Hi!
You are completely right! The approach that is often recommended in case books and interview guides (and which is adopted by most candidates) is extremely inefficient and indeed the very definition of "boiling the ocean"!
The approach of starting with mapping out qualitative buckets (understanding market, competitive situation etc.) corresponds to what is outlined in the usual case preparation books (mostly written by authors who have either been very junior when they left consulting or did not even work full-time in consulting...). But unfortuantely this approach is not how a real consultant at one of the top strategy firms should tackle such questions.
Before delving into rather qualitative and contextual analysis (such as understanding industry phenomena), you should ALWAYS first isolate the numerical driver of the problem. So this means that you have to turn around your approach!
Imagine you want to find out the reasons for the decine in a specific KPI (e.g., profits). First you do a numerical analysis to understand what is MATHEMATICALLY driving the observed phenomenon (here: the profit decline), and once you have isolated this problem driver, then you do a qualitative analysis to understand the UNDERLYING REASONS for this negative development of this specific driver. If you don't do it like this and stick to the books (i.e., start with asking questions on the market etc.), you will always be extremely inefficient in your analysis, since this approach is essentially the definition of "boiling the ocean". First narrow down what area you have to understand, and only then try to understand it!
For example, in a profit-decline case, knowing whether it's and industry problem or not is more or less useless at the start! First you have to understand what is numerically causing the problem. Only once you have found out the problem driver, then investigating on whether competitors have the same problem (and other relevant "buckets") is effective!
Generalized approach:
- Firstly you need to identify the numerical driver of the below-benchmark profits of the company (the WHAT? question). --> Identify the different income streams of the company; then for each income stream, draw a driver tree to find and isolate the core of the problem (compared to industry average: less customers? less revenue per customer? lower margin products sold? lower pricing? higher operational costs? etc.) If you find a below-benchmark driver, you need to dig deeper to isolate the sub-driver who is responsible for this negative performance --> the numerical problem dirver!
- Once the numerical problem driver is isolated, you need to understand the WHY? question. For this, the analysis depends on what the actual problem is. If it is a cost problem, you may want to go through the entire value chain to diagnose where the difference/disadvantage lies. If it is a revenue or sales mix problem, you may want to scrutinize underlying trends and developments, competing offers, substitutes etc. (THIS is where the "buckets" come into play, but not at the start!)
- Based on your quantitative (WHAT?) and qualitative (WHY?) analysis, you can develop strategic measures to address the qualitative reasons.
- Do not forget to outline potential risks of your strategic recommendation
This is how such problems are typically structured and tackled in top strategy consulting. Never start with qualitative questions - it is the most inefficient approach thinkable! First narrow down the (sub-)area that mathematically causes the problem (quantitative analysis) and THEN start asking qualitative questions to understand the underlying reasons.
Cheers, Sidi
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Dr. Sidi Koné
(Former Senior Engagement Manager and Interviewer at McKinsey | Former Senior Consultant and Interviewer at BCG)
(editiert)