Surviving the strategy consulting case interview


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Guide to surviving your strategy consulting case interview.

Focused on applicants to firms like McKinsey & Company, The Boston Consulting Group, Bain & Company, Roland Berger Strategy Consultants or Booz & Company.

Published in: Career, Business

Surviving the strategy consulting case interview

  1. 1. Surviving the case interviewA guide to job hunting in strategy consulting Reader from 2012 training by Top of Minds Executive Search By Auke Bijnsdorp, Partner - Amsterdam office
  2. 2. Top of Minds is a candidate centered niche-agency specializedin strategy consulting and the life after1 Candidate centered• Extensive attention to the needs of the candidate• Objective advice rather than a commercial push towards vacancies2 Specialized in strategy consulting• A closed group open only to top-5% academics• Strong position in the strategy consulting market3 Focus on added value through training and coaching• Individual coaching and career counseling• Training program for consultants-to-be by an ex-strategy consultant
  3. 3. Agenda General Interviews 10:00 Coffee 15:45 Live interview 1 10:15 Being a consultant 16:00 Discussing interview 1 16:30 Live interview 2 Cases 16:45 Discussing interview 2 10:30 Case: Buffy Bear’s 11:00 Discussion Closing 11:45 The Pyramid Principle 17:00 Q&A 12:00 Working lunch 17:30 Wrap-up 12:45 Case: Shell Express 14:00 Discussion 15:00 Frameworks
  4. 4. Becoming a strategy consultant
  5. 5. You want to be a strategy consultant because you’ll learn themost, because you can and because it’s the best start ever1 You’ll learn the most• You’ll work with ridiculously clever people pushing you to your limits• You’ll learn a complex abstract trick that works with everything in business2 Because you can• As an insecure over-achiever, you want to prove you can• If you don’t, you’ll always be wondering if you could have3 It’s the best starting point for virtually every career• Being a strategy consultant implicates high value• You’ll have a strong network and good visibility to headhunters
  6. 6. In The Netherlands, strategy consulting firms can bedivided in three categories1 Generalists (all international)2 Strategic operations (The Netherlands), examples - non exhaustive3 Specialists (The Netherlands), examples - non exhaustive
  7. 7. Clients hire strategy consultants because they’re smart, theywork hard and have industry specific expertise1 They’re smart• Fact-based approach without political bias• Methodological strength provides clarity in complex issues2 They work hard• Strategic projects often have a tight deadline• Small teams ensure minimal communication overhead3 They have industry specific expertise• Although a junior won’t, the partner has industry specific expertise• Moreover, strategy consultants are good at drawing parallels between industries
  8. 8. Example positions for ex-strategy consultants, drawn fromportfolio Top of Minds Client Industry Position Ahold Retail Lead Intelligence Consultant AudioNova International Retail Business Development Manager Anthony Veder Transport & logistics Business Development Manager ING Financial Services Manager Strategy & Business Change Coca-Cola Enterprises FMCG Strategic Planner FrieslandCampina FMCG Customer Marketing Manager AkzoNobel Chemicals Finance Manager Jumbo Supermarkten Retail Commercial Controller GrandVision Retail International Business Controller Staples Retail Manager Sales Operations Sanoma Media Online Senior Product Manager Mobile & Tablet
  9. 9. Consultants hire candidates when they’re smart, they workhard and learn quickly1 When you’re smart• Strong academic results are the most reliable indicator of brain power• You can structure your thoughts and get them across with empathy2 When you work hard• You think it’s the coolest thing in life• You are an insecure over-achiever3 When you learn quickly• You can quickly grasp a new industry• You are willing to follow orders and won’t be a liability
  10. 10. The case interview is the main barrier to entry when becominga consultant – but don’t act like it’s a test His objective Your approach The consultant wants to know To perform as natural as how you will perform on a possible, as if you’re not an project in his team. applicant but a colleague. He likes: You show: - brainpower - resourcefulness - reliability - empathic humor - independence - self reflection Above all, he wants to enjoy You’re having fun, because himself. there’s no reason to fret.
