Mastering the Business Situation Case Interview Framework (Part 7 of 12) | caseinterview
Summary
TLDRThe video script offers a comprehensive guide on utilizing a business situation framework to analyze various client or company scenarios. It emphasizes understanding the market, customer segments, product differentiation, company capabilities, and competitive landscape. The speaker illustrates the framework's application with examples, such as the NBA's potential entry into the Chinese market, and provides a step-by-step approach to identifying key issues and formulating strategic recommendations.
Takeaways
- đ The business situation framework is a versatile tool applicable to a wide range of client or company situations, from new market entries to growth strategies and turnarounds.
- đ It's essential to decide on the orientation of the framework (vertical or horizontal) based on space needs to avoid confusion when flipping pages or running out of space.
- đ°ïž The framework involves understanding four key areas: customers, products, company, and competition, which are crucial for making informed business decisions.
- đ„ Starting with the customer is a preferred approach as it provides insights into market dynamics and can have implications for various business strategies, including M&A.
- đ€ The purpose of asking questions within the framework is not to solve the case immediately but to gather baseline information and make the case interview feel more like a real-life business scenario.
- đ Questions about customers involve identifying segments, understanding their needs, and assessing their willingness to pay, which helps in tailoring market strategies.
- đȘ Distribution channel preferences are vital as they can affect how products are sold and accessed by customers, impacting the overall market approach.
- đ° Understanding the cost structure of a company is critical in determining its competitive position, whether as a low-cost or high-cost producer, and the barriers to entry in the market.
- đ Market share analysis provides insights into the competitive landscape, helping to identify if the market is monopolistic, oligopolistic, or highly competitive.
- đ Complementary goods and substitutes are important to consider as they can influence demand and the company's positioning in the market.
- đ The organizational structure of a company should align with market demands; misalignment can create inefficiencies and missed opportunities.
Q & A
What is the purpose of the business situation framework?
-The business situation framework is used to understand a wide variety of client or company situations, including market entry, product launches, growth strategies, and turnarounds. It helps to identify the key issues driving and impacting the business overall.
Why is it important to consider the orientation of the framework when applying it?
-The orientation of the framework is important to ensure there is enough space to record information without running out of room or flipping pages, which could lead to confusion. It's about choosing a layout that best suits the needs of the case at hand.
What is a typical case scenario that might be presented using the framework?
-A typical case scenario could involve a major airline company considering starting a low-cost airline provider, or the NBA evaluating whether to enter the Chinese market and televise its games there based on the success of a pilot program.
Why is it recommended to start with the customer when using the framework?
-Starting with the customer is recommended because all businesses are driven by customer needs. Understanding the customer base, their preferences, and behaviors provides a solid foundation for further analysis and helps in making informed decisions.
What are the four key areas to consider when analyzing a business situation?
-The four key areas to consider are customers, products, the company itself, and the competition. These areas provide a comprehensive view of the market and business environment.
What does the question 'Who is the customer?' aim to uncover in the framework?
-This question aims to uncover customer segments, helping to identify specific groups of people and their characteristics, which is crucial for understanding the market and tailoring strategies accordingly.
Why is it important to understand the needs of different customer segments?
-Understanding the needs of different customer segments is important because it can influence how a company should target and serve these markets differently, potentially leading to more effective marketing and sales strategies.
What does the framework suggest about the importance of distribution channel preferences?
-The framework suggests that distribution channel preferences are crucial as they can reveal how customers prefer to access vendors and make purchases, which can significantly impact a company's sales strategy.
How does the framework address the issue of customer concentration of power?
-The framework addresses the issue of customer concentration of power by considering the 'Walmart effect,' where a single large customer can significantly impact the profitability and dynamics of an industry, necessitating tailored strategies for such customers.
What role does the understanding of a product's lifecycle play in the framework?
-Understanding a product's lifecycle is important in the framework as it helps determine if the product is in its infancy,æçæ, or nearing the end of its life. This can influence decisions on investment, marketing, and potential product retirement or replacement.
How does the framework incorporate the concept of complementary goods?
-The framework incorporates the concept of complementary goods by recognizing that the success of a product can be tied to the success of related products. Understanding this relationship can provide insights into market trends and potential opportunities or threats.
What insights can be gained from analyzing a company's cost structure within the framework?
-Analyzing a company's cost structure within the framework can reveal whether the company is a low-cost or high-cost producer, the proportion of fixed versus variable costs, and potential barriers to entry or competitive advantages.
Why is it necessary to compare a company's organizational structure to market demands?
-Comparing a company's organizational structure to market demands is necessary to identify any misalignment that could lead to inefficiencies or missed opportunities, such as serving customers in a way that doesn't meet their preferences or expectations.
How does the framework consider the competitive environment?
