Duke APD Consulting Club Case Practicing Duke APD Consulting Club 9/19/2018

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

Decreased revenue Profit declining Increased cost hypothesis Hypothesis is an assumption based on some reasons or observation. Profit declining Decreased revenue Increased cost Hypothesis Hypothesis 9/19/2018

hypothesis Why we need hypothesis Many issues can be the reason to a case. It takes enormous of time to analyze everything. In a case interview, you usually only have 30 to 40 minutes to finish it. So Hypothesis driven case solving skills saves you time by at least eliminating the wrong directions. 9/19/2018 Case interview secretes, by Victor Cheng

X ? ? Decreased revenue Profit declining Increased cost hypothesis How to use hypothesis eliminate wrong directions In a business case, maybe the declining profit is caused by a decreased revenue, or an increased cost. To analyze this problem, I’ll make my hypothesis that the decreased revenue is the main reason, and look for information about the revenue of my client. If I find the revenue doesn’t change, I’ll then switch to the cost side. By then, I’ll have to change my hypothesis as an increasing cost eats the profit. Profit declining Decreased revenue Increased cost X ? ? 9/19/2018 Case interview secretes, by Victor Cheng

When to state your hypothesis As early as possible? After several background questions? I suggest to state it after several background questions, so that the hypothesis can be based on some specific facts. Remember, your analysis is all based on your hypothesis. So don’t forget to state a hypothesis. 9/19/2018

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

Issue tree Issue three: “a logical argument or structure designed to test the validity of a hypothesis.” Framework: An issue tree template used to solve common business problems. Like 4C’s, 4P’s, Value Chain… Hypothesis Supporting condition subcategory 9/19/2018 Case interview secretes, by Victor Cheng

What is an issue tree should like? Hypothesis based. An issue tree is based on a hypothesis, to analyze a specific topic MECE. Mutually exclusive, collectively exhaustive. Sometimes a little overlap is allowed Example: customer segments: according to age, yes! According to income, yes! According to hobby, no… Conclusive. By analyzing this issue tree, one can consolidate a conclusion Example: Pricing: lower than all the substitute product, yes! Lower than one substitute product, no… 9/19/2018

Issue tree How to form a good issue tree: 1, state your hypothesis 2, based on your hypothesis, form your issue tree 3, you can embed some frameworks into your issue tree, or embed frameworks into a framework, or embed your sub-issue tree into a framework. 4, check is it MECE, is it conclusive? Communicate your issue tree to interviewer: To introduce every branch before delve into one. 9/19/2018

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

X ? ? Decreased revenue Profit declining Increased cost Drill down Use a process-of-elimination approach to analyze. Profit declining Decreased revenue Increased cost X ? ? 9/19/2018 9/19/2018

Sample case Bubble Gum Manufacturer You are a consultant working for a bubble gum manufacturer. The CEO of the gum manufacturing company is concerned because his company is experiencing declining margin. My questions to you are: 1, the reasons behind declining profitability; 2, your suggestions for improving profitability. 9/19/2018 Wharton Consulting Casebook 2007-2008 Edition

Sample case Hypothesis: This is a profitability problem, the company needs to improve their revenue. Issue tree: typical profitability structure Revenue Price per unit The number of unit sold Cost Fixed cost Variable cost 9/19/2018

Drill down Tip #1: Start with the branch that eliminates the most uncertainty first. Start with the most relevant, critical information. X Revenue Price per unit-----------------------------------No info The number of unit sold---------------------Has been increased Cost Fixed cost----------------------------------------No info Variable cost------------------------------------Components of the cost 9/19/2018 Restate the hypothesis: This is a profitability problem, the company needs to reduce the cost.

Components of the cost: Drill down Tip #2: Use both quantitative and qualitative analyses. Always try to quantify a problem; Feel free to ask “why” and “how” in addition to “what”; Variable cost: Components of the cost: Cost of goods sold (COGS): ------------------------------------------No change gum, sugar, flavor, smell, color… Labor-----------------------------------------------------------------------No info Selling, General and Administrative expenses (SG&A)------------No info 9/19/2018

Two types of products: flavored and flavorless gum Drill down Variable cost: Two types of products: flavored and flavorless gum Both products are sold at the same price point Composition products: Flavored gum: gum, sugar, color dye, and flavor Flavorless gum: gum, sugar, color dye Note that the gum, sugar and color day raw materials are same in size for each of the two products. 9/19/2018

Drill down Tip #3: Don’t stop drilling down until you reach a conclusion. Either drill down until you find it supports your hypothesis or you find it disproves your hypothesis. Then move to the next item in your issue tree. “Never propose a solution until you’ve isolated and defined the problem.” Revenue Price per unit-----------------------------------No info The number of unit sold---------------------Has been increased Cost Fixed cost----------------------------------------No info Variable cost------------------------------------Components of the cost ? 9/19/2018

