CONSULTING COMPENDIUM

SOCRATES - The Consulting & Strategy Club

TABLE OF CONTENTS

TOPIC

PAGE

WHAT IS CONSULTING

OPPORTUNITY IDENTIFICATION

GUESSTIMATES

PROFITABILITY ANALSYSIS

MARKET SIZING

BRAIN TEASERS

CASE INTERVIEW FRAMEWORKS

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SNIPPETS FROM CASE IN STUDY

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What is consultancy
Consultancy is defined as the provision of expert advice, analysis and interpretation, which draws
upon and applies the expertise and knowledge relating of University members of staff. It is unlike
research in that it does not have as its prime purpose the generation of new knowledge.
Consultancy contracts are thus usually short-term, from a day to a few months, and involve extra work
for existing staff members rather than employment of new staff.
The direct benefits arising from consultancy are considered to include: Increasing the expertise and experience of University staff by involving them in 'real world'
problems, thus enriching their teaching and research.
Enhancing staff training and career development.
Building links between the University and outside bodies which may subsequently help the
University gain research contracts, place students for project work, recruit students for
advanced or continuing professional education, generate case studies that might be suitable
for REF submission and many other similar benefits.
Enabling staff whose expertise has a commercial value to obtain additional financial benefit.

Management consulting is the practice of helping organizations to improve their performance,

operating primarily through the analysis of existing organizational problems and the development of
plans for improvement. Organizations may draw upon the services of management consultants for a
number of reasons, including gaining external (and presumably objective) advice and access to the
consultants' specialized expertise.

Opportunity Identification
In general sense, the term opportunity implies a good chance or a favourable situation to do
something offered by circumstances. In the same vein, business opportunity means a good or
favourable change available to run a specific business in a given environment at a given point of time.

5 Cs of Opportunity Identification
Simply asking what job is the customer trying to get done? can be a powerful way to enable
innovation, because it forces you to go beyond superficial demographic markers that correlate with
purchase and use to zero in on frustrations and desires that motivate purchase and use.
1. Circumstance. The specific problems a customer cares about and the way they assess solutions is
very circumstance contingent. A parent looking for a convenient way to diagnose whether their child
has an ear infection thinks and acts very differently from someone who suffered a broken arm. In the
first circumstance, MinuteClinic and other convenience-oriented, kiosk-based solutions work
wonders; in the second they clearly fall short. Create a simple job-circumstance matrix that has
primary jobs-to-be-done on one axis and common circumstances on the other axis. It is a simple way
to visualize opportunities for innovation.
2. Context. Ask a customer to report what they did in the past and you are likely to get something
that bears only a loose resemblance to reality. Ask a customer to describe what they will do in the
future and you are going to get guesses that are less than accurate. As innovation thought leader and
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former Procter & Gamble executive Karl Ronn puts it, You have no conscious memory of how you do
routine tasks.
The trick is to get to context to find a way to be with the customer when they encounter a problem
and watch how they try to solve it. Ronn, who helped P&G turn Swiffer and Febreze into billion-dollar
brands, believes that small-sample contextual research is much more valuable than larger sample
focus groups.
3. Constraints. One of the time-tested paths to growth is to develop an innovative means around a
barrier constraining consumption. Southwests discount airline service, which attracted people who
might otherwise take the bus or not travel at all, and Nintendos Wii gaming console, which appealed
to families looking for simple entertainment, are but two examples of companies reaping the rewards
of this strategy. One warning: understanding why a customer doesnt consume is critical. If it is
because existing solutions are too expensive, require specialized skills, or are inconvenient, then
innovate away. If it is because of basic indifference, be careful. Success might not be quite as
attainable as you thought.
4. Compensating behaviors. One of the biggest challenges facing the would-be innovator is
determining whether a job is important enough to consider targeting. One clear sign is a customer
spending money trying to solve a problem. After all, it is easier to shift spending then to create it.
Even if customers arent spending money on a comparable product or service, they may be spending
time by following a compensating behavior. That is, a customer using a product or service in an
unintended way to try to solve a problem.
A classic example of an innovation springing from a compensating behavior is Intuits
popularQuickBooks product. About 20 years ago, Intuit noticed that a number of customers of its
personal financial software package Quicken self-identified as small business owners. That couldnt
be right, Intuit thought, because Quicken lacked the ability to do dual-entry accounting, the
cornerstone of any robust financial system. It turned out small business owners had a very simple job
to do: make sure I have enough cash to meet payroll at the end of the month. Professional packages
were too complicated, so they used Quicken instead. Intuit quickly developed accounting software
that hid the accounting, and took over the market lead in a month.
5. Criteria. Customers look at jobs through functional, emotional, and social lenses. Quality is a
relative term; you can only determine if a solution is good by first understanding the criteria that
matter to a particular customer. Have a look at my picture in my bio below, and ask yourself what
matters to me when choosing a barbershop. I dont care about the ability to do fancy styles,
shampooing, or hair coloring. I want something simple, reliable, and cost-effective.