-The framework considers the competitive environment by examining market shares, competitive behaviors, barriers to entry, supplier concentration, and the industry's regulatory environment to understand the dynamics at play and potential strategies for success.
What is the significance of understanding the industry lifecycle within the framework?
-Understanding the industry lifecycle is significant as it provides context for the current state of the industry, whether it's in a growth phase, maturity, decline, or a cyclical pattern, which can inform strategic decisions and predictions about future trends.
Outlines
đ Business Situation Framework Overview
The script introduces the business situation framework, a versatile tool for analyzing a wide range of client or company scenarios. It discusses its application in various situations, such as entering a new market, launching a product, or developing a growth strategy. The framework helps to identify the key issues impacting a business. The speaker shares personal preferences for using the framework, including orientation and layout, and emphasizes the importance of practice. An example scenario involving a major airline company considering a low-cost airline venture is presented to illustrate the framework's application. The framework is structured around four key areas: customers, products, company, and competition, with an emphasis on understanding the customer as the foundation of business strategy.
đ Customer Analysis in Business Strategy
This paragraph delves into the first key area of the business situation framework: customers. It stresses the importance of customer segmentation, understanding qualitative and quantitative aspects of different customer groups, and the significance of nicknames in market research. The NBA's potential entry into the Chinese market is used as a case study to illustrate how to analyze customer segments, their size, demand share, and growth rate. The speaker discusses the importance of understanding customer preferences, such as distribution channels and the concentration of power within the customer base, using the 'Walmart effect' as an example. The paragraph outlines a series of questions typically asked during customer analysis to gather essential information and form hypotheses about market dynamics.
đïž Distribution Channel Preferences and Customer Power
The speaker continues the discussion on customer analysis, focusing on distribution channel preferences and the impact of customer concentration. It highlights the importance of understanding how different customer segments prefer to be served and the potential mismatch between a company's distribution channels and customer expectations. The 'Walmart effect' is revisited, emphasizing the influence a single dominant customer can have on an industry. The speaker suggests that recognizing such concentration early can help in formulating strategies that consider the unique dynamics of serving large customers versus a fragmented market.
đ Adjusting Business Strategies for Dominant Customers
This paragraph explores the implications of having a dominant customer like Walmart in the supply chain. It discusses the strategic decisions a company must make when a significant portion of its sales comes from one customer, affecting the rest of the market. The speaker uses the example of a company with 50% sales from a single customer and the challenges of maintaining a competitive edge in such a scenario. The paragraph suggests analyzing the entire market and the company's position within it, considering the unique dynamics of dealing with a dominant customer and the strategies needed to succeed in the broader market.
đ ïž Product Analysis in Business Framework
The focus shifts to the product aspect of the business situation framework. The speaker outlines a series of questions to understand the product's purpose, customer value, and differentiation from commodities. It discusses the importance of recognizing complementary goods and the impact of substitutes on the product's market position. The lifecycle of the product and packaging strategies are also considered as factors that can influence product success. The paragraph emphasizes the need for a thorough qualitative and quantitative analysis of the product to inform business decisions.
đ Company Strengths and Cost Structures
The script moves on to the company element of the framework, emphasizing the need to understand a company's capabilities and areas of expertise. It discusses the importance of aligning the company's strengths with market opportunities and the potential pitfalls of mismatched distribution channels. The cost structure of the company is examined, including the proportion of fixed to variable costs and the implications for barriers to entry. The speaker uses Amazon's early strategy as an example of increasing fixed costs to deter competition. The paragraph also touches on the significance of intangibles like brand loyalty and organizational structure in relation to market demands.
đ Competitive Analysis and Industry Dynamics
The final paragraph in the script addresses the competition aspect of the business situation framework. It starts with an examination of market share and the concentration of competitors, which can indicate the nature of the competitive landscape. The speaker mentions the importance of understanding competitive behaviors, best practices, and the barriers to entry in the industry. The influence of supply concentration, such as the Intel effect, is discussed, along with the overall regulatory environment and the lifecycle of the industry. The paragraph concludes by emphasizing the importance of a thorough competitive analysis in formulating effective business strategies.
Mindmap
Keywords
đĄBusiness Situation Framework
đĄMarket Segmentation
đĄPorter's Five Forces
đĄCustomer Needs
đĄDistribution Channels
đĄCompetitive Dynamics
đĄMarket Entry Strategy
đĄGrowth Strategy
đĄTurnaround Strategy
đĄBusiness Acumen
đĄHBS Case Method
Highlights
The business situation framework is introduced for a wide range of client or company situations, including market entry, product launches, growth strategies, and turnaround scenarios.
The framework helps to understand the driving and impacting issues of a business, emphasizing the importance of practice and orientation on paper or digital space.
A case study approach is used to demonstrate the framework, starting with a scenario of a major airline company considering a low-cost airline provider.
