apply at all these firms at the same time and probably write them the
same letter, something I would advise against. But even if you do,
please make sure you change the name at the top.”
If you are indeed sure you are not about to disqualify yourself, it’s time
to make sure you stand out. Remember, you are one of 300 applicants
and every application gets about 30 seconds worth of attention. In those
30 seconds, they will read the first paragraph of your cover letter and if
they are not interested, they will skip to your resume to confirm their
feeling that your application is indeed destined for the ‘reject’ pile.
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So you have to make sure you stand out in those first paragraphs of
your letter. If you can catch the attention of the reader he might read
your whole letter and invite you to the interview. In the next section, we
will tell you how to stand out.
“I send you this letter and my resume because I want to work at Firm X. I
think this will be a great fit because I have qualifications A, B and C
from XYZ experience.”
The fact that 90% of applicants send a standard cover letter is not only
boring for the poor soul condemned to screening them all, but an
opportunity for you! Your cover letter should show that you are
interested in the firm and prove that you’ve done your research (you did,
didn’t you?). What is your specific reason for joining this particular firm?
Why? Why are you so sure about that?
2. Think different
The reader is trying to look for why you stand out, so make it easy for
him. Show that you are different from the other candidates:
Over the top? Maybe, but we’re trying to make a point: always strive to
differentiate yourself from the other 300 applicants.
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3. Look for a specific fit
Another way to stand out and show that you are sincerely interested in
the job you’re applying to is to look for a ‘fit’ between you and both the
firm and function you’re applying for. Especially if you come from a
different industry (IT, banking), you’ll really need to explain why you
want to switch to consulting.
It’s not enough to list your qualifications, just like everyone else: lots of
people are qualified. You need to think one step ahead: why do I (and
my qualifications) fit with the firm and my new role?
Even if it feels awkward to ‘step into the spotlight’ so directly and not
write a safe (but dreadfully boring) ‘normal’ introductory paragraph:
remember that this is your chance for more than thirty seconds of
attention. And it might be your only one.
Better yet: you can ask these contacts to recommend you, which often
helps to skip the screening process all together and gets you directly
onto the ‘invite’ pile.
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When you’ve got the attention of the reader, the body of the letter is
where you link your qualifications with the firm and show that there is a
‘fit’ between the two. It’s also the perfect opportunity to flesh out your
resume. Your resume is a dry summary of facts, with little room to
explain interesting details. If you founded an unknown company that
now does $20 million in sales in an industrial niche nobody’s ever heard
of, it can easily be buried by the other facts on your resume. Remember,
you only get a short window of attention.
We will tell you how to make these interesting facts stand out on your
resume in the next chapter, but you can use your cover letter to explain
these interesting facts in greater detail. This also makes sure they don’t
get overlooked.
The same is true if you have an Arts or Social Studies background: the
reader will probably take your social skills for granted, but will be more
interested in whether you can tackle analytical problems. Highlight
those in your cover letter.
Know what the stereotypes of your background are and help the reader:
show you are different in your resume as well as your cover letter.
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We will now look at each of these sections in a little more detail:
Location, Date
Your location and the current date, aligned to the right of the page.
First Paragraph
The most important paragraph, as you understand by now. Here is
where you need to make a difference and grab the interest of the
reader. Differentiate, drop names, list your achievements and convince
the reader why you are the one to be invited for the interview.
Second Paragraph
If you want to elaborate some interesting experiences from your
resume, this is the spot. Additionally, you can link specific competencies
you possess to those that the firm requires with examples to support
you claims.
Third Paragraph
This is the conclusion of your cover letter in which you sum up the most
important conclusions from the rest of the letter (why should they invite
you?), ending with that you are really looking forward to the interview
process. Finish with a “next action”: the next thing you or the firm you
are applying to should undertake. For example, inviting you to an
interview, contacting you as soon as possible, or waiting to be contacted
by you.
This chapter covered the cover letter, let’s move on with that other
document you’ll send with it: your resume.
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Resume
We know how to write a cover letter that catches the reader’s attention,
but that is only the beginning: he will quickly move on to your resume
to see whether his interest in you is justified. Can you present your
accomplishments in such a way the reader can identify them at a glance?
Well, the following section will help you do just that.
So what’s with all the buzz about formatting, it must be important right?
Sure, your resume needs to be legible. If you use a simple to read font
(Helvetica, Lucida, Arial, to name a few) and a decent font size (10-12)
so it can be read comfortably, you are already halfway there. Yes, you
need to know where to put what so the reader can easily identify your
accomplishments (and we’ll get to that shortly). Time spent on worrying
about the typeface can be put to better use (re)writing the important
stuff: the content and how to draw attention to it.
Expert Tip:
“During my time [as a consultant] I’ve screened dozens of cover
letters and resumes. I’ve probably seen thousands and never
have I recommended someone because of his creative approach
to formatting. Some tried, and made for a good but awkward
laugh.”
Also: no skills resumes, they make the reader feel awkward. Don’t know
what a skills resume is? Good, keep it that way.
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The format that works
Enough about what you should not do: how should you structure your
resume for maximum effect? How can you grab the reader’s attention
and steer it to the accomplishments you are so proud of? Below you’ll
find the format that works followed by an elaboration of the three main
sections of a good consulting resume.
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Start with education
Unless you’re an experienced hire with 10+ years of work experience,
your education will be the first on your resume. List your degrees in
chronological order, with the last awarded degree at the top. Always
include grade point averages (GPA), or else the reader will think you’re
hiding them because they are too low (if that is indeed the case, hide
them).
Also include standardized scores, such as SAT, GRE, GMAT, MCAT and
LSAT scores (or your country’s equivalent) as GPA’s are difficult to
compare across universities and studies. Always include your math
scores on these tests: high math scores correlate with analytical
thinking which is something the reader will be looking for in your
resume.
This is probably the largest section in your resume, but again: focus on
what is important and be concise. Your resume is a short summary of
your life and for most graduates it should be 1, maybe 2 pages max.
Only if you have multiple years of work experience will your resume be
longer than this.
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(interesting!): list them here. If you are addicted to World of Warcraft (no
life) or play an obscure boardgame (no friends): don’t list.
Remember that your resume is being scanned, and that you have to
make it easy for the reader to spot your achievements. That means you
should not bury them in a story. Or in long lists with job descriptions,
responsibilities and unimpressive other achievements.
Focus
You’ll need to focus on key responsibilities and important achievements.
Use bullet points (consultants love them): first list your key
responsibilities in one or two sentences in the first one or two bullets.
Then use one or two bullets to list key achievements. Be concise and to
the point: rewrite every ‘bullet’ once or twice to make it more to the
point. Don’t use words such as ‘a lot’, ‘many’, ‘very’, ‘quickly’: be
specific. How many widgets did you sell? With how much did you
increase profits? How many clients gave your service an A rating? If you
worked as a sales team manager at a company that sells windshields,
don’t write:
First of all: that you were a sales team manager at company X can be
concluded from the job title. Don’t repeat it. If company X is a well-
known company, don’t repeat what they do: everyone knows. If not, use
the first bullet point to explain what the company does. For example:
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Now, your achievement is specific and to the point. The reader will know
what Company X is all about and what your responsibilities were. It
would be even better to add an achievement in another bullet point, for
example how much windshield sales increased under your management.
Quantify
One good way to make achievements more clear is to quantify. If you
are able to quantify your achievements: do so, if possible using
numbers as they grab attention. Did you double yearly company sales in
your last position? Don’t write:
This is much easier to read, isn’t it? Numbers grab attention better than
words. You should always try to quantify your achievements and the
same holds true for responsibilities. If we go back to the example of the
sales team manager, we already saw a good example of how it should
be done:
It’s crystal clear how many people you managed and what kind of deals
you negotiated at Company X.
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Highlight
We already touched this subject above, where we discussed the format
of your resume. To make it easy for the reader to spot your
achievements, you should not only focus and quantify. You also need to
highlight what is important. You might think this looks stupid: you don’t
want to look like an attention-seeking exaggerator. But think again:
what if you don’t get invited because nobody saw your achievements
because they weren’t highlighted and presented properly? What do you
prefer?
But what do you need to highlight? The resume screener is looking for
big names. Both high-end universities and Fortunes 100 companies are
good candidates for highlighting. If you’ve worked at a small company
but had big name companies as your customers: highlight them. For
example:
If you don’t have these big names to highlight, you can still draw
attention to achievements you’re proud of by highlighting them. Don’t
highlight everything: try to tactically grab the attention of the reader and
direct his or her attention to those two or three things you are most
proud of.
Expert Tip:
“One creative way for students with little work experience but
lots of extra-curriculars is to highlight that special achievement
without breaking chronology: list that extra-curricular as work
experience. That way you can move it up to a spot where it
gets more attention than when it’s “hidden” in the extra-
curricular section.”
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Things to avoid in your resume
There is a reason why all resumes and cover letters look alike and follow
a standard format: it’s easy to make mistakes and everyone is scared of
looking like a fool. Because we encourage you to stand out from the rest
and mistakes cannot be prevented (even when following the herd), we
will also list some things you should not do.
You use your resume to sell yourself to the reader, and if you use the
passive tense this becomes progressively harder. For example:
Someone reading your resume might think: “Ok, profits increased while
this guy/gal worked here, but was it because of him? Who accomplished
this profit increase?”. Writing in the active tense forces you to “claim”
your achievement:
Otherwise, you leave the reader guessing. So don’t write in the passive
tense.
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Don’t forget that these people see thousands of resumes and speak to
hundreds of candidates: they can spot the difference between
exaggerated achievements and real ones. Besides: the last thing you
want is to get busted during the case interview, as this will mean the
end of the interviewing process.
Just don’t do it. The next chapter will focus on the next important step
in the interview process: the interview itself. What can you expect? How
to answer those though interview questions? That and more in the
following chapter.
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The Interview
So you’ve rewritten your cover letter and resume and finally sent your
application to McKinsey, Bain and BCG. Time to relax, right?
Not exactly. If you want that job, now is the time to start preparing the
interview. Heck, even if you haven’t applied yet: start practicing right
after finishing this book, using the materials supplied in the coming
chapters. Why? Because the majority of applicants does not start
practicing until after they have received the invite for the first round of
interviews, which might take place within a week or so. This leaves them
with only a few days to prepare.
A few days of fully devoted practice might be enough to pass the first
round, maybe even the second. But I want you to sit there relaxed, with
a professional look in your eyes that gives both you and the interviewer
the confidence that you will ace the interview and make a perfect
addition to the team. The only way to attain that is preparation, so let’s
start.
Expert Tip:
“Try to imagine yourself as a consultant during a client
meeting. Imagine how a consultant would present himself to
that client. Is he going to wear jeans and sport shoes? No. Is he
wearing a suit and looking well-groomed? Yes.”
Grooming
It might be obvious following the Expert Tip above, but when you have
your interviews, make sure you are well-groomed. Shower, brush your
teeth, shave, polish your shoes, comb your hair, iron your shirt, cut your
fingernails.
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Dress code
So, what are you wearing to make that perfect first impression? An
interview in the consulting industry means wearing business attire. This
means a suit and tie for men, no exceptions. Women are more flexible
in this regard, but let’s first start with what men should wear:
Men
When it comes to clothing, men have it easier: the options are more
limited and if you play it safe then it’s difficult to screw up your outfit.
Let’s take a look:
Suit: Darker colors, but not black. Dark blue and dark grey are safe
choices. No fancy stuff, a small pinstripe is allowed. Choose wool,
synthetics look cheap and feel uncomfortable.
Shirt: White is the safest option, light blue is also great. Again, no fancy
stuff. Stripes are possible, but be careful with your shirt/tie
combination. If you prefer double cuffs, don’t wear your Mickey Mouse
cufflinks.
Tie: One stripe maximum. If you’re wearing a suit and shirt with plain
colors, the tie can be a little more colorful. Watch out when combining
striped shirts with pin stripe suits and patterned ties.
Women
More variation, and thus more difficult than men. Especially for the
interview, you should go for safer options. You can still wear that special
blouse if you get the job and get a feel for what other women wear at
the office.
Top: A dark blazer, blue, gray or black. A shirt and top underneath.
Maybe you feel a white shirt is ‘too plain’, but it’s a safe bet. Other safe
colors include light blue and a soft pink. Wear a tank top under it, so
nobody sees what they shouldn’t see.
