Management Consulting and Case Solving

for Dummies

8. Profitability Cases

Issac Jojy

PGP 2014-16

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Before proceeding any further, I expect you to have read Document 7 thoroughly. A lot of the
concepts will be flowing from Document 7. You should know what a Case is and most importantly,
you should’ve understood what the Case Method is. The hypothetical ABP case is an example of a
simple profitability case. The broad structure that I used to solve the ABP case can be used for any
case and in this document, I’ll be showing you how it is used to solve general profitability cases.
Just to summarize the contents of the previous document –
A Case is any business situation that causes concern to the management of a company.
The Case Method is the most logical way of solving a case. From my learnings during case prep., the
Case Method has 5 parts (discussed in previous document)
Step 1: Understanding a bit of the client business context:
Step 2: Set the objective(s)/goal(s) function
Step 3: Reverse Engineer from this objective function ONLY based on data, ensuring MECE
at each stage to drill down to the core problem(s)
Step 4: Understand the current system in place to counter this problem:
Step 5: Recommendations based on data based analysis
Take a step back and think about what you’ve internalized. The broad structure to solve ANY case
is known to you now. The fundamentals are set. It is as simple as that. Don’t make it
complicated by thinking there’s a lot more to it. There’s nothing more to it. The only things
remaining are:
1. Get exposure to various kinds of cases & see how this above simple framework can be applied and
2. Effort from your side – Most important part - Practice, Practice and Practice. This is completely
the onus of the candidate and I can only help you until the extent of the previous point, which is give
exposure to the different kinds of cases. Your effort is something completely under your control and
I cannot push you to do it. You guys will have to put in that effort yourselves.
The fundamentals for solving any case have been drilled into your brain. The seeds have been planted.
Over this document and the next few documents, I’ll be just giving you some exposure to the different
kinds of cases and some simple tools to handle the different kinds of cases.

Profitability Cases: Cases in which the client will be facing decreasing profits and the consulting
firm would’ve been hired to find out the reason and give recommendations. This is exactly similar to
the ABP case discussed in the previous document. I’ll just give you some pointers under each of the
5 parts of my above mentioned framework.

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Step 1: Understanding a bit of the client business context:
First things first – Do not panic when you listen to a case question. That panic is something you need
to get over anyway and then start solving the case. So, it is an unnecessary downtime for your brain.
With time and practice, you’ll get over it. Don’t worry.
Next – think whether the client is a goods/products based firm or a service based firm. The approach
to handle both these is slightly different. People usually associate with only product based firms and
when suddenly a service based firm’s case is given, they completely forget the service angle and look
at that as a product based firm, which will screw up the case analysis. For example, a products based
company like an FMCG company or an electronics manufacturing company needs to be handled in a
different way as compared to a service based company like banking or insurance or a restaurant
business. (A restaurant business does have products – the food items, but the primary categorization
is as a service industry)
The above 2 steps will take you maximum 1 second.
After that, I used to tell the interviewer something on the lines of
“Before structuring and proceeding with solving this problem, I’d like to ask you a few
preliminary questions to understand a little bit about the client. Is that ok?” to which the
interviewer almost always say “yes” since they expect you to ask a few questions before starting off
with solving the problem.
Depending on the nature of the industry and my familiarity with the industry, I used to ask questions
to understand the broad business model. Sometimes, I used to ask quite a few questions in this section
for me to clearly understand the business model. (You need to know anything about any industry). If
you’re making any assumptions about any industry, you need to state it out loud and cross check with
the interviewer whether it is fine. If you’re very sure that some of the assumptions are very obvious
and the interviewer is definitely not dumb not to know those assumptions, then you don’t need to
state it out loud. But don’t take for granted that everything that you think about the industry is what
is right. It is a judgment call what to ask and what not to ask and with time and practice, you’ll know
where to draw the line.
Just to have a broad idea on how long the problem has been bothering the client, you can ask the
timeframe in which profits have been going down. If you ask why this question needs to be asked, it’ll
be clear with practice. You get a fair idea of how different industries work and the associated
timeframes in each industry.
Before proceeding to Step 2, what I want to be clear is whether the problem being faced is an internal
company problem or an external problem that the industry is facing overall because of which our
client is also getting affected. Some people say that you don’t need to ask this question at this stage. I
have my own reasons for asking this question at this stage. This will be clear in the Park & Eat
hypothetical case that I will be discussing later in this document. Most problems with which clients
come to consultants are purely internal problems. Because if the problem is an industry wide problem,
the client would know the reason immediately since it is such a huge problem that the entire industry
is affected. In case if you get those rare cases where the interviewer tells you that “Yes. It is a problem
that the entire industry is facing. The profits are down not only for us, but for our competitors”, then

