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Make hypothesis always.

Hmm, interesting.
Ask if the issue is company related or industry related.
Last year vs current year.
Always explain why are you asking the question, and you will get points for asking the
right question.
Use the word segment (they love it).
Conclusion first, then 2-3 facts supporting such a conclusion.
Great conclusion is conclusion with definitive action recommendation and 3 pieces of
data logically connected to it. So clear action, facts supporting the action, and restate
the conclusion.

Types of questions
Profit problem - decline in prices, costs up, decline in volume
Business situation – strategy of company, new entry, new product, respond to
competitor behavior, respond to changes in demand, how to grow.
M&A – is this merger a good idea?
Supply and Demand (industry capacity). Any kind of building new factory, capacity,
etc, is a supply/demand.
The only tricky to recognize is whether or not the task is an M&A or Supply and
Demand. M&A would be – should we buy THIS company, and the Supply and Demand
would be – should we buy a company in order to increase capacity?

Common segmentation
Product
Product line
Distribution channel
Region
Customer segment (old, new, less than a year, etc.)

Costs
Unit sold
Cost per unit (you can compare revenue per unit)

Fix costs versus Variable costs.


Manufacturing costs

So what? Uvek na umu. Nesto se desilo, I pitas se So what?


Profit problem
Profitability framework
Ex.

Profits are down 20%


Revenues 0% Costs went up 20%

Costs are 10$/unit


Fix costs 2$
Var costs 8$

Ok, we ask what was the situation last year

Var costs last year were 6$

We segment out variable costs. We assume the company has raw materials.
Raw materials 4$ - went up by 20%
Manufacturing 1$
Cost of sale and marketing 1$
Customer service 2$

What are the costs of raw materials for our competitors?


Turns out it is the same.

So we deduce, it is an industry issue.

Business situation case


Ex.
NBA wants to expand to China. How?

Business situation framework

Customers
Products we are offering
The company itself (NBA), (Capabilities)
Competition
Barriers to entry

The purpose of this case is not to solve it, but just to get a glimpse of what is going on.
Ok, so we segment the customers as much as we can.
Turns out, there are 4 major segments
80% men 20% women.
Within the men, do we have more info?
80% were under the age of twenty.
And 80% of this 80% plays basketball.

“hmm, seems lie it is similar to the US market, does this make sense?”

Product
We wanna understand the pd.
Is this a commodity good, or a differentiated good?
Complementary goods? If we are selling ketchup, do people eat French fries?
Substitutes? Other things that ppl can use other than our product – the question of
indirect competitors.
Pd life cycle? Fix marketing or exit?
What’s included, what isn’t? Bundle? Think of mobile phones – reduced price, but you
sell in bundles.

Company/client
What is the company good at?
Capabilities and expertise?
Are we a high end or low end?
Ratio of variable to fixed costs? Goo dfor estimating barriers to entry.
Compare also to the industry.
Product line?

Competitors
What are they doing? Think of all the company questions, and apply them to the
competitors?

What is the business like? Going in cycles? Predictable? Seasonal?

Fragmented market or the other?

Barriers to entry

Distribution channels

Fix versus variable costs. If it looks that the fix costs of the investment are a lot, we ask
for the overall budget for the investment. Ex. Seems that the investment represents 2%
of the total budget. “Ok so this is a reasonable investment”.
Intangibles – what brands does NBA own.

Seems that NBA is losing money, cash base is this and that, blabla.

“hm ok. Seems that entering Chinese market is a good idea, but maybe the moment is
now not good.”

Organizational structure. Are we heading China office from New York, or from China.

Is this a commodity good or differential good?

We learn that advertisers are spending 70% of their budget on overseas programs, and
30% on local content.

Complementary goods – any other things that advertiser spend money on?

Substitutes – if advertisers can’t buy TV advertising what else would they buy? Turns
out there are internet ads and billboard ads. “Ok, and what’s the mix among the 3 was
of advertising?”. Turns out 80% is going to TV.

“I think I have a sense of what’s going on here….”

Mergers and acquisitions


(a variation of a business situation case)

We also have key areas


Customers product Company Competitors

We usually have company A wanting to acquire a company B, and a combined new


company. We go through the same process, for each company, and add up what the
combined company would look like.
Most situations is either complementary assets (ex. New company, weak sales, Big
company, great sales), or saving costs.

Case

Advertising agency. A billion dollar company. They are serving consumer package goods
companies. Sales are flat (3 years in a row). “Help us, we need growth”. No change in
cost nor revenue. “ok what about revenue? (number of products times price). Also
elements of revenue is flat.
“ok, what is happening to the market?” Industry is actually going up 5%. (This is the
AHA! Moment).
So something is happening in the industry, and we are not doing it. Now we go to the 5
business situation framework. “Who are the major competitors?”

-there are 4 classes of advertising agencies, and they are global ad agencies, direct
response media agencies, digital advertising, and media buy.

What % of the pie do these have. (market share).