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Skirt/Trousers: You can choose to wear a pencil skirt, but make sure
they are not too tight and that you can sit comfortably in them.
Otherwise wear dark trousers.
Shoes: The interview is not the time nor the place to wear those killer
heels, but that doesn’t mean you can’t wear any. Try to balance
professionalism with attractiveness, not just with your shoes but in your
whole outfit.
•5 minutes of introduction.
• 5-10 minutes of resume questions.
• 30-40 minutes for the business case.
• 5-10 minutes for you to ask questions.
We will deal with case questions in the next section, here we’ll focus on
the first and last ten to fifteen minutes of the interview. Even though
many candidates think the case is most important (and it’s true that
‘cracking the case’ is essential), the minutes before and after the case
are equally important.
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these two hours cost your colleague more energy than a full day of
spreadsheet analysis?
During your interview, you should keep in mind that your social skills
are also constantly tested. There is no ‘faking’ a great personality, but
being aware, calm and prepared helps a lot to make a great impression.
Try to be friendly and smile, even though you’re stressed because of the
interview. Try to look at the interview not as a test, but as a
conversation between two educated people trying to solve a case and
get to know each other. Try not to let the stress of the interview harm
your enthusiasm for solving cases or your mood in general, just take it
easy.
Through practice you can master the case interview, which relieves you
of some stress and it can give you the necessary self-confidence during
the interview. An interview will always be exciting, but we are to make
sure that this excitement is positive (enthusiasm) instead of negative
(stress).
Resume walkthrough
After the introduction, the interviewer will first ask you some quick
questions about your resume. Anything on it is fair game, so expect to
answer questions on any item, being work experience, education or your
interests. Make sure you prepare little narratives for each, in which you
explain what your achievements are and how you achieved them.
Try to focus these narratives around the three to five of your positive
characteristics/achievements you want to convey. So if you want to show
you have experience in the industry or showcase a great teamwork
achievement, than “bend” your answer towards those achievements.
Does this sound odd to you? Compare the job interview to a ‘normal’
interview and picture in your mind a politician answering questions from
an interviewer. Politicians are professional ‘question benders’: if an
interviewer asks them about XZY, they give a quick answer on XYZ and
then continue stating that they (or their party) also supports ABC
because of blabla. For example:
Interviewer: “Sir, do you think building this dam will be bad for the
wildlife in the area?”
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Politician: “Independent research has shown that this is not the case,
while the construction of the dam not only creates hundreds of jobs but
also reduces the US dependence on Saudi oil.”
See how you the question about wildlife gets bended into a potential
discussion about job creation or the US energy dependence? Interviewer
and interviewee ‘dance’ around each other’s questions and answers.
During your interview, you will need to do the same.
The interview is a stage, in which you are given the possibility to present
three to five striking details about yourself. For example: your
enthusiasm for consulting, your extraordinary leadership experience
and your persistence. Thus, you try to bend every question towards an
answer that incorporates one of the above:
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If asked to explain this bullet, a candidate can answer this question by
saying: “We decreased cost by doing A, B and C”. Interviewers hate the
word ‘we’, as it is not what they are interested in, they are interested in
you! What was it that you did to decrease cost by $ 10 million? What was
your role in the team? Were you on the front lines firing co-workers and
taking the heat? Or were you just the administrative person that made
sure everyone kept their schedule?
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Task
What were your tasks? What was your goal? What were your
responsibilities? Example:
“Our goal was to finish the product on time, since missing the
deadline would cause serious damage to the company’s profits
and brand name.”
Action
What did you do? Which action did you take? What were your
contributions? Describe them concisely and make sure to keep it
focused on you: use ‘I’ and don’t use ‘We’.
Result
What happened? What did you accomplish? What did you learn? Try to
list multiple positive outcomes and make them as tangible as possible,
for example by quantifying them. With negative outcomes you should
29
focus on what you’ve learned and how you dealt with failure, but this is
a lot trickier than with positive outcomes, so try to avoid them.
“Since there was no more delay, I and the two other account
managers could go to work. Not only were we able to attract
30% more companies than the year before, visiting the
locations together increased team spirit and got everyone more
involved in the organization.”
But know that there are two specific skills consultants are looking for
when they ask these questions, and you should focus on covering these
characteristics. We will use the terms used by McKinsey:
• Leadership
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• Personal Impact
I can hear you think: “So, that’s it?”. Well, yes actually. Consulting is the
interesting combination of business analysis on one hand, and people
skills on the other. The business case is there to test your analytical
abilities, but people skills are also extremely important, and often
underestimated.
As a consultant, you will often work with a client facing a crisis and
there is no way you’ll be able to convince the client of your solution
without people skills. Or get the much-needed statistical data from a
reluctant administrative worker who’s job is on the line. To succeed as a
consultant, you need people skills and two in particular: leadership and
personal impact.
Leadership
There must be dozens of books on leadership and its definition, but
leadership in this case comes down to the following:
What does that mean? As a consultant, you’ll often find yourself between
people with 30+ years of experience in an industry while you just
started on this project last week. Your analysis showed that they should
run their business completely different, how are you going to tell them
and convince these veterans of the necessity of a new business model?
With every candidate that sits down in front of him, the interviewer is
asking himself: can I trust this candidate in these kinds of situations and
does he have the experience to show for it? Experience with these kinds
of situations (and their successful resolution) are what the interviewer is
looking for and this experience can come from anywhere: work
experience, extracurriculars, volunteering, etc.
Personal Impact
Where leadership is more concerned with setting direction and
successfully bringing people to follow it, personal impact revolves about
empathy, conflict resolution and political skills.
Let’s first focus on empathy and conflict resolution. Clients are often in
a crisis, or they wouldn’t have hired you. But that often means people
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are afraid to lose their jobs, are trying to shield their team, division or
business unit from job or budget cuts and are generally resistant
against change and the agents of change: you. This means you need to
be able to handle situations in which you face considerable resistance
and emotional reactions.
Pointing to the rational facts (“Stop protesting, you’re wrong! Here’s the
analysis that proves it!”) will often make things worse. Being able to
handle these situations requires empathy and understanding, which is
what the interviewer will be looking for in the interview. So tell him or
her about a situation in which you did! But what about political skills?
Since you’ll be working with a new client team every project and every
company/division is different, you’ll need to be able to grasp the
political situation quickly. Since most politics happen beneath the
surface, you need to have a ‘gut feeling’ about who decides what (which
often differs from the official power structure) and intuitively grasp how
people will respond to certain changes. You might have worked hard on
a perfect analysis and wonderful solution, but if you submit them to the
wrong manager he’ll put the recommendations in his desk and you’ll
never hear from him again.
Personal impact is about knowing how to make the most impact and
successfully implement changes. It’s about dealing with people, showing
empathy and understanding, and knowing how to resolve conflict.
• "Could you give an example of a problem that you faced with your
team and how have you done it?"
• “Could you give an example of a group situation where the group was
deeply divided and how you resolved it?"
32
• "Please tell me about a time you led a group that was in disarray but
still needed to get something important done and how you dealt with
it.”
• “Could you tell me about a time you faced a group with bad morale
that still needed to be effective and how you fixed this?"
I think you get the point. Use a story of your own experience in STAR-
format to answer one of these questions. Try to cover both your
leadership and personal impact skills in the answer. These type of
questions should always be expected, since these skills are so crucial
for consulting.
Differentiation
Interviewers rely on stereotypes. When the interviewer scans your
resume and sees you have a PhD in Mathematics, he will assume that
your analytical skills are sufficient. But he’ll be wondering how your
people skills are. When you majored in Psychology or Arts, the
interviewer will be interested in your leadership and personal impact,
but he’ll be especially interested in your analytical prowess. You can
expect questions from the interviewer with which he will try to confirm
his hypothesis about your specific stereotype. Even if he doesn’t directly
ask it, he’ll assume it (un)consciously.
It pays off to break the stereotype, as this will make you a more well-
rounded consultant, which is exactly what they’re looking for. So if you
have a background in Science, prepare a STAR-story about a great
teamwork experience and if you have a background in Sociology,
prepare something about that quantitative spreadsheet analysis you did
on the difference between the population of two countries. The
interviewer is following a mental checklist, so help him tick off those
possible problem areas.
33
We have now covered about 70% of the types of questions you’ll get
during the interview and will now move on to the more general type of
questions. Remember that you can always try to ‘bend’ these questions
into one of your prepared STAR-narratives: you don’t want to walk away
from the interviewing regretting you were not able to tell them.
So what should you do? Try to stand out, be different! At the end of the
day, all interviewers meet to discuss the candidates. If nobody
remembers you, your candidacy is over. But if you told them about the
paragliding-business you set up as a student, everybody remembers you
as ‘the paraglider’. You could also use it to tell about one of the
qualities the interviewer is looking for (leadership, personal impact or
differentiation) or tell one of your other STAR-stories.
Why consulting?
Why would the interviewer ask this? Well, because these firms spend a
lot of valuable time and resources on recruitment and training of first
year consultants. If you can’t convince them that you are passionate
about the consulting lifestyle and can keep up with the long working
hours and travel, why should they waste any more time and resources
on you?
34
The most popular reasons to choose for consulting:
- The people you’ll work with are intelligent and hard-working.
- You’ll gain a vast array of business skills and expertise.
- You’ll see multiple companies in different industries.
- Work is project based.
- The learning never ends.
- You get the chance to impact Fortune 500 companies.
- You’ll get the chance to meet business leaders.
- You get the chance to travel and work abroad.
- It looks great on your resume.
Why firm X?
Even though most consulting firms do practically the same thing, there
are subtle differences. They have different areas of expertise, a different
focus (for example: McKinsey: Leadership, BCG: Self-development, Bain:
Team-building), office sizes, growth rates, opportunities, etc.
Even if you don’t really care whether you end up at BCG or at Bain, you
should be prepared to defend your choice (hopefully, you’ll get offers
from both and get to pick). You could refer to specific people you spoke
or recruiting events you attended, for example:
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However, you should be prepared to explain why you choose this firm in
particular (see the question above). Also, we would advise against
mentioning any interviews in other sectors, as this might lead the
interviewer to conclude you’re not passionate for consulting. The only
exception here might be the (investment) banking industry: the biggest
competitor for McKinsey when it comes to hiring is not BCG but
Goldman Sachs.
Don’t say “I never fail” or something along that line: everybody fails.
Other no-go’s: academic failure and personal failure, such as recent
break-ups, family feuds and other things that might make the
interviewer uncomfortable. An example:
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a little more in the interview: do so now. If not, tell a STAR that will
make them remember you: such as that time you ran the New York
marathon for charity, or something like that.
1. Quickly bored
“I’m the kind of person that doesn’t like getting stuck at a
normal job because I usually get bored of jobs when doing
them for longer than one year. That’s exactly why I like
consulting, since you switch from project to project, often
doing something completely different at different firms in
different industries.”
2. Practical Skills
“I don’t know why, but I just can’t cook. Since leaving home,
I’ve been trying to learn how to cook, buying cook books and
even following a cooking workshop. I can bake an omelette
and prepare mac and cheese, but that’s about it...”
3. Experience
“As a PhD student, I’ve spent most of time running
experiments and analyzing data. I’m comfortable with
numbers, but I lack working experience and specific industry
knowledge. Because I wanted to build both quickly and like
the international opportunities, I’ve opted for consulting”
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little harder to come up with something original and explain what you
are doing to compensate for that weakness. Some examples:
1. Self-Projection
“I demand a lot from myself at work and can be pretty hard
on myself. I tend to expect my team to live up to my own
standards, which has led to arguments in the past. Nowadays I
tend to respect individual differences more, knowing that
everyone brings something different to the team, while still
trying to be a good example myself.”
2. Assuming Leadership
“When working in a team, I often end up assuming the
leadership role. This happens automatically, though I know it
can lead to conflict when there’s a designated leader. I try to
be more conscious about my role in such situations nowadays,
being a little more careful when taking up responsibilities.”
As always, don’t just say “yes” but back your answer up with a creative
project you’ve initiated or a creative idea you came up with during your
PhD-writing and that pioneering article you’ve written. Also mention how
it benefited the team or the organization, if possible. If you really can’t
come up with something, you might tell that instead of being creative
yourself, you try to foster creativity in your team, by actively initiating
brainstorming sessions or running workshops.
