Types of frameworks
There are three key framework types that can help tackle the toughest of case interviews. Whilst it is possible to learn particular frameworks prior to interviews, using frameworks from memory can result in being penalised by the interviewer. Deploying one of the following framework types with bespoke parameters is all that is required to develop an exceptional answer.
The three framework types are; bucket, issue tree and matrix. All three allow for a methodical approach but are more effective when used to answer different types of questions.
Issue tree: Great for profitability questions and any market sizing elements. Each ‘root’ of the tree allows for isolation of the problem and clear analysis. Often this is used in conjunction with a bucket framework.
Matrix: Usually taking the form of a table but sometimes a pair of axis (BCG matrix). This framework is great when having to draw comparisons such as in competitor analysis or M&A suitability. The key is to use only the minimum necessary parameters in order to make a clean and simple comparison.
Bucket: The most commonly used framework, it is very good for finding the root cause and developing a good idea of the bigger picture. Laying this framework out at the start also provides a checklist to work through which should prevent any unexpected mental blocks.
Five Key Frameworks
1) Profitability framework
This framework takes the form of an issue tree (sometimes referred to as a logic tree), it isolates the clients profitability problem into its key components. Following its branches, it is easy to identify where the issue lies and visualise where it fits into the bigger picture. The branches of this issue tree satisfy the MECE principle and therefore, if followed correctly, it should lead you to the cause.
Often a case will require you to identify the root cause of an issue and then subsequently recommend solutions. In this scenario it is likely that a bucket framework will be required for the solution section.
A profitability question will normally contain a sentence such as “PepsiCo has experienced declining profits” and therefore should be easily recognisable. Any case involving profits or one of its components (revenues and costs) will require a profitability framework.
Three equations to learn:
Profits = revenue – costs
Revenue = units x price
Costs = Variable costs + Fixed costs
Profits = revenue – costs
This is the overarching equation that you are looking at but as always you must dig deeper into each component of the equation to find the crux of the issue.
Revenue = units x price
Units can be increased by increasing the number of customers buying the current products (usually sales & marketing) or by increasing the number of products purchased by the current customer base (upselling).
Increasing the price of a product is usually the quickest way to increase profits but this will effect the number of units that can be sold at that price, the magnitude of the effect will depend on the elasticity of demand and alternatives available to the consumer.
Costs = variable costs + fixed costs
To increase profits variable costs can be reduced by reducing the costs of inputs per unit. Increasing buying power or increasing efficiency on a per unit basis, such as automating steps of the manufacturing process, are ways of acheiving this.
Fixed costs can be reduced by removing unnecessary costs or by maximising the efficiency of current resources. Relocating the office to a cheaper location is an example of reducing fixed costs directly and increasing manufacturing production to 100% from 80% capacity would reduce the fixed cost per unit.
2) General framework
Developed on a framework made popular by Victor Cheng, this general purpose framework is capable of being adapted to the majority of case interview questions. This framework can be an alternative to the growth and market entry frameworks below if you are short of preparation time and cannot learn all the suggested frameworks.
This case interview framework primarily serves as a checklist to ensure you cover all the relevant elements in the case. It is still important to remain disciplined and methodical by exhausting each point before moving onto the next.
Useful mnemonic: Whales Wave With Police Constables
Who – the demographic of the customer base e.g age, gender, individuals, businesses etc.
What – the products they are buying and reason for buying this product e.g stapler to help organise paperwork
Where – the location of the customer base e.g UK, Europe, global
Price – the prices that customers have been paying
Consumer risk – how concentrated are these customers, what effect will losing certain customers have on total revenues? (Usually fewer customers = higher risk)
Useful mnemonic: Every Dog Is Four
Expertise – What the client is capable of and where their limitations are e.g great at manufacturing clothes cheaply but bad at luxury design?
Distribution channels – How is the client getting their product in front of customers? e.g wholesale, retail, direct to consumer, e-commerce etc.
Intangibles – does the client possess anything intangible that may effect the strategic decision? such as strong brand recognition or intellectual property.
Financial Situation – what financial resources does the client have to make the necessary investments or absorb the cost if the project fails?
Useful mnemonic: Why Eight Children Started Laughing
What – the details of the product the client sells
Elasticity of demand – how much of a necessity is the product to consumers? For example, petrol has high elasticity of demand for those with petrol cars it’s a necessity.
Compliments – are there any existing compliments to the product? e.g a phone case compliments a phone
Substitutes – are there any indirect competitors (especially emerging ones) such as tablets were to the laptop market (different products competing for the same constumers).
Lifecycle – how long does the product last? When will consumers be purchasing again? E.g a sandwich may have a lifecycle of 24 hours but a car more like 5 years.
Useful mnemonic: My Children Tried Saying Rebellious
Market share – the breakdown of competitors and their respective market shares of the target market.
