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Customizing my business situation structure on the fly

Anonymous A asked on Dec 19, 2018 - 4 answers

Hello everybody!

I have started developing my own version of the business situation framework to approach different types of case questions. In particular, I am practicing a lot of market entry cases at the moment.

I am more and more leaning towards using the general structure below. It seems to work in most cases, but I still struggle to really make it work in all situations and industries, and I often feel myself force fitting the question into this framework. I wonder how I can become flexible enough to mix and match framework elements as needed. And how can I identify the "right" elements just from the case prompt?

Here is the structure that I use:

External factors:

- Market metrics (size, growth, profits)

- Customers (segments, preferences, price sensitivity)

- Competition (fragmentation, best practise, core capabilities, possible M&A?)

Internal Factors:

- Company (revenue, profit, growth, costs structure, resources, management, marketing, core capabilities, distribution channels)

- Product (product lines, pricing, how does it match consumer preferences, USP's etc.)

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Sidi
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replied on Dec 19, 2018
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Hi Anonymous,

I might be shattering your entire understanding of how to approach cases. But, frankly speaking, what you outlined above is NOT a case structure! It does NOT show in any way how you are thinking about the problem and how you are going to answer the question! What you have outlined is simply a structured list of buckets that you want to look into, in the vague hope of finding interesting evidence for the attractiveness of the focal market.

This reveals a purely explorative mindset, which is the OPPOSITE of rigorous and hypothesis-driven thinking! Moreover, the four areas you want to explore seem arbitrary - you do not provide any logic why and how exactly looking into these areas will lead to the answer to the case question! So the most important and fundamental element of solving a case is completely missing: making explicit the CRITERION according to which the case question can be answered, and outlining the rigorous LOGIC TREE to disaggregate each element of this criterion (or criteria) into its underlying drivers. ONLY THEN the discussion of the factors above (and you have probably omitted several important areas due to the lack of underlying logic) will make any sense (since now you can attach your elements to sub branches of the logic tree!).

Cheers, Sidi

P.S.: I know that such random list of topic areas is what has been brought forward by Victor Cheng et al. more than 10 years ago. But, with all due respect, this is teaching a fundamentally flawed way to think about business problems (irrespective of whether we talk about market entry or any other strategic issue). The most important element, the INHERENT LOGIC of your approach towards answering the clients' question, is completely disregarded in such simplistic frameworks. So my first task with any of my mentees is to convey to them how to think through a business issue based on first principles! NEVER use a "framework" to structure a case!

Francesco
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replied on Dec 20, 2018
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Hi Anonymous,

I agree with Vlad, a structure will always be incomplete and not fitting the case until you have clarified the goal of the client. In order to have a structure fitting the case, you should then present connecting each point of the structure with the goal, explaining the rational why you are looking at that point.

In terms of the structure per se for market entry, I would recommend to proceed as follows:

1) GOAL CLARIFICATION. It is always good to start with the end in mind – thus what is the specific reason why you want to enter the market? Is it revenues, profits, specific synergies or something else?

2) INDUSTRY. There are three key macro variables here.

  1. Barriers to entry. This includes regulation or technology requirements.
  2. Key industry numbers. This includes, for the market and potential subsegments, the analysis for the following elements:
    • Growth of the market/segment
    • Size of the market/segment
  3. Key industry players. This includes:
    • Type of customers
    • Competitors concentration
    • Occasionally for some cases: suppliers (if they have market power) and substitutes (if competitors are weak)

As mentioned, you should present this area connecting with the goal, and not purely listing the elements to analyze as if it was a laundry list. The best way to do so is to explain how a certain variable will help you to achieve your goal. Eg, if your goal is to increase revenues, don’t simply say “I want to look at growth, size and barriers”, rather “I want to look at growth and size – this will tell me if the market has the potential to provide enough revenues for our client. I would also like to check barriers to entry, to understand which are the obstacles in entering such a market and thus increase revenues”. If there is no rational to look for a point, you should not consider it.

3) POSSIBLE WAYS TO ENTER. Once you know the industry is attractive, you should consider the entry options.

  • Which are the possible ways to enter the market? Usually, you should consider (i) starting from scratch; (ii) M&A; (iii) Joint Venture or licensing
  • Which option meets better our capabilities to enter the market? Each specific way to enter will require some different capabilities. If you start from scratch you may need skilled people in all the phases of the value chain; if you buy another company you may need fewer people, but more upfront capital, etc.

4) COMPANY - TARGET OBJECTIVE FEASIBILITY. Once you verified you can enter the industry, you can move to check the fit between the client and the selected industry for a specific way of entry.

  • Are there positive or negative synergies in such industry?
  • Can our specific client reach its objective in the selected market (eg profits, revenues, market share, etc)?

In the second point, you will probably have to go through a profitability/revenue/cost framework, to calculate the effective result.

5) RISKS AND NEXT STEPS. What are the major elements that we should further analyze based on the previous points (eg regulator decision, potential wrong pricing in the new market, etc)?

Hope this helps,

Francesco

Guennael
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replied on Dec 20, 2018
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Looks like everyone generally agrees here. Let me try to create a tl;dr: version:

1. You of course need to define the question, including any terminology as well as quantifiable objectives & timeline

2. Pre-defined buckets are fine, but only as a starting point

3. The key is to figure out why you want to go through each one, and how they relate to each other. You need to build a hypothesis and create a storyline. In other words, asking about products just because you've been told you should isn't what we are looking for. You want to ask about the product to ensure it fits the consumer's needs and leverages your client's strengths for example

PS: I like Victor Cheng and am not nearly as critical of him as Sidi is. What I believe Cheng had to do is oversimplify his message a little bit to touch a broader group of applicants - but his business framework wasn't meant to be the be all & end all.

Good luck

Vlad
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updated his answer on Dec 19, 2018
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Hi,

It's a very wrong direction to have a one-fits-all framework, so I would recommend starting with the objective first. Ask the right clarifying questions:

  1. What are we going to achieve on the market and what is the timeline?
  2. What are our business model and revenue streams now in the current market
  3. Are we going to enter organically or non-organically?

Then I would follow up with the structure that really fits your context and objective. (E.g. for an Indian telecom market entry you'll have Penetration as one of the market drivers and Switching costs driver while investigating the customers)

One example of the structure (again, it will really depend on the objective / context) might be:

Market

  • Size
  • Growth rates
  • Profitability
  • Segments and growth rates
  • Distribution channels
  • Barriers (regulation)

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (A fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)
  • Previous / projected entrants

Company (If the case says you have the company that operates in a different / adjacent market)

  • Your current capabilities that you can leverage (e.g. suppliers, assets, IP, etc)
  • Potential partners
  • Brand
  • Previous experience in entering the markets

Entry strategy

  • The need for investments
  • Time to enter
  • Branding (Do we keep an existing brand / do sub-brand if it is the new segment or create a new brand?)
  • The existence of acquisition / licensing / JV targets if relevant
  • Risks

Good luck!

(edited)

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