  11. 11. There are two types of cases: business-cases and brain-teasers,usually mixed together Business-case Brain-teaser 70% of time spent 30% of the time spent, usually mixed into a business-case when estimating missing data Three types: Two types: 1. Action planning 1. Estimation by analysis 2. Performance gap (weight of a Boeing 747 through breakdown) 3. External change 2. Estimation by analogy (number of car batteries sold via cars)
  12. 12. Case 1Buffy Bear’s
  13. 13. Buffy Bear’s is a chain of 90 restaurants in the Denmark and butsaw profits fallKey data Buffy Bear’s • 100% privately owned my Mr. Green, a Danish millionaire • Mr. Green wants to sell to retire but profits are falling, affecting the sales price • Dishes are meat-oriented, mainly steaks • Restaurants are located in major cities and next to high ways
  14. 14. When defining the problem, we use the SCQ model to clarifythe key questionSTQ to clarify the key question Situation Mr. Green owns a chain of 90 restaurants, Buffy Bear’s Complication Profits have fallen by 20% which affects the potential for selling off the business Question Can we restore profits to the level of 2008? Note: The SCQ model is explained in detail in the book “The Piramid Principle” by Barbara Minto
  15. 15. To identify the cause, we analyse the profit structureGeneric profit structure market share decline volume revenue decline market size decline decline profit decline price decline cost increase This structure helps us to ask the right questions. It turns out that our market share has declined because people want more health food. We also find an increase in costs.
  16. 16. To analyse the costs we use a set of common categories…Generic cost structure Cost of inputs Cost of goods sold (COGS) Process costs Communication costs Cost of incentives Marketing costs Distribution Costs costs Other costs R&D costs Administrative costs Other costs Cost of capital Other costs
  17. 17. … and tailor them to the situation at hand, where we find thatthe price of meats has gone upCost structure Buffy Bear’s Meats Cost of goods sold (COGS) Vegetables Advertising Marketing Costs costs Promotions Salaries Other costs Real estate
  18. 18. Now we can come up with ideas to increase profits and testthemIdeas for increasing profitsIncrease revenue:• Raise prices• Diversify the menu with salads to attract new customers• Extend the menu with typical road snacks, like ice-cream and apple-pie competing with petrol stations• Use drive-ins to service quick customersDecrease costs:• Offer salads to reduce the effect of rising meat prices• Offer meat replacements like soj burgers• Provide free proteine-rich shakes as a starter (instead of desert) to reduce the hungry feeling of clients
  19. 19. After shooting some ideas, the best one is picked anddeveloped furtherFormulating the hypothesisDiversifying the menu with salads has a double effect:1. It attracts new customers2. It decreases the influence of rising meat pricesThe hypothesis giving the answer to the SCQ is now formulated as:“We can restore profits to the level of 2008 by replacing 20% of our menu withvegetable–based dishes.”
  20. 20. The interviewer will now ask you to make some quickcalculationsWhat is the effect on profitability of the introduction of salads?Steak Salad Production cost € 8 Production cost € 2 Retail price € 16 Retail price € 14 Number of clients grows from 4.000.000 to 4.500.000 per annum thanks to the more diverse menu Number of salads in the new sales mix is 20% of all dishes
  21. 21. First you come up with a difficult formula∆Profit = (∆Revenue - ∆Costs) / Profit[current] = (4.500.000*(80%*€16+20%*€2)-4.000.000*€16)– (4.500.000*(80%*8+20%*2)-4.000.000*€8))/(4.000.000*€16-4.000.0000*€8)
  22. 22. First you come up with a difficult formula∆Profit = (∆Revenue - ∆Costs) / Profit(current) = (4.500.000*(80%*€16+20%*€2)-4.000.000*€16)– (4.500.000*(80%*8+20%*2)-4.000.000*€8))/(4.000.000*€16-4.000.0000*€8) And you start to sweat and panic!
