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Preface
When I applied at the top strategy firms, I quickly learned that many
best-selling books on case interviews are severely lacking. They are
based on interviews with industry insiders instead of intimate personal
experience, focus only on one part of the interview process and do not
prepare you at all for the tough selection process employed by these
firms.
In this book I combine my personal experience gathered on both sides
of the interview table with what Ive learned from successfully coaching
candidates during countless one-on-one and group sessions. It covers
the whole process: from cover letter and resume to the case interview
itself, featuring:
Everything you need to know to write the cover letter that gets you
invited, including templates, examples and expert tips.
The truth on resumes and how they are used, including what you can
do to make sure you stand out.
The two essential consultant skills you need to communicate during
the interview and how to answer any other question they throw at you.
The best way to prepare for the McKinsey PST and other written cases,
including a unique practice PST question.
A complete tutorial on solving guesstimates and how to avoid its
pitfalls, including 3 fully elaborated example questions.
Three frameworks and four golden principles to help you crack the
business case confidently.
Thirty pages with three fully elaborated practice cases including
example frameworks, riddled with tips and best practices.
A solid approach to even to most difficult brainteasers.
This is the book I would have wanted when I started interviewing. It is
the most complete and most up-to-date guide to case interviews around
and is guaranteed to radically improve your interview performance.
That I promise.
Table of contents
Introduction!..........................................................................................................7
Cover Letter! .........................................................................................................9
How they use your cover letter: the 30 second rule!.................................................9
Five ways to make your cover letter stand out!........................................................10
How you should use your cover letter!......................................................................11
How to structure the cover letter!.............................................................................12
Resume!.................................................................................................................15
The truth on resume formatting!..............................................................................15
The format that works!..............................................................................................16
Writing the perfect consulting resume!....................................................................18
Things to avoid in your resume!.................................................................................21
The Interview!......................................................................................................23
Before the interview!..................................................................................................23
The typical interview!.................................................................................................25
The Airport Test!........................................................................................................25
Resume walkthrough!.................................................................................................26
How to best answer interview questions!.................................................................27
The two skills the interviewer will be looking for!..................................................30
All the questions youll get (and answers too!)!.........................................................33
Your questions!...........................................................................................................40
Written Cases!......................................................................................................43
McKinsey Problem Solving Test!...............................................................................43
Other Written Cases!.................................................................................................46
Practice Guesstimates!........................................................................................63
London Eye!................................................................................................................63
Hearing Aids!..............................................................................................................66
Romanian Cons!......................................................................................................70
Business Cases!.....................................................................................................73
Four Golden Business Case Principles!.....................................................................73
The Basic Structure of Business Cases.!....................................................................78
Three frameworks with broad application!.............................................................80
Business Case Pitfalls: Data!.......................................................................................85
Business Case Pitfalls: Structure!..............................................................................86
Business Case Variants: Group Cases!......................................................................90
Practice Cases!.....................................................................................................93
Indian Whisky!............................................................................................................93
Coee shop!...............................................................................................................105
Brazimao!....................................................................................................................112
Brainteasers!.......................................................................................................129
Brainteaser approach!...............................................................................................129
Brainteaser examples!...............................................................................................129
Brainteaser solutions!................................................................................................131
Appendix A:!.......................................................................................................135
Solutions to the PST-practice case!..................................................................135
References!..........................................................................................................137
Acknowledgements!...........................................................................................137
Introduction
This book will guide you from the first line of your cover letter to the
last question you ask at your final case interview. It was written with a
clear goal in mind: getting you through the selection process. To that
end, it follows the standard procedure from start to finish: from cover
letter and resume, to written test and case interview.
While reading this book and going through the selection process
yourself, its important you keep your goal in mind: with sufficient
talent, preparation and maybe a little luck you are to become a
consultant at a top (strategy) consulting firm. The whole process is to
determine whether you have it in you to become successful as a
consultant. At every step, the question will be Is this candidate a good
consultant?. To answer this question, these firms will look at your cover
letter, your resume and use case interviews, selecting only the best at
every step.
They use the case interview for a specific reason: theres no better test
to determine whether you are fit for real-life consulting work. The case
interview is a consulting project in a nutshell: a difficult question, lots of
data, high uncertainty and high pressure. Without preparation, this can
quickly become overwhelming.
The material in the first two chapters is meant to get you to the
interview and revolves about making sure your cover letter and resume
get noticed and do not end up in the reject pile. Chapter three and
onward cover the interview itself: the basic structure, the resume
questions, guesstimates and business cases.
You can practice the techniques with the example questions, in which
you can compare your approach with the candidates. Throughout these
elaborated cases youll find the structure and framework used to solve
the case, including tips on what you should copy from the candidate and
what not.
This book will make sure you have all the tools and necessary
preparation to get an invitation to the interview and confidently ace
every question they throw at you.
Good luck!
Cover Letter
We will start with the first step of the consulting application process: the
cover letter and resume. Both will travel with you through the case
interviews: every interviewer will have a copy of it and ask some
questions on your previous (work) experience or education. But its also
the first thing on which youll be selected. Before you write any of these
two documents, its important to crawl inside the head of the person
that is going to read them and decide whether theyll invite you or not.
So before we start, we will take a look at the selection process used by
these firms.
So you have to make sure you stand out in those first paragraphs of
your letter. If you can catch the attention of the reader he might read
your whole letter and invite you to the interview. In the next section, we
will tell you how to stand out.
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When youve got the attention of the reader, the body of the letter is
where you link your qualifications with the firm and show that there is a
fit between the two. Its also the perfect opportunity to flesh out your
resume. Your resume is a dry summary of facts, with little room to
explain interesting details. If you founded an unknown company that
now does $20 million in sales in an industrial niche nobodys ever heard
of, it can easily be buried by the other facts on your resume. Remember,
you only get a short window of attention.
We will tell you how to make these interesting facts stand out on your
resume in the next chapter, but you can use your cover letter to explain
these interesting facts in greater detail. This also makes sure they dont
get overlooked.
Know your weaknesses
This is another way to differentiate you from the other 300 applicants
and shows you did your homework well. If you have a Physics or Math
background, you can emphasize your analytical skills and exemplify it
by writing down how well you examined this or that mathematical
problem.
However, since you have an analytical background, the reader is not
questioning your analytical prowess as it will probably be sufficient for
the job. Hes probably more worried about whether you can handle
yourselves in social situations. In you cover letter, focus on the one or
two activities from your resume that show these social skills (being
coach on the local football team, for example).
The same is true if you have an Arts or Social Studies background: the
reader will probably take your social skills for granted, but will be more
interested in whether you can tackle analytical problems. Highlight
those in your cover letter.
Know what the stereotypes of your background are and help the reader:
show you are different in your resume as well as your cover letter.
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Resume
We know how to write a cover letter that catches the readers attention,
but that is only the beginning: he will quickly move on to your resume
to see whether his interest in you is justified. Can you present your
accomplishments in such a way the reader can identify them at a glance?
Well, the following section will help you do just that.
Also: no skills resumes, they make the reader feel awkward. Dont know
what a skills resume is? Good, keep it that way.
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(interesting!): list them here. If you are addicted to World of Warcraft (no
life) or play an obscure boardgame (no friends): dont list.
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Now, your achievement is specific and to the point. The reader will know
what Company X is all about and what your responsibilities were. It
would be even better to add an achievement in another bullet point, for
example how much windshield sales increased under your management.
04/97 - 03/99 Sales Team Manager at Company X
Company X is a Detroit-based producer of car windshields with 200
employees and annual revenue of $ 10 million.
I was responsible for a team of 9 account managers and negotiated all
deals above $ 200,000.
Personally responsible for the 100% increase in windshield sales.
The example above is also quantified, a technique which well turn to
now.
Quantify
One good way to make achievements more clear is to quantify. If you
are able to quantify your achievements: do so, if possible using
numbers as they grab attention. Did you double yearly company sales in
your last position? Dont write:
I have achieved an increase of more than double the amount of last
years sales in wind shields.
Be to the point and quantify:
Personally responsible for the 100% increase in windshield sales.
This is much easier to read, isnt it? Numbers grab attention better than
words. You should always try to quantify your achievements and the
same holds true for responsibilities. If we go back to the example of the
sales team manager, we already saw a good example of how it should
be done:
I was responsible for a team of 9 account managers and negotiated all
deals above $ 200,000.
Its crystal clear how many people you managed and what kind of deals
you negotiated at Company X.
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Highlight
We already touched this subject above, where we discussed the format
of your resume. To make it easy for the reader to spot your
achievements, you should not only focus and quantify. You also need to
highlight what is important. You might think this looks stupid: you dont
want to look like an attention-seeking exaggerator. But think again:
what if you dont get invited because nobody saw your achievements
because they werent highlighted and presented properly? What do you
prefer?
But what do you need to highlight? The resume screener is looking for
big names. Both high-end universities and Fortunes 100 companies are
good candidates for highlighting. If youve worked at a small company
but had big name companies as your customers: highlight them. For
example:
04/97 - 03/99 Sales Team Manager at Company X
Company X is a Detroit-based producer of car windshields with 200
employees and annual revenue of $ 10 million.
I was responsible for a team of 9 account managers and negotiated
deals with Ford, General Motors, and Toyota.
If you dont have these big names to highlight, you can still draw
attention to achievements youre proud of by highlighting them. Dont
highlight everything: try to tactically grab the attention of the reader and
direct his or her attention to those two or three things you are most
proud of.
How to highlight? My personal favorite is by making those highlights
bold. You could also put important achievements higher on your resume
than less important ones, although this breaks the chronological order.
Expert Tip:
One creative way for students with little work experience but
lots of extra-curriculars is to highlight that special achievement
without breaking chronology: list that extra-curricular as work
experience. That way you can move it up to a spot where it
gets more attention than when its hidden in the extracurricular section.
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Dont forget that these people see thousands of resumes and speak to
hundreds of candidates: they can spot the difference between
exaggerated achievements and real ones. Besides: the last thing you
want is to get busted during the case interview, as this will mean the
end of the interviewing process.
Using buzzwords and industry jargon excessively is also a no-go. Dont
use terms you are not intimately familiar with, since if you fumble using
them, the interviewer will reappraise your whole resume accordingly.
Example:
04/97 - 03/99 Team Manager at Company X
As a Green Belt Lean Manager hosted multiple Six Sigma Kaizen
workshops.
Envisioned MECE TQM plan to do SWOT analysis of the company.
Just dont do it. The next chapter will focus on the next important step
in the interview process: the interview itself. What can you expect? How
to answer those though interview questions? That and more in the
following chapter.
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The Interview
So youve rewritten your cover letter and resume and finally sent your
application to McKinsey, Bain and BCG. Time to relax, right?
Not exactly. If you want that job, now is the time to start preparing the
interview. Heck, even if you havent applied yet: start practicing right
after finishing this book, using the materials supplied in the coming
chapters. Why? Because the majority of applicants does not start
practicing until after they have received the invite for the first round of
interviews, which might take place within a week or so. This leaves them
with only a few days to prepare.
A few days of fully devoted practice might be enough to pass the first
round, maybe even the second. But I want you to sit there relaxed, with
a professional look in your eyes that gives both you and the interviewer
the confidence that you will ace the interview and make a perfect
addition to the team. The only way to attain that is preparation, so lets
start.