The NBA's successful pilot program in China is presented as a case to analyze market entry and television broadcasting strategies.
Four key areas are identified for analysis: customers, products, company, and competition, with a focus on understanding each aspect deeply.
The importance of starting with customer analysis is emphasized, as it provides insights into market dynamics and can impact other business decisions.
Segmentation of customers is crucial, with the need to understand qualitative and quantitative aspects of each segment.
The framework suggests asking specific questions about customer segments, such as their needs, willingness to pay, and distribution channel preferences.
Understanding the concentration of power among customers can reveal the 'Walmart effect' and its implications for business strategy.
Product analysis includes understanding its utility, differentiation, complementary goods, and potential substitutes.
The company's capabilities and cost structure are vital to assess, including whether they are a low-cost or high-cost producer.
Investment costs and intangibles like brand loyalty are considered under company analysis to understand market position.
Competitive analysis involves understanding market share, behaviors, and best practices, as well as barriers to entry and supply concentration.
The importance of the industry's regulatory environment and lifecycle is noted for a complete competitive analysis.
A step-by-step approach to using the framework is provided, with an emphasis on adjusting the process based on insights gained during the analysis.
The framework is flexible and can be tailored to different situations, with the importance of recognizing when to deviate from standard questions for deeper insights.
The transcript concludes with advice on how to evolve the use of the framework, emphasizing the balance between mechanical application and creative analysis.
Transcripts
the business situation framework is used
for wide variety of client situations or
company situations everything from a new
market entering a new product starting a
new business opening a lemonade stand
growth strategy divestiture in some
cases strategy turnaround how's the
company doing in general okay it's just
a good way to understand what issues are
driving and impacting the business
overall and so let me walk you through
what each of the pieces are and actually
draw it out like I would in a case
here's one you might want to think about
whether you seems kind of silly when you
have paper depending on the framework
you use you actually want to practice
whether you want to have it sort of
vertical orientation horizontal
depending on what space you need because
the sort of weird if you run out of
space in it to flip pages you'll get
confused so you sort of have a
preference but know it in advance so in
this case I applied for this for me I
would probably normally do it sort of
landscape style but I can't show it so
I'll do it this way so what I usually do
is that let me just give you the demo
the opening a little bit and then we'll
talk about the actual framework so the
way the case is usually presented is you
work for a major airline company and
they are thinking of it's going they are
now there's some capacity issues on the
way that's gonna say they're entering
they're thinking of starting like a a
low-cost airline provider okay but
problem at that is there's a fixed
constitute you are working with a okay
so you're working with the National
Basketball Association and they recently
successfully completed a pilot program
showing MBA final games in in China and
they had five times more viewers in
China for those games than the United
States
okay NBA commissioner comes to you
you're working on that as a client
should NDA enter the China market and
televise its games in China and if so
how should they do it okay that would be
fairly typical of a case like that
and and it's a guy that's interesting
the probably four key areas when you
look at to understand whether the MBA
should enter that market and if so how
you certainly want to look at the
customers look at the products that
you're providing to that marketplace you
want to look at the company itself the
MBA and I'm on za slide D here and then
you want to look at the competition
those are sort of the four key areas in
this case because it's entering a new
market and obviously these all these
issues are important I probably want to
start with the customer first and that's
what I usually do you'll find in in some
of the case prep books I've seen out
there they they tend to like for
particular situations skip the customer
and I just have a preference for always
wipe I just feel a lot more comfortable
knowing what's going on in the
marketplace and the customers have the
money if they're changing their minds I
want to know about it because that's
implication so everything else it was an
M&A situation but customers want
customer needs have changed as
implications for M&A has implications
for Cassity so I personally just like
starting with a customer because all the
businesses are driven off the customer
okay not everyone does that lots of ways
to be right you can come back to it
later but I just have a preference for
starting with a customer that's what I
usually do okay so that's how I usually
lay it out and then depending on which
branch I'm going through I'll use these
sort of standard opening questions and
again the purpose of these questions is
not to solve the case it's very
important the purpose of these questions
is to get you sort of baseline
information to make this case interview
feel more like an HBS case see if data
okay blank sheet of paper hard to solve
the case how to be protagonist when you
have no idea what's going on when you
have data it's a lot easier so the
purpose of this is really kind of get
you through about 1/3 to 1/2 the way
through the case ok and then the rest is
really sort of based on what you
discover so judgment business acumen
sort of logical conclusions all sort of
matter some creativity tends to matter
at sort of middle of the case opt for
and it tends to be sort of mechanical ok
so I'm gonna go through the mechanical
stuff and show you the kind of questions
I typically ask
okay so our first question I'll list all
of them and I'll get saying what each
one means so the series of questions I
