Hi!
I feel I have to explain a couple of points here. Your approach corresponds to what is outlined in the usual case preparation books (mostly written by authors who have been very junior when they left consulting or did not even work in consulting!). But unfortuantely this approach is not how a real consultant 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! First you do a numerical analysis to unerstand what is MATHEMATICALLY driving 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, 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!
In your concrete 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 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.
- 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
