The management consulting companies are shrouded in an aura of mystery. Many people have heard of such companies as McKinsey, Boston Consulting Group or Bain with outrageously high salaries of consultants who work there. There is also a mass of students and graduates who dream of doing their internship there. Alright – but what do we know about working at such management consulting companies? The simplest answer to this question is that ‘it involves provision of strategic advice to other companies’. But what do those words actually mean? What tasks are performed there? In what way are they performed? What predispositions do you need to have?
Let us see what people from McKinsey write about their activities:
‘We help our clients achieve permanent and clear improvement of their performance, as well as co-create a company that can attract, develop, motivate and keep special people’
It all sounds good and catchy, but what are actual actions and activities enclosed in this description?
Simulation of work in this type of companies are recruitment processes they hold. They consist of a few stages and in each of them you have to show your ability of solving business problems presented by a recruiter – it is simply to check how you would handle your daily duties, you will not get any abstract tasks (e.g. building a bridge from paper, etc.), it will be a specific business problem, the so-called case. It will be very general, presenting only a situation, whereas your task will be to ask about any data and details you need to solve the problem.
If the case is defined as follows:
‘The XYZ company operates as a car dealer network. Last year it recorded a decrease in revenue, which translated into a loss of $2 million net. The CEO is considering relocation of some of its showrooms in response to this situation. Your task is to help them assess this idea and optionally advice if there is a better solution in this situation.’
be aware of the fact that the recruiter has the entire background prepared. If you ask about the breakdown of operational costs in the company, you will receive such data, the same applies to historical data on revenues and costs, information on competition, economic situation in the market, in which the company operates, market research the company has conducted, etc. Your task is to establish what data (and why those and not others) you need to answer the question and solve the business problem, and finally to issue the business recommendation – what the company should do. You need to define the entire structure – in what way you will examine the problem, what is important to solve it, you then need to collect data, draw conclusions and issue a recommendation.
Such a case during a job interview is an accelerated version of a regular job in the management consulting industry. Why accelerated? Because in a regular job you don’t have all the data ready-to-use. You are often employed, because a company has a problem and needs help to solve it. The problems include, e.g. decreasing profits, the CEO is concerned and hires consultants to help him. And this is all you know at the very beginning. You must, like in a business case, define the structure of analysis, show what you are going to need and then collect the company’s data (and this takes a lion’s share of your time, because in real life, there is no recruiter available to you with all the required data) and issue a recommendation. Hence, as you can see, a job interview aims at verifying how well you would handle everyday tasks.
The art of solving business cases combines appropriate aspects – an analysis, the skill of asking the right questions, justification of why you need a given package of information, a clear logical structure and a hypothesis you are going to test. We could try to create specific commandments, i.e. the ten most important things about solving business problems:
- understanding of the problem – it is worth to apply the formula ‘as far as I can see, the situation is as follows…’ – and here, in fact, you should repeat the description of the case, which the recruiter asked a minute ago – ‘(…) and my goal is to…’ – it is good to make sure here that you understand what your task is – e.g. increase of sales is not the same as increase of profit (which can be achieved also by reduction of costs with the same level of sales)
- thinking through the prism of a hypothesis – it allows to shape the problem into a logical structure and order the manner in which you ask questions, e.g. if you have a question ‘should the company make this investment?’ (note – providing the answer does not matter at the beginning)- you may assume two equivalent hypotheses, ‘yes, it should’ or ‘no, it shouldn’t’ – and then explain that in order to verify whether your hypothesis is correct or not, you need such and not any other information – thanks to that you will either confirm it or reject it; you should not ask questions for the sake of asking them nor collect data to in vain – if you want to obtain a certain package of information, it should bring you closer to the solution to your business problem. Stating a hypothesis facilitates that process significantly, because you know what you are looking for; the purpose of stating a hypothesis is not correctness as such, but proving whether it is right or wrong – it should be concrete and testable, sometimes it is even easier to think of it as of a statement which falsehood we should prove, in that case we are not so emotionally engaged in it, it should only be a starting point.
