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Using Decision Tree Consulting to Build MECE Hypotheses

how to build hypotheses

 

How To Use Decision Tree in Consulting to Build MECE Hypotheses

In today’s post, we will explain the steps to build hypotheses in a more effective, methodical, and, for a lack of a better word, a more MECE (mutually exclusive and collectively exhaustive) way, using a decision tree.

When we do cases with candidates, even our own clients, what always surprises us is how messy their hypotheses can be.

It’s almost as if people are just throwing out ideas they have without any real understanding of how to create a structure, with the help of a decision tree, to ensure the hypotheses derived from the structure are on point and MECE.

I think most people are primarily right-brain thinkers by nature. That means that they will throw out an idea first and then decide if it solves the problem they are trying to address. They are basically brainstorming in the traditional sense of the word, but in a very messy way without priorities and a link to the issue. This type of thinking can often lead to big breakthrough insights but it will not work during consulting case interviews or during consulting engagements as consultants are expected to think in a structured way.

And what I find with most hypotheses is that they are very ill-considered, they have poor structure beneath them and most importantly they are not collectively exhaustive nor are they mutually exclusive (MECE).

And by their very nature hypotheses are difficult to make mutually exclusive or collectively exhaustive.

Think about it. You develop these ideas and then you have to explain why the problem exists, which is hard on its own. And then you have to compare each hypothesis with the next hypothesis you develop to make sure you have listed every possible hypothesis.

You also have to make sure the issue you covered in one hypothesis doesn’t overlap with another hypothesis. Trying to package issues into hypotheses while trying to get all the issues listed and in the right order is naturally going to be very difficult.

This is not something that is taught in MBA programs or any training programs that we know of outside of leading management consulting firms.

 

Hypothesis Based Consulting vs. a Decision Tree Approach – Which approach Does MBB prefer?

Leading management consulting firms, whether it is BCG, McKinsey or Bain (collectively called MBB), like hypothesis-based consulting. This is also called the answer-first approach. The answer being the hypothesis.

However, BCG tends to also accept the decision tree-leading-to-hypotheses approach to solving cases. We also have had candidates who interviewed at McKinsey and used a decision tree approach to solve the case and did well. They basically did not go into formal hypotheses.

The approach of using a decision tree is usually less appropriate at Bain where they tend to be quite frigid in wanting hypotheses upfront.

At McKinsey, it depends on how well you use the decision tree approach. If you use it poorly they would probably think you aren’t capable of developing hypotheses. That is why you avoided the hypotheses in the first place. And at BCG it is again like at McKinsey. They are not adamant they want hypotheses. They are okay with the decision tree approach as long as you use it effectively to arrive at the likely problem.

And in fact, if you use the decision tree approach very well, they generally would be very happy with the technique.

You can also avoid decision trees to build hypotheses, but I am yet to see anyone build neat and logical hypotheses without using a decision tree. Even corporate strategy partners we work with to develop our training do not do this.

 

An Effective Technique to Build Hypotheses Using a Decision Tree – The Best of Both Worlds

So what I want to talk you through today is a very effective technique we teach all of our clients in terms of how to build hypotheses that are MECE, by using a decision tree.

In our strategy training programs we teach, in-depth, how to go through the entire process from defining the issue, all the way through structuring the problem, developing hypotheses, building an analysis plan, conducting analyses, synthesizing and providing the recommendation. In The Consulting Offer training program (consulting case interview training program where we help real candidates get offers from top firms), we teach the part of this process applicable to case interviews.

We get a lot of questions about how to use this technique well and how to adopt it for case interviews with consulting firms so this post should provide some clarification.

The technique we teach candidates is to develop a key question upfront – define the problem (step one in the exhibit below). Then from your key question brainstorm out the sub-drivers of the key question, which gives you the first-level branches of your decision tree.

At a very high level, the strategy engagement structure can be simplified into 6 basic steps, keeping in mind that it is an iterative process (shown in the exhibit below). Structuring the problem (developing a decision tree) fits within step 2 of this process and developing hypotheses fits within step 3, as shown in the diagram below.

hypotheses firmsconsulting strategy consulting decision tree

For each sub-driver/branch of the first level of the decision tree, brainstorm the drivers of that particular driver. This part of the approach is called structuring the problem or brainstorming (refer to step 2 in the exhibit above called structure the problem). Each level of drivers/branches of the decision tree must be mutually exclusive and collectively exhaustive (MECE).

All the drivers/branches are collectively called the framework/structure for the case. 