typically ask are who is the customer
what is each customers doesn't want what
did you seventh willing to pay in terms
of price
what distribution channel does each have
and sort of what's the concentration of
customers in that marketplace so sort of
Porter's five forces but like a fifth of
it right so with customers I always ask
who is the customer and what I'm looking
for I'm looking for segments okay so I
want to know customers overall that's
sort of very misleading I want to know
we know what are the segment's the
important questions there are to figure
out what the segments are okay and
usually I should be prepared for this
when when consultants do and market
researchers do segmentations of
customers
they tend to sort of like give them
nicknames okay so it's like actually
this what happened with the minivan
right the minivan has this association
for being with soccer moms right that's
because the guy who person who did the
original marker we should study says it
tends to be like women with like one and
a half kids with who are aged five
attentively attracted minivans let's
call them soccer moms okay so that names
stuck so they will have nicknames and
they're used to sort of amusing because
otherwise it's kind of boring to sort of
work with them all then and it's also
easier to visualize who that customer is
okay and so the segment's you want to
know the segment's how big they are what
share the total demand comes from each
segments and then the growth rate of
each and all of this is like on that
first bullet if you would work should be
bullet but I guess just missing a bullet
but that first line item on this
framework sheet okay so who are the
customers what are the segment's you
want to understand them at a qualitative
level so who are these people
right and then you want to understand it
mathematically so for example I'll make
stuff up for for China it could be it
turns out there are three major segments
of there were three major segments of
viewers in China for the NBA games about
80 percent were men 20 percent were
women okay let's do school right great
and that's sexual and within the men do
we have any more information on what
kind
maybe age demographic and how old were
they younger older were they interested
in sports was a novelty thing what they
play basketball and the interviewer
might say what's a good question amongst
the man 80% were under the age of 20 oh
that's interesting okay so it's a youth
market that's watching and amongst that
well are these kids are they playing are
they playing basketball or was it sort
of a novelty thing turns out eighty
percent of the eighty percent actually
play basketball okay
turns out by the way Michael Jordan is
extraordinary popular in China I'm like
my brother visit is sort of rural China
in the middle and they call them Michael
Jordan for like a week and they have
like no TV dirt poor but they all know
who Mike is it means pretty crazy and so
you can start getting a flavor right for
who this customer is it's kids a lot of
ways like like American kids I'm again
making all this up and that gives you
some sense of okay I understand the
context what's going on here all right
next question is what does each customer
segment want ok oftentimes the needs are
very different and you may want to
tackle the markets in a very different
way you might want to target one segment
over another you might want to ignore
one you might want to sort of attack
both but in a different way so using the
tunnel the whole China example it could
be that you know half of them half that
half the viewers were like young kids
and half of them were like sort of
adults well that's interesting why they
don't swatching why the kids watching
what are they getting out of it
kids are watching because they get to
learn new moves right adults are
watching cuz you know they're really
into sports in general so they're like
the sports widows of China
sorta like Americans like okay that's
interesting now sort of an idea of
what's driving them okay now probably
not appropriate for this case but if it
was more of a product purchase rather
than the media viewership you know what
is the price each segment is willing to
willing to pay so in this case if this
was the China NBA saying I might want to
know who the advertisers okay are these
American companies or the you sort of
you know local companies the big
companies and small companies why they
advertising what's driving their need to
advertise so it might be that
P&G China you know has a really tough
time reaching sort of the younger age
market because the way there's not as
much media there I thought you and and
so that's the and companies like that
are driving the bulk of advertising
sales in the pilot program
okay that's useful to know those whole
time we're doing is we're sort of just
gathering information you don't want to
you want to sort of synthesize sort like
do a little mini summary as you go you
don't want to just like gather
information for like forty minutes okay
you want to sort of refine what you're
thinking think out loud yeah just like I
was interesting oh so these are like
like like sports kids who just want to
be like Mike but they want to be like
Mike in Chinese okay I got that that's
one group and then they're sort of like
the sports waiter okay know kind of what
that is I'll make the analogy and then I
might say what seems like so far my
hypothesis is that the market break out
in China seems to be very similar so far
to a mini-computer ship as I understand
it okay that might be or hypothesis and
so if I'm favoring and that the
underlying tone is so far favoring that
this seems like a good fit so far but we
have looked at other factors but my
hypothesis so far is that looks like
might be a good thing to worth
considering
well he's testing further for the other
questions I usually ask our distribution
channel preferences free segments so
again in China the they do a lot of like
Avon lady stuff you know so person the
person selling which is like not so
popular here and more but it's really
populated because more of leadership
culture so in every market there's like
always big biases in terms of how
customers want to be served in certain
technology markets so like really
expensive software packages fortune
finders CIOs they tend to like to deal
with one person so they want to deal
with one person from some one person