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Dress code
So, what are you wearing to make that perfect first impression? An
interview in the consulting industry means wearing business attire. This
means a suit and tie for men, no exceptions. Women are more flexible
in this regard, but lets first start with what men should wear:
Men
When it comes to clothing, men have it easier: the options are more
limited and if you play it safe then its difficult to screw up your outfit.
Lets take a look:
Suit: Darker colors, but not black. Dark blue and dark grey are safe
choices. No fancy stuff, a small pinstripe is allowed. Choose wool,
synthetics look cheap and feel uncomfortable.
Shirt: White is the safest option, light blue is also great. Again, no fancy
stuff. Stripes are possible, but be careful with your shirt/tie
combination. If you prefer double cuffs, dont wear your Mickey Mouse
cufflinks.
Tie: One stripe maximum. If youre wearing a suit and shirt with plain
colors, the tie can be a little more colorful. Watch out when combining
striped shirts with pin stripe suits and patterned ties.
Shoes: Brushed, black, leather, traditional model. Brown is also an
option, but officially its all black. Steer away from those fancy models,
and wear black socks in them.
Women
More variation, and thus more difficult than men. Especially for the
interview, you should go for safer options. You can still wear that special
blouse if you get the job and get a feel for what other women wear at
the office.
Top: A dark blazer, blue, gray or black. A shirt and top underneath.
Maybe you feel a white shirt is too plain, but its a safe bet. Other safe
colors include light blue and a soft pink. Wear a tank top under it, so
nobody sees what they shouldnt see.
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Skirt/Trousers: You can choose to wear a pencil skirt, but make sure
they are not too tight and that you can sit comfortably in them.
Otherwise wear dark trousers.
Shoes: The interview is not the time nor the place to wear those killer
heels, but that doesnt mean you cant wear any. Try to balance
professionalism with attractiveness, not just with your shoes but in your
whole outfit.
minutes of introduction.
minutes of resume questions.
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these two hours cost your colleague more energy than a full day of
spreadsheet analysis?
During your interview, you should keep in mind that your social skills
are also constantly tested. There is no faking a great personality, but
being aware, calm and prepared helps a lot to make a great impression.
Try to be friendly and smile, even though youre stressed because of the
interview. Try to look at the interview not as a test, but as a
conversation between two educated people trying to solve a case and
get to know each other. Try not to let the stress of the interview harm
your enthusiasm for solving cases or your mood in general, just take it
easy.
Through practice you can master the case interview, which relieves you
of some stress and it can give you the necessary self-confidence during
the interview. An interview will always be exciting, but we are to make
sure that this excitement is positive (enthusiasm) instead of negative
(stress).
Resume walkthrough
After the introduction, the interviewer will first ask you some quick
questions about your resume. Anything on it is fair game, so expect to
answer questions on any item, being work experience, education or your
interests. Make sure you prepare little narratives for each, in which you
explain what your achievements are and how you achieved them.
Try to focus these narratives around the three to five of your positive
characteristics/achievements you want to convey. So if you want to show
you have experience in the industry or showcase a great teamwork
achievement, than bend your answer towards those achievements.
Does this sound odd to you? Compare the job interview to a normal
interview and picture in your mind a politician answering questions from
an interviewer. Politicians are professional question benders: if an
interviewer asks them about XZY, they give a quick answer on XYZ and
then continue stating that they (or their party) also supports ABC
because of blabla. For example:
Interviewer: Sir, do you think building this dam will be bad for the
wildlife in the area?
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Politician: Independent research has shown that this is not the case,
while the construction of the dam not only creates hundreds of jobs but
also reduces the US dependence on Saudi oil.
Interviewer: Are you implying we are too oil-dependent?
See how you the question about wildlife gets bended into a potential
discussion about job creation or the US energy dependence? Interviewer
and interviewee dance around each others questions and answers.
During your interview, you will need to do the same.
The interview is a stage, in which you are given the possibility to present
three to five striking details about yourself. For example: your
enthusiasm for consulting, your extraordinary leadership experience
and your persistence. Thus, you try to bend every question towards an
answer that incorporates one of the above:
Interviewer: Tell me about a time you worked in a team
You: Well, together with a team I organized event X and I had to do Y.
The odds were against me, but even through initial failure I persisted
and completed the task, achieving Z.
It might be difficult (and even feel a little awkward) at first to do this,
and you should practice answering these kind of interview questions (a
list of typical questions and possible answers is provided at the end of
this chapter). Dont be afraid that the interviewer will react negatively if
you bend the question: he has been there before and will be glad that
you understand the interview dance. But try not to dance the foxtrot
during a waltz: you cant force it.
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Task
What were your tasks? What was your goal? What were your
responsibilities? Example:
Our goal was to finish the product on time, since missing the
deadline would cause serious damage to the companys profits
and brand name.
Action
What did you do? Which action did you take? What were your
contributions? Describe them concisely and make sure to keep it
focused on you: use I and dont use We.
Result
What happened? What did you accomplish? What did you learn? Try to
list multiple positive outcomes and make them as tangible as possible,
for example by quantifying them. With negative outcomes you should
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focus on what youve learned and how you dealt with failure, but this is
a lot trickier than with positive outcomes, so try to avoid them.
Since there was no more delay, I and the two other account
managers could go to work. Not only were we able to attract
30% more companies than the year before, visiting the
locations together increased team spirit and got everyone more
involved in the organization.
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Personal Impact
I can hear you think: So, thats it?. Well, yes actually. Consulting is the
interesting combination of business analysis on one hand, and people
skills on the other. The business case is there to test your analytical
abilities, but people skills are also extremely important, and often
underestimated.
As a consultant, you will often work with a client facing a crisis and
there is no way youll be able to convince the client of your solution
without people skills. Or get the much-needed statistical data from a
reluctant administrative worker whos job is on the line. To succeed as a
consultant, you need people skills and two in particular: leadership and
personal impact.
Leadership
There must be dozens of books on leadership and its definition, but
leadership in this case comes down to the following:
Getting a group of people who disagree on an idea to agree enough to
make them execute it successfully.
What does that mean? As a consultant, youll often find yourself between
people with 30+ years of experience in an industry while you just
started on this project last week. Your analysis showed that they should
run their business completely different, how are you going to tell them
and convince these veterans of the necessity of a new business model?
With every candidate that sits down in front of him, the interviewer is
asking himself: can I trust this candidate in these kinds of situations and
does he have the experience to show for it? Experience with these kinds
of situations (and their successful resolution) are what the interviewer is
looking for and this experience can come from anywhere: work
experience, extracurriculars, volunteering, etc.
Personal Impact
Where leadership is more concerned with setting direction and
successfully bringing people to follow it, personal impact revolves about
empathy, conflict resolution and political skills.
Lets first focus on empathy and conflict resolution. Clients are often in
a crisis, or they wouldnt have hired you. But that often means people
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are afraid to lose their jobs, are trying to shield their team, division or
business unit from job or budget cuts and are generally resistant
against change and the agents of change: you. This means you need to
be able to handle situations in which you face considerable resistance
and emotional reactions.
Pointing to the rational facts (Stop protesting, youre wrong! Heres the
analysis that proves it!) will often make things worse. Being able to
handle these situations requires empathy and understanding, which is
what the interviewer will be looking for in the interview. So tell him or
her about a situation in which you did! But what about political skills?
Since youll be working with a new client team every project and every
company/division is different, youll need to be able to grasp the
political situation quickly. Since most politics happen beneath the
surface, you need to have a gut feeling about who decides what (which
often differs from the official power structure) and intuitively grasp how
people will respond to certain changes. You might have worked hard on
a perfect analysis and wonderful solution, but if you submit them to the
wrong manager hell put the recommendations in his desk and youll
never hear from him again.
Personal impact is about knowing how to make the most impact and
successfully implement changes. Its about dealing with people, showing
empathy and understanding, and knowing how to resolve conflict.
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"Please tell me about a time you led a group that was in disarray but
still needed to get something important done and how you dealt with
it.
Could you tell me about a time you faced a group with bad morale
that still needed to be effective and how you fixed this?"
I think you get the point. Use a story of your own experience in STARformat to answer one of these questions. Try to cover both your
leadership and personal impact skills in the answer. These type of
questions should always be expected, since these skills are so crucial
for consulting.
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We have now covered about 70% of the types of questions youll get
during the interview and will now move on to the more general type of
questions. Remember that you can always try to bend these questions
into one of your prepared STAR-narratives: you dont want to walk away
from the interviewing regretting you were not able to tell them.
Tell me about yourself
Dont make the classic mistake of telling the interviewer where you were
born and where you went to college. Its not wrong per se, but you risk
going into personal details (could be awkward) and more importantly:
you lose the opportunity to present yourself well.
So what should you do? Try to stand out, be different! At the end of the
day, all interviewers meet to discuss the candidates. If nobody
remembers you, your candidacy is over. But if you told them about the
paragliding-business you set up as a student, everybody remembers you
as the paraglider. You could also use it to tell about one of the
qualities the interviewer is looking for (leadership, personal impact or
differentiation) or tell one of your other STAR-stories.
Below, youll find a differentiation example answer:
Im a History Major with a minor in Economics, I love sports
and I am an active long distance runner who also owns an
active blog on running, with 5000 unique visitors per month.
Because of my experience with my own website I picked up a
little programming which came in handy when I wrote my
thesis: I evaluated Napoleons tactics during the battle of
Waterloo with a computer simulation.
Why consulting?
Why would the interviewer ask this? Well, because these firms spend a
lot of valuable time and resources on recruitment and training of first
year consultants. If you cant convince them that you are passionate
about the consulting lifestyle and can keep up with the long working
hours and travel, why should they waste any more time and resources
on you?
To help you answer this question:
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Why firm X?
Even though most consulting firms do practically the same thing, there
are subtle differences. They have different areas of expertise, a different
focus (for example: McKinsey: Leadership, BCG: Self-development, Bain:
Team-building), office sizes, growth rates, opportunities, etc.
Even if you dont really care whether you end up at BCG or at Bain, you
should be prepared to defend your choice (hopefully, youll get offers
from both and get to pick). You could refer to specific people you spoke
or recruiting events you attended, for example:
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However, you should be prepared to explain why you choose this firm in
particular (see the question above). Also, we would advise against
mentioning any interviews in other sectors, as this might lead the
interviewer to conclude youre not passionate for consulting. The only
exception here might be the (investment) banking industry: the biggest
competitor for McKinsey when it comes to hiring is not BCG but
Goldman Sachs.
Tell me about a recent setback youve had to deal with.
Or: tell me about a time youve failed at something, or any other variant
of the failure question. As a consultant, youll get your fair share of
(un)deserved failure. This question is to determine whether you can
cope with failure and whether you are able to learn from it. So give them
a recent example of something you tried and failed at, and what you
have learned from it. Or preferably, something in which you persevered
even though you failed and which you ultimately brought to a good end.
Dont say I never fail or something along that line: everybody fails.
Other no-gos: academic failure and personal failure, such as recent
break-ups, family feuds and other things that might make the
interviewer uncomfortable. An example:
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a little more in the interview: do so now. If not, tell a STAR that will
make them remember you: such as that time you ran the New York
marathon for charity, or something like that.
