Thoughts on Starting Profitability Case with Economy & Industry

Hi there,

Honestly, it depends. Any answer otherwise is too simplistic.

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

For profitability cases, I would avoid overcomplicating it and stick to the basic profitability tree/analysis. 

Understanding the nuances of internal vs. external (i.e., industry/market) issues is definitely worth clarifying and exploring in your profitability tree but you run the risk of having a very generic structure if you start with E(P=R-C)M. Specifically, there are always economic factors (e.g., interest rates, inflation, etc.) which have an impact on a company's profitability but you're not really showing your problem solving abilities by starting a case at such a macro-level.

Hello,

If you are referring to external factors that could influence your client performance I would usually consider just the size and trends of the market and the competition analysis. I don't see many cases where GDP/Capita or similar can help you to solve the case.

I would start the framework with this section, since it is usually short and can give you some interesting insights to better understand your client's situation.

Best,
Luca

Hello!

I think you are overcomplicating things here -had to read the case twice-!

I would try to start with the inside, and then move to the outside to complement the info that you have already. It´s a more strucctured and logical approach, that would help in the resolution. 

Hope it helps!

Cheers, 

Clara

I second Adi's answer!

Internal factors (customers, product, revenue, cost etc) first please, then go outside. Starting from outside first wont get you far as those external forces impact pretty much every business in that market/industry.