 

Finally, when you complete the decision tree, the branches must be prioritized and hypotheses are developed ONLY for the prioritized branches. You can sometimes solve a case without hypotheses because the drivers are so specific and point out the problem. So, you only use hypotheses if the decision tree is not generating an answer quickly.

Hypotheses, for the prioritized branches/drivers, should be worded as follows:

  1. Event causing the observable phenomenon…
  2. Observable phenomenon…
  3. Event caused by an observable phenomenon…

An example of a properly structured hypothesis is below:

hypotheses example

The development of decision trees and hypotheses are the core skills behind strategy consulting.

In an actual consulting study, the team comes up with analyses necessary to test the hypotheses when the hypotheses are developed. They then build the work plan, conduct the analyses, synthesize the findings, and present the final recommendation to the client.

All well-planned studies work this way. If you are in a study that does not follow this approach, you are almost certainly doing unnecessary analyses.

Let’s look at an example of applying the technique of developing hypotheses using a decision tree.

Let’s assume I gave you a case whereby I told you that a famous French restaurant, a single restaurant in downtown Manhattan, faced a steep drop in profits over the last three years. Their profitability went from something like $10,000 a day to about $1,000 – $2,000 a day and they think it has a lot to do with the changes in their opening times, the menu, the clientele they serve, and so on. 

And most of all, they think the drop in profitability is driven primarily by the change in working hours. They went from being open during lunch and dinner to opening throughout the day from 10 am to 1 am. They want you to solve the case.

Help them address the problem. Maybe try to solve this case before reading the solution below.

hypotheses firmsconsulting strategy

 

The way we would teach candidates to apply hypotheses with the decision tree approach is to start by taking some time to think about clarifying questions. Then come back once you’ve got your clarifying questions.

Now, you may have no clarifying questions, but if you do, always take some time to think about it.

A clarifying question is a question to understand the information provided to you. It is NOT to dig for more new information to solve the case. It is to understand what you have. If you ask clarifying questions to gain new information without understanding and using the information already provided, the interviewer will wonder what the value of providing you with new information is if you could not use the information initially offered.

You could ask the interviewer, “Is it possible for me to go through my clarifying questions? I have four of them and they could help me develop my structure. Or, would you prefer to see my structure upfront knowing full well that my clarifying questions, if answered, may change my structure a little bit.”

That is a good technique because it gives the interviewer an option with regards to which approach they prefer and the opportunity to guide you.

Let’s assume the interviewer said, “It’s okay. Ask your clarifying questions.

You can go ahead. Ask no more than four. If you come up with additional questions during this discussion you can say, “I asked the four but two more came up based on the conversation we had.” Most of the time the interviewer will allow you to ask it. But don’t go into 7, 8, or 10 questions. Don’t try to solve the case. That is for later. You want to merely understand what you have been given.

The clarifying questions are not there to solve the case. They are used to identify the key question.

Then you would take the information from the clarifying questions and rephrase the initial problem statement to say, “Okay, I’m going to paraphrase what you’ve given to me. We need to figure out how can a French restaurant located in downtown New York went from $1,000-$2,000 of profits to $10,000 of profits without altering its menu and without changing the cuisine it offers.”

Assume that not altering its menu and the cuisine it offers are the answers to the two of the clarifying questions. You then have to build in the information you received by asking clarifying questions.

Please do not present the key question without using the answers to your clarifying questions. If you did that, what would be the point of even asking clarifying questions? They would be wasted since you are not using them to narrow down the problem statement.

Narrowing down the problem statement makes the case really easy to solve. Most candidates struggle in a case since they do not understand the problem statement.

It must be noted that Bain and McKinsey tend to have very clear problem statements and this step may not be needed. BCG tends to have broader questions so this step may be needed. In general, if the problem statement is vague, you want to narrow it down.

Next, you could say, “What drives profitability? Well, clearly it would be revenue and cost. And what are the drivers of revenue and cost? The drivers of revenue are different revenue streams. So it’s food, alcoholic beverages, and non-alcoholic beverages. It will also be the time of the day that the restaurant is open. The drivers of the cost will be fixed and variable cost.

What many candidates do is they would simply ask the clarifying questions upfront and throw in hypotheses. Don’t do that. Your hypotheses would be too vague at this point.

Develop your key question. Develop your decision tree to the second level of branches.

The first level of branches would be revenue minus cost. The second level of branches would be the drivers of revenue and the drivers of cost.

Once you have the drivers of revenue and the drivers of cost, you can develop a hypothesis for each prioritized branch you think is important to solve the case. Not all the branches will be important. Use your judgment and the information provided in the case to prioritize the branches.