Guesstimates
So, Guesstimates is one of the most frequent questions which is asked in the consulting
interviews. Firstly, let us list down what stuff might be relevant for the interviewer to give
you a good evaluation, in decreasing order of priority.
1.
2.
3.
4.
5.

A Structured approach
What general numbers should I remember?
Math: Numbers galore
Handy Formulae
Miscellaneous

1.
A Structured approach
So, the torture has started. You have been asked a question which doesnt seem to have any
relevance in ANY Universe. What do you think should ensue? Chaos, Panic ! Tears roll down
your eyes, piss down your pants. Well, this is exactly what must be avoided. So, some ways
to add method to the madness are as follows:
It is essential to have a COMPLETE picture of what you need to estimate.
Contraceptive Example:
Curious Interviewer: What is the number of people using contraception in a night?
Much more Curious Interviewee: I have the following clarifying questions (asks them one
by one).
Which month is this night in? This matters, since; marriages in India are concentrated in
December, due to religious reasons, ultimately leading to an increased number of
contraceptive users.
Is the required number to be calculated for the World or India? The interviewer might have
purposefully left out the fact that the question was India specific.
What are the different contraceptives? No matter how sincerely you had taken your sex
education class in school, you might want to clarify this point too.
Have more options to explore
So, lets say, you have started using a particular approach and midway into the discussion
you realise that a different approach will give a much better estimate. What do you do? You
are faced with the Sunk Cost Fallacy and hence continue with your inefficient approach.
So, the solution to this is fairly obvious. Have a list of n approaches upfront and
subsequently choose one which seems most apt.
Contraceptive Example: You could estimate this from the Demand side (number of people
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who WISH to have protected sex) or from the Supply Side (number of people who CAN have
protected sex). Now, in rural populations, the Supply<Demand, and in urban populations,
Supply=Demand. So, the calculations for urban populations can be done from both the
Supply and the Demand side. However, for rural populations the Supply side will give the
right estimate.
Use formulas if you can
You want to find a number which is basically a combination of other numbers. So, write the
relationship between your required number and the other numbers (basically, write a
formula). Now, all that is left is finding the numbers on the RHS independently and Presto!
You have your guesstimate.
Contraceptive Example: Going from the Demand Side. Number of contraceptives used =
Number of couples having sex per night*Fraction having protected sex* Number of
contraceptives used per couple per night
Backward Traceability: The idea is to write the calculations; the tree diagrams etc. in a
chronological manner such that if at any point in time, you want to go back and check your
calculations or approach you can do it without any fuss.
2.

Awareness in General: What general numbers should I remember?

The following numbers can be memorized for your country (here India)
*Only ballpark figures are mentioned
GDP = 1.8 trillion USD
Population = 1.2 billion ~ 1 billion
Land Area = 3 million km^2
GDP growth rate = 5%
Average size of a family = 3.6 ~ 4
Number of households = 330 million ~ 300 million
Population growth rate = 1.5 % ( World = 1%)
Sex ratio = 1:1
Rural: Urban population = 70:30
Population Distribution by Age:
India has a young population. It has more than 50% of its population below the age of 25.
0-15: 30 %
15-25 : 20 %
25-50 : 30 %
50+ : 20%
Population Distribution by Income:
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Upper Middle Class (>32,000 pm): 10%

Middle Class (16,000-32,000 pm): 30%
Lower Middle Class (8000-16,000 pm): 40%
Below poverty line (<8000pm): 20%
Mumbai population = 20 million
Kolkata, Delhi population ( Take Approx same for all metros ) =15 million
3.

