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Preparing for a consulting case interview

November 27, 2011 Leave a comment Go to comments

Having been through the interview process with all the top-tier strategy consulting firms notably McKinsey, BCG, and Bain, I got into the role of advising my peers at Columbia Business School on preparing for such interviews.

Over the last few days, as I do these practice case interviews, I realized that it would be more efficient to create a standard checklist that I can then use to base my feedback on. While the checklist is more aligned with a particular case I have created to give a holistic feel, I think this can be relevant in a general context as well. And some of the tips could evoke a WTH! kinda response also but the idea is to be as comprehensive as possible to appeal to users at varying stages of interview preparation.

For the purpose of this post, I will use a specific case to make my guidelines easier to understand and implement.

Here goes the checklist…

1. Use blank white A4 papers in landscape mode
The idea behind this is that your work should mimic as if you’re working on a MS-Powerpoint deck.

2. Number your pages beforehand
Sometimes interviewers may notice it and regard you as being very structured.

3. Once the interviewer gives the case brief, recap key information to make sure you got everything correctly. In case of long case briefs, make sure you’re very crisp and succinct without relaying the complete brief verbatim to the interviewer.
Case brief given: Our client is Navigant Advisors, a retail brokerage firm doing $5Bn revenue in 2010. It has 200 branches in the U.S. of which 100 are corporate owned and the remaining 100 are franchised. We have been retained by this client to help them understand the economics of the business.
An illustrative recap would be: Navigant Advisors is a $5Bn retail brokerage firm looking to understand the economics of its business and has a 50-50 split for its 200 branches amongst corporate owned and franchised.

4. Before getting into the framework, you can ask clarifying questions only to help you:
– Define the problem statement very clearly in case the given issue was very vague.
You could say, “By economics of the business, are we expected to estimate profitability of the business or analyze the cost structure, or is it something else?” Interviewer would respond saying, “Economics means profitability.”
– Understand the high-level (often hidden) objective that the client has in mind.
You could say, “If profitability was the key objective, the client could have very well asked an internal accountant to do the same but chose to hire a strategy consulting firm so there is something more strategic. It would be important to understand the larger goal behind this exercise. Is the client looking to divest this business or pursue some other strategic intervention?” Interviewer would respond saying, “Client wants us to help them identify opportunities for profit growth in the near term.”
– Learn basics about the client industry only if it is totally unknown.
You could say, “I am not familiar with this industry but I think retail brokerage firm would operate in the financial services space offering broker services for clients to invest in the market.” Interviewer would respond saying, “Yes, it is a financial services firm operating two divisions… (1) trading – doing trade transactions on behalf of clients, and (2) asset management – sourcing client assets and outsourcing it to an asset manager to manage those client assets.”

5. At this point, you have all the information you need to structure your problem solving approach. Just to make sure you haven’t missed out on anything, you could very well ask a general question such as, “is there any other client objectives that I should be aware of before I structure my approach?”

6. Whenever there is a possibility of doing analysis at different levels (e.g., company-level, division-level, product category-level, branch-level), it is important to clarify the same.
You could say, “the client has different branches and also has two operating divisions. Is the profitability analysis required at either of these levels or at the overall company level?” Interviewer would respond saying, “The client is looking to understand profitability at a division level. As for branches, assume that the financials are homogeneous across all branches so you can ignore any distinction between corporate owned and franchised branches.”

7. Be very judicious in managing the time vs. detailing trade-off while drafting your structure. While people might say it should not take more than 2-3 minutes, I feel that’s an over-generalization. You would know it yourself when the silence becomes uncomfortable. So, to be ready to explain your framework midway through the detailing in case you feel its taking long, its better to start with identifying the major areas/ issues before detailing each of them. Always, have some depth of detail for each issue you identify atleast one level.

8. When you explain the framework, always follow the pyramid principle of communication i.e., top-down.
The framework could have had 4 major buckets – Financials/Profitability, Market Trends, Competition, Customers. Within financials, you could have had two buckets, Revenue and Cost Structure with another level of detail explaining the revenue levers and cost segments… and so on.
You could explain as follows: “To solve the problem at hand, I would investigate four broad issues. Firstly, financials or profitability of the business. Secondly, the market trends to help us understand profit growth drivers. Thirdly, the competitive landscape and finally, customers and their preferences. Within financials, I would look at two areas – revenue stream and cost structure. Within revenue streams, the possible levers to be explored are product mix (the kind of products and services offered by our client), the number of transactions or clients served, and the pricing strategy. Within cost structure, I would look at the fixed costs and the variable costs. Then moving on to market trends….”

9. At this point, some firms expect you to prioritize the issues while some firms/ interviewers would steer you through the next steps by asking you specific questions.
For purposes of this article, I will use the latter case which is the typical McKinsey style.

10. Now you move on to the analytical part whereby the interviewer will identify a specific issue to go into details with.
Interviewer would say, “Let’s look at the financials work stream. Why don’t you detail out what we can analyze here?” You could say, “Going back to the framework, I would source the following information. For pricing, I presume there could be a fee structure based on the kind of services we offer. And then for each division, I would look at the transaction mix and the volume. Moving on to cost structure, firstly, let’s look at the fixed costs. Being a financial services brokerage firm, some big cost components would be technology for the trading platforms and compensation. Then there are the usual overheads such as marketing, real estate rental, and office administration. On the variable costs, I would presume there is a fee we might have to pay to the exchanges for trades and also some external fee to be paid on the asset management side.” Interviewer would make it conversational and correct/ qualify your hypotheses as you speak but it would be more like, “Yes, there is standard fee charged for every transaction in trading uniform for all transactions. On the asset management side, there is again an annual fee charged as a percentage of AuM. For costs, the compensation has been moved to variable cost at this client so the only fixed costs are technology, marketing, and SG&A. Let’s do some math now to arrive at profitability.”