38
this lifestyle, which is why candidates are rejected because of lack of
enthusiasm.
Impact
(Strategic) Consulting is often work with high impact: you change
organizations and their course. This could impact the lives of hundreds
or thousands of employees and their communities and the
organizational changes proposed by you could headline the news.
Consulting is about making a difference, and you could very well be
motivated by that.
Challenge
Another way to describe consulting is ‘problem solving’. You are often
hired to solve the client’s most difficult problems, either because they
require thorough analysis or because the solution will face a lot of
resistance, or both. And every 6 to 8 weeks, you will face a new problem
on a new project.
Self-Development
The continuously changing projects, combined with regular training and
MBA-sponsorships give the consulting job a steep learning curve. You
could be thrilled by all these learning opportunities, which differentiate
consulting from other jobs.
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“I know that consulting requires both soft skills as well as
analytical strength. My three years in the GE management
development program have enhanced my leadership and
teamwork skills and I hope my background in Physics shows
that I have the required analytical skills. I’m a naturally
curious, but critical thinker and I’m always looking to learn
more and develop my skills: I applied for BCG especially
because of the firm’s focus on self-development. I also
persevere where others give up, so I think I’m a very strong
candidate.
Your questions
Case interviews often end with some time for you to ask questions, so
use them to get to know the interviewer or the firm a little better and
leave a final good impression before the interview ends. One way a good
candidate differentiates himself from the rest is through preparation
and the final questions are no exception. So read up on the firm, think
about what you would like to know.
These questions not only are boring, some might also show you did not
do your homework on the firm. So don’t ask these questions, or ask a
recruiter.
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I’m really interested in private equity*, could you tell me more about what Firm
X does in this area?
What is the most interesting project you’ve done?
What is the most difficult client situation you have faced?
Could you tell me something great about your colleague’s?
What do you think is the most common mistake made by first year consultants?
Would you advise doing an MBA? Did you?
We’ve covered both the first and last minutes of the case interview, so
let’s move on to the core: the business case.
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42
Written Cases
Before we get to the live cases however, we will first treat written cases
since they often precede live cases. Written cases are a recent
development in the management consulting industry: McKinsey started
using them a few years ago to efficiently assess whether a candidate
should be invited to live cases or not. Instead of wasting precious hours
with hopeless candidates, they started using a written test called the
McKinsey Problem Solving Test (PST).
Inspired by the PST, other consulting firms now also feature paper tests
and we will take a look at them as well. At the end of this chapter, you
will find a practice question to get a feel for what you can expect.
Below, we’ll share the essential tips on what you should do before and
during the PST.
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to prepare for both the PST and any other interview rounds. Practicing
the PST is difficult however, since there is so little information to be
found online. To help you, we included practice PST-style question in
this book, and you can use the practice case found on the McKinsey
website as well.
Math
Since you are not allowed to bring a calculator, you have to do every
calculation in your head. If you are like most of us, the last time you
calculated 17 x 55 in your head is approximately 10 years ago, so it’s
time to dust off those math skills. Calculating in your head is a skill, so
you can actively improve it: it just takes time. But it is time well spent,
since math is also an important part of the next hurdle in the selection
process: the case interview.
There are plenty of ways to train math. There are countless smartphone
apps, websites and computer programs that you can use to practice.
You should focus on a few key areas:
• Percentages
• Double digit multiplication (for example, 24 x 14)
• Large numbers with a lot of zeroes
Though exact math is very important during live cases, the questions in
the PST will typically require the (estimation) of percentages and large
numbers. Focus on training calculation with large numbers: you are
bound to forget a zero somewhere.
Business Mindset
This might sound strange for all Finance/Economics/Business people,
but some studies are a better preparation for consulting than others. If
you don’t have a business background, it can help in your preparation
to read up on business problems by reading magazines and websites
such as The Economist, BusinessWeek and BusinessInsider.
You then get a little more attuned to the concepts and terminology used
in the consulting world. You then recognize more automatically that
That cost can be split up in fixed and variable cost and that you don’t
waste time thinking about what depreciation exactly meant.
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Don’t fret, however: the PST is designed to be made by everyone and
features a cut-off score, not a bell-curve. You are only competing against
yourselves and thus there’s only one thing you can do: your best.
Read carefully
The single most important thing you’ll have to do is to read carefully.
But you’re also on a strict time limit, so I propose two possible
strategies:
We prefer the first method, though you should not get stuck trying to
interpret a chart that in the end is not relevant. Always read the question
and every multiple choice answer carefully. The goal is to select the best
answer: which means that multiple answers may be right, but one is
better than the others. Subtle phrasing differences could set you off on
the wrong foot, so don’t answer the question until you understand it.
45
bits and pieces of information necessary to answer the question
successfully.
Eliminate
A typical multiple-choice strategy: the elimination of plain wrong
answers. Usually, you can eliminate one or even two wrong answers,
increasing the chance on a right answer if you need to guess (there is
only one best answer per question).
Estimate
It’s not always required to calculate the precise answer to a question, so
you can often get away with estimation. If only one of the multiple
choice answers is in the range you estimated, then you can safely select
that answer as the right one. No need to calculate the exact number and
waste your precious time.
Final Words
In the end, the goal is to get you through the PST and into the live
interview rounds. With the tips and tricks of this chapter in the back of
your mind you know what to expect and ready to save some of those
precious minutes, which you can invest in revisiting that difficult
question halfway the PST.
The PST is challenging, but fun. You are not being compared to the
others, they aren’t the competition. It’s just you beating the cut-off
score. Look at it as a game: you are going for the high score.
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some European offices and some firms started by McKinsey alums have
been using a variation of the original as well.
The BCG test also borrows some tasks from standard intelligence tests
and has a more quantitative focus than the PST. Otherwise, they are
comparable.
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48
Practice PST Case
Below, you’ll find an example of a PST-style case. When doing this case,
don’t use a calculator and measure your time. The time limit is 20
minutes. Answers and explanations are provided in Appendix A.
BePal
Bepal is a pallet manufacturer located in Belarus, in the former Soviet
Union. It was established in 1993 and operates two divisions: a sawmill
and a pallet production line (since 2000). It buys raw wood from a local
woodcutting company and processes the logs into wooden planks at it’s
sawmill. These planks are sold to furniture factories and used by it’s
pallet division, which buys them for market price.
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industry. Lately, BePal has seen an increase in orders from Russian
customers.
While BePal’s pallet business was on the rise, it’s sawmill business was
hurting. BePal’s CEO has contacted us to advise him on the situation: he
wants to make the sawmill division profitable again by reducing cost.
You are on the consulting team we sent to Belarus to help him achieve
his goals.
Below, you’ll find a chart with BePal’s total revenue from 2005-2010:
25
20
15
10
0
2005 2006 2007 2008 2009 2010
Sawmill Pallets
1. As you can see in the chart above, revenue from the Sawmill has
decreased in the years 2005-2010. Which of the following statements
about BePal’s revenue is correct?
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2. Which of the following information would help you answer the CEO’s
question?
A. 1 & 5.
B. 2, 3 & 5.
C. 2, 3 & 4.
D. 3 & 5.
3. What would definitely not help the CEO in attaining his goals?
The director of the Sawmill division visits your team and tells you that
there are actually two sawmills: A & B. He only has data on sawmill A,
the biggest sawmill of BePal, and supplies you with revenue and
processed wood volume of this sawmill. You compare his info to the
data you received from the Pallets division:
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4. What can’t be concluded from this table?
Your team has identified the falling price of processed wood as one of
the main reasons for falling profits. While fixed and variable costs have
been constant over the years, prices dropped and profit margins fell.
Your team calculated that for Sawmill A, profit margins in 2009 were 17
%.
A. $ 4.25
B. $ 4.05
C. $ 3.95
D. $ 4.30
Even though the Iron Curtain fell in 1990, Belarus is slow in opening its
markets and privatizing state companies. Foreign investment is on the
rise, but many companies are still (partly) state-owned. Some receive
state funding to guarantee their continued existence, while others
receive tax incentives to improve their competitive position (and some
get both). Our competitor analysis has shown that a large percentage of
sawmills in the area is state owned.
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7. Which of the following developments could not have caused the price-
drop of processed wood?
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Guesstimates
One of the basic interview types you’ll encounter throughout your
interviewing process will be the guesstimate, also known as the ‘back of
the envelope’ or market sizing question. Many first round interviews will
feature a guesstimate and later rounds often start with one which is
then expanded into a business case.
Examples include both problems closely related to business, such as
how many car-tires are sold each year in the United States, but can also
include oddball questions such as how many ping-pong balls fit into a
Boeing 737.
Already struggling with the above questions? Don’t fret, guesstimates
are easy to practice and not particularly difficult, and thus the perfect
interview type to start your case practice with. Still, it’s frustrating to trip
over your calculation of the size of the coffin market in Moldavia and
nothing hurts your performance more than being nervous and lose your
cool. Practice guesstimates until you can confidently solve them without
effort.
Expert Tip:
“You should practice structuring guesstimates in your spare time, for
example while walking through town (“How many traffic lights does
this city have?”) or while dining out (“What is the average weekly
revenue of this restaurant?”).”
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parts, analyze those parts and then come up with an answer based on
your analysis without breaking a sweat?
Focus on the process: draw the structure of your analysis, show it to the
interviewer and walk him through it:
“As I’ve drawn here, I would first like to know the amount of people in
China that would be able to buy luxury handbags. Let’s assume there are 1
billion people in China, and only women are interested in handbags, which
leave us with 500 million potential customers. Not everyone can afford
luxurious products however...”
And so on.
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Guesstimates: Basic Structure
The basic approach of guesstimates is comparable to the business case
approach and features three distinct steps:
I. Opening
• Pause (That’s interesting...)
Buy your brain some time to start grappling with the problem, so you
can ask relevant questions and start structuring.
• Verify
You start with verifying the question, repeating it to check whether
you remembered it correctly and making sure you set out to answer
the real question.
• Explore
You can squeeze in two or three questions to improve your
understanding of the subject at hand and narrow down the scope of
the question. We advise against the latter though, as it is your task to
separate relevant from non-relevant issues..
II. Analysis
• Structure
Take a minute to build your framework for answering this
guesstimate. What data do you need? What is relevant and what not?
• Assume and Calculate
Go through your structure, assuming and calculating numbers along
the way. Don’t forget any branches of your framework and try not to
screw up any calculations.
• Listen
Listen to the interviewer when he’s trying to guide you, be
confident about your approach without being defensive.
III. Closing
• Check
After finishing your calculations, double-check your framework: did
you miss anything? Do a sanity check on the results: is the market for
tooth-brushes really a 12 billion dollar market in Canada?
• Answer
After double checking your numbers, answer the question.
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How to support your assumptions
Many guidebooks and therefore many candidates believe it’s OK to
make quick and dirty assumptions and sometimes, it is. But most of the
time, you can expect the interviewer to question your assumptions: how
did you get to that number?
Not having a clue in this case is bad. Trying to cover it up is even worse,
as most interviewers see right through your attempts. Below, we
introduce four approaches you can use as a reference to get to a
reasonable assumption.
Reference 2: Households
Some products are only used once in every home. A good reference
point thus is the average household: how many of product X or service X
is consumed per household?
Use the number of households to calculate the market size for white
house paint, lawnmowers, television sets and newspaper subscriptions.
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How many lawnmowers are sold in the US each year?
I assume that there are 300 million inhabitants in the US and that the
average household size is 3, so we have 100 million households in the
US. Not everyone lives in a house with a garden, so I assume that
about 40% of Americans have a house with a garden, which makes 40
million households. I assume that a lawnmower breaks down after
about ten years, which would mean the amount of lawnmowers sold in
the US each year is 4 million.
Reference 3: You.
There are things that everyone needs, be it shaving razors, underwear or
food. In this case it’s helpful to use your own behavior as a reference
point, though it’s wise to segment and differentiate between usage
patterns based on preference, age or gender.
How many shaving razors are sold to men yearly in the US?
I assume the US population is 320 million and that there are an equal
amount of males and females. I also assume the life expectancy is 80
years and that everyone is divided equally among the different age
groups. I shave every day and assume every man does, and I change
razors about once per month. Some men are too young to shave and
some wear beards, so let’s assume that no man in the age group
between 0-10, and only half the men between ages 11-20 shave. I also
assume that of the other age groups, 5% wear beards and do not
shave. Thus:
0-10 20m 0 0m
Total 124m
With a total of 124 million men shaving every day and changing razors
every month, there are 124 x 12 = 1488m shaving razors sold each year.