Tell me about something you struggle with
Or: What is your greatest weakness? A standard interview question, with
which you can do two things:
1. Tell about a minor weakness not relevant for the job.
Difficult for consulting, since so much is relevant. You need to be a
teamplayer, need to be able to work on your own, need analytical skills,
need to be able to work with numbers. Some examples:
1. Quickly bored
Im the kind of person that doesnt like getting stuck at a
normal job because I usually get bored of jobs when doing
them for longer than one year. Thats exactly why I like
consulting, since you switch from project to project, often
doing something completely different at different firms in
different industries.
2. Practical Skills
I dont know why, but I just cant cook. Since leaving home,
Ive been trying to learn how to cook, buying cook books and
even following a cooking workshop. I can bake an omelette
and prepare mac and cheese, but thats about it...
3. Experience
As a PhD student, Ive spent most of time running
experiments and analyzing data. Im comfortable with
numbers, but I lack working experience and specific industry
knowledge. Because I wanted to build both quickly and like
the international opportunities, Ive opted for consulting
little harder to come up with something original and explain what you
are doing to compensate for that weakness. Some examples:
1. Self-Projection
I demand a lot from myself at work and can be pretty hard
on myself. I tend to expect my team to live up to my own
standards, which has led to arguments in the past. Nowadays I
tend to respect individual differences more, knowing that
everyone brings something different to the team, while still
trying to be a good example myself.
2. Assuming Leadership
When working in a team, I often end up assuming the
leadership role. This happens automatically, though I know it
can lead to conflict when theres a designated leader. I try to
be more conscious about my role in such situations nowadays,
being a little more careful when taking up responsibilities.
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Your questions
Case interviews often end with some time for you to ask questions, so
use them to get to know the interviewer or the firm a little better and
leave a final good impression before the interview ends. One way a good
candidate differentiates himself from the rest is through preparation
and the final questions are no exception. So read up on the firm, think
about what you would like to know.
Dont ask questions recruiters can answer
When will I hear whether Im selected or not? Do you have offices in XYZ
area? How many consultants work in this office?
These questions not only are boring, some might also show you did not
do your homework on the firm. So dont ask these questions, or ask a
recruiter.
Dont ask about work-life balance
Why not? First of all: you know what youre getting into, so dont ask.
Second: its a question everybody asks, not differentiating you from the
other applicants. Third: asking this can have the interviewer doubt
whether you are fit for consulting: if youre worried about losing worklife balance, go find another job.
So instead of asking questions about the interviewers personal life, you
should focus on his or her professional achievements. They love
consulting (otherwise they wouldnt be doing it) and dont mind giving
advice or any questions about things they did. Such as:
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Im really interested in private equity*, could you tell me more about what Firm
X does in this area?
What is the most interesting project youve done?
What is the most difficult client situation you have faced?
Could you tell me something great about your colleagues?
What do you think is the most common mistake made by first year consultants?
Would you advise doing an MBA? Did you?
*: can be replaced with any other area of expertise, industry or country.
Weve covered both the first and last minutes of the case interview, so
lets move on to the core: the business case.
41
42
Written Cases
Before we get to the live cases however, we will first treat written cases
since they often precede live cases. Written cases are a recent
development in the management consulting industry: McKinsey started
using them a few years ago to efficiently assess whether a candidate
should be invited to live cases or not. Instead of wasting precious hours
with hopeless candidates, they started using a written test called the
McKinsey Problem Solving Test (PST).
Inspired by the PST, other consulting firms now also feature paper tests
and we will take a look at them as well. At the end of this chapter, you
will find a practice question to get a feel for what you can expect.
to prepare for both the PST and any other interview rounds. Practicing
the PST is difficult however, since there is so little information to be
found online. To help you, we included practice PST-style question in
this book, and you can use the practice case found on the McKinsey
website as well.
Math
Since you are not allowed to bring a calculator, you have to do every
calculation in your head. If you are like most of us, the last time you
calculated 17 x 55 in your head is approximately 10 years ago, so its
time to dust off those math skills. Calculating in your head is a skill, so
you can actively improve it: it just takes time. But it is time well spent,
since math is also an important part of the next hurdle in the selection
process: the case interview.
There are plenty of ways to train math. There are countless smartphone
apps, websites and computer programs that you can use to practice.
You should focus on a few key areas:
Percentages
Double digit multiplication (for example, 24 x 14)
Large numbers with a lot of zeroes
Though exact math is very important during live cases, the questions in
the PST will typically require the (estimation) of percentages and large
numbers. Focus on training calculation with large numbers: you are
bound to forget a zero somewhere.
Business Mindset
This might sound strange for all Finance/Economics/Business people,
but some studies are a better preparation for consulting than others. If
you dont have a business background, it can help in your preparation
to read up on business problems by reading magazines and websites
such as The Economist, BusinessWeek and BusinessInsider.
You then get a little more attuned to the concepts and terminology used
in the consulting world. You then recognize more automatically that
Profit = Revenue - Cost, with
Revenue = Quantity of Goods Sold x Price.
That cost can be split up in fixed and variable cost and that you dont
waste time thinking about what depreciation exactly meant.
44
When youre reading the introduction or any piece of data: quickly scan
through it while underlining or circling important facts, such as what the
revenues currently are and what the goals of the client are. You then
move on to the questions and use the underlined facts as visual anchor
points to quickly find the answer.
II. Read the question first
Not everything is relevant and the PST will drown you in data if you try
to understand all the information and every chart and graph completely.
You could therefore read the questions first and then start to read the
data or start interpreting the charts, with the questions in the back of
your mind.
We prefer the first method, though you should not get stuck trying to
interpret a chart that in the end is not relevant. Always read the question
and every multiple choice answer carefully. The goal is to select the best
answer: which means that multiple answers may be right, but one is
better than the others. Subtle phrasing differences could set you off on
the wrong foot, so dont answer the question until you understand it.
Not everything is relevant
We already mentioned it above, but since it is so important we will
repeat it here: not everything is relevant. You dont need to fully
understand every chart in order to answer the questions. Focus on the
45
some European offices and some firms started by McKinsey alums have
been using a variation of the original as well.
The BCG test also borrows some tasks from standard intelligence tests
and has a more quantitative focus than the PST. Otherwise, they are
comparable.
47
48
BePal
Bepal is a pallet manufacturer located in Belarus, in the former Soviet
Union. It was established in 1993 and operates two divisions: a sawmill
and a pallet production line (since 2000). It buys raw wood from a local
woodcutting company and processes the logs into wooden planks at its
sawmill. These planks are sold to furniture factories and used by its
pallet division, which buys them for market price.
Pallets are used in transportation and can be made of wood, aluminum
and plastic. More than 90% of pallets are made out of wood, a natural
material that requires extra treatment to make it less prone to fungal
growth and increase its resistance to weather conditions. BePals pallets
are high quality and carry the EPAL (European Pallet Organization)
quality mark, which include extra norms to increase safety and
durability. The most used EPAL pallet is the EPAL1, with the dimensions
shown below.
49
2005
2006
2007
Sawmill
2008
2009
2010
Pallets
1. As you can see in the chart above, revenue from the Sawmill has
decreased in the years 2005-2010. Which of the following statements
about BePals revenue is correct?
A. Revenue for BePals Sawmill has always been in decline.
B. BePals Sawmill saw its revenue more than halved in this period.
C. In 2007, revenue from the Sawmill was lower than from Pallets
D. The decline in Sawmill revenue is caused by a declining demand for
processed wood.
50
2. Which of the following information would help you answer the CEOs
question?
1.Cost structure of the Pallet division.
2.Market analysis on customers and competitors in the
processed wood market.
3.Current Sawmill revenue and profit.
4.Analysis on revenue opportunities in the processed wood
market.
5.Cost structure of the Sawmill division.
You would need at least:
A. 1 & 5.
B. 2, 3 & 5.
C. 2, 3 & 4.
D. 3 & 5.
3. What would definitely not help the CEO in attaining his goals?
A. Lay off a part of the workforce.
B. Reduce inventory of finished goods.
C. Lower the price of his products.
D. Renegotiate prices with suppliers.
The director of the Sawmill division visits your team and tells you that
there are actually two sawmills: A & B. He only has data on sawmill A,
the biggest sawmill of BePal, and supplies you with revenue and
processed wood volume of this sawmill. You compare his info to the
data you received from the Pallets division:
Year
2005
2006
2007
2008
2009
2010
Sawmill A Revenue
(in million $)
15
13
10
10
7
5
Sawmill A
Volume
500000
450000
370000
380000
280000
200000
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Pallets Revenue
(in million $)
4
6
9
11
12
11
Pallets
Volume
400000
600000
900000
1100000
1200000
1100000
Even though the Iron Curtain fell in 1990, Belarus is slow in opening its
markets and privatizing state companies. Foreign investment is on the
rise, but many companies are still (partly) state-owned. Some receive
state funding to guarantee their continued existence, while others
receive tax incentives to improve their competitive position (and some
get both). Our competitor analysis has shown that a large percentage of
sawmills in the area is state owned.
52
7. Which of the following developments could not have caused the pricedrop of processed wood?
A. Lowered VAT on products from state owned companies
B. A more restrictive woodcutting policy, requiring more trees to be left
standing in deforested areas.
C. Technological advancements in the woodcutting industry, reducing
the amount of wood wasted during processing by 20%.
D. A cultural shift in housing: traditionally people lived in wooden
houses in villages, now people move to the city and its concrete flats.
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54
Guesstimates
One of the basic interview types youll encounter throughout your
interviewing process will be the guesstimate, also known as the back of
the envelope or market sizing question. Many first round interviews will
feature a guesstimate and later rounds often start with one which is
then expanded into a business case.
Examples include both problems closely related to business, such as
how many car-tires are sold each year in the United States, but can also
include oddball questions such as how many ping-pong balls fit into a
Boeing 737.
Already struggling with the above questions? Dont fret, guesstimates
are easy to practice and not particularly difficult, and thus the perfect
interview type to start your case practice with. Still, its frustrating to trip
over your calculation of the size of the coffin market in Moldavia and
nothing hurts your performance more than being nervous and lose your
cool. Practice guesstimates until you can confidently solve them without
effort.
Expert Tip:
You should practice structuring guesstimates in your spare time, for
example while walking through town (How many traffic lights does
this city have?) or while dining out (What is the average weekly
revenue of this restaurant?).
55
parts, analyze those parts and then come up with an answer based on
your analysis without breaking a sweat?
Focus on the process: draw the structure of your analysis, show it to the
interviewer and walk him through it:
(Turning paper towards interviewer)
As Ive drawn here, I would first like to know the amount of people in
China that would be able to buy luxury handbags. Lets assume there are 1
billion people in China, and only women are interested in handbags, which
leave us with 500 million potential customers. Not everyone can afford
luxurious products however...
And so on.
Principle 2: No trivial facts, please.
Maybe youve read in a BusinessWeek article that every US town has an
average of six gas stations. Or the newspaper reported this morning
that every American consumes 1,500 gallons of water yearly. The
interviewer wants to see whether you can use your judgement to come
up with reasonable estimates, not how well you can remember facts.
Resist that temptation.
Principle 3: Dont be hard on yourself.
Round numbers up or down for easy calculation. Assume that there are
300 million Americans, not 313. If you calculated the European market
for ski gloves to be 3.013.458 pairs a year, use 3 million. If you need to
calculate the total market value of the European ski glove market,
assume an average price of $20, not $17,45.