from HP one person from I don't know
Apple whatever or IBM and that may be
different than how these companies are
organized right so you may have an issue
where you're losing market share because
the customer wants to deal with one
person but your company is organized by
product line so the CIO of Pepsi has to
deal with five sales people and their
complaint is
one person from your company knows my
entire system okay and I find an
acceptable and that's why I'm going with
IBM something like that so by
understanding the distribution channel
preferences or actually that's why bad
example for this particular point but
maybe it's like I like working with my
system integrator partners so I want to
buy my hardware on and buy my software
through my Accenture consulting partner
because that guy knows everything and I
trust him I don't want to deal with IBM
directly I want I want you to go through
that guy okay that's my preferred way of
doing business for some younger segments
I prefer to buy things on the internet I
don't want to go to I don't want to go
see talk someone in person right for
certain kinds of things I want to buy
over like SMS right or texting or
whatever and I can see sort of on the
internet a lot of younger kids want to
buy through Facebook like this one all
the time and Facebook that kind of thing
so there's preferences as to how they
prefer to buy how they want to access
vendors and it's useful to know that in
advance particularly by segments so
virtually everything here you want to
sort of break it out by segments
whenever you can
especially customers and then the final
one is the customer concentration of
power and we're looking for here is what
I call the Walmart effect is there one
big customer right that P&G cannot
afford with nor do they have so much
power that driving out all the
profitability earlier in the value chain
so this is sort of from Porter's five
forces that's really useful not because
if that happens in an industry it has
implications for you might want to do
okay you react differently if you knew
that were to be the case if you miss
that fact that there's a Walmart
customer out there your recommendations
could be off okay because they're not
they don't work as well in that kind of
situation so those are sort of like the
five questions I typically ask and
usually if I honey get through the five
I got a good feel for what's going on on
the demand side and again you can add
your own in there or I suggest you do
but sort of have your stock opening four
or five questions in each category that
gets you sort of information you need
and I found these five tend to work well
for me yes question
yes so the question is you always want
to just or while you're asking for more
information and you want to sort of
continue dress apply each step actually
in a business situation context you get
a little more leeway okay so in a clear
plan for ability case you want to be
high pot it's very mathematical right so
it's clear case hypothesis data test
refine and keep going in this there's
there's a lot of contextual information
you need so you can actually start
asking you get a little more leeway you
can go a couple questions without saying
why you want it
but it's good once you sort of reach a
sort of an interim conclusion to
actually state that because then you're
sort of sympathizing in little steps yes
yeah actually that's a good point should
in that prior example I sort of compare
the Chinese market the American market I
did make some assumptions I'm gonna make
it I should state it but it's actually
better to ask it seems to mean it seems
like it's similar to the American market
do we know that's true or not okay so
that would be a better way of phrasing
so you see it's good because subtle word
changes right make a difference in how
in terms of housing interpreted so make
no assumptions at all and if you do
state you're thinking about making one
and see if they think it's a good idea
that sometimes I'll say I don't think
that's a good idea when they tell you
it's not a good idea it's not a good
idea for a variety of reasons either
it's wrong or they're not prepare to
talk about it or they have no data
what's sort of logically inconsistent
cuz they made up the case and they want
you to go somewhere else take the lead
and go somewhere else yes
so thing is it almost always just focus
all your effort now your recommendation
around that my first instinct is when
that's happening that the problem tends
to be sort of the problem what do you do
with Walmart and versus everyone else so
that's my initial reaction of how I was
at segmenting my my analysis in the way
my approach because they got there's one
big elephant that the rules are really
different for them so the questions
could be okay if I'm a small company and
I got a Walmart type customer sort of
down my demand chain if you would what
do I do
they have 50% of the buying comes from
that one customer the remainder are the
other 50% and that's fragmented over by
other customers or a thousand or five
thousand customers what should we do
well so we could look at each one
separately let's first analyze the whole
Walmart thing are we likely to win that
game lots a byte used to a segment sort
of customers competitors for Walmart
competitors for everybody else products
sold to Walmart product sold everybody
else right what are our efforts as a
company towards Walmart towards
everybody else it's still a business
situation framework right the same key
issues but when I know there's a Walmart
type customer
I started splitting everything along
that segment because it seems relevant
that's just my first impression and so
in that situation you might have a we
should devote all resources to Walmart
okay or we already are devoting all
resources to one more and we're getting
crushed okay and it could be that
there's a capacity issue which would be
like a creative framework as you realize
that why we're being crushed okay and
turns out we have we don't have a
low-cost position well we don't have
low-cost position and there's a
structural issue with the market we're
in the mansion there's one big customer
then you seems like you can't win that
game okay so let's look at our other
options around the normal more customers
where's our position there who else is
in that market in terms of competitors
and again same framework with sort of
