Dear experts!
I am struggling to find a good way of analyzing profitability cases deeply. So I normally start with the usual question to see if it is a company-specific problem, or a market-wide problem. But then, I am not sure how I can continue properly. If it is a market problem - do I then run a market analysis? If I do this, I tend to get lost and after a couple of minutes, the interviewer needs to help me out. So how can I approach such analyses in a better and more secure way?
Hi Anonymous!
Alright... This will take a bit. I feel I have to explain a couple of absolutetely crucial points here.
In fact, your described initial approach corresponds to what is outlined in the usual case preparation books, youtube videos, etc. (mostly created by authors who have been still very junior when they left Consulting or did not even work in Consulting!). But as a matter of fact, this approach is not how a real consultant should tackle such questions! At least not in MBB.
Before delving into rather qualitative and contextual analysis (such as understanding industry phenomena), you should ALWAYS first isolate the numerical driver of the problem. 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. 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 what is recommended in 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! This information has ZERO impact on your first layer of analysis if done rigorously. 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 and helpful (because you now already know WHAT the root cause is - you just need to find out why it has emerged)!
Generalized approach:
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
Hi there,
On the top of what was already said, I would like to add the following:
Those are some comments I wanted to add to what was already said, but it will be difficult to give a complete assessment of the situation without knowing the details of the case.
I will be happy to continue to the discussion to better understand the details of this situation.
All the best,
Mehdi
Honestly, it depends! You need to think about the industry/business context, the company context, and the situationally/problem context. Only then can you create an appropriately tailored cost breakdown.
In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.
How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:
Expert case by