11. At any point in the interview when you’re analyzing something, never ask open-ended questions (such as, “what are the fixed costs for this business?”) but try and hypothesize on what you think could be the answer (such as, “looking at fixed costs, I would think it is technology, and administration overhead. Is that correct?”). In the latter case, you’re demonstrating that you’re immersed in the client situation and are thinking actively about what could be the answer in this context. There is no harm in going wrong and/or being corrected by the interviewer.

12. Now, when you get on to math, if the analysis was done already like in this example, the interviewer would just provide you the numbers directly.
Interviewer would say, “On the revenue side, trading volume is 300Mn transactions per year and fee charged at $10 per transaction. For asset management, the fee charged is 1% of AuM…” You can calculate the trading revenues as 300Mn x 10 = $3Bn. And then going back to the original case brief, you know overall revenues are $5Bn which means asset management revenues are $2Bn. If that is 1% of AuM, then AuM = 2Bn/1% = $200Bn. There would be cost data also provided on the same lines.

13. If the data is very complex, you could even choose the option of modeling out the math problem before getting the numbers or get the numbers and model it out before you plug in the numbers.

14. When you do math, use a new sheet of paper and lay out all the analysis very clearly using data labels wherever possible. This will help you structure your calculation, avoid making simple math mistakes, and also make it reusable in case you have to secondary analysis using this math analysis.

Image - Practice Case - Math Problem Solution

 

 

 

 

 

 

 

 

15. Once you have your answer for the math problem, don’t stop there but make an inference. Try and relate it back to the client problem/ context.
You could say, “Based on the information we had, both divisions seem to bring in equal profits of $200Mn each to the client business. However, if we look at profit margins, asset management division is relatively more profitable possibly due to disproportionate fixed cost structure owing to technology costs.”

16. At this point, interviewer might shift gears to the data interpretation part whereby you will be given an exhibit (graph/ chart / data tables) and asked to firstly explain the exhibit and then share insights that could matter to the current problem solving exercise. There is no need to do any number crunching unless specifically asked. The interviewer is looking to understand your thought process and also test you on how you can quickly translate complex data exhibit into manageable information and apply it to the client context.

Image - Practice Case - Exhibit for Data Interpretation

 

 

 

 

 

You could say, “This exhibit provides gross revenue numbers for the retail brokerage industry for the last five years, 2006 through 2010. On the other dimension, the data is provided for 4 key players including our client along with another aggregate bucket for other market players. This seems to reflect the overall industry. Before we get into details at a company-level, let’s look at the aggregate numbers. Overall, the industry seems to have grown aggressively from 2006 to 2008 after which the growth has plateaued out. Moving onto our client, Navigant Advisors, we see that our client grew from 2006 to 2008 but shrank after that. This implies that there could be another company that grew in the last two years at our expense. Let’s look at Mega Corp, they grew till 2009 but shrank so while they are partly responsible for our client’s decline there has to be another company and that is Deutsche Group which grew in 2009 and 2010. As of 2010, our client is the third largest firm. Based on all this, if I am looking at profit growth opportunities, I would look at two areas – how the market is trending going forward, and secondly, what made Deutsche Group so successful in the last couple of years.”

17. Most likely, the interviewer might switch to another area from this i.e., analytics / idea generation. This is like a clean-slate thinking approach whereby you’re being tested on how creative you are, the breadth of your thinking, and also how you use available data to validate some of your ideas right away.
Interviewer could say, “Let’s look at some ideas that we can share with our client for improving profits in the near term. Why don’t you come up with those?” You could definitely ask for some time to gather your thoughts and then come up with a response like, “There are three ways to grow profits – increase revenues keeping costs constant, reduce costs keeping revenues constant, and increasing revenues while reducing costs. In all these possibilities, the two main levers are increasing revenues and reducing costs. For increasing revenues, one would be to increase transaction volume / client assets i.e., through new customers (current non-customers, competitors’ customers, or new geography) or selling more to current customers. Pricing could be difficult to increase due to competitive pressures and regulations. Our client can try and introduce new products and services also to add to the offering mix. On the cost side, looking at the data we have, the two big areas are compensation and technology. We can look at a progressive compensation structure and benchmark with industry to bring it down to reasonable levels, and for technology, we should either consider outsourcing or offshoring (if technology is proprietary).”

18. At this point, you have been tested on all the four broad areas – problem definition & structuring, analytical & idea generation, math, and data interpretation. The interviewer might ask you to summarize your key findings and recommendations for the client.
Interviewer could say, “At this point, why don’t you summarize our key findings and recommendations for our client.” You could respond like, “Firstly, looking at profitability, both divisions are equally profitable bringing in $200Mn annual profits each but on a profit margin level, asset management is more profitable at 10% vs. 6.7% for trading. Looking at the macro industry, industry growth has plateaued while a key competitor, Deutsche Group has gained a big share in the last two years so would be important to factor in while discussing profit growth. For growing profits, amongst the two levers, the first one is increasing revenues by introducing new offerings and adding customers. For reducing costs, the two big candidates are compensation and technology. As a next step, I would understand the market and customer preferences before developing specific recommendations on profit growth.”

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  1. March 17, 2012 at 8:53 am
  2. March 17, 2012 at 8:55 am

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