you just sort of split it and you may
find that with Walmart it's a losing
proposition everyone else other than
Walmart it seems like you can win and
there's some segments in there and
that's how you tie sort of have that
conversation okay next up is is the
product let me back up for one second
there are a lot of a lot of general
frameworks out there
that's that are sort of similar to this
like three C's forces whatever C's and
what you'll find is they all tend to
cover the same thing but they tend to
organize a little differently so I
broken out product just out of habit you
could very easily lump product in with
company for example some companies some
frameworks have cost as a separate
category it's like the four C's is like
paying customer company cost and
competition I tap on the role cost
underneath company because I think the
classes within a company and it's an
interesting cost issue
I'll have treat that separately inside
of competition so it's all fairly
flexible sort of more ways a lot of ways
to be right you sort of it's good to
pick the way you like and sort of stick
to it so you sort of get process
repetition and get used to it okay so
for product my sort of four or five key
questions I typically ask is at purely a
qualitative level I just want to
understand the product like what does it
do why do people buy it why is it useful
and and sort of put on my customer hat
and make sure I understand that because
you will get some insights particularly
combined with other information as to
well maybe if the product is is very
good at being fast you know it's faster
than the other the competitive offerings
are there other segments that value fast
if you don't understand it qualitatively
it's hard to do that so that's the first
thing I ask is just really understand
the product at a customer level a second
thing I want to know is this kind of
widget is it like a commodity good like
rice or is it a differentiable good like
a service so you want to know how much
flexibility do I have in changing the
product itself so if I'm selling coffee
beans hard to change okay if I'm selling
coffee at a Starbucks lot you can change
okay
so it's useful to know what kind of
product you're dealing with usually you
get like an actual product sometimes you
get like a widget right but either way
it's worth asking to what degree is
there variation differentiation amongst
the parts that are in the marketplace
next thing I usually ask are I want to
understand what the complementary goods
so selling if I'm selling ketchup I want
to know what's happening to french fries
right and vice versa
because I tend to go together and if my
compliment is is that markets getting
beat up that has implications for me so
way if all of a sudden the government
decided that french fries will like kill
you in a month
then I'm sure ketchup sales will fall
okay so you want to know that because if
you don't know that sometimes you're
solving this you saw with the ketchup
industry problem what the problems in
potatoes okay and so you're going to
miss the whole point and you're a
synthesis in your conclusion is going to
be off substitutes as well again this
from Porter's five forces are there
other things people can use other than
our product so this is really sort of
indirect competitors right so maybe the
substitute I don't know for ketchup is
honey mustard I don't know the
substitute for traditional MBA could be
a online MBA okay anybody that didn't
exist before so it really is useful to
them to get some sense of how vulnerable
you the company is to substitute
products again it changes your
conclusion sometimes I've known about
the product lifestyle is this product on
its last legs that we have to sort of
retire it anyway or is it sort of in its
infancy sometimes it sort of Allens last
legs
then you you're more apt to sort of kill
the product because you know you got to
do it anyway soon and so I'm making
investment something to replace it might
make more sense but it sort of wants
early stages maybe it's better to try to
get to fix the marketing in that
business for example get it to work then
to kill it because it takes a little bit
long it's like a long cycle for develop
new products like cars to get a new car
out the door it's like four or five
years or something like that so if
you're in the first year and you want
say well there's a flaw on the product
well you can't fix it you can't fix the
platform to like from now five years
from now well then let's not look at
there because we need some something
better to make some improvements more
immediately and last thing and this is
sort of depends on the nature of the
product sometimes I ask packaging
questions what's included what's not
included sometimes you can differentiate
the product by based on what's bundled
in so it's like razors with razor blades
actually what computers go it was like
cell phones with service planes so you
drop the cell phone price to close to
free
but you bundle in a mandatory service
plan and that really drove a lot of
adoption okay same product same fitna
that you didn't change manufacturing
right you just change the nature of the
packaging and that dramatically changed
market penetration adoption and
ultimately sales okay if you didn't sort
of think about that you that industry
would have missed a very big opportunity
okay so you're seeing this is really
sort of like a checklist you know I sort
of think of it like you're trying to fly
an airplane standard questions you ask
every single time just to sort of cover
your bases and usually what happens is
when you ask these questions it flushes
out useful information that will lead
you in the right direction okay
so again this is really the open that's
my standard opening night sort of wick
with middle nights I have my five
questions for customer my five for
products and so on and so forth and it's
just to sort of get you in the right
direction get enough information to sort
of use your Annika breezing skills to
kind of continue
so that's product next up is sort of
company or clients and key questions
there are what is the company good at ok
this is sort of like a squishy
qualitative thing you want to know what
are the company's capabilities and
expertise and and this is where some
some interviewees and actually some
consultants to this is where they kind
of get screwed up because you know in
like a in a theoretical business case