Competitor observations – the competitors response to the same situation or anything notable in how they differ from the client.
Threat of new entrants – what is going to prevent another entrant to the market and what effect would this have?
Supplier risk – how concentrated are the suppliers, what effect would losing the current supplier have? (usually few suppliers = higher risk)
Regulations – are there any regulations that have or will have an effect on the client?
3) Pricing framework
Whilst pricing cases are less common its sensible to know at least the basics of pricing strategies. Without the basics it would be easy to flunk the case unnecessarily. The three common pricing strategies are cost-based, value-based and competitor-based.
Cost based pricing: The addition of a target profit margin to the full unit cost.
Value based pricing: The value that the product provides to the consumer. Usually worked out via a cost saving, additional benefits over and above existing products or similar.
Competitor based pricing: Taken from what competitors are charging and what this product offers in comparison.
4) Market entry framework
This market entry case interview framework is a development of the general framework, it places more emphasis on the strategy of understanding the target market and market capture. It is still possible to answer these questions with the general framework but it is likely to convey a lack of originality to the interviewer.
Market entry questions usually explicitly state the intentions to enter a new market such as “Bosch is looking to enter the South American market”, making them easily recognisable.
Useful mnemonic: Small Childish People Prefer Marrying Red-heads
Size – what is the size of the target market?
Customers - who are the customers and what are their needs and preferences?
Product types – what products is the market receptive too? Do changes need to be made to existing products?
Profitability – are the current players in the market profitable and by how much?
Market share – what is the current market structure of its participants?
Regulations – are there any regulations that could effect the client from successfully entering?
Useful mnemonic: Fighting Is Overly Exuberant
Financial situation – what financial resources does the client have to make the necessary investments or absorb the cost if the project fails.
Investment required – to enter the market what initial costs are there? E.g building of manufacturing facilities.
Ongoing costs – what costs will be incurred following the initial investment of entering?
Expected revenue & ROI – what is the expected return from entering the market?
Useful mnemonic: Children Eat Children Maltesers
Expertise – what the client is capable of and wher are their limitations? e.g great at manufacturing clothes cheaply but bad at luxury design.
Entry experience – has the client entered a market before?
Market entrants – has anyone entered the market before? If so, does the client have the same capabilities?
Useful mnemonic: Tall People Try Oranges
Timing – when is the best time to enter?
Pilot – will a pilot be used (99% yes) and what size will it be? Who will participate?
Type – how will the expansion be executed? Self-built, M&A, Joint venture?
Operation location – will the new operation be run from head office or the new location?
4) Growth strategy
This growth framework is an alternative to using a combination of the profitability and general frameworks. It simplifies the question of growth nicely by segmenting the problem into internal and external factors.
During a growth strategy case it is important to remain pragmatic. It is easy to get carried away with elaborate ideas such as ‘build an app’ but hard to offer sensible ideas with real potential for the client and their current operations. This isn’t to say you should not offer all of the ideas in the beginning but then choose which ones you would recommend they explore further based on the situation in front of you. This is a good chance to show good business acumen.
Current situation - what is the financial health, growth and profitability of the company today?
Drivers of financial performance - for this particular company what impacts profitability the most?
Industry - what is going on in the industry? (market share, growth rates, new entrants)
Customers - who are the customers and what have their historical buying trends been?
Competitors - who are they and what have they been doing? How have they grown themselves?
Using frameworks effectively
Following the steps to case interview success recommendations; Clarify, Repeat, Framework, Present, Hypothesise. When you begin working through your framework data collection is your main aim. You want to exhaust each branch and find any relevant data that could help you diagnose the problem. Sometimes you may receive blunt answers but always make sure there is nothing more, for example, enquiring about the fixed costs may be met with the reply “fixed costs have remained the same” and it would be easy to move on but asking about the breakdown of fixed costs may win you some data in which you find that an increase in rent costs has been offset exactly by a reduction in labour costs. This then leads to the question “why have rent costs increased” and thus a potential way to increase profits. Segmenting numbers in this way is a great way to avoid missing any deep rooted issues within the question and scoring highly on case interviews.
Another useful tip is to constantly think out loud during the case. The interviewer is on your side and wants to see you do well and by talking out loud you are giving them every opportunity to help you. It is also helpful for consulting as your recommendations are useless if your client doesn’t understand them, explaining your method helps them understand the recommendations better.
The best way to use case interview frameworks effectively is to adapt them. Interviewers are well aware of many frameworks out there and whilst you are not going to be sent home for using them, creating frameworks especially for the question presented is the best way to score highly in case interviews.
The easiest way to create bespoke frameworks is to adapt existing ones. There is a reason they became popular in the first place and that is because they are effective. It could be something as simple as changing the titles on the buckets to disguise it slightly or replacing a couple of elements in response to the nature of the question but being different is definitely beneficial.
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