Math: Numbers galore

Number of Zeros : 1 lakh = 10^5, 1 million = 10^6, 1 crore = 10^7, 1 billion = 10^9, 1 trillion
= 10^12
Percentages: Situations arise when you have to multiply percentages. So it is good to have
this well practised. Example: In a population 80% males and 60% females wear watches.
Then, assuming a 1:1 sex ratio we get 80%*50% + 60%*50% = 40% + 30% = 70% of the
population wears watches.
4.

Handy Formulae

Market Size: Estimating the market size would basically mean, how many new products will
be required in the next year.
# Products required per year= # existing products that get obsolete + # new products
required
= Q/n + r*Q
Where, Q= existing number of products in the market
n= average age of the product
r= average growth rate of the product~ GDP growth rate of the country ( 5% for India )
Example: What is the market size of squash rackets in India? The average age of a racket
(n=1.5 yrs), average growth rate for the racket (r= 5%) and the number of existing rackets in
India (Q = 1 million has to be found by guesstimation). Market size = 1 million * ( 1/1.5 + 0.05
) = 0.72 million
Occupancy: This is valid for any situation in which there are a particular number of places
and a partial number of them are occupied. Thus, like a bus, theatre, stadium etc. have n
seats and a fraction of them are occupied.
Example : Avg occupancy of a particular bus is 70%, then if there are 100 seats, at any point
in time on an average 70 seats will be occupied.

5.

Miscellaneous

Example : Q: What is the market of roses in India?. Here, you must think that roses are not
just sold as a flower but also is a raw material for the production of rose water. Hence, it is
important to include this hidden application in your guesstimate.
Example: During the course of investigating any costs for a guesstimate of total costs, you
might encounter a situation like, what is the cost of potatoes per Kg and you have no
freaking idea. Solution: Estimate the weight of a samosa (30g) and the cost of the cheapest
one that you have eaten (say, Rs 5) and assume a % of this samosas cost which would come
from the potato ( say, 20% : This number is low because oil is an essential component in
samsosa making which is definitely expensive) . Thus, the cost of potatoes in Rs per Kg then
is = (5*20%)/(0.030) ~ 35.

Profitability Analysis
Profitability analysis is a component of enterprise resource planning (ERP) that allows
administrators to forecast the profitability of a proposal or optimize the profitability of an
existing project. Profitability analysis can anticipate sales and profit potential specific to
aspects of the market such as customer age groups, geographic regions, or product types.4
Profitability analysis can help key personnel in an enterprise to:

Identify the most and least profitable clients.

Identify the most and least profitable products or services.

Discover which sources of information offer the most reliable facts.

Optimize responses to changing customer needs.

Evolve the product mix to maximize profits in the medium and long term.

Isolate and remedy the causes of decreasing profit margins.

Profitability Analysis (CO-PA) enables you to evaluate market segments, which can be
classified according to products, customers, orders or any combination of these, or strategic
business units, such as sales organizations or business areas, with respect to your companys
profit or contribution margin.

The aim of the system is to provide your sales, marketing, product management and
corporate planning departments with information to support internal accounting and
decision-making.
Two forms of Profitability Analysis are supported: costing-based and account-based.
Costing-based Profitability Analysis is the form of profitability analysis that groups costs
and revenues according to value fields and costing-based valuation approaches, both of
which you can define yourself. It guarantees you access at all times to a complete, shortterm profitability report.
Account-based Profitability Analysis is a form of profitability analysis organized in
accounts and using an account-based valuation approach. The distinguishing
characteristic of this form is its use of cost and revenue elements. It provides you with a
profitability report that is permanently reconciled with financial accounting.