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Reference 4: Time
The final reference point you can use to support your assumptions with
is to make assumptions on the amount of time it takes to perform a
certain action. Useful if you want to calculate the amount of pumps at a
gas station or the amount of visitors to the Vatican Museum.
How many tourists visit St. Peter’s Basilica in Rome each year?
I’ve visited Rome once, and I know that everyone visits St. Peter’s
Basilica. There’s always a huge line on St. Peter’s square: I assume
people start visiting the cathedral from the time it opens at 8 am and
do so until it closes at 8 pm. There is only one entrance, with four
security gates and I assume it takes 30 seconds to get checked. So
every minute, eight people can enter the cathedral. The cathedral is
open 12 hours a day, seven days a week, for 360 days a year, we thus
have 8x60x12x360 = 2.073.600 This means that about two million
people visit St. Peter’s Basilica each year.
Refine Assumptions
So you have your reference point, what more do you need? To make
your assumption more realistic, you should refine it in a few steps. You
already saw it in the above examples. For example, in the lawnmower
example, we refined by only using houses with gardens in our
calculation instead of all houses. In the shaving razor case, we refined
our assumption by accounting for the ages of men that shave and the
men who wear beards and thus don’t shave.
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But you can also go too far, making it unnecessarily complicated. For
example by differentiating between six groups of cinema visitors with
different visiting patterns, or identifying seven factors that influence the
amount of soft drink sold at a local fast food joint. The trick is to find a
balance in refining your assumptions and a great rule of thumb is the
80/20 rule.
The 80/20 rule is found everywhere and basically comes down to the
following: 80% of the effects is caused by 20% of the causes. So 80% of
profits come from 20% of customers. And 80% of ice cream sales are
driven by two or three factors (for example: temperature and weather).
Try to identify those two to three factors that are important and don’t
bother about the rest.
Guesstimate Pitfalls
Guesstimates are not very difficult, especially after you’ve practiced
them a couple of times. As long as you adhere to the basic principles
outlined above and learn from your practice sessions, there’s little that
can go wrong. Still, we’ll highlight two often made mistakes:
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Practice Guesstimates
Below you’ll find three practice guesstimates, with a completely
elaborated solution.
London Eye
Last year, the company organized a weekend with the complete office to
visit London. We had a great time visiting all the attractions, including
the giant Ferris Wheel at the bank of the Thames: the London Eye. As
consultants, we couldn’t resist but think: what’s the yearly revenue of
the giant Ferris wheel in London, the London Eye?
That’s interesting, just let me get this clear, you want me to calculate
the yearly revenue for the London Eye?
Ok, well, as a matter of fact I’ve been to London once, but we only
walked past the Eye. So to answer your question: no.
- Then let me give you some more info on the Eye. It’s quite a
popular attraction for tourists since it gives a great view over
London, even at night. The wheel itself turns very slowly, so people
can get in and out easily: it never stops. Oh, and ticket prices are
quite expensive, at £ 35 for adults and £ 25 for children.
Hmm. Yeah, I think the prices were also the reason we skipped it during
our visit. But back to the case: could I take a minute to draft a structure?
- Sure.
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Ok, to determine the yearly revenues, I need to determine the amount of
visitors per year. As I’ve drawn here, I first want to determine the
revenue per day. So let’s first try to determine the amount of visitors per
day. There was a big line at the Eye when I visited London, even though
the weather wasn’t that great. So I guess they usually fill every capsule
up completely. I remember they let about 20 people in one capsule, but
don’t quite know how many capsules there are... Could you help me on
that?
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30... Ok, still more than I thought. You already mentioned the wheel
turned quite slowly, so let’s assume that a capsule goes round in 30
minutes: so 40 people get in hourly, per capsule. That would be during
high season, however. During low season, I assume it’s only half that
amount, so 20 people per hour per capsule, is that ok?
Ok, of the people on a capsule, not all are adults and I think such a
Ferris wheel is a great family attraction, attracting children like flies. I
assume that children are accompanied by their parents, so the amount
of children never goes above, say, 20%. Which means that during high
season, a capsule would hold 32 adults and 8 children per hour and 16
adults and 4 children during low season. This leads to a revenue per
hour of (1120 + 400 =) £ 1520 per capsule during high season and £
760 per capsule during low season. The London Eye is opened from
morning to evening, so let’s say 10 hours per day, for ease of
calculation.
- Sure.
- That’s indeed close to their yearly revenue. Thank you for the
calculation.
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Hearing Aids
One of our clients in the healthcare technology industry is considering a
move in the hearing aid market. They have recently discovered some
innovative technologies which let them miniaturize speakers in a new
way. Let’s look at the size of the hearing aid market first: would you like
to estimate the size of the US hearing aid market for me?
- That’s correct.
Ok. Well, I believe that hearing aids are covered by health insurance, but
I know that not everyone in the US is fully insured. Some people rely on
Medicaid, some are privately insured. Do we have any information on
that?
- Even though it’s not realistic, just assume that everyone is insured
and that there are not differences between insurances.
Very well, one more question: do we have any information on the age
distribution in the United States?
Well, I think the age distribution in the US is pretty straight: there are
about as many elderly as there are youngsters. Could I have a minute to
draw up my structure of analysis?
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67
Ok, as you can see, I assume that there are two reasons why someone
would use hearing aids. First of all because of old age and secondly
because of hearing damage, by being subjected to loud noises for long
periods of time. I’m going to assume that the total population of the
United States is 320 million, and that the population is distributed
equally along the eight age groups, with a maximum age of 80. For
every age group, I then make assumptions about the percentage of
people using hearing aids either because of old age or hearing damage.
- Ok.
That means there are eight age groups, with 40 million people in each. I
don’t think people suffer hearing loss of old age before their fifties, so I
assume that only the age groups above will use hearing aids. Hearing
damage will probably not occur before people start visiting concerts and
work in loud environments, so they will only occur after age 20. That
leads to the following table, and a total potential user base of 34.4
million hearing impaired.
10-20 40 mln 0, 0 0, 0
Not everyone likes to use these hearing aides however, so I reduce this
usage base with 10% to account for that. That leaves us with about 30
million hearing impaired who actually use hearing aides. I have no idea
what the average cost of hearing aides is, but I know that they’re not
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cheap. So I’m going to assume that they cost about $2000 dollars on
average, especially because they are very high tech nowadays.
Ok. Well, with a $ 2000 average price tag, 30 million users, I only need
the average replacement period to calculate the yearly market. These
hearing aides are used every day, and not in the most friendly
environment for technology: in a warm and humid environment. They
are also pretty small, and if they don’t get lost, people might step on
them. So let’s assume they are replaced every 10 years. That would
leave us with a total market size of $ 6 billion.
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Romanian Coffins
Our next client is the owner of a small wood workshop in the Romanian
capital of Bucharest. For generations, this workshop has made furniture
of any kind. Nowadays, it’s focused solely on the production of coffins,
in which the local dead are buried. My question for you is: can you
estimate the size of the coffin market in Bucharest?
Ok. Let me first ask a few questions. I’ve never heard of the city of
Bucharest before, and though Romania rings a bell, I have no clue about
how many people live in its capital. Do you have information on that?
- Ah, sure: there are about 2 million people living in Bucharest at the
moment.
Hmm. I have one more question for you then. I’m not familiar with the
burial customs in Romania.
Well, are their dead buried or cremated? Do they buy simple coffins or
are there traditions in place that every man is buried in the most
luxurious coffin he can afford? What other cultural factors should I worry
about?
- Sure.
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I have drawn up my structure, let me walk you through it. We start with
the total population of Bucharest, which was 2 million. For ease of
calculation, I will round this up to 2.1 million, if that is ok?
- No problem.
I assume that these 2.1 million inhabitants pass away on their 70th
birthday on average and are equally distributed among the age groups.
With seven age groups and each spanning ten years, that will be
300,000 inhabitants per age group. Even though some Romanians pass
away at age 50 and some live on to become 90, I assume that on
average, they pass away the day they reach their seventieth birthday,
which means that each year, one tenth of the 60-70 age groups passes
away, which is 30,000 people.
- Ok.
- Very well.
That would mean that there are 5,400 expensive coffins sold each year,
and 21,600 simple coffins. We can now calculate the total market size,
which is 5,400 x $800 plus 21,600 x $ 200, which makes a market size
for the Bucharest coffin market of $ 8,640,000 a year.
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Business Cases
The business case is the main case type you’ll encounter when
interviewing at consulting firms. The work of a consultant is varied and
so is the business case: from profitability problems to mergers, market
entry and investment decisions, you can expect it all. This broad range
makes preparation difficult: there is no way you can prepare for every
possible case question that will be thrown at you.
Expert Tip:
“I look for client friendliness in all candidates and it is an aspect many
forget. Yes, you need to structure the problem. Yes, you need to give a
data-driven advice. Yes, it helps to think out loud. But consulting
revolves around the client and you need to involve him in every step in
your analysis: explain your procedure and show me your work.”
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Principle 2: Always let a stated hypothesis drive your analysis.
During your college or university years you have probably done
research: you identified an unanswered scientific problem, read
literature on the subject, formulated a hypothesis, gathered data,
analyzed the data and drew conclusions. In consulting and during case
interviews you do the same thing, only more efficient: you directly
formulate a hypothesis as an answer to the main question and let the
hypothesis ‘steer’ your analysis. You then ask questions and gather data
to (dis)prove your hypothesis, reformulate it and keep gathering data
and reformulating until you can safely draw conclusions. This process
has been visualized below:
If done correctly, you should have written down something like this:
- Question: What can ABC do to increase revenue by $10m?
- Hypothesis: ABC can increase revenue by increasing prices with 10%.
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Is this the answer to the case? Maybe, maybe not: but the hypothesis will
drive our analysis towards the answer and away from distracting and
irrelevant information. When cracking a case always formulate and state
a hypothesis, then attempt to (dis)prove it. Iterate the process until you
are able to give a data-driven solution to the case.
Example: Iteration
Candidate: “I know that revenue is broken down into the number of
sales and price. My hypothesis is that ABC conglomerate can increase
revenue by increasing the price of its products by 10%. Increasing price
will probably cost us customers, do we know how price-sensitive our
customers are?”
What did we see in the example? The candidate hypothesized that the
solution to the revenue problem lied in increasing price and stated this
hypothesis before searching for data to (dis)prove it. The interviewer
gave him the necessary data to disprove his hypothesis: prices could not
be raised. This led the candidate to revise his hypothesis and focus on
the other component of revenue: the amount of goods sold.
What if the key question was not to increase revenues but to increase
profits and there was also no way to increase sales (because the
company has no money to spend on marketing)? You then ‘go up’ in
your structure of analysis and focus on another branch of analysis that
might influence your goal. In this case, analyzing costs would be a good
idea. In the next section we will look at how you should structure your
analysis: according to the pyramid principle.
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(and their corresponding answers in the form of hypotheses) in a top-
down fashion. For example:
This technique might be difficult at first, but you can use the
frameworks later on in this chapter to guide your questions and
hypotheses. Structuring in this top-down fashion is known as the
‘pyramid principle’ and is common practice in every consulting firm
today.
MECE Categories
When building a pyramid of hypotheses, you should strive to make them
‘MECE’ (pronunciation: me-see). MECE is an acronym for Mutually
Exclusive, Collectively Exhaustive. We’ll elaborate both below:
• Mutually Exclusive
All categories of analysis on the same ‘level’ should be mutually
exclusive: there should be no overlap between them. For example,
dividing the analysis of Mars’ energy bar division into an investigation
regarding chocolate energy bars and another regarding caramel energy
bars is not mutually exclusive: some energy bars are a ‘member’ of both
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categories. Making a distinction between the energy bar division and the
pet food division is mutually exclusive. No Mars product is both an
energy bar and a pet food.
• Collectively Exhaustive
Your categories of analysis should cover all factors influencing the
result. When trying to determine a new product launch, you could
analyze only the customers’ wishes and leave it at that. But there are far
more factors influencing a successful product launch, such as size of
the market, competition and of course the product itself.