Also, write these numbers down. You dont want half your brain
remembering numbers while you need 100% to focus on cracking the
case. Bring pen and paper, just to be sure.
Principle 4: Think out loud.
The whole process of interviewing is about showing the interviewer that
you can think, act and hopefully work as a consultant. This means
involving him in your train of thought: why do you assume X, how did
you come to answer Y? The best way to do this is to think out loud,
which is more difficult than it may seem. Practice thinking out loud even
when practicing alone by pretending you are explaining your approach
to someone sitting opposite to you.
56
I. Opening
Pause (Thats interesting...)
Buy your brain some time to start grappling with the problem, so you
can ask relevant questions and start structuring.
Verify
You start with verifying the question, repeating it to check whether
you remembered it correctly and making sure you set out to answer
the real question.
Explore
You can squeeze in two or three questions to improve your
understanding of the subject at hand and narrow down the scope of
the question. We advise against the latter though, as it is your task to
separate relevant from non-relevant issues..
II. Analysis
Structure
Take a minute to build your framework for answering this
guesstimate. What data do you need? What is relevant and what not?
Assume and Calculate
Go through your structure, assuming and calculating numbers along
the way. Dont forget any branches of your framework and try not to
screw up any calculations.
Listen
III. Closing
Check
After finishing your calculations, double-check your framework: did
you miss anything? Do a sanity check on the results: is the market for
tooth-brushes really a 12 billion dollar market in Canada?
Answer
After double checking your numbers, answer the question.
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Reference 2: Households
Some products are only used once in every home. A good reference
point thus is the average household: how many of product X or service X
is consumed per household?
Use the number of households to calculate the market size for white
house paint, lawnmowers, television sets and newspaper subscriptions.
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# of men
% that shaves
# of shavers
0-10
20m
0m
11-20
20m
50
10m
21-30
20m
95
19m
31-40
20m
95
19m
41-50
20m
95
19m
51-60
20m
95
19m
61-70
20m
95
19m
71-80
20m
95
19m
Total
124m
With a total of 124 million men shaving every day and changing razors
every month, there are 124 x 12 = 1488m shaving razors sold each year.
59
Reference 4: Time
The final reference point you can use to support your assumptions with
is to make assumptions on the amount of time it takes to perform a
certain action. Useful if you want to calculate the amount of pumps at a
gas station or the amount of visitors to the Vatican Museum.
How many tourists visit St. Peters Basilica in Rome each year?
Ive visited Rome once, and I know that everyone visits St. Peters
Basilica. Theres always a huge line on St. Peters square: I assume
people start visiting the cathedral from the time it opens at 8 am and
do so until it closes at 8 pm. There is only one entrance, with four
security gates and I assume it takes 30 seconds to get checked. So
every minute, eight people can enter the cathedral. The cathedral is
open 12 hours a day, seven days a week, for 360 days a year, we thus
have 8x60x12x360 = 2.073.600 This means that about two million
people visit St. Peters Basilica each year.
Refine Assumptions
So you have your reference point, what more do you need? To make
your assumption more realistic, you should refine it in a few steps. You
already saw it in the above examples. For example, in the lawnmower
example, we refined by only using houses with gardens in our
calculation instead of all houses. In the shaving razor case, we refined
our assumption by accounting for the ages of men that shave and the
men who wear beards and thus dont shave.
An assumption about the amount of customers at a restaurant could be
refined by accounting for busy weekends and calm weekdays. An
assumption on the size of the chocolate bar market could be refined by
differing between regular consumers of chocolate, binge eaters and
members of Chocolate Anonymous, who abstain from eating chocolate
completely.
60
But you can also go too far, making it unnecessarily complicated. For
example by differentiating between six groups of cinema visitors with
different visiting patterns, or identifying seven factors that influence the
amount of soft drink sold at a local fast food joint. The trick is to find a
balance in refining your assumptions and a great rule of thumb is the
80/20 rule.
The 80/20 rule is found everywhere and basically comes down to the
following: 80% of the effects is caused by 20% of the causes. So 80% of
profits come from 20% of customers. And 80% of ice cream sales are
driven by two or three factors (for example: temperature and weather).
Try to identify those two to three factors that are important and dont
bother about the rest.
Guesstimate Pitfalls
Guesstimates are not very difficult, especially after youve practiced
them a couple of times. As long as you adhere to the basic principles
outlined above and learn from your practice sessions, theres little that
can go wrong. Still, well highlight two often made mistakes:
Diving too deep
Especially if you are a little perfectionistic or have a scientific
background in which youve always strived for exact answers it might be
difficult to know when to stop refining your structure. Be wary of diving
too deep into the analysis. You dont want to waste valuable time (if the
guesstimate is only an introduction to a business case) or lose yourself
in a too difficult structure.
Standing your ground without being defensive
You might be challenged by the interviewer: he might ask whether you
believe your approach was whether you think you missed something
important. Dont get emotional and defend your analysis at all costs, but
neither should you give in too rapidly.
As a consultant, youll also often face opposition and be asked (or
forced) to defend your analysis. Do you think consultants crumble when
a client thinks their analysis stinks? Obviously not: so act like a
professional, keep your head cool and stick to your guns, initially.
In the next chapter, youll find sample guesstimates (including
solutions) to practice everything youve learned during this chapter.
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62
Practice Guesstimates
Below youll find three practice guesstimates, with a completely
elaborated solution.
London Eye
Last year, the company organized a weekend with the complete office to
visit London. We had a great time visiting all the attractions, including
the giant Ferris Wheel at the bank of the Thames: the London Eye. As
consultants, we couldnt resist but think: whats the yearly revenue of
the giant Ferris wheel in London, the London Eye?
Thats interesting, just let me get this clear, you want me to calculate
the yearly revenue for the London Eye?
- Yep. Have you even been on it?
Ok, well, as a matter of fact Ive been to London once, but we only
walked past the Eye. So to answer your question: no.
- Then let me give you some more info on the Eye. Its quite a
popular attraction for tourists since it gives a great view over
London, even at night. The wheel itself turns very slowly, so people
can get in and out easily: it never stops. Oh, and ticket prices are
quite expensive, at 35 for adults and 25 for children.
Hmm. Yeah, I think the prices were also the reason we skipped it during
our visit. But back to the case: could I take a minute to draft a structure?
- Sure.
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64
30... Ok, still more than I thought. You already mentioned the wheel
turned quite slowly, so lets assume that a capsule goes round in 30
minutes: so 40 people get in hourly, per capsule. That would be during
high season, however. During low season, I assume its only half that
amount, so 20 people per hour per capsule, is that ok?
- Maybe a bit optimistic, but go ahead.
Ok, of the people on a capsule, not all are adults and I think such a
Ferris wheel is a great family attraction, attracting children like flies. I
assume that children are accompanied by their parents, so the amount
of children never goes above, say, 20%. Which means that during high
season, a capsule would hold 32 adults and 8 children per hour and 16
adults and 4 children during low season. This leads to a revenue per
hour of (1120 + 400 =) 1520 per capsule during high season and
760 per capsule during low season. The London Eye is opened from
morning to evening, so lets say 10 hours per day, for ease of
calculation.
- Sure.
One day would then bring in 10 x 30 x 1520 = 456,000 during high
season and 10 x 30 x 760 = 228,000 per day during low season. Now
lets assume that high season runs from May until October, so six
months, which equals 180 days. That would mean a revenue of about
82 million. The low season would then bring in 41 million, summing
up to a grand total of about 123 million. The yearly revenue of the
London Eye thus comes down to around 120 million.
- Thats indeed close to their yearly revenue. Thank you for the
calculation.
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Hearing Aids
One of our clients in the healthcare technology industry is considering a
move in the hearing aid market. They have recently discovered some
innovative technologies which let them miniaturize speakers in a new
way. Lets look at the size of the hearing aid market first: would you like
to estimate the size of the US hearing aid market for me?
Well, I think the age distribution in the US is pretty straight: there are
about as many elderly as there are youngsters. Could I have a minute to
draw up my structure of analysis?
Take some time to draft your own structure of analysis. An
example structure has been given on the next page, but write
down your own before you look at the example.
66
67
Ok, as you can see, I assume that there are two reasons why someone
would use hearing aids. First of all because of old age and secondly
because of hearing damage, by being subjected to loud noises for long
periods of time. Im going to assume that the total population of the
United States is 320 million, and that the population is distributed
equally along the eight age groups, with a maximum age of 80. For
every age group, I then make assumptions about the percentage of
people using hearing aids either because of old age or hearing damage.
- Ok.
That means there are eight age groups, with 40 million people in each. I
dont think people suffer hearing loss of old age before their fifties, so I
assume that only the age groups above will use hearing aids. Hearing
damage will probably not occur before people start visiting concerts and
work in loud environments, so they will only occur after age 20. That
leads to the following table, and a total potential user base of 34.4
million hearing impaired.
Age
Group
Size
Old Age
(%,#)
Hearing
Damage (%,#)
0-10
40 mln
0, 0
0, 0
10-20
40 mln
0, 0
0, 0
20-30
40 mln
0, 0
1, 0.4 mln
30-40
40 mln
0, 0
2, 0.8 mln
40-50
40 mln
0, 0
2, 0.8 mln
50-60
40 mln
10, 4 mln
2, 0.8 mln
60-70
40 mln
25, 10 mln
2, 0.8 mln
70-80
40 mln
40, 16 mln
2, 0.8 mln
30 mln
4.4 mln
Total
Not everyone likes to use these hearing aides however, so I reduce this
usage base with 10% to account for that. That leaves us with about 30
million hearing impaired who actually use hearing aides. I have no idea
what the average cost of hearing aides is, but I know that theyre not
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69
Romanian Coffins
Our next client is the owner of a small wood workshop in the Romanian
capital of Bucharest. For generations, this workshop has made furniture
of any kind. Nowadays, its focused solely on the production of coffins,
in which the local dead are buried. My question for you is: can you
estimate the size of the coffin market in Bucharest?
70
71
I have drawn up my structure, let me walk you through it. We start with
the total population of Bucharest, which was 2 million. For ease of
calculation, I will round this up to 2.1 million, if that is ok?
- No problem.
I assume that these 2.1 million inhabitants pass away on their 70th
birthday on average and are equally distributed among the age groups.
With seven age groups and each spanning ten years, that will be
300,000 inhabitants per age group. Even though some Romanians pass
away at age 50 and some live on to become 90, I assume that on
average, they pass away the day they reach their seventieth birthday,
which means that each year, one tenth of the 60-70 age groups passes
away, which is 30,000 people.
- Ok.
Of these 30,000 people, most are buried as is tradition. But I assume
that there will also be people that are cremated, but not many: lets
assume 10 %. That would mean there are 27,000 burials in Bucharest
each year. I also think that not everyone is buried in the same type of
coffin, so the richer part of the population is buried in expensive coffins
and the poor part of the population in simple coffins. And I assume that
20% of the population can afford an expensive coffin.
- Very well.
That would mean that there are 5,400 expensive coffins sold each year,
and 21,600 simple coffins. We can now calculate the total market size,
which is 5,400 x $800 plus 21,600 x $ 200, which makes a market size
for the Bucharest coffin market of $ 8,640,000 a year.
