Profitability case clarifying question - "company vs. industry wide issue"?

Hi,

Scoping is a key part of the actual job. Especially at the manager level, our task is to clarify and be crystal clear on what we are trying to solve for the client and how we will deliver it. But even as a junior consultant, you need to be able to be aware of the scope of your own workstream as well. In many ways, the clarifying questions are meant to mimic this.

I would second what Francesco has mentioned - industry vs company problem is typically not a very insightful question. Understanding whether the problem is industry or company specific could be helpful to understand the context / nature of the problem better, and more importantly to identify the limits/constraints of your potential solutions. 

• E.g. if regulation has affected all companies, then that might limit a solution on the direct lever
• However, ‘declining profitability’ being an industry or company wide problem “due to regulation” still doesn't help you find out where the problem is
  • Is it a problem on where regulation has capped pricing?
  • Is it a problem where regulation has increased costs due to say minimum wages?

It is very important that you understand the logic of what you are asking - as an interviewer it is very easy for me to tell when candidates don't actually understand/have a good logic of what they are asking.

Hello,

I think the feedback you've been given on this is pretty valid. But in general, both of these questions to me seem like questions you will go through in the case itself, rather than questions to ask at the beginning before you do the framework.

It is true that knowing the answers here could potentially help you target the framework towards the “right” path. However, the entire point of a framework is to showcase how you would set up the analysis without having a lot of detail and without knowing where the case will go. The point is not to hit the correct direction, but to show all the possible avenues the case could take, which will then enable you to uncover the correct one over the course of the case.

My advice is to use clarifying questions to:

1. Make sure you understand the business model
2. Make sure you have gotten all the details down correctly
3. Make sure you understand the objectives of the case

Anything else should be left for the case itself.

Is the revenue drop a company specific or industry wide problem?

Clarifying questions are meant to clarify the case context, scope or objective. Not to start solving the case. Honestly, as an interviewer I never appreciated these kind of questions, and would usually reply the question back to the candidate ("I don't know - how would you determine that?").

Of course, there's an issue with working. Asking if other companies are facing the same situation (this in practice is asking about other companies profitability data) is different that asking the interviewer's opinion on the root cause.

Imagine you do to the dentist and have a toothache. Asking you whether it is bacterial or phisiological (which would be awkward) is different that asking you if you had any recent physical trauma that could impact that tooth…

Please note this is not a strong negative. But I would rather avoid asking it the way you did.

What is figure of market size and company revenue for the past 3 years?

This is a clear no. For three reasons. First, you just started trying to solve the case without presenting any structure. Second, you are not explaining why you want this information and what you want to do with it. Third, it is actually hard for me to understand how revenue alone will determine whether the root cause is internal or external. 

Hi there,

1) Is it suitable asking these questions below in the "clarifying question" section, before I structure? Is the revenue drop a company specific or industry wide problem?

While it's not necessarily incorrect to ask this, I don't believe it will offer significant insights. Regardless of the answer, you will still need to identify the root cause of the issue. Therefore, you could consider postponing this question for later.

2) What is the figure of market size and company revenue for the past 3 years?

I would not ask this at the beginning as you don’t know if it is a revenue issue yet. So you might be asking for information that is completely useless for the case.

Best,

Francesco

Hi there, 

This is a great question!

I would rephrase it to just say, ‘what should I ask in the beginning of the case?’

Realistically speaking, ‘clarifying questions’ have two purposes:

1. To actually clarify the data that you've been provided or the sitaution of the client. So this is about making sure that you have the right understanding of the situation based on what you've heard from the interviewer.

2. To increase your level of confidence about an emerging hypothesis you might have. Which means that you think you might know where the problem is already and you're asking additional question in order to ‘collect evidence’ that this is indeed the right place to go to. 

Always have these two principles in mind when asking clarifying questions. 

And most importantly, don't assume you NEED to ask any clarifying questions. Only do so if it's actually necessary and value-adding. 

Best,
Cristian

Hi there,

You have to remember that Victor Cheng's material is very very old. I'm not saying it's all wrong, but it takes a very different approach (memorization) to what is needed nowadays (flexibility).