Even though it’s counter-intuitive, you should not strive for perfection,
but stop when the analysis is ‘good enough’. We already mentioned the
80/20-rule: 80% of effects come from 20% of the causes. If you’ve found
the two or three causes that make 80% of the difference and focus on
them: it’s good enough. Do not continue your analysis, wasting precious
time in an attempt to explain the remaining 20% of effects. When cutting
costs at a factory, you don’t investigate the potential savings of
switching off air-conditioning. If you want a cup of tea, you don’t boil
the ocean.
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The Basic Structure of Business Cases.
Every business case will follow the basic structure outlined below. Since
Analysis (step II) and Closing (step III) are crucial for successfully
cracking a business case, we will elaborate them more fully than we did
above in the guesstimate chapter.
I. Opening
• Pause (That’s interesting...)
Buy your brain some time to start grappling with the problem, so you
can ask relevant questions and start structuring the case.
• Verify:
You start with verifying the question, repeating it to check whether
you remembered it correctly and making sure you set out to answer
the real question: “Is this the only question or is there more I should
be concerned about?” Try to quantify the goal if possible: by how
much do we need to increase profits? By how much should we reduce
costs?
• Explore
You should explore the company or subject with two or three general
questions. Try to understand the industry and the value chain, how
does the company produce value for its customers? If the question is
about a specific subject (for example, the distribution of product X),
try to understand it. Try not to ask too broad questions, as this might
irritate the interviewer. You know you’ve crossed the line if he
replies with “What do you think?”.
• Structure
With a good grasp of the company and the question, start structuring
the case. Don’t rush it, ask the interviewer for a minute to do this: it
is completely normal. Formulate (sub)hypotheses and build a
structure that will ultimately (dis)prove the main hypothesis and
answer the question.
II. Analysis
• To analyze = to break down
Go through your structure from top to bottom, guided by your
hypotheses, adapting both along the way. For a structured and
thorough analysis, follow the following steps:
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1. State your (sub)hypothesis
“My hypothesis is that ABC can improve profits through an increase in
revenues and I want to break revenues down into its component
parts...”
3. Ask questions
“... do we have more information on the quantity of products sold?”
Expert Tip:
“Try to break down and segment every subject of interest and keep
digging until you find something interesting or you can safely conclude
there is no more information to be found. For example, total revenues
of Firm A have been $ 15 million both last year and the year before.
This can lead you to conclude that revenues are not interesting and you
move on to costs. If you segmented further, you might have learned
that even though total revenues have not changed, product 1 went up
from $5 million to $ 10 million and product 2 went down from $ 10
million to $ 5 million. Interesting information you’ve just missed...”
III. Closing
• Synthesize
To come to a conclusion, you need to combine all the information
you found during your analysis. The product of this recombination is
called a synthesis, and there are five steps to a good synthesis:
1. Take a break and gather your thoughts.
2. Review the most important findings from your analysis.
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3. Provide an actionable conclusion.
4. Support this conclusion with data.
5. Mention one or two risks or areas for further analysis.
Bad synthesis: “We analyzed data 1, data 2 and data 3, therefore it’s
best for Firm A to close plant X.”
Starting with the conclusion feels unnatural, but gives the listener a
frame of reference to structure his thoughts. If you’re not convinced,
listen to yourself or the person you’re practicing with.
Expert Tip:
“Stand by your conclusion and approach, without being defensive. If
I’m interviewing candidates, I usually question their approach or their
results: “are you sure that the market for socks is $ X?”. Some
candidates break down and start doubting their (good) analysis. Don’t
let self-doubt get the better of you: it’s healthy to be a little self-critical,
but you should also stand by your conclusion, just as real consultants
do. Other candidates react defensively, as if I just personally insulted
them. Be professional, defend your analysis and conclusions, but don’t
get emotional.”
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Expert Tip:
“Nothing is worse than a candidate who tries to ‘fit’ the case into the
framework, instead of the other way around. Don’t investigate all the
five forces from Porter if only three are relevant to the case and never,
never state out loud that you are going to apply the ‘Five Forces’ or the
‘Four P’s’. It’s not which framework you apply that matters, it’s why.”
Notes:
Revenue
• Segment! Segment per product, per region or per customer:
segmenting uncovers hidden information. We’ll return to this later on,
but even if revenue has been flat, there could have been huge
variations in the revenues per product. How do you know the best way
to segment? Either through previous exploration or by not being
overly specific when posing your question: the interviewer will often
reveal the best segmentation.
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• Do ask: “I want to break down revenue in its component parts, do
we have more information on it?”
• Don’t ask: “I want to know the total amount of sales.”
Costs:
• Segment! Breaking costs down in variable and fixed costs is often the
best, but not always. You might want to have costs per division, or per
product.
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Notes:
External Branch:
Competitors
• Determine who your competitors are and what differentiates them
from your company.
• How many competitors are there?
• How large is every competitor in terms of market share: is there one
big competitor or many small ones?
• How has the competitive landscape changed over the last years? Have
new competitors been entering? Have there been mergers? Have
competitors gained market share and if so, why?
Market
• Is this a mature or emerging market? Is the market growing or in
decline? Be on the lookout for contradictory signs, such as a company
with declining revenue in a growing market.
• Are there barriers to entry or exit? Do we fear new entrants? If we
enter this market, can we exit without significant costs?
• How is legislation effecting the market and our strategy? Will an
acquisition be stopped because of anti-competitive legislation? Are
there any disruptive technological innovations going on?
Internal Branch:
Customer
• Who are our customers? How can they be segmented: by age, location,
industry?
• What are the needs of each customer segment? Are there differences
between them? Are we fulfilling those needs with our product/service?
• Which distribution channel does each customer segment prefer? Direct
marketing? Online stores? Brick and mortar stores?
Product
• What are the features of our product? Try to understand the qualities
of our product and why we are different from competitors. Is it unique
or a commodity?
• Why would a customer buy our product? Why not?
• In which stage in the product lifecycle is this specific product?
Company
• What are our core competencies? What do we excel at and sets us
apart from the competition? Product design? Logistics? Innovation?
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• How are our finances? Can we invest in a marketing campaign or an
acquisition?
• Which distribution channels do we employ? Do these match with the
needs of our customers? Can we develop new channels?
If you get a case question that involves a company looking for advice on
whether they should or shouldn’t do something, the Go/No Go
framework will help you structure your analysis. Since the above is a
rather abstract representation of the framework, we’ve filled one in for a
market entry question.
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esthetic purposes, but you should also investigate how our company is
going to distribute our product in the new market, for example.
You don’t know. In the first situation you need to know the absolute
numbers to determine whether you make a profit. In the second
situation you’ll need the numbers from the previous years to make a
well-grounded decision: maybe the profits from division A went down
from $50 million five years ago, while B grew from $1 million last year.
Always ask for historical trends when given data.
If you forget to segment costs, you could have missed the fact that costs
from division A went up from $5 million to $15 million, while division B
went down from $15 million to $ 5 million. Always try to segment data
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until you find something interesting or until you can be sure that there
is nothing more to be found.
What can you do to prevent all this and improve your chances of passing
the interview? Read on below:
For example, if the main case question is about reducing costs and the
candidate uses the profit framework they will start with asking about
revenues. Or when the client wants to know whether a merger between
his firm and Firm X is a good idea, the untrained candidate will try to
work his way through the business case framework and start with
competition, when in this case internal factors are far more important:
do they match between the two merging firms?
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Are revenues unimportant when reducing costs? Should competition be
disregarded when merging two firms? Not per se. But the interviewer is
looking for candidates that know to prioritize their analysis, just like
they should in real consulting life. Starting with less important or even
completely irrelevant fields of analysis is a red flag.
Be hypothesis-driven (again)
One reason why untrained candidates follow a standard framework is
because it’s easy: you don’t need to think. You just pick the framework
you think is applicable and go for it. Your brain is racing at full speed,
dealing with the stress of the job interview and trying to crack a difficult
case at the same time, which makes it tempting to take a shortcut and
just go for the standard framework. .
What you need to do however is to take a step back, relax and look at
the case from a distance. Keep the question of the client in the back of
your mind and reformulate it into a hypothesis, for example:
And then use that hypothesis to guide your analysis, which in this case
would lead you down the revenue side of the profitability framework.
Every analysis you do, every question you ask, every move you make
during a business case should be driven by a (sub)hypothesis. This gives
you a clear direction (proving or disproving your hypothesis) and
focuses you on the important facts you need. If you don’t think a certain
part of a framework will help in this process, don’t analyze it!
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To show the interviewer you aren’t getting lucky every time and prove
that you can repeat this process on the job, you’ll have to share your
train of thought. The way to do this, is by thinking out loud. Does that
mean you have to say everything that comes to mind? Obviously not.
What should you always share?
- Any (sub)hypothesis
- Mini-conclusions and subsequent hypothesis refinements
- Aha-moments
The first two speak for themselves: they are what guides your analysis
and sharing them with your interviewer shows that you are following the
right approach. The third seems a little out of place, but let us explain.
Candidate: “Ok, we know that revenue was flat at $10 million, but
before we move on I’d like to investigate it a little further to make sure
I’m not missing anything. Therefore I’d like to break down revenue in
its component parts: amount of goods sold and price. Do we have
more information on them?”
This example might be a little obvious, but you get the point.
Brainstorm in brackets
At any time during a case interview, you could be asked to:
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• Think up reasons for a market entry
• Brainstorm about potential cost savings
• Give examples on how Firm X can increase revenues
• Come up with reasons a customer would buy product Z
• Etc.
“The reasons our client could have for entering this market? Ok, well,
they will gain access to a larger customer base and increase revenue.
They will... eeuhm... the competition is weak. And... let me think...
eeuhm... they reduce dependance on the home market. And finally,
eeuhm... I think... No, I think that was it.”
If you were the CEO of the client and a consultant for whom you pay
hundreds of dollars per hour just did the above, what would you think?
Let me tell you: you will not grant him a second project. How could you
prevent the above and look professional when asked one of these
questions? Brainstorm in brackets! Take a minute to brainstorm and
write down options/advantages/features/etc. and then present them:
“The reasons our client could have for entering this market? Ok, Let me
think a minute.
Ok, I believe there are three main reasons our client should enter this
market:
- Market entry will give the client access to a larger customer base
allowing it to increase revenues.
- Also, the competition in this market is fairly weak, which gives us the
opportunity to seize market share quickly.
- Finally, diversifying operations into a new market will reduce our
reliance on the home market.”
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Business Case Variants: Group Cases
A new variation on the traditional one-on-one case interview, in which
the candidate faces one consultant, is the group case interview in which
three to four candidates work with a consultant on a case. During a
group interview, the focus lies not just on the analytical ‘case cracking’,
but far more on your people skills.
There are three important things to remember when you are facing a
group interview and I’ll walk you through each of them below:
Work together
Group cases are not about beating the other candidates, it’s about
beating the case together. That means you should support other group
members who struggle, listen to the ideas of others and help each other
in solving the case. Don’t stick to your approach stubbornly if someone
else’s approach is better, don’t argue about who does what (“I want to
be the leader”) and confidently admit it if you’re wrong about
something. Be nice: you’re being judged on whether it’s a pleasant
experience working with you.
It’s also very helpful to the group effort to have one ‘leader’ who
distributes tasks and keeps an oversight on what needs to be done
when. So if there’s no-one who takes this task upon himself, do it
yourself or ask the group who should do it.
Don’t be a jerk
Since you’re being judged on your skills as a teamplayer, this should be
obvious. Don’t do anything that might hurt the group performance. If
you don’t like the direction the team is taking, say so: in a professional
manner. If someone is making a mistake, don’t point it out (the
interviewer will know) but help him correct that mistake.
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Always keep in mind that it’s the group effort that counts and that it’s
not about beating the others. You are rated on your interpersonal skills,
so focus on letting them shine in a confident, relaxed manner.
It’s important to keep in mind that you’ll always receive too much
information, including irrelevant stuff. It’s your job to structure your
approach, which basically comes down to the ‘normal’ case interview
approach of formulating a hypothesis and analyzing relevant data to
prove it. Even if you are unable to finish a final recommendation, show
them your approach and what’s missing: it’s more about how you came
to the answer than the answer itself.