72
Business Cases
The business case is the main case type youll encounter when
interviewing at consulting firms. The work of a consultant is varied and
so is the business case: from profitability problems to mergers, market
entry and investment decisions, you can expect it all. This broad range
makes preparation difficult: there is no way you can prepare for every
possible case question that will be thrown at you.
Then how to prepare? As with guesstimates, there is a basic approach to
all business cases and we will walk you through it below. Frameworks
can help you structure your thoughts and we will treat three frameworks
with broad application. We will conclude this chapter with case interview
pitfalls and practice questions.
Expert Tip:
I look for client friendliness in all candidates and it is an aspect many
forget. Yes, you need to structure the problem. Yes, you need to give a
data-driven advice. Yes, it helps to think out loud. But consulting
revolves around the client and you need to involve him in every step in
your analysis: explain your procedure and show me your work.
73
If done correctly, you should have written down something like this:
- Question: What can ABC do to increase revenue by $10m?
- Hypothesis: ABC can increase revenue by increasing prices with 10%.
74
Is this the answer to the case? Maybe, maybe not: but the hypothesis will
drive our analysis towards the answer and away from distracting and
irrelevant information. When cracking a case always formulate and state
a hypothesis, then attempt to (dis)prove it. Iterate the process until you
are able to give a data-driven solution to the case.
Example: Iteration
Candidate: I know that revenue is broken down into the number of
sales and price. My hypothesis is that ABC conglomerate can increase
revenue by increasing the price of its products by 10%. Increasing price
will probably cost us customers, do we know how price-sensitive our
customers are?
Interviewer: Well, we know that increasing price by 10% will cost us
20% of our customers.
Candidate: Ok, so it seems that raising price is not an option, as the
increased price cannot cover the amount of customers lost. Instead of
raising price, we can also increase revenue by increasing the amount of
goods sold. Do we have information on...
What did we see in the example? The candidate hypothesized that the
solution to the revenue problem lied in increasing price and stated this
hypothesis before searching for data to (dis)prove it. The interviewer
gave him the necessary data to disprove his hypothesis: prices could not
be raised. This led the candidate to revise his hypothesis and focus on
the other component of revenue: the amount of goods sold.
What if the key question was not to increase revenues but to increase
profits and there was also no way to increase sales (because the
company has no money to spend on marketing)? You then go up in
your structure of analysis and focus on another branch of analysis that
might influence your goal. In this case, analyzing costs would be a good
idea. In the next section we will look at how you should structure your
analysis: according to the pyramid principle.
Principle 3: The Pyramid Principle
Often, you will need to analyze more than one area to disprove your
main hypothesis (the answer to the main question). For example, if ABC
conglomerate wants to improve its profits without specifying whether
they want to do it through increasing revenue or decreasing cost, you
will want to investigate both. You should structure the related questions
75
(and their corresponding answers in the form of hypotheses) in a topdown fashion. For example:
This technique might be difficult at first, but you can use the
frameworks later on in this chapter to guide your questions and
hypotheses. Structuring in this top-down fashion is known as the
pyramid principle and is common practice in every consulting firm
today.
MECE Categories
When building a pyramid of hypotheses, you should strive to make them
MECE (pronunciation: me-see). MECE is an acronym for Mutually
Exclusive, Collectively Exhaustive. Well elaborate both below:
Mutually Exclusive
All categories of analysis on the same level should be mutually
exclusive: there should be no overlap between them. For example,
dividing the analysis of Mars energy bar division into an investigation
regarding chocolate energy bars and another regarding caramel energy
bars is not mutually exclusive: some energy bars are a member of both
76
categories. Making a distinction between the energy bar division and the
pet food division is mutually exclusive. No Mars product is both an
energy bar and a pet food.
Mutual exclusivity makes it easier to determine which factors are
causing the found results. For example, Mars declining revenue could
be attributed to declining revenue of the energy bar division, you can
safely say that further analysis of the pet food division is unnecessary. If
you found a revenue decline in the caramel energy bars category, do
you need to analyze the Snickers-division?
Collectively Exhaustive
Your categories of analysis should cover all factors influencing the
result. When trying to determine a new product launch, you could
analyze only the customers wishes and leave it at that. But there are far
more factors influencing a successful product launch, such as size of
the market, competition and of course the product itself.
Therefore your categories of analysis should be collectively exhaustive,
combined they should completely account for the (possible) result.
Because you have little time during a case interview, you should focus
on the three to five factors accounting for the biggest changes in result,
instead of trying to find them all: dont boil the ocean.
Principle 4: Dont boil the ocean
During the case interview youll be focused on gathering relevant
information and cracking the case. In the effort to perform well, youll
probably be striving for perfection and finding the best solution. And
before you know, the interview is over and you are only half-way your
analysis.
Even though its counter-intuitive, you should not strive for perfection,
but stop when the analysis is good enough. We already mentioned the
80/20-rule: 80% of effects come from 20% of the causes. If youve found
the two or three causes that make 80% of the difference and focus on
them: its good enough. Do not continue your analysis, wasting precious
time in an attempt to explain the remaining 20% of effects. When cutting
costs at a factory, you dont investigate the potential savings of
switching off air-conditioning. If you want a cup of tea, you dont boil
the ocean.
77
I. Opening
Pause (Thats interesting...)
Buy your brain some time to start grappling with the problem, so you
can ask relevant questions and start structuring the case.
Verify:
You start with verifying the question, repeating it to check whether
you remembered it correctly and making sure you set out to answer
the real question: Is this the only question or is there more I should
be concerned about? Try to quantify the goal if possible: by how
much do we need to increase profits? By how much should we reduce
costs?
Explore
You should explore the company or subject with two or three general
questions. Try to understand the industry and the value chain, how
does the company produce value for its customers? If the question is
about a specific subject (for example, the distribution of product X),
try to understand it. Try not to ask too broad questions, as this might
irritate the interviewer. You know youve crossed the line if he
replies with What do you think?.
Structure
With a good grasp of the company and the question, start structuring
the case. Dont rush it, ask the interviewer for a minute to do this: it
is completely normal. Formulate (sub)hypotheses and build a
structure that will ultimately (dis)prove the main hypothesis and
answer the question.
II. Analysis
To analyze = to break down
Go through your structure from top to bottom, guided by your
hypotheses, adapting both along the way. For a structured and
thorough analysis, follow the following steps:
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Expert Tip:
Try to break down and segment every subject of interest and keep
digging until you find something interesting or you can safely conclude
there is no more information to be found. For example, total revenues
of Firm A have been $ 15 million both last year and the year before.
This can lead you to conclude that revenues are not interesting and you
move on to costs. If you segmented further, you might have learned
that even though total revenues have not changed, product 1 went up
from $5 million to $ 10 million and product 2 went down from $ 10
million to $ 5 million. Interesting information youve just missed...
III. Closing
Synthesize
To come to a conclusion, you need to combine all the information
you found during your analysis. The product of this recombination is
called a synthesis, and there are five steps to a good synthesis:
1. Take a break and gather your thoughts.
2. Review the most important findings from your analysis.
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Expert Tip:
Stand by your conclusion and approach, without being defensive. If
Im interviewing candidates, I usually question their approach or their
results: are you sure that the market for socks is $ X?. Some
candidates break down and start doubting their (good) analysis. Dont
let self-doubt get the better of you: its healthy to be a little self-critical,
but you should also stand by your conclusion, just as real consultants
do. Other candidates react defensively, as if I just personally insulted
them. Be professional, defend your analysis and conclusions, but dont
get emotional.
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Expert Tip:
Nothing is worse than a candidate who tries to fit the case into the
framework, instead of the other way around. Dont investigate all the
five forces from Porter if only three are relevant to the case and never,
never state out loud that you are going to apply the Five Forces or the
Four Ps. Its not which framework you apply that matters, its why.
Notes:
Revenue
Segment! Segment per product, per region or per customer:
segmenting uncovers hidden information. Well return to this later on,
but even if revenue has been flat, there could have been huge
variations in the revenues per product. How do you know the best way
to segment? Either through previous exploration or by not being
overly specific when posing your question: the interviewer will often
reveal the best segmentation.
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Notes:
External Branch:
Competitors
Determine who your competitors are and what differentiates them
from your company.
How many competitors are there?
How large is every competitor in terms of market share: is there one
big competitor or many small ones?
How has the competitive landscape changed over the last years? Have
new competitors been entering? Have there been mergers? Have
competitors gained market share and if so, why?
Market
Is this a mature or emerging market? Is the market growing or in
decline? Be on the lookout for contradictory signs, such as a company
with declining revenue in a growing market.
Are there barriers to entry or exit? Do we fear new entrants? If we
enter this market, can we exit without significant costs?
How is legislation effecting the market and our strategy? Will an
acquisition be stopped because of anti-competitive legislation? Are
there any disruptive technological innovations going on?
Internal Branch:
Customer
Who are our customers? How can they be segmented: by age, location,
industry?
What are the needs of each customer segment? Are there differences
between them? Are we fulfilling those needs with our product/service?
Which distribution channel does each customer segment prefer? Direct
marketing? Online stores? Brick and mortar stores?
Product
What are the features of our product? Try to understand the qualities
of our product and why we are different from competitors. Is it unique
or a commodity?
Why would a customer buy our product? Why not?
In which stage in the product lifecycle is this specific product?
Company
What are our core competencies? What do we excel at and sets us
apart from the competition? Product design? Logistics? Innovation?
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If you get a case question that involves a company looking for advice on
whether they should or shouldnt do something, the Go/No Go
framework will help you structure your analysis. Since the above is a
rather abstract representation of the framework, weve filled one in for a
market entry question.
When investigating whether a firm should enter a market, you compare
the current market to the future market(s). Weve only listed three areas
of investigation (Market, Customers and Risks/Costs/Barriers) for
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esthetic purposes, but you should also investigate how our company is
going to distribute our product in the new market, for example.
85
until you find something interesting or until you can be sure that there
is nothing more to be found.
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To show the interviewer you arent getting lucky every time and prove
that you can repeat this process on the job, youll have to share your
train of thought. The way to do this, is by thinking out loud. Does that
mean you have to say everything that comes to mind? Obviously not.
What should you always share?
- Any (sub)hypothesis
- Mini-conclusions and subsequent hypothesis refinements
- Aha-moments
The first two speak for themselves: they are what guides your analysis
and sharing them with your interviewer shows that you are following the
right approach. The third seems a little out of place, but let us explain.
Aha-moments are the result of learning interesting or contradicting
information from the interviewer and sharing your thoughts will show
that you are able to correctly identify important facts. For example, if
you learn that the market is growing but our revenues are falling,
something must be going on. An example:
Candidate: Ok, we know that revenue was flat at $10 million, but
before we move on Id like to investigate it a little further to make sure
Im not missing anything. Therefore Id like to break down revenue in
its component parts: amount of goods sold and price. Do we have
more information on them?
Interviewer: As a matter of fact, we do: we know that sales doubled in
the last year.
Candidate: Aha! Thats interesting. Since revenue is sales times price
and revenue was flat, it seems that if sales doubled, prices must have
halved. Id like to investigate why... Do we have more information on
that?
This example might be a little obvious, but you get the point.
Brainstorm in brackets
At any time during a case interview, you could be asked to:
Name the advantages of a joint venture versus a merger between
Firm X and Firm Y
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If you were the CEO of the client and a consultant for whom you pay
hundreds of dollars per hour just did the above, what would you think?
