Case interview frameworks: a comprehensive guide June 05 2016
It is a good idea to familiarise yourself with simple business frameworks when you start preparing for case interviews.
Familiarise yourself with frameworks
We have listed below the top 4 frameworks that you should familiarise yourself with in your preparation.
- Profitability framework
The profitability framework is the most basic framework in business analysis. It simply breaks down profits into its basic revenue and cost components and is commonly used to identify the root cause of profitability issues.
- Revenue can simply be broken down in the Number of units sold by the business times the Price per unit.
- Costs can be broken down in Variable and Fixed costs. And Variable costs can then in turn be broken down in the Number of units produced and the Cost per unit.
- The 4Ps framework
The 4Ps framework is widely used by company executives to design their marketing strategy. There are different variations of this framework that is also sometimes referred to as the “Marketing mix” framework but the 4Ps is the most common one. This framework is commonly used when launching a new product or when reviewing the positioning of an existing product.
- Product: What are the key characteristics of the product sold? Key elements of the product definition could include: customer need fulfilled by product, product usage (E.g.: who, where, how, etc.), good vs. service, product lifecycle (new vs. established), competing products and substitutes, etc.
- Price: At what price should the product be sold? Different considerations need to be taken into account here: the customer perceived value of the product, the price of competitive products, the customer price sensitivity, the cost of producing the product, etc.
- Promotion: Which promotion strategies should be used to sell the product? Key elements to consider include: promotion messages, media type (E.g.: TV, social media, radio, etc.), best time to promote, competitors’ strategies, etc.
- Place: Through which channels should the product be distributed? Key elements to consider include: possible channels to distribute the product (E.g.: in store, web, mail-to-order, etc.), customer expectations in terms of channel, requirement of a sales team or not, competitors’ strategies, etc.
Porter’s 5 forces
Porter’s 5 forces is a framework commonly used by CEOs to explore the competitive dynamics of industries. Indeed not all industries are structured the same way. Some industries are really hard to get into (E.g.: banking) while others have got very low barriers to entry (E.g.: newspapers). Suppliers have got strong bargaining power in some industries (E.g.: high-end medical equipment) but little power in others (E.g.: small milk producer), etc. Understanding these dynamics is extremely important when considering to enter a new industry or when assessing the competitive dynamics of the industry a company is already in.
- Customers’ bargaining power: How much bargaining power do customers have? If there is only one buyer but multiple suppliers then that buyer will be at a strong advantage. Key elements to consider here include: customer concentration (percentage of industry revenues from Top 3 buyers), customer price sensitivity, customer information availability, etc.
- Suppliers’ bargaining power: How much bargaining power do suppliers have? Similarly to the previous point, if there is only one supplier but multiple buyers then that supplier will be at a strong advantage. Key elements to consider include: concentration of suppliers (percentage of industry revenues to Top 3 suppliers), difficulty of switching from one supplier to another, differentiation between suppliers, etc.
- Threat of substitutes: What are the substitutes for the product and are they increasingly popular? As a reminder, water is a substitute for Coke while Pepsi is a competitive product for Coke. Key elements to consider here include: potential new substitutes, ease of substitution, evolution of customer propensity to substitute, etc.
- Threat of new entrants: How difficult is it to enter the industry for potential new players? Key elements to consider here include: regulation authorisations, capital requirements, economies of scale, network effects, etc.
- Existing rivals: How competitive are existing rivals in the industry? Key elements to consider include: number of competitors and their market shares, similarity between their products and products of the firm analysed, financial health of competitors, etc.
- 3Cs framework
Finally, the 3Cs framework is also commonly used to put together strategies for companies. As you will notice below, a lot of its components overlap with the Porter’s 5 forces.
- Customers: Who is the customer? Key elements to consider include: customer demographics (E.g.: age, sex, income, etc.), customer needs, customer segments size and growth rates, customer willingness to pay and price sensitivity, etc.
- Competition: What are the competitive dynamics? Key elements to consider include: competitors’ value proposition and brand, competitors’ market share and growth, competitors’ financial health, etc.
- Company: What defines the company? Key elements to consider include: product offering, profitability, core competencies, unique selling point, financial performance and resources, etc.
Do not reuse pre-existing frameworks for case interviews
Once you are familiar with frameworks, the question then becomes: how do you now use that knowledge in case interviews? There are a lot of opinions about how you should do this on the Internet. But the main two schools of thought seem to be: Marc Cosentino’s Case In Point and Victor Cheng’s LOMS.
In Case In Point, Marc Cosentino attempts to classify case interviews into 10+ categories and then suggests that candidates should learn a specific framework by heart for each of them. This is an interesting exercise as it exposes you to a range of business problems and helps you think about them in different ways. However, in our experience, learning 10+ frameworks is difficult and time consuming.
More importantly, in live case interviews, trying to recognise one of the 10+ case categories and the framework they are associated to is a real nightmare! Instead of focusing on solving the problem at hand, you end up trying to remember a framework that will not even perfectly fit the case you are solving. In our experience, the best candidates avoid this strategy.
In his LOMS programme, Victor Cheng advocates for a much simpler method than Case In Point and suggests you should only learn two frameworks: the profit framework for profitability cases, and a general framework for all other cases (Product, Consumer, Company, Competition). The benefit of this approach is its simplicity. It gives you a starting point that’s easy to remember when you are putting a framework together.
However, in our experience, this approach has got a fatal drawback. In practice, there aren’t that many profitability cases, and as a consequence you always end up using the general framework. Even if you adapt this general framework to the case you are given, it will not be perfectly tailored to the case you are trying to solve. More importantly perhaps, your interviewer will quickly realise that you are using a pre-cooked framework and that will reflect very negatively on you.
Both Case In Point and LOMS share the same flaw: they try to force pre-defined frameworks onto cases. In our experience, this is bound to produce average results because all cases are unique.
So here is the hard truth about case interview frameworks: the best candidates DO NOT learn frameworks by heart, instead they learn a consistent METHOD to craft bespoke frameworks for each case.
Learn to create your own unique frameworks
A good framework is a bit like a tailor made suit: it is adapted to the problem you are trying to solve, the company and the industry. If you use pre-defined frameworks, you run the risk of missing important elements of the specific problem you are trying to solve. This will therefore mean you perform less well than you could have if you had created a framework adapted to the specific problem from scratch.
In real life, consultants extremely rarely use pre-defined frameworks. They are familiar with them because they have studied them but they do not directly re-use them as-is on projects. Instead, they create a framework specific to the problem they are working on. To do so they rely on conversations with their client as well as past experiences.
This might sound intimidating but the good news is that creating bespoke frameworks is actually much simpler than you think. It requires a few things:
- Changing your approach from adapting frameworks to creating them from scratch
- Learning a step-by-step method to create bespoke frameworks
- Practicing this step-by-step method on multiple examples
In our McKinsey Case Interview Training Programme, we teach a simple step-by-step method to create bespoke frameworks for each case. Candidates who have worked with us so far have managed to quickly learn this method and to perform at a high level in their interviews. If you would like to get a taste of this approach, you can watch the video extract below or download our Free Case Prep materials here.
In summary, we find that learning existing frameworks is useful to discover a range of ways to think about a company. But in our experience, when it comes to case interviews, it is best to forget these pre-defined frameworks and focus instead on learning a step-by-step method to craft bespoke frameworks for each case.
If you’ve got any thoughts on frameworks or on this article, leave them in the comment section, we look forward to reading you.
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The IGotAnOffer team