Market Sizing:
Market Sizing is the process of estimating the potential of a market. Understanding the
potential of a market is important for companies looking to launch a new product or service.
Using a wide variety of secondary market research sources and databases, we synthesize
results from previously published research and other data sources to help define:

The total size (or potential size) of a market

The major competitors in a market by category
The composition and profile of a target customer
The products/services available in the market
The most significant trends in the market
Market Sizing Analysis
To estimate the potential of a market we often use a bottoms-up approach breaking
the unknown pieces down into granular sets of assumptions and then roll it back up to an
overall market size estimate. Due to the highly distinct nature of each Market Sizing project,
they require a great deal of consulting and special attention to produce an accurate Market
Sizing analysis.
Market Sizing Approach
We typically start with a quick estimate a back of the envelope market size estimate that
can provide marketers with enough information to decide if further investments in
product/service development even make sense. A second pass at the market sizing question
involves much more granular analysis. Often well develop 2 or more estimates using
different approaches. When these approaches triangulate confidence in the estimated
market size range is increased. When the approaches provide widely disparate results, we
use sensitivity analysis to understand which assumptions are most critical. Additional

research or risk reduction is sometimes recommended to narrow down the range of market
size estimates.
The Value of Market Sizing
Developing a Size of Market estimate is a critical first step in building the business case for
any new product development initiative. The amount of investment required to be
successful needs to make sense given the potential return that the market offers.
By being explicit about the facts and assumptions used to generate a market size estimate,
we are able to identify critical factors that need to be addressed in downstream
development business planning activities.

Brain Teasers:
Brain Teasers are one of (if not) the most exciting types of interview questions. They
are widely used for recruitment in many different fields, from Management Consulting, to
Wall Street, to even Google. These questions often require thinking in unconventional ways.
The 7 most common types of Brain Teasers:

Illusive questions

Visual-explanation questions

Wording questions

Pattern/ Trend questions

Logical questions

Wordplay questions

Market-sizing and Guesstimate questions

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Case Interview Frameworks:

Case Interview Frameworks are like standard templates to help structure and break down
common business problems. Since its a template, it is usually very well organized and well
written. However, as you know, a template wont fit every situation. You have to choose the
right templates for different purposes, and sometimes even customize them.
1. Profitability Framework
Best for profit-related cases
Given that profit is defined as Revenue Costs, we have a profitability framework as
follows:
Revenue

Costs

Note: There can be various ways to break revenue and costs into smaller pieces:
Revenue can be broken down based on demographic, location, or product line, etc.
Costs can be split into components such as overhead, salary, rental, etc.

2. 3C & P
Best for cases like new business, new product, new market entry, growth strategy, and company
assessment
Customers:
o How are your customers segmented?
o What are your target customers?
o What are the customers needs and wants?
Company
o What are your companys capabilities and expertise?
o What is the companys brand and culture?
o How is its financial situation?
Competition
o What is the market share and growth potential of each competitor?
o How have the competitors performed?
Product
o What is the nature of your products or services?
o Do they meet the needs and wants of the customers?
o What are the complementary goods and the substitutes?

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3. 4P
Best for marketing cases
Product:
o What do your customers need and want from your product or service?
o What features does it have to meet these needs and wants?
o How is it differentiated versus the competitors?
Place:
o Where do the customers look for your product or service?
o How can you access the right distribution channels?
o How do your competitors distribute their products?
Promotion:
o Where and when you can get across your marketing messages to your target market?
o How do your competitors do their promotions?
Price:
o What is the value of the product or service to the customers?
o Are there established price points in this area?
o Are the customers price-sensitive?
o How is your price compared to your competitors?

4. M&A McKinsey
Best for Merge & Acquisition cases
Stand-alone value of the targeting company:
Financial factors: profitability, growth, cash flow, etc.
Non-financial factors: capabilities and expertise, brand name, etc.
Synergy of the two companies:
How are the two companies combined better than sum of each (in terms of customers, product,
distribution, etc.)?
Other factors:

5. McKinsey 7-S Model

Best for cases of company improvement, strategy implementation, alignment for companies
during changes (restructuring, new systems, organizational merger, etc.)
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Hard Ss:
Structure:
o How is your company/team divided?
o How do the different departments coordinate activities?
o How do the team members organize and align themselves?
Strategy:
o How does your team intend to achieve the objectives?
o How does your team deal with market changes?
Systems:
o What are the main systems that run the organization?
o Where are the controls and how are they monitored and evaluated?
o What internal rules and processes does the team use to keep on track?
Soft Ss:
Style:
o How participative is the management/leadership style?
o How effective is that leadership?
o Do employees/team members tend to be competitive or cooperative?
Staffing:
o What positions or specializations are represented within the team?
o What positions need to be filled?
o Are there gaps in required competencies?
Skills:
o What are the strongest skills represented within your company/team?
o Do the current employees/team members have the ability to do the job?
o Are there any skills gaps?
o How are skills monitored and assessed?
Shared Values:
o What is the corporate/team culture?
o What are the fundamental values that the company/team was built on?
o How strong are the values?