Let me tell you: you will not grant him a second project. How could you
prevent the above and look professional when asked one of these
questions? Brainstorm in brackets! Take a minute to brainstorm and
write down options/advantages/features/etc. and then present them:
The reasons our client could have for entering this market? Ok, Let me
think a minute.
Ok, I believe there are three main reasons our client should enter this
market:
- Market entry will give the client access to a larger customer base
allowing it to increase revenues.
- Also, the competition in this market is fairly weak, which gives us the
opportunity to seize market share quickly.
- Finally, diversifying operations into a new market will reduce our
reliance on the home market.
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90
Always keep in mind that its the group effort that counts and that its
not about beating the others. You are rated on your interpersonal skills,
so focus on letting them shine in a confident, relaxed manner.
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Practice Cases
To help you practice for your case interview, You can find three example
cases below. Try to solve each part on your own before reading the
sample solution: write down your answers on a piece of paper and then
read on, comparing your answer to the sample solution. Take heed of
the differences and take note of the things you forgot. Ready?
Indian Whisky
Our client is a luxury brand that has recently acquired a Scottish whisky
distillery. This distillery has one luxury brand, aimed at the upper
markets, and one private label, sold for lower prices in local liquor
stores. Our client is worried that this private label might damage its
upper class image and has asked us what they should do with it. One of
the options they would like investigated is whether they should relaunch
this private label as a luxury brand in an upcoming market: India.
Ok, thats interesting.... let me recap: our client has acquired a whisky
distiller in Scotland and is afraid that the private label produced by this
distiller could hurt their brand image. The client is wondering whether
they should rebrand the private label and sell it in India as a luxury
brand and Im to investigate whether this is a good idea, is that correct?
- Yes, that is correct.
Ok, lets get this clear: are there any specific goals that I should keep in
mind?
- Well, they strive for profitability in five years. But they are more
interested in possible risks and barriers and not looking for a
specific quantitative profit goal. Lets first start with a small
market sizing of the Indian whisky market however, could you
please tell me what the yearly expenditure on premium whisky is
in India?
Very well, but before I start, I have a few questions.
Take some time to think up and write down three to five
questions you would like to have answered before taking a look
on the following page. Do so now.
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Take some time structure your analysis and think up what you
would like to know. On the next page youll find an example
solution. First draw up yours, then compare it to the analysis
below.
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Ok, first I want to determine which part of the population would actually
drink whisky. I assume there are about 1.5 billion people living in India,
and I distribute them evenly among three age groups: 0 to 20 year olds,
20 to 40 year olds and 40 to 60 year olds. I assume a 50-50 split
between women and men, which leaves me with 250 million men and
250 million women per each group. Lets assume that everyone below
the age of 20 does not drink and if they do, that they cannot afford
whisky, which leaves us with the other two age groups.
Not everyone drinks whisky because of religious reasons, so I subtract
10% from every age group, leaving 225 million men and 225 million
women per age group. Of these 225 million women only 5% actually
drink whisky, so that leaves us with 11.25 million potential whisky
drinkers. Lets round that down to 11 million for ease of calculation.
Age Group
Men
Women
0-20
20-40
225
11
40-60
225
11
Sub Total
450
22
Total:
472
If we count that all up, we have a total of 472 million potential whisky
drinkers. A lot of Indians are poor however and wont be able to afford a
premium brand whisky. Lets say that 5 % of the population is rich
enough to afford drinking our whisky regularly and that another 5% is
able to buy our whisky, but only does so because of the upper class
image attached to drinking our brand and therefore drink it less
regularly. Each of these segments comprise of a total of 23.5 million
Indians.
Im a whisky drinker myself and I sometimes drink a glass in the evening
after a hard day of work and a few glasses if I have friends over for
dinner. Usually, I need to buy a new bottle every two months, so lets
assume that the regular drinkers also buy a bottle every two months
which amounts to 6 bottles a year, while the irregular drinkers buy a
new bottle every six months, which comes down to 2 bottles a year.
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Lets start with the competitors: do we know who else is selling Scotch
in India? And do we know their market shares?
- Yes we do, there are three other Scotch whiskey brands active in
the market. All of them have about one third of the market.
Aha. I would like to know how easy this market can be penetrated and
check whether one of them entered the market recently, or whether the
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- Actually we dont, but thats a good question. Just assume that they
had the same market share in the past years.
Ok. One final hypothesis regarding the competitors I would like to check
is whether they are currently serving the whole market: since India is so
large I suspect that they arent, which would mean theres demand left
unfulfilled.
- Its true that theres demand unfulfilled, but 90% of demand is
concentrated around the bigger cities which are served by our
competitors.
Thats interesting, as this will also influence our distribution strategy.
Ok, based on this analysis of our competitors Id say that theres plenty
of room for our product: the market for Scotch whiskey is not oversatisfied by a plethora of competitors and secondly theres still demand
left unfulfilled. I would now like to move to the market. We know its
very large, but Id like to make sure Im not missing anything important.
- Very well.
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We know that the market is currently very large, but has it always been
this way? My hypothesis is that its growing because of the increase in
wealth in India, do we have any historical data on that?
- Your hypothesis is spot on: Indians are growing more wealthy and
a larger part of the population is now buying luxury goods,
including premium whisky. This trend is expected to continue.
Aha. And do we know with how much the market has been growing the
last 5 years? With which percentage?
- Yes we do, the market has been growing steadily with a rate of 6% per
year, in the last five years.
That seems to be a decent growth rate, but not spectacular. Id also like
to investigate whether there are any barriers to entry and whether we
can expect new competitors to enter as well in the coming years. Are
there any other government issues that we need to be aware of? When
we discussed the price of a bottle, I already mentioned government
taxes. What do we know about them?
- They are high... very high. To protect the home-distilled whiskys,
the Indian government is enforcing tariffs of up to 550% on
imported spirits, including Scotch whisky.
Now that is interesting. I assume that there is no way to evade these
taxes, such as producing in India?
- No, since the product wouldnt be Scotch anymore. Im going to
deviate from your question a bit, since were talking about entry
barriers: which methods of market entry are there?
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As far as I know, there are three ways to enter a market: alone, with a
joint venture or strategic alliance and you could also acquire a local firm
as a third and final option.
- Very well, do you know what the advantages of each method are
with respect to entry and exit of the Indian market? Which would
you recommend?
Well, going at it alone would require significant resources, especially if
we dont have any local market knowledge yet. Since we produce in
Scotland, our Indian operations would all be about distribution and Id
say that its pretty difficult to build a distribution network from the
ground up. It would also be very costly to exit, since most of the
resources invested would be location specific.
The same would be true for an acquisition: high investment costs and
exit costs. But you do gain access to local knowledge and existing
distribution networks. There could be difficulty with legislation however:
maybe there are laws in place limiting foreign investment.
A joint venture or strategic alliance would mean sharing a portion of the
profits, but youd get access to local market knowledge and existing
distribution networks. Its also relatively easy to exit a joint venture,
easier than the other two options at least. Therefore I would choose for
this option, if we decide that India is indeed an interesting market.
- Good! In the actual project we did for the client, this was also the
option we recommended to them. Go ahead and assume that they
choose for a joint venture.
Ok. Well, it seems like the market also looks favorable: we know that its
very large and growing and that we can enter it rather easily through a
joint venture, which also reduces potential exit costs. Theres one point
that worries me though: the trade tariffs. However, we are aiming at
customers that are pretty price insensitive: the high price we are forced
to charge might actually improve the exclusivity of our brand. Which
brings me to the next area of analysis: our customers. I would really like
to understand who our customers are, how they can be segmented and
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what their wishes are. But lets first start with identifying who they are:
do we have any information on that?
- Our direct customers are liquor stores and the hospitality industry:
bars, restaurants and clubs.
And do they have special requirements in India that we do not know
about, or other special demands nobody is fulfilling yet? Something on
which we can differentiate ourselves?
- Not really.
Hmm. I think it would be more interesting to delve a little deeper and
figure out who the end customers are and find out what their wishes
are. Do we have information on that?
- The situation is actually very much like the one you described in
your market sizing: we have customers buying Scotch because they
belong to the elite and customers buying Scotch because theyd
like to belong to the elite. They are pretty price insensitive, but
they want a quality product in return: they wont settle for the
Indian rum. As Ive said, they are concentrated around cities, where
the younger generations consume Scotch in bars and pubs and the
older generations drink at home, buying their Scotch in local liquor
stores.
Ok, and do we know how many of these potential customers belong to
each segment?
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Our client should rebrand its private label whisky and sell it in India
through a joint venture with a local distributor for three reasons.
First of all, we risk hurting our current premium label and the image of
our firm if we keep selling private label whisky in our home markets.
Since Scotch whisky is seen as premium per definition in India, we can
safely rebrand our private label and sell it India.
Secondly, the Indian markets potential is huge and growing rapidly.
Theres also little competition and only one major drawback: the trade
tariffs. This drawback is faced both by us and any other Scotch whiskey
so no-one has an advantage there.
And finally, we need local market knowledge to distribute our product
efficiently. A partnership with a local distributor will serve both these
ends and allows us to back out of the Indian market with relatively low
exit costs compared to other entry methods.
- Thank you very much.
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Coffee shop
Youre being offered the chance to start a coffee joint in a busy subway
station in Berlin, in the business district. About 20,000 commuters work
in the area. You would need to invest ! 150,000 to get the place up and
running. Would you do it?
Thats interesting. So theres the opportunity to invest in a coffee
business and I need to figure out whether its a good investment?
- Yes.
Before I start, I think I would like to understand some more about our
business and especially its location and size: are we above the ground
with large sitting area or more the take-away business inside the subway
station itself?
Note: Its always wise to step into the shoes of the client (in
this case: you) and picture the situation as vividly as possible.
Try to imagine the location, the clients, potential problems.
What questions do you need answered before you can proceed?
- Good question. Its a small lot at the central plaza under the
ground: everyone passes this area going in or out. Theres a small
kitchen and a large counter at the front-end. Next to the door is
room for two standing tables. The total size is about 16m2.
Aha, looks like were going to be focusing on the take-away business.
Do we know how many of the 20,000 commuters take the subway?
Some will use their own cars or other public transportation to go to
work I suppose.
- Thats true. Assume that 10,000 people per day commute to work
through the subway. You can forget about the other 10,000.
Ok. Well, to know whether this is a solid investment, I would like to
know if we can make a profit with this business. Could I take a minute
to draw up a structure for my analysis?
Note: Take some time to formulate your own structure and
note the areas you would like to investigate. Turn the page for
an example structure.
105
Ok, so the hypothesis Id like to test is the hypothesis that we can make
a healthy profit. I know that profit can be broken down into revenue and
costs. To make a profit, revenues need to exceed the costs. I want to
turn to the costs first, since I think that they can be determined more
reliably than revenues: for which well be forced to make a lot of
assumptions. As you can see, Ive determined a few factors influencing
cost, and I would like to ask you whether we have more information
about them. The factors influencing costs are split between fixed costs
such as labor, rent, utilities and interest and the variable costs, which
Ive split between the costs for drinks and food. I would like to start with
the fixed costs first. Do we know how much the rent is?