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check with the interviewer whether you need to check only what the external problem is or in addition,
whether you have to check whether there is an internal problem as well. If the interviewer says “No.
there is no internal problem”, then state out loud that “Ok. So I’m going to be looking at the problem
as a purely external problem and try to find out what that problem is and accordingly give
recommendations. Is that ok” – The part of buying in the interviewer is extremely important. This
makes it seem like a conversation between people and not a rigid interview. The likeability part of you
will get boosted here. If the interviewer says that there is external and internal problem, then you’ll
have to deal with both and ask him whether he is fine with you jumping into either of them –
something on the lines of “So that means we have an internal and external problem. So I need to
tackle both the issues. Just to prioritize and attack the problem, do we have any data to indicate which
is the bigger problem” Buy the interviewer in and proceed forward in whichever direction he steers
you. Suppose you know that it is an external industry wide problem and you want to find out that
problem, there are 2 broad frameworks, which ideally needs to be used in combination. These are
really simple and powerful frameworks. With time and practice, you’ll know what combination of
these to use.
One very important tip for using these frameworks – Remember what I said earlier - The entire
interview should seem like a conversation. So even when you’re using these frameworks, I’ll strongly
suggest not using the work “Framework” anywhere in your conversation. It’ll seem to the interviewer
that you’re force fitting somebody else’s logic. It should seem like a normal conversation whether
you’re logically giving out some arguments. This will also come with time and practice.
Frameworks to handle External Industry wide problems affecting our client as well (These
frameworks will have to be used in Step 3 – Don’t worry if you’re confused. It’ll be clear in the
Park & Eat case example which will be discussed later)
1. PESTEL Framework:
PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal
issues that affect the industry. Some of these issues are completely out of the control of our
clients. For example, suppose the annual budget presented by the finance minister in March
leads to some policy changes, which affects the taxes on a particular industry in which our
client operates. And in one year, the profits of our client goes down because of this issue. The
client comes to the consultant at that stage for help. So this framework can be used to drill
down to this problem. Now if you’re question is “Wouldn’t the client already know it?”
Answer is yes – most of the time the client would know it since it affects the entire industry.
Hence, I made a statement early saying that such cases are rare. But nevertheless, you should
know how to handle them when they come.
2. Porter’s 5 forces Framework
In your Competition and Strategy course (Term 2), there’ll be a binder in which there’ll be an
article on Porter’s 5 forces. It was a revolutionary article in the management field. Read it at
least twice. I loved that article. It gives you a holistic perspective on how an industry functions
and what all affects an industry. Assume all companies in an industry combined together and
that combination is the industry – which is equivalent to a big huge company having the traits
of all the individual companies part of that industry. The article discusses the various forces

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 that shape and affect that industry. I remember that article having some elements of the
PESTEL framework as well.
So, after you tell the interviewer that you’re going to look at the various external factors, ask
him for a few seconds to think of the various broad issues that can affect the industry as a
whole, think about the combination of PESTEL and Porter’s 5 forces in your head, write it
down on the rough sheet and ask him whether we have data to show that the issue belongs to
any of this. If he says “Yes” and gives you direction based on data, deep dive further on that
issue and drill to the problem and think logically and give recommendations (If you’re not
clear with this, it’ll be clear in the Park & Eat example I’ll be giving later in this document)
So, that is the case if the problem is an external problem. But like I mentioned, most of the time, the
cases are problems are internal problems.

Step 2: Set the objective(s)/goal(s) function

In a profitability case, the objective function is almost always profits. But there might be cases where
there will be multiple objectives. Like for instance, some case might require you to have the primary
objective as profits but in the process of solving for how to improve profits, there might be a
secondary objective of reducing costs or increasing revenue to increase market share. Although rare,
do check with interviewer whether increasing profits is the only objective. And like I mentioned in the
previous document - Paraphrase the open ended question that you got from the interviewer before
you started Step 1 using the inputs you got from Step 1 and state it out loud to the interviewer.
Something on the lines of
“Ok. So ABP, our client - a fast food restaurant chain with 2 restaurants in Bangalore is experiencing
a fall in profits. We’ve figured out it is an internal problem and the industry is doing fine. We need to
help them figure out the reason and see how to improve profits. Is that our only objective or is there
any other objective as well or Can I proceed forward with profits as our objective?” (From previous
document). Buy in the interviewer and proceed forward exactly similar to the way I showed in the
previous document.