Develop a hypothesis for the food revenue stream, the nonalcoholic beverage revenue stream, the alcoholic beverage revenue stream, and the hours when the restaurant is open. Then develop hypotheses for fixed cost and variable cost. That is, assuming you wanted to prioritize them all. You could just as easily have prioritized fewer branches.

Let’s go through some hypotheses. We would say, “Since the restaurant is open longer hours, they may have alienated some clientele, attracted new clientele, and also incurred higher cost, which is not compensated by higher revenue. That is one hypothesis.

This steep drop in revenue is probably driven by the fact that there is a different clientele coming in which is demanding different prices.”

On the alcoholic beverage side we would come up with a similar hypothesis, and on the fixed as well as variable cost side.

Let’s look at the variable cost side. I would hypothesize that it is possible that although variable costs have decreased due to the drop in revenue, it has not decreased sufficiently to compensate for the drop in revenue.

On the fixed cost side, I would hypothesize that due to the longer operating hours, our fixed cost may have increased to carry the longer operating hours.

Notice how specific hypotheses for the sub-drivers are. They are more useful than throwing out drivers for revenue.

Your hypotheses don’t require all three parts as in the image above, but they MUST be tightly linked to the issue in that one branch. This prevents overlap with other branches.

If you build your hypotheses off the branches of the decision tree, you maximize your chances to build useful hypotheses because you will have to make sure that your decision tree is mutually exclusive and collectively exhaustive.

So if you build your hypotheses off your decision tree and if you did a thorough job, your hypotheses by default would be collectively exhaustive. And if your decision tree is mutually exclusive, your hypotheses would also be mutually exclusive.

And obviously, your hypotheses are dependent upon the information they have given you in the case and the clarifying information you have collected when you asked clarifying questions upfront.

This is an effective and simple technique to build hypotheses in a mutually exclusive and collectively exhaustive way. If you just throw hypotheses out without deriving them from a decision tree you will have no way of knowing whether they made sense or whether they are MECE.

Our clients are trained to do all of this in 60 – 120 seconds flat. That is pretty fast and would only work if you understand the process. This video teaches this entire process above in great detail.

This additional video teaches comprehensive McKinsey hypotheses based case interview approach. This is necessary to show the firm you can hit the ground running and add immediate value. Those interviewing for Deloitte S&O, Roland Berger, McKinsey Implementation, etc. are strongly advised to watch both videos.

 

How To Apply Hypotheses With The Decision Tree Technique At MBB

When you get to a McKinsey interview you follow the process above, but you don’t need to show the interviewer the entire process. That is key. With the McKinsey interviewer or Bain interviewer, you don’t tell them what your key question is, because for McKinsey and Bain the key question in the case is very obvious. The clarifying questions are largely redundant because they tend to give you the key question very clearly and upfront. Therefore, there is no reason to narrow it down or rephrase it.

The case is not conceptually difficult as, for example, a BCG case.

Therefore, for McKinsey and Bain, you build out your decision tree as we taught you above. Yet, you don’t discuss your key question, your clarifying questions, or your decision tree. What you do is you build your key question and your decision tree purely to help you develop a framework and then based on prioritized branches of your decision tree, develop hypotheses.

Therefore, just explain your hypotheses and very briefly how you created them.

To recap, in McKinsey and Bain interviews they are not going to see your key question. They may want to see your approach, but what you really want to show them is your hypotheses.

 

Setting Out The Alternatives

Problems result in several alternatives, and it is essential to think about these alternatives before tackling the issues. Setting out the alternatives is like simply stating the obvious. Also, acknowledging that specific facts and events can exist in a circumstance will assist in the problem-solving process when employing the decision tree approach. 

For instance, a team head of an organization wants to hold a get-together at his home with his team members. It is the rainy season, and he is faced with uncertainty about the weather conditions. On the one hand, he wants to hold it on the lawn in the front of his home, so everyone can be comfortable and enjoy the fresh air. So, he is considering what the weather will be like and how it will affect the party. 

Based on considerations, holding it in the open has the following probabilities:

  • Pleasant weather without rain, offering everyone luxury and utmost comfort.
  • A rain-filled day, ruining the event and leaving everyone disappointed.

Alternatively, hosting the party inside the house has the following odds:

  • A rain-free day leaving everyone wishing that they had used the lawn.
  • A rain-filled day, leaving everyone happy, comfortable and satisfied that they had made the right choice.