the answers are very clean okay in a
real world situation it's not all about
the hard data in fact a lot of its the
soft data ok so one of the things you
want know what the company is what are
they good at doing sort of as
individuals at and as an enterprise and
the reason it's important is sometimes
it will you'll have an opportunity where
a client where market opportunity exists
there's a competitive vacuum but the
company is not good at what that market
wants a customer segment so then
theoretically business plan wise you
know maybe it's a good opportunity to
pursue but not let's say for that
particular company so you have to know
what they're good at and I'll give you
an example that a little bit because
we've asked customers what the tribution
channels they prefer you want to know
for your client or for the company but
distribution channels do you got and
what's the mix between them so
if there's a mismatch this helps you
flush out the mismatch so while the
customers want channel a but all your
resources and channel being that's a
mismatch okay so that's an insight and
then you can start brainstorming about
how you'd fix that I understand why it's
that way
historically and then we make some
changes along the way okay a cost
structure so this is sort of embedding a
little bit of our leader framework in
here the general questions are sort of
you know are you the low-cost producer
II the high cost producer sometimes if
you're dealing with a case that's just
kind of conceptual that's all you need
to know you know like the precise cost
structure like the number but that that
we're the leading low-cost producer in
the market okay and and that's that's
good enough for this family if they gave
you information around well at this wall
meaning we can produce at this cost at a
higher volume you can produce at that
cost that's like a cost curve that's
more of a supply curve and that's
usually a hint you got a switch to
potentially switch the supply demands
okay so conceptual you keep it here
merely specific you switch to supplying
man other things with costs a - just to
do certain more notes rather than
questions but the understanding the
proportion of fixed cost versus
available cost is very important because
it indicates a barrier entry issue okay
some example I I sort of I gave kind of
time is Amazon early on when they first
started the online bookstore it was a
low it was a low fixed cost business
totally virtual high margins they sort
of had a websites and then they had a
drop shipping relationship with a number
one wholesaler in books Ingram books or
whatever they are and and besos in 98
did an interesting thing where he
deliberately decides when even of the
cup was bleeding money decided to build
out 300 million dollars worth of
warehouses okay pissed off Wall Street
to no end because you can like make the
margins like worse for like four years
it's like damn straight I am here's why
number one I don't want to be tied to my
one supplier okay so there's like an
industry concentration issue right so
it's what it's a reverse of the Walmart
effect it's the Intel effect all right I
gotta buy all my chips of Intel so
they're getting all the profits and
they're sucking it out of all like you
know Dell and HP and compact wake up
actually I need a favor what did I just
say I lost my train of varied entry okay
so when when the fixed costs are are
very high that indicates a barrier to
entry so you have to deal with what's
existing competitors are the barrier to
entry is low then you're gonna get new
entrance that's what happened with
Amazon so they're like a thousand and
one bookstores that within the year okay
so he said well screw you I went I
didn't IPO I raised a billion dollars
boom $300 and chips on the table you
want to come play with me
put in three million bucks okay and it
kind of was pretty effective right and
then so Amazon in particular has been
very good at sort of adding various to
entry so they went from physical
warehousing infrastructure was sort of
one barrier to entry so they raised the
fixed cost that business be much higher
much more difficult to compete and then
did a lot of things on the rebel costs
like with book reviews scanning scanning
scanning now scan a lot of the books so
you can kind of keyword search them they
play up a couple hundred thousand books
sort of scan so if you want to compete
with Amazon you gotta go out and scan a
hundred thousand books
another big fixed cost so they're just
adding it up so you want to go play ball
Amazon you need like a half a billion to
a billion big payment but no one does it
so they got the business to myself okay
so that's why that's important another
thing one do is you want to compare the
cost structure of the company to again
to the marketplace so this class is over
a little bit and you just want to
understand are you in line higher or
lower and sometimes there's an insight
there and again all this was just trying
to flush out an interesting insight that
sort of puts together a paints a picture
what's going on and how you can what
what options you have for trying to fix
the situation if there is sort of the
case of sort of investment oriented you
would want to include investment cost
intangibles are useful sort like a brand
effect and those are sort of a strong
emotional loyalty customers have to the
product that's would the hard to con
that sort of analytically right so
analytically it ought to work but
customers just really love I don't know
aunt jemima like maple syrup and then
they just refuse use anything else
because it would be like heresy in the
South I have no idea
then shal situation and then
organizational structure I talked about
the example I give here is you know if
you're organizing your company by
product line but customers want to be
served sort of a sort of a cross product
lines so one point of contact are you
out of sync with what the market wants
so if you if you ask the so in the
customer portion of framework you're
asking how do they want to be served
what the district and channels are what
do they want if that's an issue they'll
any what if eclis mention it so when you
come back to the company you want to ask
what the organizational structures are
you in sync with the marketplace if
you're out of sync okay that's an
insight what we do about it that's where
the conversations sort of begins okay