Step 3: Reverse Engineer from this objective function ONLY based on data,
ensuring MECE at each stage to drill down to the core problem(s)
After he says “Yes”, ask him for a few seconds for you to structure your thoughts and use the level
wise analysis that I showed in the previous document moving from one level to another level only
based on data ensuring MECE at every level.. I wouldn’t mind repeating it here, but the ABP example
that I wrote was quite self-explanatory. So, repeating it here will be redundant. But yeah, I expect you
to have understood what level wise analysis moving from one level to another level ONLY based on
data ensuring MECE at stage means before proceeding further in this document. If not clear, you can
go back, read it up and come back to this point and then continue.
The remaining part of Step 3 for profitability cases is to understand how to MECE and cover all
options within various scenarios. For that, there are a lot of simple concepts. Again, I’m taking it
directly from the document that I got from ICON last time. I’ve just taken screenshots of the same
document. If you feel that readability is less, you can directly refer to Document 15 for these
frameworks after you finish reading until Document 14. Even when I got the document, there was no

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one to tell me what to do with that document. I think in the Document 7 and the previous part of this
document, I’ve kind of set the context for you to understand the below frameworks.

If the interviewer gives you data after Level 0 that it is a revenue problem, then you can use the below
2 sub-frameworks to MECE your options at every further level. From the context of the ABP case,
Variety refers to the Product mix (Mango Lassi and Hot Chocolate). All the other terminologies are
self-explanatory. If you do not understand a few terminologies in the below 2 pictures when you read
it for the first time, that is completely OK. I had not understood a lot of these frameworks initially.
With time and practice, you’ll easily understand all of this. For example, initially I did not know what
Cost + (shown below) meant even though I read the description given under it and kind of understood
the meaning. But how to apply it in an actual case was a question mark for me. Trust me on this – It’ll
come with practice. Don’t worry one bit about that. These frameworks are just tools to remind you
how to ensure MECE at every level as you drill down to the problem.

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In this picture above, when you get data from the interviewer that it is a volumes sold problem, there
are multiple options available for it being the reason creating the problem. The above picture kind of
encapsulates all of the problems. If you notice on the left side of the picture, you can see Porter’s 5
forces and PESTLE framework being used. Personally, I found it more logical to use it at STEP 1
(The reason will be clear when you read through the Park & Eat hypothetical case which will be
discussed later). There is no such constraint that you have to use my framework or the above
framework. You can tailor your problem solving style to whatever you feel is more logical to you and
apt to your style.
Only thing you need to take care is NOT TO GET WORRIED by seeing so much information on
the picture above. The first time I saw this slide, I was like “Man. This seems like complicated sh*t.
It’ll be difficult to understand all this” But nobody told me last time is what I’ve given in Document
7 and the preceding sections of this document. But it is extremely crisp. It’s just that all options at
every level have been MECEed. So it looks like a lot is there. In a case interview, there will be only 1
or 2 core problems and you’ll not have to go through all this. When you ensure MECE at every stage
using the above 2 simple frameworks, drilling down to the core problem becomes super-easy.
Suppose you get data from the interviewer that it is a Costs problem, the picture in the next page gives
you equivalent MECEed options which you can use to find out the core problem using the same
reverse engineering concept based ONLY on data and give recommendations.

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Actually, that’s about it. These frameworks will help you drill down to the core problem ensuring
MECE and your progress ONLY based on data. The next 2 steps just flow from this analysis. If you’re
reading this document for the first time – Don’t mug up all these frameworks now. You can refer to
them later during practice time and it’ll all naturally get built into your brain without having to mug
up anything.
5 things that you need to remember throughout STEP 3

• Products vs Service based – This is something people keep on forgetting. Even at Step 1, if
they realize that it is a service based company, some people completely forget it at Step 3
which messes up the analysis.
• MECE at all levels as much as possible using lines like “The possible reasons are variable 1,
variable 2, …variable N. I think I’ve covered most of the options. Have I missed out any
options? If not, do we have data to show whether any of these options are have a problem”
• Data-centric mindset – Ensure you reverse engineer only based on data
• 80-20 rule – Prioritise and attack. Don’t boil the ocean and attack all the problems. You’ll end
up reaching nowhere.