Media buy 20%
Global 50%
Digital 40
Response 10%.

Ok, what is the % growth for each segment.

All are shrinking


Response flat
Digital +30%
Media buy 1%

AHA!

So now we don’t follow blindly the framework, and focus on digital. “Seems that the
customers are driving this huge growth, so we will switch to analyzing them”.

Customer segments and share of spending per each segment and change

F500 brand managers 70% flat


Mid-market 20% flat
Small business 10% flat

“ok so the bulk of the market is driven by f500.

“hmm, something is wrong”. When in doubt, segment. We decide to segment the major
segment, the f500.

“Clearly, something is going on, I don’t understand. Everything is flat. I am puzzled”.


“Let’s see the total amount of $ spent of ads.”

F500 brand 3 billion


F500 interactive 1 billion

And in terms of total it has been steady.


“ok, interesting, and how has the total changed compared to previous years?”
-actually, it has been steady in the past years.

“ok, interesting, and how have the numbers within the segments changed?”
-well in the f500 brand, that used to be 3.5 billion, and now it is 3 billion.

So we know that the interactive is going up. And the ads for the traditional, is going
down.

So looks like from the industry standpoint, those business that are moving to digital are
doing the best. It is in fact the only fast growing segment. If we look at the demand
side overall demand for ad spending has been flat, and there is a sharp switch from
traditional ads to digital.

The interviewer can now tell us – that’s a reasonable conclusion, now tell us what
should the company do?

We can imply that the f500 interactive is driving the change (since the f500 brand is
shrinking), and we need to know more.

We need to know more about the segments –f500 brand and f500 interactive. The f500
brand is more inclined to investing in traditional media channels – radio, TV, print
media. Interactive is about very measurable media (statistical data).

Since the company’s name is Omega Omega Brand, we ask “what is their mix of
business, their various business types?”.
-about 50% media spending from their clients is TV, 25% radio, 20% smth else 5% is
smth else”.
AHA! “seems that Omega Omega is really strong in channels that are not currently in
fashion”.

Next issues price.


“what’s the commission for traditional and what about for digital?”
Digital is higher commission. Probably this is what is driving the growth.

“This is interesting, we wanna know what is driving this trend” WE DO NOT ASSUME
WE KNOW INTERNET IS BETTER!.

We wanna look in the industry, the viewership. Among the major 4 media types the
changes.
-well, in TV and radio newspaper, are shrinking, and internet is growing.
AHA!
So this is a structural shift in demand (driven by the customers).
“this is an interesting insight”. –So, what do you suggest to Omega Omega.

Before going to conclusions, we wanna know what does Omega Omega have at hand,
options or assets. How do they respond to the shift in demand? So Omega Omega’s
customers are following their own customers. What assets do we have? What is the
company capable of doing?

Let’s talk about the company.

Capabilities and expertize. The company is good at creative media, branding, slogans,
and building brand new brands.
Distribution channels – sales force in contact with the f500 accounts. We can ask
maybe if there are changes in the preferences? (we jump back to the customers).

“Ok, so just so we check, the f500 companies, which channels are they using for ads?”
-they are using agencies
“ok good, that’s us”

“Omega Omega is facing a structural change in demand, and they are not positioned
well. Does not have assets to follow that through”
-so what do you suggest?
“We go back to the capabilities, and compare to what customers want.”
They have a total mismatch.

“I think we are looking at an acquisition, and we should take a look at potential


acquisition targets”.
-ok, which companies?
“ok, I would like to take the digital advertising segment, growth of 30%, and look at the
key competitors and what is the market share differential.”
A 400 000million
B 200 000million
C 200 000million
Other (500 players here) 200 000million

“Ok, we need growth rates as well.”


-all are growing, but A is growing the fastest.

“Ok, so top 3 are interesting.”


Now we go to the M&A framework.

We analyze both companies individually, and then the combination of the two.
Company Omega Customers Products Company
Omega F500 brand TV, ads, brand, Brand
radio building

Company A F500 e-accounts Database mkt Online


(interactive) tools, statistical campaigns;
modeling, online statistics
advise
Combination of We are getting
the two new accounts,
and not going for
the same ones
(like a complete
competitor
acquisition would
be)

No overlap, which is good. By acquisition they get a whole new set of tools.
“The value is in getting in a new market, that is fast growing”.

Case interview reminder


1. Find the trend – if you get the number, ask for the historical number
2. Company specific or industry specific – if we get a number, compare it with
industry.
3. Totals and averages are misleading. Always segment the metrics. Whenever you
are stuck, break, and segment. If you don’t segment, you miss the whole point.
(#business units)
4. How to segment:
Revenues – product, channel, customer, vertical market, region, (total revenues
per unit)
Costs – fix vs variables, costs per each segment of distribution chain (raw mats,
manuf, distribution, etc.)
Customer type – types of customers by demographics, purchasing needs, price
points,
Competitors by chanel, region, product like, and customer segment.
5. Think out loud.
6. Ignore previous knowledge – don’t assume and always keep asking questions.
7. Practice the opening and closing alone.
8. Practice drawing
9. Practice math of large numbers

PARADE

1) PROBLEM -- What is the problem you or your organization faced? Since the business of consulting
(and executive management) is that of solving problems, any time you explain a career experience,
extra-curricular activity, or academic experience, frame the experience as a problem.