In the end, you are asked to present your analysis and conclusion, much
like a synthesis in the ‘normal’ case interview. Presenting in the
consulting world is a profession of its own, but basically reflects your
analysis. If you followed the Pyramid Principle, it’s actually very easy:
• Take your hypothesis (which by now should have been turned into
a conclusion backed by analysis) on the top of your pyramid. You
start with the conclusion, in actionable form.
• You then support the conclusion with the conclusions from your
analysis one tier ‘lower’ in the pyramid and present the data that
led to that conclusion
• And so on.
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A presentation starts with the conclusion, for example:
“We can improve profit by $10 million if we increase our price by 10%”
You continue with the conclusions from the lower tier, consisting of
revenue and costs (the two MECE categories which make up profit).
“With a price increase of 10%, our revenue increases with $10 million,
while costs will remain the same.”
And you then go down another level, breaking down revenue into its
component parts, and so on.
Want to test your new frameworks and structuring skills? In the next
chapter, you’ll find three sample business cases with a sample candidate
solving them.
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Practice Cases
To help you practice for your case interview, You can find three example
cases below. Try to solve each part on your own before reading the
sample solution: write down your answers on a piece of paper and then
read on, comparing your answer to the sample solution. Take heed of
the differences and take note of the things you forgot. Ready?
Indian Whisky
Our client is a luxury brand that has recently acquired a Scottish whisky
distillery. This distillery has one luxury brand, aimed at the upper
markets, and one private label, sold for lower prices in local liquor
stores. Our client is worried that this private label might damage it’s
upper class image and has asked us what they should do with it. One of
the options they would like investigated is whether they should relaunch
this private label as a luxury brand in an upcoming market: India.
Ok, that’s interesting.... let me recap: our client has acquired a whisky
distiller in Scotland and is afraid that the private label produced by this
distiller could hurt their brand image. The client is wondering whether
they should rebrand the private label and sell it in India as a luxury
brand and I’m to investigate whether this is a good idea, is that correct?
Ok, let’s get this clear: are there any specific goals that I should keep in
mind?
- Well, they strive for profitability in five years. But they are more
interested in possible risks and barriers and not looking for a
specific quantitative profit goal. Let’s first start with a small
market sizing of the Indian whisky market however, could you
please tell me what the yearly expenditure on premium whisky is
in India?
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I don’t know anything about Indian culture, so I would like to explore
whether their drinking culture is comparable to ours or different in
some way?
- Of course there are women who drink whisky, but far less than
men. Assume that only 5% of them drink it regularly.
Ok. Well, one last question: I know that the population distribution in
India probably looks more like a pyramid than in Western societies.
There are a lot of young people in India and relatively little elderly. Is it
fair to assume that people live to an average age of 60 and that the
population is distributed evenly among age groups for ease of
calculation?
Take some time structure your analysis and think up what you
would like to know. On the next page you’ll find an example
solution. First draw up yours, then compare it to the analysis
below.
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Ok, first I want to determine which part of the population would actually
drink whisky. I assume there are about 1.5 billion people living in India,
and I distribute them evenly among three age groups: 0 to 20 year olds,
20 to 40 year olds and 40 to 60 year olds. I assume a 50-50 split
between women and men, which leaves me with 250 million men and
250 million women per each group. Let’s assume that everyone below
the age of 20 does not drink and if they do, that they cannot afford
whisky, which leaves us with the other two age groups.
20-40 225 11
40-60 225 11
Total: 472
If we count that all up, we have a total of 472 million potential whisky
drinkers. A lot of Indians are poor however and won’t be able to afford a
premium brand whisky. Let’s say that 5 % of the population is rich
enough to afford drinking our whisky regularly and that another 5% is
able to buy our whisky, but only does so because of the upper class
image attached to drinking our brand and therefore drink it less
regularly. Each of these segments comprise of a total of 23.5 million
Indians.
I’m a whisky drinker myself and I sometimes drink a glass in the evening
after a hard day of work and a few glasses if I have friends over for
dinner. Usually, I need to buy a new bottle every two months, so let’s
assume that the regular drinkers also buy a bottle every two months
which amounts to 6 bottles a year, while the irregular drinkers buy a
new bottle every six months, which comes down to 2 bottles a year.
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This leads to a total amount of bottles sold yearly of (23.5 x 6 + 23.5 x
2 =) 188 million. Which is a huge amount of bottles. But then again,
India has a huge population, so I guess this number makes sense.
Right! I don’t quite know what a bottle of whisky goes for in India, since
a large portion of the price is also dependent on government taxes. I
don’t know what competitors are charging for their products, but I think
it’s fair to assume that a premium bottle in India goes for the price of an
average quality bottle here, so let’s say $ 20. This would lead to a total
market size of 188 x 20 = $ 3760 million, or $ 3.8 billion.
- That seems to be right. Very well, how about the question of the
client? Should they rebrand their private label and launch it in
India?
Well, the market size does look very interesting indeed... Before I draw
up a structure to analyze this problem, I want to make sure I understand
the way this industry works. Could you please tell me more about the
value chain?
- Sure. Our client produces Scottish whisky, also called Scotch, which
is distilled from grain. After distilling, it’s left to age in oak barrels
for three years. Afterwards, it’s bottled and distributed. The bottles
of Scotch are then sold in liquor stores or in bars.
Ok, and what about our Indian customers? You already mentioned that
they drink plenty of distilled alcoholics, why would they be interested in
our Scotch?
- Well, though Indians also produce their own ‘whisky’ it’s of lower
quality and its taste is a lot softer than Scotch: more like rum. Only
Scottish whisky can be called Scotch and thus is seen as a more
premium drink than its Indian counterparts.
Aha, very well. I’d like to take a minute to draft a structure to analyze
this problem.
Take some time structure your analysis and think up what you
would like to know. On the next page you’ll find an example
solution. First draw up yours, then compare it to the analysis
below.
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Ok, I have drawn up a structure for my analysis, including area’s that I
would like to investigate. My initial hypothesis, based on the market
sizing that we just did, is that our client should proceed with this market
entry, but to confirm that I would like to investigate two area’s: external
factors and internal factors. The first thing I would like to investigate are
the external factors, which I have broken down into Competitors and
Market. My sub-hypotheses are that the competitive landscape and the
market are favorable, so let’s investigate these two a little further.
Let’s start with the competitors: do we know who else is selling Scotch
in India? And do we know their market shares?
- Yes we do, there are three other Scotch whiskey brands active in
the market. All of them have about one third of the market.
Aha. I would like to know how easy this market can be penetrated and
check whether one of them entered the market recently, or whether the
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traditional market leader is losing share to the competition. Do we have
any information on how these market shares have changed during the
years?
- Actually we don’t, but that’s a good question. Just assume that they
had the same market share in the past years.
Ok. One final hypothesis regarding the competitors I would like to check
is whether they are currently serving the whole market: since India is so
large I suspect that they aren’t, which would mean there’s demand left
unfulfilled.
- Very well.
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We know that the market is currently very large, but has it always been
this way? My hypothesis is that it’s growing because of the increase in
wealth in India, do we have any historical data on that?
- Your hypothesis is spot on: Indians are growing more wealthy and
a larger part of the population is now buying luxury goods,
including premium whisky. This trend is expected to continue.
Aha. And do we know with how much the market has been growing the
last 5 years? With which percentage?
- Yes we do, the market has been growing steadily with a rate of 6% per
year, in the last five years.
That seems to be a decent growth rate, but not spectacular. I’d also like
to investigate whether there are any barriers to entry and whether we
can expect new competitors to enter as well in the coming years. Are
there any other government issues that we need to be aware of? When
we discussed the price of a bottle, I already mentioned government
taxes. What do we know about them?
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Note: you can expect the interviewer to intervene in your
analysis at any point, either because they want to help you and
steer you in the right direction (so listen very carefully!) or to
ask a general business question, which is happening above.
As far as I know, there are three ways to enter a market: alone, with a
joint venture or strategic alliance and you could also acquire a local firm
as a third and final option.
- Very well, do you know what the advantages of each method are
with respect to entry and exit of the Indian market? Which would
you recommend?
- Good! In the actual project we did for the client, this was also the
option we recommended to them. Go ahead and assume that they
choose for a joint venture.
Ok. Well, it seems like the market also looks favorable: we know that it’s
very large and growing and that we can enter it rather easily through a
joint venture, which also reduces potential exit costs. There’s one point
that worries me though: the trade tariffs. However, we are aiming at
customers that are pretty price insensitive: the high price we are forced
to charge might actually improve the exclusivity of our brand. Which
brings me to the next area of analysis: our customers. I would really like
to understand who our customers are, how they can be segmented and
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what their wishes are. But let’s first start with identifying who they are:
do we have any information on that?
- Our direct customers are liquor stores and the hospitality industry:
bars, restaurants and clubs.
- Not really.
- The situation is actually very much like the one you described in
your market sizing: we have customers buying Scotch because they
belong to the elite and customers buying Scotch because they’d
like to belong to the elite. They are pretty price insensitive, but
they want a quality product in return: they won’t settle for the
Indian rum. As I’ve said, they are concentrated around cities, where
the younger generations consume Scotch in bars and pubs and the
older generations drink at home, buying their Scotch in local liquor
stores.
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- Currently 70 % of Scotch drinkers is from the older generation, but
the younger segment is growing more rapidly.
Very well. I think I can conclude that with regard to our potential
customers things are looking good: they are concentrated around easy
to supply locations and rather price insensitive. There’s an interesting
shift in customer base however, with a growing younger segment that
prefers to drink Scotch in bars and clubs. Before I can give a final
recommendation however, I’d like to investigate our client a little closer.
My hypothesis is that we have the resources to distribute our Scotch in
India, both on a financial and operational level. Finally, I’d like to see if
we can set ourselves apart from the competition in some way.
- It is, but you identified one of the main issues. What if I told you
that our current yearly capacity is 1 million bottles?
Aha! Well, obviously that will be the bottleneck to conquering the Indian
market. There’s no way we can supply more than a tiny sliver of the
demand at this rate.
I know that there are two ways of growth: organic and an-organic. They
could expand their distillery or acquire another Scottish distillery and
bottle their whisky. Because of the costs associated with acquisition, I
lean towards organic growth.
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acquire another distillery... Ok, the client’s CEO is coming in one
minute, what would you advise him?
Our client should rebrand it’s private label whisky and sell it in India
through a joint venture with a local distributor for three reasons.
First of all, we risk hurting our current premium label and the image of
our firm if we keep selling private label whisky in our home markets.
Since Scotch whisky is seen as premium per definition in India, we can
safely rebrand our private label and sell it India.
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Coffee shop
You’re being offered the chance to start a coffee joint in a busy subway
station in Berlin, in the business district. About 20,000 commuters work
in the area. You would need to invest ! 150,000 to get the place up and
running. Would you do it?
- Yes.
Before I start, I think I would like to understand some more about our
business and especially its location and size: are we above the ground
with large sitting area or more the take-away business inside the subway
station itself?
Note: It’s always wise to step into the shoes of the client (in
this case: you) and picture the situation as vividly as possible.
Try to imagine the location, the clients, potential problems.
What questions do you need answered before you can proceed?
- Good question. It’s a small lot at the central plaza under the
ground: everyone passes this area going in or out. There’s a small
kitchen and a large counter at the front-end. Next to the door is
room for two standing tables. The total size is about 16m2.
- That’s true. Assume that 10,000 people per day commute to work
through the subway. You can forget about the other 10,000.
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Ok, so the hypothesis I’d like to test is the hypothesis that we can make
a healthy profit. I know that profit can be broken down into revenue and
costs. To make a profit, revenues need to exceed the costs. I want to
turn to the costs first, since I think that they can be determined more
reliably than revenues: for which we’ll be forced to make a lot of
assumptions. As you can see, I’ve determined a few factors influencing
cost, and I would like to ask you whether we have more information
about them. The factors influencing costs are split between fixed costs
such as labor, rent, utilities and interest and the variable costs, which
I’ve split between the costs for drinks and food. I would like to start with
the fixed costs first. Do we know how much the rent is?
- As a matter of fact, we do: rent is about ! 500 per square meter per
month, which includes expenses for utilities.
Aha, well we know what the size of our shop was 16 square meter,
which comes down to yearly costs of 12 x 16 x 500 = ! 96,000, so let’s
fill that in.
- Very well.