  23. 23. So you try it with percentagesWhat is the effect on profitability of the introduction of salads? Steak Salad +50% gross profit in Production cost € 8 Production cost € 2 Retail price € 16 20% of dishes is Retail price € 14 Gross profit € 8 Gross profit € 12 10% up in total gross profit Number of clients grows from 4.000.000 to 4.500.000 per annum +12.5% more clients Number of salads in the new sales mix is 20% of dishes
  24. 24. Leading to the conclusion:Yes, introducing salads will restore the profit level of 2008Cost/profit mix before and after introduction salads Price build-up Price build-up Gross +10% profit GrossCost profit Cost +12.5% customers 110% * 112.5% = 123,75% is more than the profit level 2008 in of 120% (not 110% + 112.5% = 122.5%, although you could use that as an preliminary estimate, as long as you show that you understand the difference)
  25. 25. But of course you forgot all about the fixed costsCost structure Buffy Bear’s Meats Cost of goods sold (COGS) Vegetables Advertising Marketing Costs costs Promotions Salaries Other costs Real estate
  26. 26. But of course you forgot all about the fixed costsCost structure Buffy Bear’s Meats Cost of goods sold (COGS) Vegetables Luckily, the interviewer has run out of time so he helps you out: Advertising “The new number of clients matches the Marketing Costs costs old one in 2008, and no staff Promotions was fired. So the fixed costs remain the same.” Salaries Other costs Real estate
  27. 27. Structuring your storyline:The Piramid Principle
  28. 28. The Piramid Principle tells you to work top-down and structure your argument Illustration of issue tree Situation Complication Question Answer because because of X of Y because because because of X1 of X2 of Y1Source: The Piramid Principle by Barbara Minto
  29. 29. The SCQ framework helps you understand the question and scope the assignment The SCQ model Situation What are we talking about? Complication Why are we talking about it? Question Which question follows from the above? Answer The hypothesis you’ll be working with (optional)Source: The Piramid Principle by Barbara Minto
  30. 30. You divide the key question in an issue tree, building aninductive argumentIllustration of issue tree Question Issue X Issue Y Issue X1 Issue X2 Issue Y2 X and Y have to be MECE Mutually Exclusive and Collectively Exhaustive
  31. 31. Intermezzo: MECE brings us to SEALSEAL is a test for any list of issuesAny list of issues should not only be MECE, but also SEAL – Similar: same sort of issues – Exhaustive: all issues are covered (like in MECE) – Apt: relevant to the topic – Linear: same level of abstraction or magnitudeExample of correct list Example of incorrect list• Cars • Cars• Bikes • Transportation• Trains • Public• Plains • Speed
  32. 32. The basic performance gap model is an example of a MECEissue treeIssue tree Buffy Bear’s Why are profits down by 20% Revenues Costs declined? increased? Volume Price COGS Marketing cost Other cost declined? declined? increased? increased? increasde? Market share Market size declined? declined?
  33. 33. But MECE issue trees can be build for anythingIssue tree Geert Wilders Why is Geert Wilders gaining influence? Is there another Do people like Do people not like reason to vote for him? the alternative? GW? Do people not like Do people not like Is a vote for GW a Do people Do people like his the alternative the alternative protest vote as support his ideas? presentation? ideas? presentation? such?
