CASE PRACTICING DUKE APD CONSULTING CLUB 11222020 1

CASE PRACTICING DUKE APD CONSULTING CLUB 11/22/2020 1

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 2

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 3

HYPOTHESIS Hypothesis is an assumption based on some reasons or observation. Profit declining Decreased revenue Hypothesis Increased cost Hypothesis 11/22/2020 4

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. 11/22/2020 5 Case interview secretes, by Victor

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 Decrease d revenue X? Increased cost ? 11/22/2020 6 Case interview secretes, by Victor

HYPOTHESIS 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. 11/22/2020 7

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 8

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 4 C’s, 4 P’s, Value Chain… Supporting condition Hypothesis Supporting condition subcategor y 11/22/2020 9 Case interview secretes, by Victor

ISSUE TREE 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… 11/22/2020 10

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. 11/22/2020 11

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 12

DRILL DOWN Use a process-of-elimination approach to analyze. Profit declining Decrease d revenue X? Increased cost ? 11/22/2020 13

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. 11/22/2020 14 Wharton Consulting Casebook 2007 -2008

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 11/22/2020 15

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 Restate the hypothesis: This is a profitability problem, the company needs to reduce 11/22/2020 16

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: Ø Components of the cost: Ø Cost of goods sold (COGS): ---------------------No change gum, sugar, flavor, smell, color… Ø Labor------------------------------------No info Ø Selling, General and Administrative expenses (SG&A)------No 11/22/2020 info 17

DRILL DOWN Ø Variable cost: Ø Two types of products: flavored and flavorless gum Ø Both products are sold at the same price point Ø Composition products: Ø Flavored gum: gum, sugar, color dye, and flavor Ø Flavorless gum: gum, sugar, color dye Ø Note that the gum, sugar and color day raw materials are same in size for each of the two products. 11/22/2020 18

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 11/22/2020 19

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 11/22/2020 20

DRILL DOWN Tip #4: When to stop analyzing—the minimally necessary data. Don’t over analyze this branch, which makes your case solving inefficient. Ø Variable cost: Ø Two types of products are sold at the same price point Ø Composition products: Ø Flavored gum: gum, sugar, color dye, and flavor Ø Flavorless gum: gum, sugar, color dye Ø Note that the gum, sugar and color day raw materials are same in size for each of the two products. 11/22/2020 Conclusion for problem 1: Because the increasing sales of the flavored gum, the profit margin declined despite of an increasing total sales. 21

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 22

SYNTHESIS Recommended format: Final recommendation. Increase the margin for flavored gums. Support info 1; See a declined margin; Support info 2; Because of selling more flavored Support info 3. Reiterate the final recommendation. gums; Flavored gums have lower margins. Increase the margin for flavored gums. 11/22/2020 23

SYNTHESIS Increase the margin for flavored More comprehensive ones: Final recommendation. Support info 1; Support info 2; gums. Flavored gums have lower margins; See a declined margin is caused by selling more flavored gums; Imperfection of the analysis and next Based on given information. Maybe step works; Reiterate the final recommendation. adjust the margin for unflavored also Increase the margin for flavored gums. 11/22/2020 24

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 11/22/2020 25

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 26

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 11/22/2020 27 case in point 8 th edition, 3: CASE QUESTIONS

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 28

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. 11/22/2020 29 case in point 8 th edition, 3: CASE QUESTIONS

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 30

FOUR TYPES OF QUESTIONS Profit or loss Growth and increasing sales Entering a new market Pricing 11/22/2020 31 CASE IN POINT: Complete Case Interview Preparation, 8 th

PROFITABILITY Cost Fixed cost (value chain) Variable cost (suppliers) Revenue Price per unit (4 P’s) The # of unit sold (4 P’s or buyers) 11/22/2020 32

FOUR TYPES OF QUESTIONS Profit or loss Growth and increasing sales Entering a new market Pricing 11/22/2020 33 CASE IN POINT: Complete Case Interview Preparation, 8 th

BUSINESS SITUATION (4 C’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) 34

FOUR TYPES OF QUESTIONS Profit or loss Growth and increasing sales Entering a new market Pricing 11/22/2020 35 CASE IN POINT: Complete Case Interview Preparation, 8 th

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 11/22/2020 36 CASE IN POINT: Complete Case Interview Preparation, 8 th Harvard Business Edition School Management Consulting Club, Case Interview

FOUR TYPES OF QUESTIONS Profit or loss Growth and increasing sales Entering a new market Pricing 11/22/2020 37 CASE IN POINT: Complete Case Interview Preparation, 8 th

4 P’S FRAMEWORK More product focused, can be used when analyzing the price of a product 4 P’s: Product Price Place/Distribution Promotion 11/22/2020 38 Harvard Business School Management Consulting Club, Case Interview

INTRODUCTION TO CASE PRACTICE SERIES Items to cover: ü Mental math, ü Market size estimation, ü Case interview frameworks, ü Basic case interview skills, 11/22/2020 39

MEETING AGENDA Skills for today Case solving skills Review of the frameworks: Profitability Hypothesis 4 C’s Issue tree Porter’s 5 Forces Drill down Synthesis Note design When getting stuck 4 P’s and value chain Case practice 11/22/2020 40

CASE PRACTICING 11/22/2020 41