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let’s assume that we lend it for an interest rate of 10%. That would add a
yearly cost of ! 15,000. Now on to labor. I believe we’ll need at least
two employees: one who makes sandwiches and special coffees and
another who stands behind the counter. It’s a traditional student’s job,
so let’s assume they earn as much as I did on my last job, which was !
10,- per hour. As an employer, you have additional costs such as taxes,
insurances, pension funds and whatnot, so let’s add 50% to that hourly
wage to determine costs for the employer. Let’s say we’re open 10
hours a day.
Since many commuters commute early, we also want to open early, say
seven o’ clock and close at a normal time, such as five in the evening.
That makes ten hours a day.
- Ok.
With 2 students costing us ! 15,- per hour, the total cost for labor will
be ! 300,- per day. We won’t be open during the weekends, as there
won’t be a lot of commuters then, just as during the christmas holidays.
So let’s assume we’re open five days a week for 50 weeks. That would
make a labor cost of 5 x 50 x 300 = ! 75,000.
- Are you sure that your calculations of these fixed costs are
correct?
Note: The interviewer can and will put your assumptions and
calculations to the test, even if they are right. Don’t act
offended, check your calculations and reject his doubts in a
friendly, calm and confident manner.
Hmm, let me check. Yes, I do think so. I don’t think I’ve missed
anything.
Ok, so, total fixed costs are then 96,000 + 15,000 + 75,000 = !
186,000 per year. That’s quite a lot of coffee we need to sell... So to
determine we can realistically sell enough coffee and sandwiches to
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cover these costs, let’s look at the variable costs and the contribution
margin of our products.
- Ok, looks good. Let’s just focus on coffee for a second: how many
cups of coffee would you have to sell to break even?
Hmm. Well, first I would like to determine the contribution margin and I
need both a price and variable cost for that. Let’s assume that we sell
our cups of coffee for ! 2,-. Since coffee is just boiled water and coffee,
variable costs are quite low, let’s say 10% or ! 0,20. That would mean a
contribution margin of ! 1,80 per cup. To break even, we would need to
sell about 100,000 cups of coffee a year. This seems doable, but let’s
look at how many cups that are per hour.
100,000 cups per year comes down to 100,000 / 360 = 277 cups per
day, and with 10 open hours a day, that would be 28 cups per hour.
About 1 cup every two minutes. It should be possible for two persons to
deal with 1 customer every two minutes, even if you sold more complex
coffee’s such as cappuccino's and latte’s. But it would be difficult to
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keep the store filled at a 1 customer per two minute rate, especially
during ‘down’ times such as between nine o clock and lunch.
- Ok, well let’s assume that if you sold specialty coffees and
sandwiches, the market size would be no constraint. What other
area’s would you investigate to determine whether this investment
is a good idea?
- Sure.
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As you can see, I have two main area’s that I want to explore. First the
competition, as I believe that we won’t be the only ones selling coffee in
the area. I would like to know how many competitors there are and who
they are: small stores such as ours or major chains such as Starbucks
and what their market share is. Secondly, I want to explore how we are
going to position ourselves in this market and how we are going to
differentiate ourselves, based on the wishes of our customers, our
products and services and company specific things such as our brand
name and location of the store.
- Ok, we’re running out of time here: so I’d like you to report on your
findings and decide on whether you’d invest or not.
- No problem.
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Note: Again, take some time to formulate a synthesis on your
own, then go ahead and read the example synthesis.
Remember: there’s not really a good or bad answer per se, it’s
about how you come to your answer and how well you support
you conclusion.
Personally, I would not invest ! 150,000 in this coffee shop, for three
main reasons:
First of all, it’s unclear whether we can attain the necessary volume in
coffee and sandwiches to cover our costs, let alone gain a profit. The
main concern here is whether we can service enough customers during
peak times to attain enough revenue.
And finally, we don’t know how we can differentiate ourselves from the
competition. How do we position ourselves? Do we focus on low costs,
or on high service? Is there a niche to be found for commuters that need
a quick caffeine fix on their way to work, or is there no demand for
coffee shops like ours?
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Brazimao
Our next client is a mail order company from Brazil. They traditionally
sold clothing, all through those typical thick catalogues. Nowadays,
internet sales account for an increasing percentage of revenue. Ten
years ago the company differentiated into the furniture and home
accessories market, selling these items through their traditional
catalogues and website. In the last 3 years profit has been hurting and
the CEO of Brazimao has asked us for advice.
Note: The question is not quite clear: what does the CEO want
you to do? Increase revenue? Reduce costs? Increase profits?
By how much? Try to get the question clear, otherwise you’ll
find yourself solving the wrong case. If possible, try to get a
quantifiable goal, such as “we need to increase profits by $ 10
million”.
- Ah, yes, I was a bit unclear on that. The CEO wants to reach profits
of $ 15 million in three years.
- That’s ok, but let me start with a question for you. I’d like you to
estimate the size of the home shopping market in Brazil, if that’s
possible.
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You asked me to size the home shopping market, does that include
both catalogues, websites and those TV shows?
- Yes.
Ok, how different is the home shopping market in Brazil from the US?
Are there any cultural differences that I should be aware off?
Well, I don’t think so: not everyone has access to TV, let alone internet.
And I don’t think that these companies deliver deep in the jungle, so I
guess the answer is no.
- That’s correct.
- Go ahead.
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Ok, I will use the number of households here as a reference, since even
though we buy clothing on an individual basis, most furniture and home
accessories are bought per household. I assume that Brazil has about
200 million inhabitants, and that the average Brazilian household has
four members, which brings us to 50 million households. We already
assumed that not everyone in Brazil has access to our sales channels,
because of where they live and how much they earn: not everyone in
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Brazil can afford a TV or internet connection. I’ve heard about the
favela’s and how poor most of the Brazilians are, even though the
economy is growing rapidly and welfare is improving. I therefore assume
that about 50% of households are reached through our channels, which
is 25 million.
Well, I think a lot of people know we exist and what we do, but to
actually make a purchase you will not only need access to the catalogue,
website or TV channel, but also a phone to make your purchase, a bank
account and probably an address too. Because you need all these things
and not everyone in Brazil, especially the inhabitants of the favela’s, has
all three, I came to 50%. But I guess you’re right that it’s on the low
hand, so let’s make it 60% and 30 million households, is that ok?
Ok. Well, even the households that have access to these channels might
choose not to use them. As you said, Brazilians historically preferred
brick and mortar stores. I myself refrain from buying online unless it’s
absolutely necessary and I know more people that enjoy the service of
‘real’ stores. Let’s say that 50% of these 30 million households prefer
traditional stores, while the other 15 million use home shopping
regularly.
As you can see, I assume that of these home shoppers, not everyone
buys equal amounts through these channels. Some only buy clothing
and other small purchases, while others buy couches and complete
wardrobes online. So let’s divide this group into 2, with one group of
high frequency users and one with low frequency users, with 1 high
frequency user for every 4 low frequency buyers.
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12 = $ 900 million total per year for the high frequency shoppers and
12 million x 5 x 12 = 720 million total per year for the low frequency
shoppers. This leads to a total market size of the home shopping
market of $ 1.62 billion.
- Ok, what if I told you that this is way too low, could you identify
one assumption in your analysis that might have caused this?
- Ok, thanks for your calculation. Let’s head back to the main
question: how can Brazimao increase its profits to $ 15 million
annually?
Ah, yes. Well, let me think. I would like to answer some clarifying
questions first, to get a better picture of this company and the industry.
Is that alright?
- No problem, go ahead.
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Ok, first of all, I would like to have a better picture of how this company
creates value for its customers and try to understand the value chain.
Could you tell me some more about that?
Interesting. And are there any special things I need to worry about in the
Brazilian market? Do we have distribution problems because of bad
infrastructure or do our customers have special wishes? Is there
government legislation regulating the market, or maybe state-owned
companies?
- Sure.
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So we know that profitability is hurting, so I want to start with the
profitability framework and look at both components of profit: revenue
and costs. We know that our goal is to get profits to $ 15 million in one
year. Before we start however, do we have any information on profits:
are we making profit at this moment and how did it change over the
year?
- That’s correct.
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Note: Being pro-active and making this calculation yourself
shows you have insight in the mechanics you are applying and
not passively waiting for information from the interviewer. A
good thing to do during your case interviews.
- Yes, we do. Variable costs per unit increased slightly over the
years, because of higher prices for cotton and other resources. We
only have data from the total variable costs: it went from $ 9
million to $ 18.5. Fixed costs also rose, going from $ 4 million to $
9.5 million.
Hmm. I don’t really see anything odd in that. I mean, it still puzzles me
that costs rose faster than revenues, but I can’t see any reason why. Am
I missing something?
Take a moment to read the ‘business case’ part again and think
about what you would have done differently. Then look below
to the solution.
- First of all, you got stuck into a cookie-cutter framework and was
too focused on the basic components, instead of adapting it to the
case or allowing me to help you. For example, you asked me about
sales and price and found nothing interesting. Afterwards, you
moved on to costs. But if you had asked me a more general
question, such as “I want to break down revenue into it’s
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component parts, do we have more information on that?” I could
have given you the optimal revenue segmentation.
- True, we’ll come back to that. At the cost side, you did exactly the
same thing: ‘blindly’ following the framework and focusing on
fixed and variable costs, while again, costs by division would have
been more insightful.
- Yes, you could have asked how the competition and the market
was doing. If everyone is facing problems, maybe our company is
not at fault, it’s the industry that’s facing problems.
Note: This was just to point out the errors of the candidate. A
real interviewer would have tried to nudge you in the right
direction, without giving all information away like this.
If you ever get stuck: be honest. Say so. Explain your line of
reasoning to that point and ask for help. Nothing is worse than
a panicked candidate that jumps from idea to idea without
following a structure, hoping to gather bits and pieces of info
to crack the case based on luck.
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- Ok, below you’ll find Brazimao’s Revenues and Costs from 2009
and 2012. Please tell me what you see.
Cost Cost
In million Revenue Revenue 2009 2011
$ 2009 2012 (var/ (var/
fixed) fixed)
Total 26 38 13 28
Ok, based on the table you gave me, I conclude three things. First, on
the revenue side, I see that clothing remained flat while furniture
increased three-fold. As I said before, I’d like to investigate why revenue
from clothing is flat and why furniture increased so drastically. Do we
know what their respective markets did?
- Good question. Both the mail-order clothing market and the market
for furniture grew rapidly.
Interesting. Ok, I’ll keep that in mind. On the cost side I see that
clothing variable cost increased more than 50% and I would like to know
why. And finally, I see an even more drastic rise in the fixed costs for
furniture, which increased five-fold in three years. Again I’d like to
understand the reasons for this.
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- First of all, clothing variable cost is caused by increased costs for
cotton, a commodity which increased substantially in price the last
year.
- No, you’re spot on. Every clothing manufacturer raised prices in the
last few months. Moving on to fixed costs for furniture: we only
recently launched a furniture line, but as you can see it has had
rapid success. High marketing costs arose because of higher
competition, who are responding to our entry. We recently decided
to invest heavily in sufficient warehousing to keep offering our
excellent customer service and delivery times: we keep a lot of
units on stock to be able to send them out directly. We also offer
mass-customization: customers can adapt a few features on their
new couch, choosing between five different sofa legs.
Ok, so we’ve seen that revenue from clothing was flat, but that furniture
increased threefold. This also led to an increase in warehousing and
marketing costs, because we had to invest to stay competitive. My
hypothesis is that we can need both an increase in revenue from
clothing and reduce costs at the furniture division at the same time to
reach our ambitious goal of $ 15 million in profit. But before I can give
specific advice on how our client should proceed I would like to analyze
the current situation some more.
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Ok, I first want to focus on the matter of cost reduction at the furniture
division. You mentioned that they can offer fast delivery because they
keep a stock of every item in their warehouses and offer customization
to customers. Both seem like costly affairs and I want to know whether
customers are really looking for these services we offer. So my
hypothesis is that customers are being offered more services than they
actually want. But let’s first investigate our furniture customers, do we
have information on customer segments? What do they want?
Aha, and do you have any actual percentages on these two segments?
And why did other customers choose us?
Ok. Seems as that the extra services we offer to our customers are
necessary to keep them: they don’t just cost us more but bring in
substantial extra value as well. I’m gonna conclude that my first
hypothesis was wrong: we can’t cut costs in the furniture division by
offering slower delivery and less customization. I want to investigate the
clothing division and understand why it’s revenue has been flat even
though its market grew, while trying to figure out how we can improve
its revenue. I want to start with the external factors, as I believe our
competitors have something to do in this: do we have information on
who our competitors are, what their markets shares are?