- As a matter of fact, we do: rent is about ! 500 per square meter per
month, which includes expenses for utilities.
Aha, well we know what the size of our shop was 16 square meter,
which comes down to yearly costs of 12 x 16 x 500 = ! 96,000, so lets
fill that in.
- Very well.
That leaves us with both labor and interest. On interest, I assume we
need to lend the 150,000 investment from investors or the bank, and
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lets assume that we lend it for an interest rate of 10%. That would add a
yearly cost of ! 15,000. Now on to labor. I believe well need at least
two employees: one who makes sandwiches and special coffees and
another who stands behind the counter. Its a traditional students job,
so lets assume they earn as much as I did on my last job, which was !
10,- per hour. As an employer, you have additional costs such as taxes,
insurances, pension funds and whatnot, so lets add 50% to that hourly
wage to determine costs for the employer. Lets say were open 10
hours a day.
- What makes you think so?
Since many commuters commute early, we also want to open early, say
seven o clock and close at a normal time, such as five in the evening.
That makes ten hours a day.
- Ok.
With 2 students costing us ! 15,- per hour, the total cost for labor will
be ! 300,- per day. We wont be open during the weekends, as there
wont be a lot of commuters then, just as during the christmas holidays.
So lets assume were open five days a week for 50 weeks. That would
make a labor cost of 5 x 50 x 300 = ! 75,000.
- Are you sure that your calculations of these fixed costs are
correct?
Note: The interviewer can and will put your assumptions and
calculations to the test, even if they are right. Dont act
offended, check your calculations and reject his doubts in a
friendly, calm and confident manner.
Hmm, let me check. Yes, I do think so. I dont think Ive missed
anything.
- Very well, proceed.
Ok, so, total fixed costs are then 96,000 + 15,000 + 75,000 = !
186,000 per year. Thats quite a lot of coffee we need to sell... So to
determine we can realistically sell enough coffee and sandwiches to
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cover these costs, lets look at the variable costs and the contribution
margin of our products.
- That sounds interesting, could you explain your approach?
Sure. Instead of making an assumption on our volume of sales and
associated revenues and variable costs, Ill subtract the variable costs
from our sales price to determine contribution margin. In this way, I can
calculate how much sales we need to break even.
- Ok, looks good. Lets just focus on coffee for a second: how many
cups of coffee would you have to sell to break even?
Hmm. Well, first I would like to determine the contribution margin and I
need both a price and variable cost for that. Lets assume that we sell
our cups of coffee for ! 2,-. Since coffee is just boiled water and coffee,
variable costs are quite low, lets say 10% or ! 0,20. That would mean a
contribution margin of ! 1,80 per cup. To break even, we would need to
sell about 100,000 cups of coffee a year. This seems doable, but lets
look at how many cups that are per hour.
100,000 cups per year comes down to 100,000 / 360 = 277 cups per
day, and with 10 open hours a day, that would be 28 cups per hour.
About 1 cup every two minutes. It should be possible for two persons to
deal with 1 customer every two minutes, even if you sold more complex
coffees such as cappuccino's and lattes. But it would be difficult to
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keep the store filled at a 1 customer per two minute rate, especially
during down times such as between nine o clock and lunch.
- Ok, well lets assume that if you sold specialty coffees and
sandwiches, the market size would be no constraint. What other
areas would you investigate to determine whether this investment
is a good idea?
Let me think about that for a second.
- Sure.
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As you can see, I have two main areas that I want to explore. First the
competition, as I believe that we wont be the only ones selling coffee in
the area. I would like to know how many competitors there are and who
they are: small stores such as ours or major chains such as Starbucks
and what their market share is. Secondly, I want to explore how we are
going to position ourselves in this market and how we are going to
differentiate ourselves, based on the wishes of our customers, our
products and services and company specific things such as our brand
name and location of the store.
Note: The proposed structure is very hypothesis-driven, even
though they were not explicitly stated as such by the
candidate. Its an example on how you should let your
framework adapt to the case, and not the other way around. If
you look closely, you can still identify parts of the business
case framework.
- Ok, were running out of time here: so Id like you to report on your
findings and decide on whether youd invest or not.
Sure. Could I take a minute to gather my thoughts?
- No problem.
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Personally, I would not invest ! 150,000 in this coffee shop, for three
main reasons:
First of all, its unclear whether we can attain the necessary volume in
coffee and sandwiches to cover our costs, let alone gain a profit. The
main concern here is whether we can service enough customers during
peak times to attain enough revenue.
Second of all, competition is likely to be fierce. We would not only be
competing against cafs and lunchrooms which are bound to be found
in this business district, but also against supermarkets and kiosks that
already have a coffee/snack take away service. I doubt we stand a
chance against these entrenched competitors.
And finally, we dont know how we can differentiate ourselves from the
competition. How do we position ourselves? Do we focus on low costs,
or on high service? Is there a niche to be found for commuters that need
a quick caffeine fix on their way to work, or is there no demand for
coffee shops like ours?
- Ok, thank you very much.
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Brazimao
Our next client is a mail order company from Brazil. They traditionally
sold clothing, all through those typical thick catalogues. Nowadays,
internet sales account for an increasing percentage of revenue. Ten
years ago the company differentiated into the furniture and home
accessories market, selling these items through their traditional
catalogues and website. In the last 3 years profit has been hurting and
the CEO of Brazimao has asked us for advice.
Note: The question is not quite clear: what does the CEO want
you to do? Increase revenue? Reduce costs? Increase profits?
By how much? Try to get the question clear, otherwise youll
find yourself solving the wrong case. If possible, try to get a
quantifiable goal, such as we need to increase profits by $ 10
million.
- Ah, yes, I was a bit unclear on that. The CEO wants to reach profits
of $ 15 million in three years.
Ok, so our goal is to increase profits to $ 15 million a year. Well, before
I start with my analysis, I would like to ask some questions first.
- Thats ok, but let me start with a question for you. Id like you to
estimate the size of the home shopping market in Brazil, if thats
possible.
So you want me to estimate the Brazilian home shopping market? Sure,
but before I start with my estimation, I have some questions.
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You asked me to size the home shopping market, does that include
both catalogues, websites and those TV shows?
- Yes.
Ok, how different is the home shopping market in Brazil from the US?
Are there any cultural differences that I should be aware off?
- Well, Brazilians used to be quite wary of these commercial home
shopping channels and catalogues, preferring to shop in brick and
mortar stores. This distrust is waning and people are seeing the
advantages of home shopping more and more.
Interesting. One more question, do all Brazilians have access to home
shopping channels, such as the catalogues, the TV-shows and the
internet?
- What do you think?
Well, I dont think so: not everyone has access to TV, let alone internet.
And I dont think that these companies deliver deep in the jungle, so I
guess the answer is no.
- Thats correct.
Well, I would like to take a minute to think about my analysis of the
Brazilian home shopping market and draw a structure. Could I?
- Go ahead.
Take some time to think up and write down a structure of
analysis of your own and compare it with the example on the
next page.
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Ok, I will use the number of households here as a reference, since even
though we buy clothing on an individual basis, most furniture and home
accessories are bought per household. I assume that Brazil has about
200 million inhabitants, and that the average Brazilian household has
four members, which brings us to 50 million households. We already
assumed that not everyone in Brazil has access to our sales channels,
because of where they live and how much they earn: not everyone in
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12 = $ 900 million total per year for the high frequency shoppers and
12 million x 5 x 12 = 720 million total per year for the low frequency
shoppers. This leads to a total market size of the home shopping
market of $ 1.62 billion.
- Ok, what if I told you that this is way too low, could you identify
one assumption in your analysis that might have caused this?
Note: Unfortunately, you cannot always be right and sometimes
even be far off. The candidate could have done well with a
reality check here, but thats too late now. The question of the
interviewer is to check whether you have insight in what the
most important drivers are in your calculation
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Ok, first of all, I would like to have a better picture of how this company
creates value for its customers and try to understand the value chain.
Could you tell me some more about that?
- Sure. Because we buy in volume from suppliers, we can keep
purchase prices low. We store these items in our distribution
centers, where they are shipped as soon as a buyer orders
something by mail, phone or website. We deliver the goods and
then collect payment from the customer.
Interesting. And are there any special things I need to worry about in the
Brazilian market? Do we have distribution problems because of bad
infrastructure or do our customers have special wishes? Is there
government legislation regulating the market, or maybe state-owned
companies?
- None of the above. The only interesting difference between Brazil
and the US is that the wages are lower and that we have slightly
higher administrative costs because our client has not invested
much in IT yet, resulting in a lot of paperwork.
Hmm. Ok, with your permission Id like to draft a structure of my
analysis after which Ill walk you through it step-by-step.
- Sure.
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Note: This was just to point out the errors of the candidate. A
real interviewer would have tried to nudge you in the right
direction, without giving all information away like this.
If you ever get stuck: be honest. Say so. Explain your line of
reasoning to that point and ask for help. Nothing is worse than
a panicked candidate that jumps from idea to idea without
following a structure, hoping to gather bits and pieces of info
to crack the case based on luck.
Interviewers are looking for repeatability, not luck. Honesty,
not denial. Admitting youre stuck might still mean the end of
the interview process, dancing around randomly is the end for
sure.
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- Ok, below youll find Brazimaos Revenues and Costs from 2009
and 2012. Please tell me what you see.
Cost
2009
(var/
fixed)
Cost
2011
(var/
fixed)
20
6 / 2.5
9.5 / 2.5
18
3 / 1.5
9/7
9/4
18.5 / 9.5
13
28
In million
$
Revenue
Revenue
2009
2012
Clothing
20
Furniture
Subtotal
Total
26
38
Ok, based on the table you gave me, I conclude three things. First, on
the revenue side, I see that clothing remained flat while furniture
increased three-fold. As I said before, Id like to investigate why revenue
from clothing is flat and why furniture increased so drastically. Do we
know what their respective markets did?
Note: Comparing revenue trends from the client with the
market can be very insightful and is highly recommended. If the
companys revenue shrunk while the market grew, something is
going wrong. When revenue is down and the markets are down,
maybe we should look for other markets, instead of focusing
on this one.
Try to make it a habit when you get this kind of information.
- Good question. Both the mail-order clothing market and the market
for furniture grew rapidly.
Interesting. Ok, Ill keep that in mind. On the cost side I see that
clothing variable cost increased more than 50% and I would like to know
why. And finally, I see an even more drastic rise in the fixed costs for
furniture, which increased five-fold in three years. Again Id like to
understand the reasons for this.
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123
Ok, I first want to focus on the matter of cost reduction at the furniture
division. You mentioned that they can offer fast delivery because they
keep a stock of every item in their warehouses and offer customization
to customers. Both seem like costly affairs and I want to know whether
customers are really looking for these services we offer. So my
hypothesis is that customers are being offered more services than they
actually want. But lets first investigate our furniture customers, do we
have information on customer segments? What do they want?
- We have a recent customer survey that asked customers why they
ordered at our client. Many choose us because of our fast delivery
times and customization options.
Aha, and do you have any actual percentages on these two segments?
And why did other customers choose us?
Note: Its a good habit to quantify the information you get,
otherwise you dont know how many many, a lot, plenty
etc. is.
Also: the candidate checked whether the interviewers answer
really answered his question: It did not. He still only knows
about two segment: those that want quick delivery and those
that want customization (and maybe both).