Price per unit-----------------------------------No info Drill down Tip #3: Don’t stop drilling down until you reach a conclusion. Either drill down until you find it supports your hypothesis or you find it disproves your hypothesis. Then move to the next item in your issue tree. “Never propose a solution until you’ve isolated and defined the problem.” Revenue Price per unit-----------------------------------No info The number of unit sold---------------------Has been increased Profit Cost Fixed cost------------------------------------No info Variable cost---------------------------------Components of the cost 9/19/2018

Drill down Tip #4: When to stop analyzing—the minimally necessary data. Don’t over analyze this branch, which makes your case solving inefficient. Variable cost: Two types of products are sold at the same price point Composition products: Flavored gum: gum, sugar, color dye, and flavor Flavorless gum: gum, sugar, color dye Note that the gum, sugar and color day raw materials are same in size for each of the two products. 9/19/2018 Conclusion for problem1: Because the increasing sales of the flavored gum, the profit margin declined despite of an increasing total sales.

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

synthesis Recommended format: Final recommendation. Support info 1; Support info 2; Support info 3. Reiterate the final recommendation. Increase the margin for flavored gums. See a declined margin; Because of selling more flavored gums; Flavored gums have lower margins. 9/19/2018

synthesis More comprehensive ones: Final recommendation. Support info 1; Support info 2; Imperfection of the analysis and next step works; Reiterate the final recommendation. Increase the margin for flavored gums. Flavored gums have lower margins; See a declined margin is caused by selling more flavored gums; Based on given information. Maybe adjust the margin for unflavored also 9/19/2018

synthesis When to synthesize: Do mini synthesis when switching gears to another branch “As we can see from above analysis, the declined margin is at least partially caused by the increased revenue. Another possibility is the decreased profit, and I would like look at the profit part.” Revenue Price per unit-----------------------------------No info The number of unit sold---------------------Has been increased Profit Cost Fixed cost Variable cost 9/19/2018

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

Note design Two sets of paper: One for issue tree and important conclusion One for calculation Use diagrams to visualize your analysis, and use lines to separate each section, and tables to organize your information. Product A B Price/unit Variable cost Unit contribution 9/19/2018 case in point 8th edition, 3: CASE QUESTIONS

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

When getting stuck Go back and review what you have already. Do a small summary helps you clear your mind. Go back to see any trivial clues were neglected from the stem of the case. 9/19/2018 case in point 8th edition, 3: CASE QUESTIONS

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

Four types of questions Profit or loss Growth and increasing sales Entering a new market Pricing 9/19/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition

profitability Cost Revenue Fixed cost (value chain) Variable cost (suppliers) Revenue Price per unit (4P’s) The # of unit sold (4P’s or buyers) 9/19/2018

Four types of questions Profit or loss Growth and increasing sales Entering a new market Pricing 9/19/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition

Business situation (4C’s) Consumers/customers Identify the consumers and customers Define the market: decision making unit, process, situations Company Internal analysis: key success factors (KSFs), value chain, financial analysis External analysis: general trend, industrial analysis Competitor Competitive analysis: what drives the competitor; what are they doing Market signals: announcements, industry analysis Competitive move: risks, retaliation Collaborator Buyers: identify good buyers; create good buyers and eliminate unqualified buyers Suppliers: identify good suppliers, supplier strategy (avoid switching cost)

Four types of questions Profit or loss Growth and increasing sales Entering a new market Pricing 9/19/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition

The competitive advantage in an industry depends on five forces: Porter’s five forces The competitive advantage in an industry depends on five forces: The threat of new entrants The bargaining power of buyer/customers The bargaining power of suppliers The threat of substitute products Rivalry with competitors 9/19/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition Harvard Business School Management Consulting Club, Case Interview Guide

Four types of questions Profit or loss Growth and increasing sales Entering a new market Pricing 9/19/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition

4P’s framework More product focused, can be used when analyzing the price of a product 4P’s: Product Price Place/Distribution Promotion 9/19/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Introduction to Case Practice series Items to cover: Mental math, Market size estimation, Case interview frameworks, Basic case interview skills, Case practice with peers 9/19/2018

Meeting Agenda Skills for today Review of the frameworks: Case solving skills Hypothesis Issue tree Drill down Synthesis Note design When getting stuck Review of the frameworks: Profitability 4C’s Porter’s 5 Forces 4P’s and value chain Case practice 9/19/2018

Case Practicing 9/19/2018