2) ANTICIPATED CONSEQUENCE -- What consequence did you or your organization face if this problem
continued without resolution?

3) ROLE -- What was your role in resolving this problem? Interviewers want to know what YOU did... not
what "we" did. A source of irritation for many interviewers is when the candidates says, "WE faced a $10
million drop in sales, and WE fixed this by landing 3 new clients for $3.3 million each."

The savvy interviewer will immediately ask, "I see... and what SPECIFICALLY was YOUR role in this
situation?" (Did you find and close all $10 million in sales? Did you just show up at the sales meeting?
Did you cheer the sales team on from the sidelines?)

Save the interviewer the trouble and pro-actively explain what your ROLE was in solving the problem.

4) ACTION -- What action did YOU take? What did you do? Be specific. Say, "I did 3 things. a) I did X; b) I
did Y; c) I did Z."

5) DECISION-MAKING RATIONALE - Explain WHY you decided to take the action that you did. What
other options did you consider? Why didn't you choose the other options? Why this SPECIFIC decision?
What quantitative data did you consider? What qualitative data did you consider?

Especially in consulting interviews, it is important that your decision-making rationale include analytical
factors ("I analyzed X, and determined Y was the better choice for Z reasons."). It is also important to
consider inter-personal factors in your rationale.

Option A was the best logical option, but it was also a tough sell given the culture of the organization.
Option B was 80% as good as Option A, but had no cultural resistance. Given the political environment, I
chose Option B.

6) END-RESULT -- After you took the action that you did, what happened? What was the outcome? Be
specific -- when possible, cite a quantitatively MEASURABLE OUTCOME.

Let me provide two examples so you can see the PARADE Method in action.

EXAMPLE #1:
The date was November 22, 2000 for XYZ company -- one of the leading start companies in the
ecommerce software services market.

At the time, I was the CEO's "Chief of Staff" and had stepped in as interim Chief Information Officer. The
company was on pace to grow sales by 600% for the year.

1) Problem:

In doing a walk-by evaluation of our server racks for the first time, I noticed that our servers were at 85%
of capacity.

Traditionally, the Christmas retail season kicks off on November 26th (the US Thanksgiving Holiday) and
runs until New Years day -- driving roughly 25% of all US retail sales in only 30 days. Many brick and
mortar retailers see a 100% - 200% growth in monthly sales during the peak season.

2) Anticipated Consequence:

Given it was the Year 2000, this was the industry's very first E-Christmas... and the big season was only 4
days away and I realized our systems did not have the capacity to serve our high profile clients, which
included the eCommerce divisions of over a dozen Fortune 500 retailers.

We were at serious risk of letting down our highly visible clients on their most important month in their
online histories.

In addition, we had an IPO scheduled for Q1 and if the company failed to deliver, our IPO would be in
jeopardy. The company had $250 million at stake to solve this problem in the next 48 hours.

3) Role:

As interim CIO, it was my role to solve this problem using any means possible... and to do it FAST.

4) Action:

* I immediately had our procurement manager contact all of our suppliers to try and buy new servers.
The servers we wanted had a 2-week turnaround time. The lower end servers still had a 10-day window
until we could get them. We also had no spares in stock.

* In asking my staff for suggestions, I discovered we had an old data center with some older servers still
sitting there. They were not perfect, but they would hopefully buy us 7 - 10 days of time to get the
higher capacity servers installed.

* I took one of my managers down to the data center to bring 3 of the servers back up. Upon attempting
to exit the building, we discovered that our controller had a billing dispute with the data center
company and they were holding our equipment hostage in retaliation.

* I decided that despite the security guards in the lobby, we would make a "run" for it. I grabbed one
server under my arm. I instructed my colleague to do the same, and we RAN while security tried to stop
us.

* We ran down Canal Street in the nearby China Town of New York City, carrying 3 servers amongst us
with security on our tail, but ultimately were able to make it back to the office.

5) Decision Making Process:

* We did place orders for permanent equipment -- which I determined was the best medium-term
solution, but we still had a 2-week gap to cover.

* I decided re-purposing existing equipment would be the fastest way to get some kind of capacity
improvement quickly.

* I decided that it would be unlikely for us to be arrested for "stealing" equipment that already belonged
to us... so actually running out the door probably posed little legal risk... and I had a problem to solve.

6) End Result:

* My staff was able to install and re-configure those servers by 1am that night. By 8am the next
morning, the system had a 100% increase in capacity.

* The company ended the year booking a 600% increase in sales for the year.

* Our systems had no downtime during the industry's first big eChristmas season.

* 4 months later, the IPO was successful and the company had a market valuation of $250 million.