There are many cases where man is not familiar at all with the business model. Epecially for profitability cases where it is important to know if there is a mix in order to properly tailor his framework. Is it ok for Mckinsey type interview to ask a clarification question upfront about the business model? The # segments? If yes what is the most elegant way to do it? Would you advise to systematically ask this question for all cases?
Is ok to systematically ask question to clarify the business model? Especially for Profitability cases
Yes, as highlighted, not asking this might be an hindrance to the development of a customized framework and hence resolution of the case. The way I would phrase such a question would be (let's take credit card as an example) "My knowledge of this sector is purely from a consumer perspective, so wanted to check with you whether my understanding of revenue strams of credit card companies is accurate and complete: the two main revenue sources I am aware of are interest on outstanding balances and transaction fees, anything else?" (in this case interviewer might say that annual fees can be also a factor since they can be up to $500-1,000 for premium cards).
Hope it helps,
For McK (and the rest in general) is not always fine but highly recommend that you clarify everything in your mind before jumping into the framework - that include for example understanding the overall problem of the company, their goal and their business model (that said, you need to use some basic common sense: if we were doing a case about a basic supermarket and you ask me how do they make money I’ll be negatively impressed by that question; however, if you ask what are their distribution channels that would be ok and interesting)
You absolutely should clarify the business model. Often even if it seems that you just a bit misunderstood the model
I recommend asking two questions in one: How does the business work and what are the revenue streams? Why do you need to know the revenue streams? Because it's one of the most critical pieces in understanding the business model. An example is Oil&Gas with up-, mid- and down- streams that are completely different businesses. This is also the most common pitfall in profitability cases (the 2nd pitfall is the Mix)
Other questions to ask in the beginning of the case are:
1) Clarify the objective. Here make sure that your goal is:
- Has a time-framed
- Has / has no limitations
e.g. Should I invest 100k in this business for 1 year if I want to get 15% return?
2) Ask the questions that will help you build a relevant structure and remove ambiguity.
And remember, all these questions serve one purpose - making a good structure!