- always consider what a given piece of information, which you heard, means to your hypothesis, it’s not about conducting a business intelligence and collecting data for the sake of collecting them, but finding a linear and logical solution to a business problem; if you received a certain package of information, check whether it changes or not your hypothesis – because the hypothesis defines a logical structure of solving a problem; each time when you receive a significant package of data, anything that affects your hypothesis, you should do a mini data synthesis to see whether your hypothesis is still valid
- elimination process – if you are testing your hypothesis and you have realized that something will surely not be feasible – you should simply eliminate it, it is not worth leaving open options, because you will sooner or later lose track of your analysis
- thinking through the prism of data – every step forward in finding the solution to a case must be based on something – some data, research results, economic trends, etc. – you cannot assume that something is a good idea in your opinion if you don’t have any data or information that can prove that; intuition and guessing is, in fact, stating a hypothesis , because you cannot state something without supporting it with data; it still has to be tested, a recommendation cannot be based on a hypothesis or your personal experience.
- asking for the context – every piece of information must have a certain context – if today the profit is $50 million – it does not necessarily have to be good news, the information itself does not mean anything – what was last year’s profit? and 2 years ago? what is the trend? what are competitors’ profits?
- linear thinking – you should clearly present your way of thinking, say what you want to analyze, what data you will need and explain why these are the data you need to make a business decision – to test your hypothesis – there is no point in asking for data, which will not help you, and will only make the analysis even more complex, the aim is not to collect as much data of any type as possible, but to collect the data that will actually allow you to make a valid business recommendation
- segmenting – with regard to customers, products, distribution channels, etc. – e.g. profits can be segmented per given group of customers, geographical area, distribution channel or product line used – different segments may show different results of the measured value – a general analysis will almost never give you the answer to the recruiter’s question.
- do not ask the recruiter if what you do and how you do it is right – you need to answer that question yourself – if you start to conjecture, make assumptions or guess, the recruiter will ask you – “what data would you need to verify this?” – the idea is to put forward a certain hypothesis, continue thinking “out loud” (so that your reasoning is evident), finding the answer to the question of how to solve the case through a proper analysis and process of elimination of useless things – when working as a professional consultant, nobody will tell you if what you do it right or wrong – you need to know it yourself
- apart from the very data also the questions – how? and why? – business justification can provide information which is equally valuable as data – whenever you receive a figure, verify it in terms of quality, if you receive dry information – try to quantify it.
To conclude, let me tell you a bit more about recommendations – first, draw a conclusion and then a justification. So – ‘I believe that… [conclusion], becuase of 3 reasons – number 1 is this….., number 2 is that……. and number 3 is that… [justification]’; there is no point starting your recommendation by mentioning the amount of time you spent, the number of analyses you did and how hard you worked – simply get to the point – after all, this is what your client expects from you.
That’s all as far as the theory is concerned. I think it is high time we focused on practical issues and show how all of the above rules can be applied to a specific business case.
Let’s use the following example:
(the following case has been made up entirely by me in order to show how to solve such business problems, any resemblance to actual events is entirely coincidental)
The ABC company is a company which provides construction carpentry services. Its two main branches of business activity are:
- plastic doors and windows production
- wooden interior doors production
Last year the company recorded loss of $3 million. In order to increase the revenue of the company, the CEO is considering an investment into modernization of its present production lines. He employed you as a consultant to help him decide whether his idea is worth implementing.
This is the end of the first article on business cases in management consulting. In the second article I will present an example of solving the above-stated business case (I will focus on how to begin, since describing the entire case would take too much space). I will also show Internet sources where many more examples, valuable tips and business frameworks used for solving such problems can be found.
Finally, I have one last question to you – how would you do that? How would you solve this business problem?