Do different case types require using different hypotheses?

Question

Hi there, let me explain my question.

In preparing for cases, it seems to me there are only, really two different kinds of cases. PROBLEM-cases and for the lack of a better word, SCENARIO-Cases. The former typically highlight a problem, i.e. "profits are down, why?". The latter typically ask you to find the best alternative out of variety of options, i.e. "a client wants to setup a new production facility, where should he do that, Russia, Brazil, India?". In case of PROBLEM-cases the use of a hypothesis is pretty clear. In SCENARIO-cases, it feels pretty weird to use a hypothesis.

My question: should you approach SCENARIO-cases in a hypothesis manner and if not, how should you?

Thanks.

Answer 1

Hi,

The major mistake of the candidates is that they start using the hypothesis and neglect having a proper structure.

Moreover, if you perfectly solve the case without ever stating a hypothesis - you'll pass the interview. So most probably you had some other issues with the case as well and they used it as a standard feedback.

There are two ways to use the hypothesis:

First - presenting a structure using the hypothesis. For example, if you are having a PE (private equity) case, you should do the following:

1) Make classic structure (market, company, competitors, feasibility of exit)

2) Make subpoints (e.g. in market: size, growth rates, profitability, segmentation, etc)

3) Present your 1st level Hypothesis:

- "In order to understand whether we should invest in Company A, I would like to check a number of the hypotheses - that the Market is Attractive, the Company is Attractive, the competition is favorable and we have good opportunities for of exit"

4) Present the main 2nd level Hypothesis:

"In the market, I would like to make sure that the market is big enough and growing;
In the company I would like to find additional opportunities for growth;
In competition I would like to check that the market is fragmented enough;
Finally, I would like to check if we have potential buyers and can achieve desired exit multiples"

Another way to use hypothesis is using the hypothesis to prioritize your analysis:

1) Make a structure: "Problem in sales may be related to Sales Motivation, Sales Strategy, Sales Coverage, and Sales Process:

2) Prioritize a part of the structure based on your knowledge / common sense / available data: "Taking into account that motivation is the core problem of the sales organization, I would like to prioritize this part of the analysis".

Good luck!

Answer 2

Hi there,

I would approach the types of cases differently. The first one you mention I would call Diagnosis cases, which require you to diagnose the root cause of a problem and offer a solution. These may be related to profits, or not (i.e., why is our client experiencing delays in its production process?).

The other type of case is related to a Conceptual framework, which typically tackles open questions. Some examples: should we enter a new market? Should we launch this product? How would you improve the educational system of your country? etc. For these cases, there is not one single answer and it typically does not involve quantitative components and is more qualitative and conceptual in nature.

For BOTH these cases, hypotheses are crucial!

For Diagnoses cases, the first step consists in understanding, NUMERICALLY, where the problem is coming from. Profits are down? How much is due to costs? How much is due to revenue? In Revenue, how much is due to price fluctuation, and how much is due to demand fluctuation? etc. This first part involves no hypotheses in itself, you just want to find out what the data is. The hypotheses come when you have to interpret the data. Perhaps sales are going down because there is a new competitor in the market? Perhaps our client has suffered a PR problem and clients don't want to buy our product anymore? The hypotheses are endless, and to develop the right one you need to have business acumen and understand what the data is pointing at. The last part of these types of cases revolves around the solution to the diagnosis, and these will depend on both the data and the hypotheses you found to explain the data.

For Conceptual problems, hypotheses are relevant in EVERY PART of your framework, otherwise, there would be no reason to mention them at all. I will give you an example:

Should Ferrari launch an SUV?

A basic framework could cover MARKET, COMPETITION, COMPANY, CLIENTS.

The Hypothesis behind these buckets is the following:

MARKET: If the market is attractive, then Ferrari should launch an SUV. So your questions in this bucket will test this hypothesis.

COMPETITION: If Ferrari can compete in this market AND the market is attractive, then it should launch an SUV.

COMPANY: If the market is attractive AND Ferrari can compete AND the company has the necessary competencies, know-how and resources to successfully market an SUV, then it should launch the SUV.

CLIENTS: All of the above PLUS If our clients would value a Ferrari SUV and this would not negatively impact other sales, Then it should launch the SUV.

These hypotheses are crucial in determining what questions I will ask the interviewer in each of these buckets, and serve as the overall guideline to your reasoning and communication.

If you don't have a hypothesis behind a conceptual question you are asking, then, logically speaking, your question is irrelevant.

Cheers,

Nuno

Answer 3

Hi there,

To answer your question: you absolutely should always be hypothesis driven, including n the type of case you mention ("scenario case") in your question.

However, this doesn't mean necessarily stating a hypothesis upfront. Using your example, you don't at any point have to say "my hypothesis is that the client should open a factory in Brazil. Rather, as part of your framework, your hypothesis is that "the country which is best overall across these X criteria (i.e. the branches of your structure) is the country the client should open a factory in. Having this hypothesis driven approach to cases is crucial in all case types.

Your question raises a good point, and showcases what I believe is a huge misunderstanding among candidates. Being hypothesis driven does not mean coming up with what you think the answer is at the start of your structure - rather, it's framing the problem in a way that you are clearly testing a potential hypothesis.

For example, if the case is about a private equity acquisition, I wouldn't consider it particularly hypothesis driven if the candidate said "my hypothesis is that we should be this company. To assess this, I want to look at the company, the industry, etc.".

Instead, a much better way to communicate in a hypothesis driven way would be "In order to assess whether client should buy this company, I want to: first, determine if the industry as a whole is attractive; secondly, I want to determine if the company specifically is attactive ... If these 2/3 things are true, then my hypothesis would be that our client should acquire this company"

Hope this helps!

Alessandro