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Ok, there are three possibilities they should consider. First of all, they
could refocus their current brand to appeal a younger audience. This
brings significant risks, however: losing their current customer base,
failing to appeal that younger audience and it will cost a significant
amount of money. A second option would be to launch a new brand,
independent from the current clothing lines. This does not endanger the
current image with our current customers, but itll be difficult to make
this completely new brand a success. A third option might be to acquire
one of the smaller competitors that is appealing to youth, but lacking
the resources to grow. This way, the risk of failure is lower: the brand
has proven itself. The costs of acquisition are probably higher than
going at it alone.
- Very well. Assume that the CEO of Brazimao is on her way to catch
a flight and asked you to brief her on the state of your analysis,
could you give a synthesis of your analysis thus far?
Sure. Let me think about that for a minute.
- No problem.
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Ok. I think its possible for Brazimao to get their profit to $ 15 million
by acquiring a small but fashionable competitor, but not in one year. I
think this for three reasons:
First of all, acquiring a fashionable label does not risk losing the current
customer segments because they cannot identify themselves with the
brand anymore and is less risky and quicker than going at it alone with
a new brand.
Secondly, they can use this acquisition to tap into the growing segment
of fashion-conscious young women, using Brazimaos resources to
accelerate the growth of the acquired label.
Finally, this will not be sufficient to get them to $ 15 million in profits in
one year, as I assume the acquired company will not be making a $ 5
million profit in year one. But this goal should be realistic in 3 to 5
years.
- Ok thanks. But what about the growth from the furniture division
and its impact on profit?
Ah. I forgot about those... Furniture revenue rises with an average of $6
million in the last two years and has a 50% profit margin. Fixed costs
will only increase slightly because we already invested a lot in the last
few years to prepare for the coming growth. Lets say growth in the
furniture division increases profit by $2 million in the next year, which
means my solution only needs to bring in $3 million, which will still be
difficult I believe.
- Well, thank you very much.
This candidate made some errors, but it was a difficult case and
he recovered quickly if he made errors. He would have made for
an average/good candidate, but this was not a top performance
setting him apart from the other candidates.
Making mistakes during your interview is unavoidable, so if you
make them, remain flexible and dont react defensively. Correct
your approach and continue cracking the case.
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Brainteasers
To my knowledge, brainteasers are not often employed in consulting
interviews: they are more an investment banking or IT thing. In this
chapter we will show you how to approach a brainteaser and we will give
some examples, so you are better prepared if you happen to encounter
one after all.
Brainteaser approach
The approach to a brainteaser is somewhat similar to the approach of a
business case. Its not the answer that is important, but the thought
process (though coming to the right answer helps).
Think out loud
Always think out loud and try to turn the interview into a conversation.
Not only does it give the interviewer an insight into your approach,
conversation also takes the edge off the interview.
Structure your approach
As with case interviews, the interviewer is trying to gain insight into your
problem-solving approach. Break down a problem into different parts,
based on your hypotheses, and try to solve each part seperately.
Consider the following question:
Why are man-hole covers round?
You could structure your approach around the difference between
square and round covers and identify advantages of round man-hole
covers in three different areas: transportation (one man can roll a round
cover), installation (you dont have to rotate a round cover to fit the
corners in) and safety (round covers cant fall down the hole).
Brainteaser examples
These are examples of questions actually asked in investment banking
and IT job interviews. We will answer them later on in this chapter.
Two Jugs
You have a five gallon jug and a three gallon jug and you must obtain
exactly four gallons of water. How?
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Fuses
You have two fuses which will each take an hour to burn completely
when lit. However, the fuses do not burn evenly along their respective
lengths. So if they are lit and are half burned, you cannot assume that
30 minutes has passed. How do you use the fuses to time 45 minutes?
Blindfold
You are blindfolded and sit in front of a table. On the table are many
coins, 10 of which have heads facing up. How do you split the group of
coins into two groups such that the same number of coins are heads-up
in each group? You dont know how many coins there are and you cant
tell which side is facing up in any way.
U2 on a bridge
The four members of U2 (Bono, the Edge, Larry and Adam) need to get
across a narrow bridge to play a concert. Since it's dark, a flashlight is
required to cross, but the band has only one flashlight, and only two
people can cross the bridge at a time. (This is not to say, of course, that
if one of the members of the band has crossed the bridge, he can't
come back by himself with the flashlight.) Adam takes only a minute to
get across, Larry takes two minutes, the Edge takes five minutes, and
slowpoke Bono takes 10 minutes. A pair can only go as fast as the
slowest member. They have 17 minutes to get across. How should they
do it?
Socks
If you have seven white socks and nine black socks in a drawer, how
many do you have to pull out blindly to ensure you have a matching
pair?
Light switches
You are in a room with three light switches on the wall. In a room down
the hallway there are three lights. Each of the switches in your room
controls one of these lights, but you dont know which switch controls
which light. You can only go into the room with the lights once. How do
you work out which switch corresponds to which light?
Clocks
You look at the clock and the time is 3:15. What is the angle between
the hour hand and the minute hand?
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Brainteaser solutions
Two Jugs
There are actually two solutions to this question, but they both share
the same rationale:
1: Fill the three-gallon jug with water and pour it into the five-gallon jug.
Repeat. Because you can only put two more gallons into the five-gallon
jug, one gallon will be left over in the three-gallon jug. Empty out the
five-gallon jug and pour in the one gallon. Now just fill the three-gallon
jug again and pour it into the five-gallon jug.
2: Fill the five-gallon jug with water and use it to fill the three-gallon jug.
When full, empty the three-gallon jug an pour the remaining two gallons
from the five-gallon jug into the three gallon jug. Refill the five-gallon
jug and use it to fill the three-gallon jug. Ta-da, you now have a full
three gallon jug and a five-gallon jug with four gallons of water.
Fuses
The key here is to know that if a fuse takes 1 hour to burn when lit from
one end, it will take 30 minutes to burn when lit from both ends, even
though it burns unevenly."So if we light one fuse from both ends it will
burn in 30 minutes."At the same time we light the other fuse from one
end.
30 minutes later the first fuse is completely burned and the second fuse
has 30 minutes of burn time left in it. When that happens, we
immediately light the other end of the second fuse."The second fuse will
be completely burned out 15 minutes later which means it was 45
minutes in total.
Blindfold
The answer to this brainteaser is rather simple:
1. Separate 10 of the coins from the group and put them to one side. It
doesnt matter which 10.
2. Turn all of the coins in the group of 10 on to their opposite sides.
Done! Dont believe it?
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Lets say there are 100 coins and we separate 10 of them. Now we have
a group of 10 and a group of 90. Lets say that there are 2 heads in the
group of 10. Then there will be 8 heads in the group of 90.
Total
10
90
Heads
Tail
92
Total
10
90
Heads
Tail
92
Ta-da! 8 heads in each group. The key is that if you are told that 10 of
the coins are heads up, you need to separate 10 coins from the main
group." No matter what numbers you use the result will always be the
same.
U2 on a bridge
The key to attacking this question is to understand that Bono and the
Edge are major liabilities and must be grouped together. In other words,
if you sent them across separately, you'd already be using 15 minutes.
This won't do. What does this mean? That Bono and the Edge must go
across together. But they can not be the first pair (or one of them will
have to transport the flashlight back).
Instead, you send Larry and Adam over first, taking two minutes. Adam
comes back, taking another minute, for a total of three minutes. Bono
and the Edge then go over, taking 10 minutes, and bringing the total to
13. Larry comes back, taking another two minutes, for a total of 15.
Adam and Larry go back over, bringing the total time to 17 minutes.
Socks
Not all of them are hard. The answer is three: even if you pull out two
different socks in the first two pulls, the third will give you either a
second white or a second black sock.
Light switches
In order to solve this problem you need to consider the real-world
characteristics of light bulbs. What happens when you turn a light on?
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What happens when you keep a light bulb on for a few minutes or more?
What happens when you turn it off again?
A bulb will light almost immediately and after a while, it will heat up. It
will be warm enough that you can feel the heat by holding your hand
close to it. When you turn the light off, it stays warm and slowly cools.
To solve this brainteaser, you turn on one of the lights and keep it on
for say, 10 minutes. You turn it off and then turn on another light. Now
you go into the other room. The light that is off and warm corresponds
to the first switch. The light that is on is controlled by the second switch
and the light that is off is controlled by the third switch.
Clocks
In this brainteaser it is important to visualize the clock - the hour hand,
remember, moves as well. Every minute on the clock represents 6
degrees (360 degrees/60 minutes). Every hour, the hour hand moves
from one number to the next (in this case, it is moving from 3 to 4)
which represents 5 minutes or 30 degrees.
Since it is exactly 1/4 past the hour, the hour hand is 1/4 of the way
into its 30-degree trip or 1/4 or 30 degrees....which is 7.5 degrees.
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Appendix A:
Solutions to the PST-practice case
1. Answer: B. Revenue dropped from just under $ 20 million to just
above $ 5 million. A is false, since revenue was flat between 2007 and
2008. C is wrong, as can be seen in the chart. D is also wrong:
nothing points toward it and there is no way you can support that
answer.
2. Answer: D. Why?
1. Is not relevant, because the CEO is only concerned with the Sawmill
division.
2. Though analysis is always interesting, customers and competitors
have no direct influence on cost. Not relevant.
3. We need the current revenue and profit, since else we wont know
our goal: the CEO wants to regain profitability, but with just the
costs you dont know how much you need to reduce costs to reach
profitability.
4. Again, interesting but not relevant, we are focusing on cost here, not
revenue.
5. Obviously relevant: otherwise you dont know where the costs come
from.
3. Answer: C.
Laying off a part of the workforce (A) directly lowers fixed costs: the
amount paid on wages. Reducing the finished goods inventory (B) can
save money in two ways: (1) warehousing finished goods is costly and
(2) less inventory means less money tied up in your firm, freeing up
resources and reducing (possible) debt burden. Renegotiating prices (D)
directly influences variable costs: the less you pay for materials, the
lower your costs. Even though C (lowering prices) might help increasing
revenue, this is far from certain. Secondly, it does nothing to reduce
costs, the main goal of our CEO.
4. Answer: C.
We need to calculate A:
Price 2005:15,000,000/50,000 = 30
Price 2010: 5,000,000/20,000 = 25
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References
Ohmae, K. (1982), The Mind of the Strategist. Penguin.
Porter, M.E. (1980), Competitive Strategy: techniques for analyzing
industries and competitors. Free Press, New York.
Acknowledgements
This is a big thank you to all who proof-read the first versions of this
book. Without you, this book would not be as good as it is now, without
spelling mistakes and even better geared towards the non-consultant
reader. I thank you.
I thank everyone for their support during the creation of this book. It
wasnt always an easy process. Im proud of what it has become and
hope itll get my readers the thing they want: a job in the strategic
management consultant.
I based this book on my personal experience which includes the many
written sources I read on during my own practice as well as many case
interview coaching sessions I gave to groups and individual students. I
paid special attention that all material in this book is original work by
my hand, but it is unavoidable that some similarities might occur. I tried
to give credit where it is due but if you find something missing the
appropriate references, do not hesitate to contact me at
steve@caseinterviewhq.com.
The material in this book is copyrighted and distribution of this book in
any form is illegal.
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