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 • Competitive benchmarking/Industry benchmarking – This is supremely important. Not all
cases might require this. But do keep this at the back of your mind.
When you’re reading through this document for the first time, you can switch to the next
document after completing this. But during your Term 2, refer to Document 7 and 8 extensively
to get your foundation set.

Step 4: Understand the current system in place to counter this problem:

Sometimes, no system might be in place to tackle this problem. Sometime, systems might exist but are
not really effective. Either way, before giving recommendations, you need to ask
Candidate: “Before giving recommendations, can I get an idea whether there are any systems in place
currently to counter this problem and if yes, why hasn’t the current system tackled the problem?”

Step 5: Recommendations based on data based analysis

The interviewer will give his answer. Based on the interviewer’s answer, ask him for a few more
seconds, think for yourself what the possible recommendations are. You don’t need to be really
creative in this regard. Try to give 2-3 options as recommendations. One word that can help you in
this Step is the word “Alternate” or “Multiple”. Just keep this word in the back of your head.
For example, suppose in Step 4, you get data from the interviewer that there is a vendor in place to
tackle some core problem that you’ve identified in Step 3 but the vendor is not effective in executing
the job given to him – Possible solutions could be

• Enforcing the contract with the vendor more strictly with penalties
• Alternate vendor to tackle the problem
• Multiple vendors to tackle the same problem so that there is more buffer
It is not that in every case, this will be of use. I found it useful in a lot of cases. So, thought I’d share
it with you guys.

Hypothetical Case 2: Park & Eat

Earlier, I had mentioned that I’ll show you the example of the Hypothetical Park & Eat Case to show
you the reason why I ask the question of whether the issue is external or internal (Industry wide issue
vs company specific issue) in Step 1. It is not necessary that you need to ask this question in Step 1.
Depending you your preparation, if you feel that this question can be asked at a later stage, go for that.
But I personally prefer asking this question in Step 1.
Case Question: Your client is Park & Eat, IIMB. They’ve been facing declining profits. Please analyze
the situation and come up with recommendations to solve the problem for the client”

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Case Solution:
Step 1: Understanding a bit of the client business context:
Candidate: “Before structuring and proceeding with solving this problem, I’d like to ask you a few
preliminary questions to understand a little bit about the client. Is that ok?”
Interviewer: “Yes. Go on”
Candidate: “First of all, I’m not clear about what business our client is into. Can you give me some
inputs on the industry they’re operating in”
Interviewer: “Sure. So, they’re into snacks and eateries. The customers are primarily students of IIMB,
who eat at our client’s store from evening to late night”
(Candidate realizes they’re primarily a service based business)
Candidate: “Oh ok. By snacks, do you have some data so that I can get a flavor of what kind of
products they sell, just to have a better understanding of their business model. Also, how many stores
do they have?”
Interviewer: “By snacks I mean products like biscuits, momos, chai, maggi etc. They just have one
store at IIMB”
Candidate: “How long has our client been facing falling profits?”
Interviewer: “6 months”
Candidate: “Oh ok. Another question that I have is whether this issue that our client is facing is
something only our client is facing or do we have any data to show that the profits for our client’s
competitors is also going down. The reason why I’m asking this question is to know whether this issue
is an internal issue specifically our client is facing or it is an industry wide issue. I feel both need to be
handled separately. So, yeah do we have some data indicating this?”
Interviewer: “Actually yes. We do have data that shows that our key competitors in the region –
Athicas and NC who play in the same target customer segment – are also facing falling profits”
Candidate: “Oh ok.”
Step 2: Set the objective(s)/goal(s) function
Candidate: “So, our client – Park&Eat, primarily into the snacks business for students at IIMB is
facing a fall in profits over the last 6 months. We’ve figured out that there is an external industry wide
issue possibly affecting our client. Our objective is to increase profits, after drilling down to the core
problem responsible for this issue. As of now, I’m planning to look at the external industry wide issues
possibly responsible for this. Should I also look at possible internal reasons or can I proceed forward
with just the on external industry wide analysis”
Interviewer: “For the scope of this problem, you just need to focus on the industry wide issues”