We listed the alternatives to this condition. We stated the possibilities that could happen in this circumstance. We didn’t have to give complicated hypotheses. Just as we set out the alternatives for this problem, we can also do the same for complex cases by using decision trees. To solve difficult situations, we need to remember that decision trees comprise several junctions and subsidiaries. While the junctions represent alternative decisions, the subsidiaries depict the possible hypothetical outcomes of each decision. 

Symbols like squares and circles can represent decisions on decision trees, while double lines, colors, single lines, etc., can be used to represent subsidiaries. However big your decision tree is, it must have and combine these components:

  • Alternative actionable choices 
  • Probable outcomes of every chosen action

Most times, these results are partly influenced by either fate or some condition that cannot be controlled. We must note that the above-listed components must be blended to give realistic results and keep our clients on the right path.

 

The Decision-Event Methodology

To aid your clients in building MECE hypotheses, you need to use the decision-event methodology effectively. It is an effective way of handling situations that require more than one decision stage. The instance we used above has just one action stage, meaning that one decision path did not lead to another junction of decision choices. We cited it to establish the primary principles for building complicated decision trees.

Consider a more complex situation where a majority shareholder wants to approve an upgrade project for a product. The board of directors believes that approving an upgrade will give the firm an advantage over its competitors. However, on the other hand, forfeiting the upgrade might mean that the brand may lose its position to its market alternatives.  So, the first crossroad is to decide if the upgrade needs to be done or not. Hence, a decision tree. 

Assuming they are doing a decision tree, if they kill the upgrade idea, this path will end at two subsidiaries:

  • Competitors can introduce their upgrades, sending this firm down the ranking chart.
  • Competitors do not introduce an upgrade, preserving this firm’s market position.

However, if they decide to go on with the upgrade, there will be two new junctions:

  • Project success
  • Project failure

The board does not have to seriously consider the failure path because the hypothetical outcomes will be like those of the scrapped idea, with an additional possibility of trying again. However, the project’s success will lead them to either shelving or commercially producing the upgraded product. The former choice might not be favorable because they may eventually release the upgrade after their competitors have introduced theirs. The latter can either yield an all-around market expansion or a struggle with competitors.

The wise thing to do in this situation is to analyze the necessary actions and outcomes and those that have significant consequences. For the firm to make informed decisions, it needs to apply the following strategies:

  • Identifying actions and options at every junction.
  • Identifying areas that pose ambivalence and the kind or level of the varying outcome at every stage.
  • Calculating the necessary values when analyzing, especially the possibilities of various outcomes and the expenses and profits attached to every action and result.
  • Using a decision tree to deliberate what the project’s financial situation will look like while examining the production decisions. The fixed and variable costs must be within the safe spending capacity of the company. Also, they have to be realistic when compared with the expected value returns at the end of every fiscal year.

 

Using Decision Making Trees in Critical Decision Making

Decision-making trees can play a vital role when a company needs to make a particular decision. Properly executed decision trees guide decision makers to arrive at an effective final decision that maximizes chances for the most profitable financial return, sustainability, and competitive advantage. As expected, every person holding a vital position in the firm will have varying opinions that will likely be conflicting – people like the capital suppliers, major idea contributors, decision-makers, data analysts, and other board members that have a say in the company. If these ideological differences are not checked and ironed out carefully and critically, the decision-makers, investors, information suppliers, and data analysts will judge the case, data importance, essence of analysis, and canon of success in ways that do not agree with one another.

For instance, the firm’s shareholders may handle a significant investment as one with several unpredictable outcomes. That investment might threaten a middle-level manager, including his job and entire career. Others will have a lot to benefit from the investment if it works and little to lose if it fails. In essence, the level of risk staked at every individual affects their presumptions and decision strategies.

Hence, to avoid the negative consequences of the political reasoning of every individual, the central deciding personnel need to make the following evaluations:

  • What are the things at risk? Is it the net profit or equity value, the business’ strength and life span, job security, or the possibility of a profitable career?
  • Who is affected by the risk? Is it only the shareholders or the company’s managerial body, staff, or the entire community? (Even if they are all affected by the risk, they may bear it differently).
  • What is the nature of the risk that the affected parties suffer from? Is it general or unique? (While shareholders may bear their risks in one form, other parties might bear their risks differently). 
  • To what extent does the risk affect the company and the general economy? Is it a one-off or a lifetime risk? Is it successive? Can it be insured? Is the risk consequential to a unit in the company, the entire company, the sector of operation, or the country’s economy?

The above-listed evaluations can help the board make informed decisions. While the decision tree will not completely solve the problems, it will give the management an avenue to choose a course of action to facilitate the firm’s goals. This is a big advantage of using decision trees for decision-making. 