  34. 34. Issue trees are based on inductive reasoning Illustration inductive reasoning Poland is about to be invaded by tanks French tanks German tanks Russian tanks are at the are at the are at the Polish border Polish border Polish borderSource: The Piramid Principle by Barbara Minto
  35. 35. When you make slides to convey your thoughts, use theconsulting styleSlide format for final round case presentationsWrong style Consulting style The economic crisis has led to a 25% decline in open Effects of crisis vacancies in only three months time Open vacancies in Dutch labour market -25% • More unemployment • Less vacancies available • 50.000 less vacancies compared to 2008 • Currently 152.000 open vacancies 202.000 152.000 Source: CPB Q4 2008 Q1 2009 1. Key message as action title 2. Graphs preferred over text 3. Subtitle describes content 4. Name your source
  36. 36. Frameworks:When and which
  37. 37. When: novice consultants and candidates usually overestimatethe value of frameworks, only use it when you canAn argument you shouldn’t overestimate the value of frameworks Do not overestimate the value of frameworks Logical reasoning is Using frameworks is Frameworks are not more important than not easy always necessary using frameworks Mapping frameworks There are many A framework itself The primary goal of A framework itself is to cases is not easy frameworks, and an doesn’t hold the frameworks is to not intelligent. You and requires a lot of engineer will know answer. You do structure you are experience less than an MBA. presentation. You [Yet, more engineers might not get to this are hired than MBAs]
  38. 38. Which: mapping frameworks comes from training, but aguideline can help you get startedA generic guideline for mapping frameworks to cases [never exhaustive] Type of case Examples Relevant frameworks Industry analysis Start an internet provider in Africa? Porter’s five forces Competitive power of product/service De Volkskrant looses subscribers Four Cs: customers, competition, cost, capabilities Power of product/service, less focus on Profile sells les tires with winter profile Four Ps: product, place, price, promotion competition Performance gap analysis McDonalds’ profits are falling • Revenue/cost analysis • Value chain analysis Process cases Transform KPN from a infrastructure to a GSTIC: Goal-Strategy-Tactics- services provider Implementation-Control Exhaustiveness test Interviewers frequently test if you can • Being there think of more issues. And more. • Inverse • Abstract association Portfolio analysis What products or services should be • Four Cs or Ps (dis)continued? • BCG matrix (use this only at BCG) Public policy issues Should we IPO Schiphol? Stakeholder analysis M&A cases Should a acquire company X? Does it • SWOT analysis have a promising future? • Value driver analysis • BCG matrix
  39. 39. A lot of mistakes are made with using the word profitDefinitions of profit related terminology• Sales revenue (net turnover) = price (of product) * quantity sold Bruto omzet = prijs (van product) * hoeveelheid verkocht• Gross profit (gross margin) = sales revenue – cost of sales Brutowinst = bruto omzet – verkoopkosten• Operating profit (EBITDA) (net margin) = gross profit – overheads and direct costs Operationale winst = brutowinst – overhead en directe kosten• Net profit = operating profit – depreciation – amortization – interest Nettowinst = operationale winst – afschrijvingen - rente• Profit after tax = net profit – tax Winst na belasting = nettowinst - belasting
  40. 40. Case 2Shell Express
  41. 41. Shell considers increasing the number of unmanned petrolstationsCase assignment: Shell Express - 2009You’re at a seated benefit dinner for WarChild. Your heart misses a beat when you find outJeroen van der Veer is sitting next to you! Your consulting firm has been trying for ages toget a project with Shell, so this is your chance.He tells you that one of his worries in the current handover to his successor Peter Voser islosing market share in the retail activities. The economic crisis has put extra pressure onprices and unmanned petrol stations of competitors are eating at Shell’s market share.Shell has some 60 unmanned petrol stations itself, introduced asan experiment some years ago, branded ‘Shell Express’.This is now 10% of the total base of 600 petrol stations, and Shellis wondering whether they should convert all of the remainingstations to the unmanned variant as well so lower prices can beoffered.
  42. 42. Let’s get this straight: you’re asking me if converting tounmanned will restore your profit level to last year’s, right?STQ to clarify the key question Situation 10% of Shell’s retail outlets are unmanned ‘Shell Express’, all in urban locations Triggered by the economic crisis, Shell has lost 2% of it’s Complication retail market share in urban locations in the last twelve months, resulting in a decrease of 4% of total profits Question Can we restore the profit level (i.e. +4%) by converting more petrol stations to the Shell Express formula?
