Structuring a case
Most importantly, smile, be confident, and relax.
After the interviewer has explained the case, I like beginning with "Could you tell me something more about..." First, it buys time to think about the situation. Second, you get to find out more. More often than not, the case description alone is completely inadequate to make a stab at the case.
I follow this up with the objective: what am I supposed to do in the case? Sometimes, we need to ask. Sometimes, we need to state and clarify. Either way, I prefer to determine the objective upfront. I would also clarify the role of the interviewee and the interviewer. Is the interviewer acting as the client and the interviewee as the consultant, for example?
Then I describe the structure that I'm likely to follow. Some people think its better to develop a structure as you go along. I think its better to state a structure, and deviate from it if needed. That way, the interviewer has an idea what you're doing. Remember: half the problem is to making your thinking understandable to the interviewer.
Then I analyse the case based on the structure, come up with possible hypotheses, and test each of them. Finally, I list options based on the hypotheses, and their implications.
I prefer thinking in terms of patterns rather than frameworks. A pattern is nothing but a small framework that's easy to remember, and can be used for a single small specific purpose. Such patterns are often seen everywhere, and can be put together to form frameworks. I am documenting some of the recurrant patterns that I have seen while solving cases, and a few frameworks that I use.
Framework: Decision making
Broadly, for any decision, I use the following framework.
- Find out the reason behind the decision.
- The reason could be strategic.
- The reason could be project feasibility:
- The market attractiveness could lure us, through
- its demand pattern
- or supply pattern
- but competition needs to be considered
- along with risk.
- Find out the cost of the decision:
- in terms of new resource allocation, and
- existing resources to be reallocated.
- Determine if it is worth it. This is subjective.
- Figure out how to list options based on the decision:
- using timing
- and mode (4Ps, OLI).
Pattern: Strategic reasons
Objective: Determine strategic reasons for a decision.
The following are specific strategic reasons for making a decision.
- Externalities. By making the decision, the overall company will improve, although the project itself may not yield positive benefits.
- Overall cost reduction. Opening a factory that is unprofitable can still lead to economies of scale yielding an overall profit.
- Cross selling or bundling. For example, Gillette subsidizes shaving sticks, so that they become a vehicle to sell the profitable blades.
- Learning: Learning can be about the market, operations, management, research, or any part of the business. Eg: Xerox learnt operations from its Fuji Xerox venture.
- Pre-emption -- either competition or the market. Do it before someone else does, or asks. For example,
- Filling a gap in the market, so that the competition cannot enter.
- Creating options. For example, brand building to unleash latent demand
- Reaction. Someone else is doing it, and we have to do react. For example,
- Competitive: If Pepsi offers an orange soda, Coke will have to offer one of its own.
- Complementary: If Microsoft develops software that runs multimedia slowly, Intel responds by speeding up the multimedia component of its chip.
- Unusual reasons:
- A one-time opportunity is available. Eg: A country is deregulating, and issuing licenses. Or, the industry is in a slump and acquisition is easy.
- Constraints. The company may not have a choice. Eg: contracts. Dhabhol has no choice about paying Enron.
- Temporary reasons (a dip in the existing markets etc. - if it is only temporary less resources need to be invested.)
Industry forces
Objective: Determine if industry is attractive.
Porter proposed that the success of the company is determined by the structure of the industry. The 5-forces framework helps us analyse the industry structure.
Another theory is that the success of the company is determined by a company's unique resources and capabilities.
Yet another theory is that it depends on the parent or holding company.
Studies (including Porter's) have shown that the industry determines 20-25% of the company's success. The resources & capabilities determine 30-35%, the parent company determines 2% or so, and the rest is unexplained.
Competitive Advantage
Objective: Determine if company will do well in industry.
For more details on this, refer Chapter 8 of Hill & Jones.
Competitive advantage stems from the common elements of the key industry success factors and the distinctive (i.e. unique to the company) resources and competencies of a company. There are four places to look for such competitive advantages:
- Innovation
- Responsiveness
- Quality
- Efficiency
Pattern: Context
Objective: Identify and subjectively evaluate risks. Think of recommendations.