Q1 global/industry vs. company-specific is a fine question, but not one you can just always ask. In certain contexts it does make sense as, indeed, it can narrow your framework.

Q2 makes no sense. You are not solving the problem yet. You're creating a approach to solving it. On day 1 consultants won't ask this question, nor should you! It's so so so specific…makes no sense.

EXAMPLE:

In my Sky China case, we have a Chinese Airlines during covid with falling revenues.

Are you going to ask if this is an industry-wide problem? Of course not…silly question because we know it's industry-wide!

Are you going to ask for the market size figure and company revenue for 3 years? Of course not…this does nothing to help with our framework.

Make sense?

Here's an article I wrote that talks a bit about this topic: https://www.preplounge.com/en/articles/candidate-led-cases-what-to-expect-and-example-cases

GENERAL PROFITABILITY APPROACH
 

You need to understand the industry + company context from the prompt itself to figure this out...cases and case types cannot be memorized...you have to adjust every single time!

Example: LOOKING FIRST at Economy/Industry

In my Hot Wheels case, you're a Korean OEM with falling profits. You operate in the US and Japan. The FIRST thing you have to look at here is the general market AND how competitors are doing. Otherwise, you will never learn that US OEMs are doing well in the US while Korean OEMs are NOT doing well in the US. Then, you'll never solve the crux of the case which is that transport times+costs are prohibitively like (Just in Time delivery is the #1 product characteristic).

If you don't look at economy/industry first here, you will not solve the case in a time effective manner.

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/hot-wheels-186

Example NOT looking at Economy/Industry

Take my "Chinese Airline During Covid" case example. We know that the airline is in trouble due to covid. We can make the deduction that this is caused by a reduction in demand. As such, we don't really need to look into rest of market/industry

So, we want to "repair" existing revenue streams as much as possible. So, first let's see what we can do. Then, whatever "gap" is remaining, we want to fill it with alternative revenue streams. Finally, whatever we can't make up for, we have to fix through cost cutting (ideally cutting unused capacity). See the logic here?

And it'll change every time based on the case itself...think critically!

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/chinese-chess-airline-business-during-covid-19-191

GENERAL PROFIT DRIVERS

Volume Down: Competition reduced prices or improved their product (outcompeting you), competition just launched effective marketing, regulation has slowed you down, economic decline, environmental disaster, tarrifs, suppliers disrupting your production, your product no longer applies to the customer (i.e. decline has been happening for a while)...and so on and so forth...

Price Down: We're in a price war, costs have gone down so we're realising this, regulation has created a price cap, we ran a discount program

Variable Costs Up: Raw materials costing more, inefficient contracts, ageing workforce, deteriorating workforce, regulations, quality control

Fixed Costs Up: Recent large investments

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REVENUE ISSUES/IMPROVEMENTS
 

Remember, you need to apply your revenue improvement ideas to the specific case at hand. You cannot be generic.

That said, some major ways companies boost sales include:

• SAAS (software as a service)
• (Relatedly) Subscription revenue
  • Get people onot subscription plans (i.e. Netflix)
• Behavior-changing "memberships" - i.e. Amazon Prime
  • When people enter Prime membership, they actually actively spend more than they did before
• Bundling
  • I.e. sell a few things together
• Radiation
  • Sell products similar to the current one
• Low-price entry
  • Get someone in with a super cheap/good deal, then, now that you have them as a customer, sell additional, higher-margin products (insurance companies do this, for example)

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COST ISSUES
 

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:

1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
5. What's the most likely? (self-explanatory)

https://www.preplounge.com/en/consulting-forum/structure-breakdown-for-costs-7963

https://www.preplounge.com/en/consulting-forum/inventory-costs-how-to-segment-6861

https://www.preplounge.com/en/consulting-forum/direct-and-indirect-instead-of-fixed-and-variable-6272

https://www.preplounge.com/en/consulting-forum/when-should-i-break-down-costs-as-fixed-and-variable-as-opposed-to-over-the-value-chain-5990