  43. 43. Since this is a ‘product versus competitors’ case, we can useeither the four Cs for an initial analysisFour Cs mapped to the Shell Express case Customers Competition (segmentation, purchase criteria) (market share, position, USPs) 1. Shell Express attracts price aware consumers. This 1. Competition is two-fold, both big chains with their own excludes employees with a company car. express formula and local independents. 2. Because of the recession, the segment of price-aware 2. The market share of unmanned stations is expected to customers has grown rapidly. keep growing, as clients increasingly accept it. 3. The Express formula should be limited to urban areas, 3. Shell has a more premium brand than others. since high way customers choose their petrol station out of geographical motivation and have a stronger need for shopping. Cost Capabilities (production costs, economies of scale, experience) (product-company fit, resources) 1. Unmanned petrol stations have a lower running costs, 1. Shell’s premium brand doesn’t have be an obstacle. creating the opportunity to lower prices. There are successful examples in other industries: KLM’s take-off fares, KPN’s Hi, take-out food 2. In retail, economies of scale are always leading in profit issues, since most costs are fixed so all extra turn-over 2. The conversion to unmanned requires no significant strongly contributes to the profitability. changes to the company’s structure, and lay-offs can be gradual. 3. Removing shops from petrol station reduces not only costs, but also turn-over. 3. There is already experience with 60 stations, making a We have to calculate the net effect. swift conversion operation feasible.
  44. 44. After the initial analysis we can create a very sharp and focusedissue treeIssue tree Shell Express case By converting to Express formula, Shell can restore profits Lower costs enable Profits increase by discounts, attracting cutting shops, churn is more customers minimal Profits actually increase The number of clients The discount of x cents Discount to be offered because most shops preferring a shop that is enough to regain the is x cents have a negative net will turn to a lost 2% market share effect on profit competitor is minimal Shops in isolated areas Only shops in urban with no store- areas are closed, not competition are the ones on high ways maintained (20%)
  45. 45. Key assumption is that most shops have a negative netcontribution to profitEstimation of net effect on profits of losing the shopKey effects Neglected effects x • The costs involved in installing automatic terminals (-) • The savings of running costs on shops (electricity, cleaning) (+) x-y • The savings of no more stock in the stores (+) ySaving by no Benefit Loss by no more staff more sales in shop
  46. 46. To make the necessary calculations we have to make someassumptions, or the data is provided by the interviewerAssumed or given data for calculationAssumptions• 80% of shops have the ‘average format’: 4 outlets for cars + 1 for motor cycles• petrol station is open from 8:00 to 22:00, manned continuously by two employees in two shifts• Two peaks of two hours during rush hour, operating at 80% capacity. Rest of the day at 40% capacity. Average duration of visit is 5 minutes• Average non-petrol purchase per customer in shop is € 2 with a 50% margin (cigarettes are excluded because of extremely low margin)• 20% of clients are non-petrol clients and only shop in storeLay-out petrol outlets Utilization of capacity during the day 80% 80% car 1 car 2 40% 40% 40% 40% 40% car 3 car 4 8-10 10-12 12-14 14-16 16-18 18-20 20-22 hrs bike
  47. 47. First we calculate the margin decrease that comes from nomore non-petrol salesCalculating margin decrease Margin decrease = number of shopping clients per day * average spent * margin * 365 days = 1.2 * (22-8 hrs) * 5 *(80%*2 + 40% * 5)/7 * 60/5 *€2 * 50% * 365 days = 1.2 * 14 * 5 *± 50% * 12 *€2 * ± 180 = 1.2 * 14 * 30 *€2 * 180 = 1.2 * 14 * 60 * 180 = 1.2 * 840 * 180 = 1.2 * 1.680 * 90 ≈ 1.2 * 1.500 * 100 = 1.2 * € 150.000 = € 180.000 per annum (€ 189.216 exact, 5% off)
