I just got rejected by a tier2 in a partner interview due to my case performance in a seemingly simple case. I think the main mistake lies in my initial approach which he did not like. This then made me extremely nervous when I was guided through his approach. Why was my approach inappropriate?
Case: Travel agency chain with less than half industry average EBIT; EBIT and revenue given. Booking via physical branches or telephone only. Two customer segments: business and private; No of transactions and revenue in each segment given; More revenue with less transactions in business travel than in private segment. CEO wants to know why EBIT is so low and how to get to at least industry average. Further information revealed upon asking: No specific time frame for solution; EBIT has always been that much below average; no sudden changes in either client's nor industry EBIT.
My approach: Draw tree diagramme for EBIT and each customer segment (below), go through and compare each number with industry average. Find major discrepancies and then analyse qualitative reasons for discrepancies. After that brainstorm potential solutions, and assess potential solutions if they are feasible etc.
layer 1: revenue vs. costs
layer 2: revenue = business + private; costs = business + private
layer 3: business rev = (average transaction price) * (no of transactions); same for private rev
layer 4: no of transactions = (no of customers) * (no of transactions per customer)
His approach: No initial structure required at all. Calculate profit per transaction in each customer segment. Then calculate total EBIT in each customer segment. See that private customer segment makes a loss with each transaction and business segment alone makes above industry average EBIT. Realise that closing down private segment is not a good solution as high transaction volume is required to get any travels by travel providers. Make some other suggestions how to increase EBIT. No comparison with industry in entire case.
Thanks for comments!