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- Yes, we do. We have three main competitors with whom we share
80% of the market, and a few smaller ones.
Aha. And have there been any changes in the competitive landscape the
last few years? Any reason for why we have been losing market share?
- Yes, one of these three main competitors is a hip store chain that
used to focus on brick and mortar stores, but launched an online
store five years ago. It has been growing rapidly and stealing
market share from the traditional catalogue players, like our client.
Interesting! Ok, seems as we know why we’ve been losing market share.
I now want to look at how we can improve our position, what we can do
to get more revenues and attain the client’s $ 15 million profit goal. I
want to look at our clothing customers, our products and our company
and see where we can improve. Let’s start with customers: my
hypothesis is that they are switching to this new competitor, and I want
to know why. Do we have information on existing customer segments,
what their wishes are and who shops with us?
- Yes we do. There are three main segments: older women, young
women and men. Older women go for traditional brands and looks,
whereas young women are more fashion conscious. Men don’t
shop much, but are very loyal to the places they shop and don’t
switch often. We are very strong in the older women brands and
we have a substantial market share in the men segment. We’re
lacking in the younger women market: the new entrant is very
appealing to them.
Ok, interesting. I think we are not fashionable enough for this new
generation of shoppers, which is why they are shopping at the new
entrant. I would like to investigate whether we can attract these fashion-
conscious shoppers, and if so how.
- Let’s brainstorm about that for a little, how would you do that?
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Ok, let me think about that for a minute.
- Sure.
Ok, there are three possibilities they should consider. First of all, they
could refocus their current brand to appeal a younger audience. This
brings significant risks, however: losing their current customer base,
failing to appeal that younger audience and it will cost a significant
amount of money. A second option would be to launch a new brand,
independent from the current clothing lines. This does not endanger the
current image with our current customers, but it’ll be difficult to make
this completely new brand a success. A third option might be to acquire
one of the smaller competitors that is appealing to youth, but lacking
the resources to grow. This way, the risk of failure is lower: the brand
has proven itself. The costs of acquisition are probably higher than
going at it alone.
- Very well. Assume that the CEO of Brazimao is on her way to catch
a flight and asked you to brief her on the state of your analysis,
could you give a synthesis of your analysis thus far?
- No problem.
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Ok. I think it’s possible for Brazimao to get their profit to $ 15 million
by acquiring a small but fashionable competitor, but not in one year. I
think this for three reasons:
First of all, acquiring a fashionable label does not risk losing the current
customer segments because they cannot identify themselves with the
brand anymore and is less risky and quicker than going at it alone with
a new brand.
Secondly, they can use this acquisition to tap into the growing segment
of fashion-conscious young women, using Brazimao’s resources to
accelerate the growth of the acquired label.
- Ok thanks. But what about the growth from the furniture division
and it’s impact on profit?
This candidate made some errors, but it was a difficult case and
he recovered quickly if he made errors. He would have made for
an average/good candidate, but this was not a top performance
setting him apart from the other candidates.
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Brainteasers
To my knowledge, brainteasers are not often employed in consulting
interviews: they are more an investment banking or IT thing. In this
chapter we will show you how to approach a brainteaser and we will give
some examples, so you are better prepared if you happen to encounter
one after all.
Brainteaser approach
The approach to a brainteaser is somewhat similar to the approach of a
business case. It’s not the answer that is important, but the thought
process (though coming to the right answer helps).
Brainteaser examples
These are examples of questions actually asked in investment banking
and IT job interviews. We will answer them later on in this chapter.
Two Jugs
You have a five gallon jug and a three gallon jug and you must obtain
exactly four gallons of water. How?
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Fuses
You have two fuses which will each take an hour to burn completely
when lit. However, the fuses do not burn evenly along their respective
lengths. So if they are lit and are half burned, you cannot assume that
30 minutes has passed. How do you use the fuses to time 45 minutes?
Blindfold
You are blindfolded and sit in front of a table. On the table are many
coins, 10 of which have heads facing up. How do you split the group of
coins into two groups such that the same number of coins are heads-up
in each group? You don’t know how many coins there are and you can’t
tell which side is facing up in any way.
U2 on a bridge
The four members of U2 (Bono, the Edge, Larry and Adam) need to get
across a narrow bridge to play a concert. Since it's dark, a flashlight is
required to cross, but the band has only one flashlight, and only two
people can cross the bridge at a time. (This is not to say, of course, that
if one of the members of the band has crossed the bridge, he can't
come back by himself with the flashlight.) Adam takes only a minute to
get across, Larry takes two minutes, the Edge takes five minutes, and
slowpoke Bono takes 10 minutes. A pair can only go as fast as the
slowest member. They have 17 minutes to get across. How should they
do it?
Socks
If you have seven white socks and nine black socks in a drawer, how
many do you have to pull out blindly to ensure you have a matching
pair?
Light switches
You are in a room with three light switches on the wall. In a room down
the hallway there are three lights. Each of the switches in your room
controls one of these lights, but you don’t know which switch controls
which light. You can only go into the room with the lights once. How do
you work out which switch corresponds to which light?
Clocks
You look at the clock and the time is 3:15. What is the angle between
the hour hand and the minute hand?
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Brainteaser solutions
Two Jugs
There are actually two solutions to this question, but they both share
the same rationale:
1: Fill the three-gallon jug with water and pour it into the five-gallon jug.
Repeat. Because you can only put two more gallons into the five-gallon
jug, one gallon will be left over in the three-gallon jug. Empty out the
five-gallon jug and pour in the one gallon. Now just fill the three-gallon
jug again and pour it into the five-gallon jug.
2: Fill the five-gallon jug with water and use it to fill the three-gallon jug.
When full, empty the three-gallon jug an pour the remaining two gallons
from the five-gallon jug into the three gallon jug. Refill the five-gallon
jug and use it to fill the three-gallon jug. Ta-da, you now have a full
three gallon jug and a five-gallon jug with four gallons of water.
Fuses
The key here is to know that if a fuse takes 1 hour to burn when lit from
one end, it will take 30 minutes to burn when lit from both ends, even
though it burns unevenly."So if we light one fuse from both ends it will
burn in 30 minutes."At the same time we light the other fuse from one
end.
30 minutes later the first fuse is completely burned and the second fuse
has 30 minutes of “burn time” left in it. When that happens, we
immediately light the other end of the second fuse."The second fuse will
be completely burned out 15 minutes later which means it was 45
minutes in total.
Blindfold
The answer to this brainteaser is rather simple:
1. Separate 10 of the coins from the group and put them to one side. It
doesn’t matter which 10.
2. Turn all of the coins in the group of 10 on to their opposite sides.
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Let’s say there are 100 coins and we separate 10 of them. Now we have
a group of 10 and a group of 90. Let’s say that there are 2 heads in the
group of 10. Then there will be 8 heads in the group of 90.
Total 10 90
Heads 2 8
Tail 8 92
Now we turn over all the coins in the group of 10.
Total 10 90
Heads 8 8
Tail 2 92
Ta-da! 8 heads in each group. The key is that if you are told that 10 of
the coins are heads up, you need to separate 10 coins from the main
group." No matter what numbers you use the result will always be the
same.
U2 on a bridge
The key to attacking this question is to understand that Bono and the
Edge are major liabilities and must be grouped together. In other words,
if you sent them across separately, you'd already be using 15 minutes.
This won't do. What does this mean? That Bono and the Edge must go
across together. But they can not be the first pair (or one of them will
have to transport the flashlight back).
Instead, you send Larry and Adam over first, taking two minutes. Adam
comes back, taking another minute, for a total of three minutes. Bono
and the Edge then go over, taking 10 minutes, and bringing the total to
13. Larry comes back, taking another two minutes, for a total of 15.
Adam and Larry go back over, bringing the total time to 17 minutes.
Socks
Not all of them are hard. The answer is three: even if you pull out two
different socks in the first two pulls, the third will give you either a
second white or a second black sock.
Light switches
In order to solve this problem you need to consider the real-world
characteristics of light bulbs. What happens when you turn a light on?
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What happens when you keep a light bulb on for a few minutes or more?
What happens when you turn it off again?
A bulb will light almost immediately and after a while, it will heat up. It
will be warm enough that you can feel the heat by holding your hand
close to it. When you turn the light off, it stays warm and slowly cools.
To solve this brainteaser, you turn on one of the lights and keep it on
for say, 10 minutes. You turn it off and then turn on another light. Now
you go into the other room. The light that is off and warm corresponds
to the first switch. The light that is on is controlled by the second switch
and the light that is off is controlled by the third switch.
Clocks
In this brainteaser it is important to visualize the clock - the hour hand,
remember, moves as well. Every minute on the clock represents 6
degrees (360 degrees/60 minutes). Every hour, the hour hand moves
from one number to the next (in this case, it is moving from 3 to 4)
which represents 5 minutes or 30 degrees.
Since it is exactly 1/4 past the hour, the hour hand is 1/4 of the way
into its 30-degree trip or 1/4 or 30 degrees....which is 7.5 degrees.
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Appendix A:
Solutions to the PST-practice case
1. Answer: B. Revenue dropped from just under $ 20 million to just
above $ 5 million. A is false, since revenue was flat between 2007 and
2008. C is wrong, as can be seen in the chart. D is also wrong:
nothing points toward it and there is no way you can support that
answer.
2. Answer: D. Why?
1. Is not relevant, because the CEO is only concerned with the Sawmill
division.
2. Though analysis is always interesting, customers and competitors
have no direct influence on cost. Not relevant.
3. We need the current revenue and profit, since else we won’t know
our goal: the CEO wants to regain profitability, but with just the
costs you don’t know how much you need to reduce costs to reach
profitability.
4. Again, interesting but not relevant, we are focusing on cost here, not
revenue.
5. Obviously relevant: otherwise you don’t know where the costs come
from.
3. Answer: C.
Laying off a part of the workforce (A) directly lowers fixed costs: the
amount paid on wages. Reducing the finished goods inventory (B) can
save money in two ways: (1) warehousing finished goods is costly and
(2) less inventory means less money ‘tied up’ in your firm, freeing up
resources and reducing (possible) debt burden. Renegotiating prices (D)
directly influences variable costs: the less you pay for materials, the
lower your costs. Even though C (lowering prices) might help increasing
revenue, this is far from certain. Secondly, it does nothing to reduce
costs, the main goal of our CEO.
4. Answer: C.
We need to calculate A:
Price 2005:15,000,000/50,000 = 30
Price 2010: 5,000,000/20,000 = 25
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Difference = 30 - 25 = 5, which is (5/30)*100% = 16,7 % > 15 %.
Therefore, this statement is true.
5. Answer: A.
First we need to calculate the per unit price in 2009, which was
7,000,000 / 28,000 = $ 25. We know the profit margin (17 %), so the
profit per unit is 0.17*25 = $ 4.25, which is answer A.
6. Answer: A.
The question is a little vague, but you are told that fixed and variable
costs remain the same, while volume drops. This means that fixed costs
are distributed over a smaller number of units sold, which will lower the
profit per unit. A is thus the correct answer.
7. Answer: B.
A. A lot of our competitors are state-owned and would be able to lower
their prices because of the tax cuts. This would force us to lower
prices as well to remain competitive.
B. Restricting woodcutting limits would increase the costs of cutting
wood (forcing woodcutters to travel further to cut wood) and thus
prices of the primary resource for processed wood would increase as
well. This would lead to an increase in processed wood prices.
C. These technological advancements would lead to an increase in
efficiency and processed wood supply, lowering processed wood
prices.
D. If the demand for processed wood decreases because people don’t
build wooden houses anymore, prices will be lower with a constant
supply.
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References
Ohmae, K. (1982), The Mind of the Strategist. Penguin.
Acknowledgements
This is a big thank you to all who proof-read the first versions of this
book. Without you, this book would not be as good as it is now, without
spelling mistakes and even better geared towards the ‘non-consultant’
reader. I thank you.
I thank everyone for their support during the creation of this book. It
wasn’t always an easy process. I’m proud of what it has become and
hope it’ll get my readers the thing they want: a job in the strategic
management consultant.
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