  48. 48. Then we calculate the savings of having no more staffCalculating savings of no more staff• Open from 8:00 – 22:00 = 14 hours• 2 shifts of 7 hours = 4 man per day• People work 2/3 of the year, meaning we actually need to employ 6• Average salary = minimum wage + 30% = € 1.500 per month1 + 30% ≈ € 2.000 per month• 22:00 – 18:00 = 4 hours out of 14 = 2/7 are after six so pay +50%• 1/7 of hours is on Saturdays paying +50%• 1/7 of hours is on Sundays paying +100%• Average salary corrected for overtime = 100% * 1/7*150% + 1/7*50% + 1/7* 100% = 100% + 4/7 * 50% = 100% * 200%/7 ≈ 130%• Additional costs for pensions, health insurance and other benefits +50%• Total corrected salary = 180% * 12 months per year * € 2.000 per month = 180% * € 24.000 = 90% * € 48.000 = € 43.000 per annum6 staff members costing each € 43.000 per annum = € 258.000 per annum 1] Holiday allowance already discounted
  49. 49. The saving of 78.000 euro per annum means a discount of 1cents per liter, which is not enough. So the answer is NO.Conversion to unmanned saves 108.000 euro per annum per petrol stationUnmanned is € 78.000 per annum cheaper Which means a discount of 1 cent per liter € 258.000 • Number of clients per day = 14 * 30 = 420 • 78.000 euro per annum = 78.000/ 360 € 78.000 ≈ € 210 per day € 180.000 • 210/420 = 50 cents per customer • 50 liter per visit • 1 cent per tank discount It’s unlikely that a discount of 1 cent per liter is enough to attract significantly more customers. So converting to unmanned stations will not restore the profits to the level of last year’s. Saving Benefit Loss
  50. 50. Interviews
  51. 51. Prepare yourself for questions on five important competencesThe five most important competences The STAR framework for formulating(specifically for a junior consultant) examples Problem solving • Describe the situation Situation • Explain the task at hand and goal you Drive Impact pursued Task • Briefly summarize what you did, on an abstract level. Explain when the ‘how’ Action question is asked. • Describe the result and more specifically, Communication Teamwork how you contributed to the result Result
  52. 52. Classic brainteaser are not often used, but it never hurts toknow some answersSome classic brainteasers• What is the prime number closest to 100?• You fly with a rocket to the moon at twice the speed of light. What do you see when you get out (neglecting the time that it costs to do so) and look back?• Two switches connect to two lamps in an other room. The door is closed. Both lamps are out. You can flip a switch twice. Which switch is connect to which light?• Why are manhole covers round?• A bat and a ball cost € 1.10 in total. The bat costs € 1 more than the ball. How much for a ball?• You’re in a boat on a lake and you throw a big rock overboard. Does the water level of the lake rise or fall?
  53. 53. Codes of conductDo’s and don’ts at a job interview in consulting Do’s Don’ts Arrive 5 minutes before Don’t arrive 30 minutes in advance Bring squared paper Don’t overvalue your uniqueness or authenticity Wear a watch Don’t repeat the interviewer’s name Strong handshake with a wiped dry hand Don’t smoke just before interview Make (eye) contact Don’t mirror seating behavior Prepare three questions for the end, ask one Don’t use stupid phrases like ‘een stukje’ or ‘je ding doen’ Create a conversation instead of just answering questions, by embedding ‘why’ Don’t ask what’s there on the website moments in your answers
  54. 54. Dressing correctly will stress that you fit inConsultant dress-code for men Incorrect Correct • Brown suit • Dark (but not black) suit • 3 pieces • Minimal pattern • Button-down shirt • No belt or modest belt • Narrow angle collar on • Shirt without stripes shirt • Tie with non-obtrusive or • No collar stiffeners no pattern • Yellow shirt • No tucks in trousers • Signal red tie • Smooth black shoes with • Top button not closed laces • Normal buttons, no cufflinks Wrong in this picture: • Tie is one inch to short, should tip the trousers • Facial hair!
  55. 55. Women have more room for creativity, but here is a suggestionConsultant dress-code for women Incorrect Correct • Shirt with high closed neck • Dark blue suit looks defensive • White or light blue shirt • What’s this tie-like thing • Enough room for a hint of around her neck? décolleté, but only a hint • Suit is black • Light make up on eyes and • Suit is too long lips • Too heavy make up on eyes • Shirt sleeves are longer • Hair is not professional than suit sleeves • No earrings or bracelets
  56. 56. Wrap-up
  57. 57. A case-buddy is by far the most effective preparation
  58. 58. Contact us if you want personal advice on your consultingcareer or the life afterTop of Minds Executive Search Your contact:Prins Hendriklaan 56 Auke Bijnsdorp, Partner1075 BE Amsterdam T +31 20 7600