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What is some example of opening hypothesis?

Anonymous A

I always struggle to make an opening hypothesis, usually because the information I get is not intuitive enough. My question here is that:

1. What are the components of a hypothesis that should be there? is there some sort of format?

2. Should the framework that followed only has to examine about the stated hypothesis? example: you hypothesize based on information you gather about profit declining: "It seems like the problem primarily a saving of cost, so I will assess variable cost and fixed cost". Based on this should we also state that we also want to analyze revenue?

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Sidi replied on 06/21/2018
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 50+ candidates secure MBB offers

Hi! In such a situation I recommend to delay the hypothesis until you have something to ground your hypothesis on! Just stating a hypothesis for the sake of it serves no purpose!

Instead you can say “I would like to first identify the numerical driver of the problem, which can sit either on the revenue or on the cost side (or both). Based on this initial assessment, I would build a hypothesis on the underlying reasons for the detrimental development, then verify the hypothesis, and subsequently derive measures to address these reasons in order to reverse the trend.”

Cheers, Sidi

Vlad replied on 06/21/2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi,

There are two ways to use the hypothesis:

First - presenting a structure using the hypothesis. You always should make a full structure. So in your case, you need the costs as well. 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 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!

(edited)

Francesco replied on 06/21/2018
#1 Expert for coaching sessions (1600+) | Ex BCG | 800+ reviews with 100% recommendation rate

Hi Anonymous,

To answer your first question, as mentioned by Vlad and Sidi, you should start first with a structure, then apply an hypothesis to that. If you have defined a MECE structure, your hypothesis could simply be taking one of the options and consider it as the reason for the problem or potential solution.

To answer your second question, the hypothesis requires first data to be verified and not additional structure. Once the hypothesis is verified, you can then move deeper in the analysis of only the particular area the hypothesis was referring to. At the same time, if you have correctly followed the process explained as answer of your first question, you would have already defined a structure when formulating the hypothesis.

Putting the two answers together, in your example about revenues and costs an ideal approach would be the following:

  1. Present your structure (which in your example will include both revenues and costs as potential issues, eg – to understand where the problem is in this segment I would like to consider whether we have a revenue issue or a cost issue for it)
  2. Formulate an hypothesis on which could be the problematic area (eg – my hypothesis is that we are facing a cost problem in this segment)
  3. Ask for data to verify your hypothesis (eg – to verify such hypothesis, I would like to know how revenues and costs changed in the last year, do we have any information?)
  4. If the hypothesis is confirmed by data, continue your analysis focusing on the part of the structure that the hypothesis referred to, otherwise move to the other one. At this stage, you can go on formulating a new hypothesis (eg – since we found confirmation that there is a cost problem, I would like to structure now my approach analysing fix and variable costs. My hypothesis is that we have a fix cost problem. To verify if this is correct, I would like to know how fix and variable costs changed. Do we have any information on that?)

Best,
Francesco

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