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If you do a profitability case and decide on a hypothesis "Revenue problem", should your issue tree only consist of the revenue side of profitability? And if it is not a revenue problem, then you change your hypothesis to "Cost problem" and draw a completely new issue tree? Or should the issue tree include both revenue and cost from the beginning?

hypothesis issue tree profitability
Recent activity on Aug 24, 2018
2 Answers
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Kristian asked on Aug 24, 2018

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Vlad
Expert
replied on Aug 24, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

The short answer - it should have both revenues and costs. What you are saying is not a hypothesis.

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!

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Kristian on Aug 24, 2018

Thank you!

Egor
Expert
replied on Aug 24, 2018
Collected McKinsey & BCG offers/ Ex-McKinsey consultant/Harvard/WBS/MSU

That’s a good and important question. I am glad you asked.

The case consists of several stages, first of them are:

  1. Know-how: when you ask questions relating to the problem at the beginning
  2. Structuring: take time to structure your approach/structure in the moment and then tell your approach to the interviewer.

During structuring phase, you should do the followng:

  1. Give overview of all your branches with the deep-dives in each
  2. Tell interviewer that you have a hypothesis relating to e.g Revenue/costs with specific reasoning: why you want to look at it. And then ask him whether we should deep-dive in it.

Interviewers will alwasys tell you, as in consultancy we do not have a lot of time boiling the ocean. And in case interview you only have 30 minutes.

We should prioritize the branches and analysis to solve the problem as efficient and fast as we can.

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Kristian on Aug 24, 2018

Thank you!

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