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Step 3: Reverse Engineer from this objective function ONLY based on data, ensuring MECE
at each stage to drill down to the core problem(s)
Candidate: “Can I take a few seconds to structure my thoughts to see how to tackle this problem?”
Interviewer: “Sure”
(Candidate uses a combination of Porter’s 5 forces and PESTEL ideally. If you’re not aware of Porter’s
forces as of now, let’s just stick to PESTEL – candidate writes it down on the rough sheet. But in
Term 2 – Read the HBR article as part of Competition and Strategy course )
Candidate: “I believe there can be multiple reasons that can affect our client from the outside. The
reasons that I can think of can be broadly classified under Political, Economic, Social, Technological,
Environmental and Legal issues. Have I missed out any factor? If not, do we have some data from
our client indicating whether there have been any changes in any of these external factors over the last
6 months”
(Actually show him your rough sheet with these factors written down neatly)
Interviewer: “Well. You’ve covered broadly all parameters that can affect our client. And yes, we do
have some data from our client which shows that the legal framework has changed over the last 6
months. Our client is heavily dependent on maggi as a product to the customers because students love
maggi. But 6 months back, Maggi got banned in the country, as a result of which students haven’t
been buying as often as they used to earlier.”
Candidate: “Oh ok. That means that this is leading to a decreasing revenue as well as possibly higher
inventory costs because of old maggi stock lying unsold. This is the core problem. Is this the only
problem or do you want me to probe further on any of the other parameters which I had identified”
Interviewer: “No. This is fine. You’ve drilled down to the core problem. Now, please come up with
recommendations”
Step 4: Understand the current system in place to counter this problem:
Candidate (after thinking for a few seconds): “Since the maggi ban is out of the client’s control, there
is no way we can bring in maggi and sell it. So, we do not have any systems in place to tackle this
problem. We’ll have to create some new system to generate the lost demand. Do we have any data
from the client indicating that there are other products in the market that can be used as a substitute
for maggi?”
Interviewer: “Yes. There’s this product called Yippee. Yippee is legal. Although taste wise, people
prefer maggi, the client – Parn & Eat believes from market survey that Yippee can act as a substitute.
No data other than that is available. Please come up with recommendations now”
Step 5: Recommendations based on data based analysis
(Candidate thinks for a while)
Candidate: “The possible options are 1. Use yippee as an alternate to maggi. The lost demand can be
compensated to an extent by this product and revenue generation increased. 2. Market research can

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be done by our client to find other alternate products, not necessarily in the same segment as maggi,
but other new products which can take the shelf space of maggi, generate additional demand and
create more revenue. These are 2 options I can think of. Do you want me to think of more options
or is this sufficient?”
Interviewer: “Not required. You’ve solved it. We actually just replaced maggi with yippee and students
thought it was maggi itself. So that way, a lot of the lost revenue was recovered with this solution.
Thanks a lot for interviewing with us.”
Candidate: “Thanks a lot” ( in the candidate’s mind - yay ! ! ! I nailed it ! ☺ lol…)
Now you can see why I asked the question of internal or external at an early stage. If I had not asked
that there and drilled down assuming it is an internal problem like it was given in the picture in page
7 (please go back and refer, if you don’t remember), I would’ve wasted a lot of analysis time. But even
then, you would still find the issue when you realize that volumes have been going down. So, I’m in
no way stating that that approach is wrong. It’s just that most of the times, my approach of isolating
the problem as external or internal in Step 1 has worked out well for me. It’s your call what you want
to follow. Either way, if you ensure a data centric MECE approach, you’ll solve it. So don’t worry
about.

General pointers: It should seem like a normal conversation b/w people and not like you’re trying to
force fit the framework I mentioned. Even if you feel at this stage (when you’re reading these
documents for the first time) that you can only use it in a force fitting kind of way, when you
acknowledge that the case method is the most logical way of solving a problem and do a lot of practice,
it’ll naturally turn out like a conversation with time. Use the Case Prep Resources that I mentioned in
Document 3 and Document 4 for practice and the way you handle your interview will naturally seem
like a conversation with time and practice.

So, that’s about it from the perspective of Profitability cases. You’ve been exposed to the various
frameworks required to cover most profitability cases. All that’s left – Practice
Next up – Growth strategy cases

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