Tier 2 Partner interview case - why was my approach inappropriate?

Question

Hi,

I just got rejected by a tier2 in a partner interview due to my case performance in a seemingly simple case. I think the main mistake lies in my initial approach which he did not like. This then made me extremely nervous when I was guided through his approach. Why was my approach inappropriate?

Case: Travel agency chain with less than half industry average EBIT; EBIT and revenue given. Booking via physical branches or telephone only. Two customer segments: business and private; No of transactions and revenue in each segment given; More revenue with less transactions in business travel than in private segment. CEO wants to know why EBIT is so low and how to get to at least industry average. Further information revealed upon asking: No specific time frame for solution; EBIT has always been that much below average; no sudden changes in either client's nor industry EBIT.

My approach: Draw tree diagramme for EBIT and each customer segment (below), go through and compare each number with industry average. Find major discrepancies and then analyse qualitative reasons for discrepancies. After that brainstorm potential solutions, and assess potential solutions if they are feasible etc.

layer 1: revenue vs. costs

layer 2: revenue = business + private; costs = business + private

layer 3: business rev = (average transaction price) * (no of transactions); same for private rev

layer 4: no of transactions = (no of customers) * (no of transactions per customer)

His approach: No initial structure required at all. Calculate profit per transaction in each customer segment. Then calculate total EBIT in each customer segment. See that private customer segment makes a loss with each transaction and business segment alone makes above industry average EBIT. Realise that closing down private segment is not a good solution as high transaction volume is required to get any travels by travel providers. Make some other suggestions how to increase EBIT. No comparison with industry in entire case.

Thanks for comments!

Answer 1

Hi there,

Your aproach is not wrong, but it is too complex and detailed AND it does not clearly lead to a solution. I guess the interviewer wanted you to spot immediately that the private customer segment is responsible for the low EBIT without lengthy calculation, and go from there to find a solution. If you had carefully absoerbed the case situation you could have come to that point very quickly.

When thinking about your aproach, always keep in mind where you want to end up. Going through your aproach and making the math should always lead to a clear recommendation.

Very important: Reflect the given case situation carefully! Sometimes it gives you many hints on what is the right direction of thought! What about the channels used in this example (physical branch and telephone only). Have you thought about that?

Hope this helps!

Best,
Annette

Answer 2

Hi there,

I do not see anything wrong with your approach although it can be improved. As this case should last 30 min at least, it is fair to have such a detailed approach. For example, the company is maybe having low profit not because the contribution margin in one category is low but because the volume is low and fixed cost burden is so high. So it is hard to say why they did not like your approach or was that the real reason for your result.

Cheers
Serhat