For evaluating the environment, context, or risk, I use the PLEST framework: Political, Legal, Economic, Social, and Technical. These are environmental isses that can determine the success of a company. When evaluating a specific country, the following need to be looked at:
- Political risk includes political stability, corruption, shifting borders (a city in one country could move to another tomorrow).
- Legal risk: How strong is the judicial system? Property rights? Is intellectual theft punished? What are the contractual problems?
- Economic risk includes a currency stability, fiscal discipline, repatriation, taxation, restrictions on FDI.
- Social risk includes the country's culture and management practices.
- Technological risk of obsolesence of product or resources.
Pattern: 4Ps
Objective: Determine marketing strategy.
Very little to say here. Just a note on how to price and distribute globally:
- Pricing: can be uniform across markets, cost-plus, or based on affordability or competition.
- Channels: consider the role of an international marketing headquarters, which channels will be used between nations, and which channels within a nation.
Pattern: OLI
Objective: Determine nature of venture.
Please refer any text on the Ownership - Location - Internalisation framework.
Pattern: Manufacturing
Objective: Determine where value can be created through manufacturing
Value can usually be squeezed from one of these areas. Problems are also typically in one of these.
- Which product: Segment the company
- Factors of production
- Plant (equipment, capacity): Is it old? Is is small? Is it large?
- People: Are they old? Are they few or excessive? Do they have the skills?
- Process: What is the process? Can the existing processed be corrected or improved?
- Product design: Is the product designed for manufacturing? Can design be changed?
- Parts: Are your raw materials fine? Is your inventory rising? Is there too much scrap?
- Planning and Control: Are you monitoring the right things? Is forecasting good?
- Supply and Value Chain
- Supplier
- Product development
- Procurement
- Production
- Demand Management
- Logistics and Distribution
- After sales service
Pattern: IT
Objective: Determine where value can be created through IT
When somebody says 'e-commerce' don't believe them. They're usually talking about IT. IT can be applied to each of the functional areas:
marketing,
manufacturing,
finance,
human resources, and overall
strategy. Its benefits arise through:
- Increase in reach
- Lowered cost
- Reduction in time
- Increased scope of communication and feedback
- Improved standardization
Pattern: Profitability
For profitability decline cases, I segment the income statement along various dimension. At the end of it, the problem is usually obvious.
Pattern: Segment the company
Objective: Determine which 'division' of the company has a problem.
- Business. A diversified company may have many business divisions. Eg: A restaurant business may have a catering service, a delivery business for the restaurant, and the main restaurant. The product is the same, but the mode of delivery is different for each business.
- Product line. Eg: The restaurant may be serving Indian, Chinese and European food. Each product may have different profitabilities.
- Location. Eg: The restaurant business may be doing well in Chennai and Bangalore, but not in Mumbai and Pune. It may be doing well in urban areas, but not in rural. It may be doing well when located on the main roads, but not on small lanes.
- New: Is there any new business line, product or location?
Pattern: Segment the revenue
Objective: Determine which component of revenue has a problem.
- Type: One-time, fixed or variable. Eg: A mobile phone company charges a one-time deposit (non-refundable), and a fixed monthly charge, plus an amount per call. The one-time revenue is earned only for new customers. Fixed is earned for existing customers irrespective of usage. Variable is proportional to usage. The percentage break-up of these revenues can lead to insights.
- Customer: 20% of the customers bring in 80% of the revenues. Focus on them. Segment the market, and look at the different kinds of customers and their revenues.
- New: Is there any new revenue source? Or a vanished revenue source?
Pattern: Segment the cost
Objective: Determine which component of cost has a problem.
- Source
- Equipment: could be old, etc.
- Scale: could be too small or large
- Labour: could be unskilled, etc.
- Location: could be unsuitable
- Laws and regulation: could be unfavourable
- Type: One-time, fixed or variable. Eg: A manufacturing company sets up a plant (one-time cost) and keeps it running (fixed cost), producing output using raw materials (variable).
- Component
- Raw materials
- Labour
- Inventory
- Transportation
- Selling & Administration
- Tax
- New: Is there any new cost? Or a vanished cost?