last one is around competition I usually
ask around
I start with market shares so who are
the competitors and what's the market
share mix how concentrated is it is it a
monopoly oligopoly was it highly
competitive
because the competitor names for vastly
different in those situations okay well
funny story at McKinsey we were actually
banned from talking about pricing in the
context of price fixing we had really
had antitrust attorneys because we were
work with fortune 500 so you know and
oftentimes we work with all the key
companies in an industry and if profit
sucks in one business you know it
would've been very easy to say lunch
nudge wink wink over lunch you tell your
CEO Tom I see we should open price of 10
percent that's like highly illegal so I
just sort of came to mind so you can't
talk about that and actually I actually
got reprimanded for talking about it
because we really applied about that
so but knowing the concentration helps
you understand the competitive dynamics
that's very different Porter's five will
get I've sort of incorporated elements
of Porter's five forces in here if
you're not familiar with its worth sort
of reading competitive strategy of the
book or even just googling it and
getting a summary of it very useful
I mean I've sort of just very insightful
framework I sort of very impressed with
it I have sort of used it a lot and
let's see competitive behaviors what the
competitors doing what so basically
think of all the company questions you
asked and you want to know for the
competitors same deal
best practices do they really excel at
something that we stink that useful to
know again barriers to entry for the
industry overall we talked about and in
supply a concentration so the Intel
effect you got one supplier that kind of
controls it are they suck in I always
think
as the porters light forces is you got
the suppliers the company competitors
and then the customers and it's like
it's one big vacuuming sort of like suck
profits out you suck it out of the man
chain is suck it out of supply chain and
it's useful to know that if you have
that that pressure on your business it's
useful to know them and then last one
just to be complete or complete her or
more complete rather industry regulatory
environment in like lifecycle of the
industry so we sort of been in a trough
it is it a cyclical business so like in
mortgages I work in finance for a number
of years right now we're sort of in a
credit crunch thing and it's highly
predictable goes back 50 years every ten
years this happens
banks do you do stupid things ask for
bailout just crazy and then you know
people borrow more than they should
market tanks because all bleeding they
got a write-off loans and then there's
no credit and and they come comes back
next seven years later okay so that's
sort of the the checklist I use you have
questions yes on you here's please start
you try to figure out where the issue is
likely to be given what information you
have okay if you don't know so it would
no I wouldn't get I wouldn't do what I
just did I would not do what I just did
in the real case okay yeah you don't do
that I'm just explaining it does it
would be very boring what you are what
you want to do is I typically service
customer first unless unless dive
information that's just it's like a
competitive issue and in my sort of
competition okay so you sort of figured
what information you have initially
before you even touch the framework and
use that as your starting point and I
tend to go on each of these I might
spend five ten minutes but usually what
happens is I almost never get through
the whole thing before I discover
something really interesting that's very
indicative what's going on what's
driving the problem and at that point
this is where the creativity comes in
okay see if your mechanical get good at
this you'll do what I just did just bang
bang I gotta ask these 40 questions and
and and the interview will drop useful
information that if you're paying
attention is insightful but if you're
mechanically going through it and you
miss it it's clearly just
cramming through a framework okay and
that's like not good because it doesn't
show your palm something you're sort of
regurgitating stuff so we look what
you're looking for is you're looking for
an opportunity to branch off from this
okay so you're looking for the critical
insight in each piece and that tells you
what's going on tells you starts telling
the story what's going on and then you
might sort of go ahead and sort of skip
certain things alright so if the nature
of the business is such that I sort of
clear there's not like a Walmart effect
an Intel effect
I wouldn't use Porter's five forces all
right once I understand the nature of
the color of the customers are who the
competitors I would sort of skip some
those things so you start tailoring
these things based on the information
you get and that's where I don't know
call-out minute fifteen a minute twenty
you start deviating from the framework a
little bit or you start breaking things
out doing things within the framework so
it's still organized but it's not part
of like the standard questions so this
is where the whole you know talent comes
in it's less mechanical it's more about
look at the situation in analyzing it
laid out you told them like I want to
talk yeah customer product company yep
competition and you got an insight on
customer which is where you start it do
you dig deep then or do you go ahead and
still get a broad picture before you go
it depends on that sort of actually more
of a judgement question like if if I
sort of got the aha and I'll keep moving
if that's intriguing unexpected
counterintuitive I don't understand why
it's happening I'll keep digging okay
sometimes there's underlying there's
like underlying trends as to why things
happen so it's important I'm saying not
just what's happening but why okay so
this sort of gets the frameworks get you
to what right and as you get drilled
down lower and lower you start getting
the why and once you know why then it's
a lot easier know what to do about it
and then that sort of becomes more like
the HBS cases you've got all the
information you know what's driving the
whole situation now what are you guys
protagonists do and so that's sort of
how that process tends to attends to
evolve
you
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