6. Porters Five Forces

Best for cases of new market entry, business strategy development, industry analysis
Threat of New Entrants:
Is it easy or difficult to enter the market?
o What are time and cost of entry?
o What are the barriers to enter the market?
o Does your company have any advantages (cost advantage, economics of scale, etc.)?
o Does it have protection for its key technologies?
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Threat of Substitute Products or Services:

Do your customers find substitutes easily?
o How about the substitutes performance?
o What is the perceived level of product differentiation?
o What is the cost of change?
Bargaining Power of Suppliers:
How easy is it for the suppliers to drive up prices?
o How many suppliers are there?
o What is the size of each supplier?
o How about the differentiation of inputs?
o Does your company have ability to substitute the suppliers?
Bargaining Power of Buyers:
How easy is it for the buyers to drive prices down?
o How many customers are there?
o What is the size of each purchase?
o How is the customers price sensitivity?
o Do they have ability to substitute?
Rivalry Competition:
How intense is the competition in your market?
o How have the competitors performed?
o Does your company have any competitive advantages?
o Etc.

7. STP
Best for market research cases
Segmenting:
o What are your customers segments?
o What are important characteristics of each market segment?
Targeting:
o What is the potential of each segment?
o Which segment(s) should your company focus on?
Positioning:
o Which marketing mix should be used for the selected segment(s)?

8. SWOT
Best for cases of new business, new product, new trends and changes, strategic planning
Strengths:
What are the characteristics that give your organization an advantage over others?
Weaknesses:
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What are the characteristics that place your organization at a disadvantage relative to others?
Opportunities:
What are the opportunities or favorable trends in the market?
Threats:
What are the elements in the environment that could cause trouble for the business or project?

9. Value Chain
Best for cases of product analysis, cost analysis, competitive advantage, management strategy
Inbound Logistics:
These are all the processes related to receiving, storing, and distributing inputs internally
Operations:
These are the transformation activities that change inputs into finished products and services
Outbound Logistics:
These activities deliver your finished product or service to your customer
Marketing & Sales:
These are the processes you use to persuade clients to purchase from you instead of your
competitors
Service:
These are the activities related to maintaining the value of your product or service to your
customers, once it has been purchased
Note: The above framework is just a typical value chain for general cases. For each actual case,
the value chain can vary a lot depending on each specific industry. For example, value chain of
the cement industry would be: Limestone Clinker Cement Concrete Construction.

10. Supply & Demand

Best for cases of market research, market entry, price setting
Supply:
o What is the quantity of a product or service desired by buyers?
o Is supply increasing, decreasing, or unchanged?
o How do you segment suppliers?
Demand:
o What is the quantity of a product or service that people are willing to buy?
o Is demand increasing, decreasing, or unchanged?
o How do you segment buyers?

MINI FRAMEWORKS
1. Internal & External
Best for starting a case for instant structure
Internal factors: company, product, etc.
External factors: industry, competition, etc.
2. Qualitative & Quantitative
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Best for starting a case for instant structure and for structuring reasons and evaluations
Quantitative factors: factors that are quantified in numbers such as unit sales, number of
stores, etc.
Qualitative factors: intangibles factors such as brand name, environmental factors, etc.
3. Cost & Benefit
Best for decision making process
Costs: what you have to spend on
Benefits: what you can achieve
4. BCG 2x2
Best for identifying product development opportunities

Cash cows:
A company has high market share in a slow-growing industry
Dogs:
A company has low market share in a mature, slow-growing industry
Question marks:
A business has low market share and operates in a high market growth
Stars:
A business has high market share in a fast-growing industry

From hereon weve added snippets of useful pages and case studies from Case in Study.
Please go through them for better understanding of the same.

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Case Questions

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