 

Adopting The Issue Trees Framework

Another name for the decision tree is the issue tree. As we discussed, for some management consulting firms like McKinsey, their approach and framework for handling problems is the issue tree. For your management consulting interview, you might need to adopt the issue tree framework to answer questions on case interviews. Issue trees make the problem-solving process more accurate and straightforward. Although this system is not adequately taught in business institutes, consultants are often required to be equipped with the knowledge for utmost excellence in their careers. Those who know how to use issue trees are at an advantage in acing their case interviews. They know how to arrange their thoughts within a short time and present themselves as excellent communicators. 

In essence, these solution trees aid consulting teams in seamlessly achieving the following:

  • Discovering significant problems in every complicated business case in a structured way.
  • Gaining the advantage of leading their dialogues in a structured way.
  • Deciding how they should set every job and resource for practical problem-solving.
  • Finding an actionable solution to every problem in a structured way.

Issue trees can be referred to as logic trees. In some cases, they are referred to as why trees or solution trees. Why trees help you understand why a problem is occurring. They are illustrations used to divide complex business questions into comprehensible bits. Issue trees are often effective in handling case interviews. They are like horizontal trees that flow from the top left side to the right. They are broken into more straightforward queries as they flow towards the answer (the right).

You might be thinking, “But outlines are productive.” Yeah, that is true. Outlines are fine, but issue trees are more effective. Outlines and issue trees help effectively arrange the queries you want to tackle. However, issue trees aid in effective communication because they clearly reveal the connections between the original complex queries and the deduced root-cause queries. After completing an issue tree, the most relevant areas that will be useful for solving the client’s puzzles must have shown up.

An example of this is the profitability tree. The profitability tree explores the different ways a business can maximize profit. It starts from the key question on the left side and breaks it down into revenue and cost, and then further breaks down these components into more detail. 

 

Let’s Explore Some Issue Tree Examples And Case Studies

Issue trees are adequate for handling almost any kind of case. Let us take a few issue tree examples and see how trees can be used to tackle problems.

Example 1.

We will pick our first example from a regular case query:

“Your client manufactures and distributes plastics. They are finding it more expensive to run their production plant in Belgium; hence, they consider shutting down the plant and relocating to their facility in Germany.”

The first stage of the issue tree is the client’s query, 

“Should they close their plastic producing plant in Belgium?”

The second stage of the issue tree will be divided into three layers:

  • The financial aspect
  • The operational aspect
  • Overall considerations of the brand

Let’s go in-depth into each of these layers.

The Financial Aspect

Considering the financial aspect of the brand, the hypothetical question to ask is, 

“Will the firm be positively or negatively affected after shutting down the plant?”

Under the financial aspect, there are five major areas to consider. They are:

  • The plant’s operating costs
  • The one-off expenses that will come with closing the plant
  • The supply costs
  • Government benefits
  • Income

The Plant’s Operating Costs

The plant’s operating costs open into the fourth stage, which encompasses variable and fixed costs.

  • Variable Costs: What is the actual variable cost for every unit? (NOTE: You can consider the high transportation or labor cost as factors that could be causing the move intention).
  • Fixed Costs: What are the plant’s facility expenses? (NOTE: A considerable situation could be the increased cost of purchasing lands and structures).

The One-Off Expenses

Under the one-off costs, we can raise three queries:

  • What expenses will come with shutting down the plant in Belgium?
  • What are the severance expenses?
  • What is the price of moving equipment from the abandoned site to another place?

The Supply Costs

  • How much will it cost to supply products with the present economy?
  • If production is moved to Germany, what will be the future supply chain cost?
  • Will the tariffs change if production happens from Germany?

Government Benefits

  • Does the German government offer incentives to companies in their states?
  • What kind of incentives does the government give?
  • Will the incentives favor existing projects or new ones?
  • Are the incentives’ terms and conditions difficult to keep?
  • What are government subsidies due for operation in Belgium? 

Income

  • Will the company still make sales and maintain its market position in Belgium if they are still producing there?
  • Will they lose customers in other countries if they relocate the plant to Germany?
  • What is the expected value the company is looking to have after relocation?

The Operational Aspect

The hypothetical question for this aspect is,

“Can the firm manufacture plastics in a different location?”

In this aspect, the significant areas to analyze are:

  • The company’s operational capability in other places
  • The effects on supply 

The Company’s Operational Capability In Other Places

  • Can the firm’s operational capability be spread across several plants?
  • Are there plants available to take up every needed capability?
  • How long will it take other plants and facilities to step up to demands?

The Effects On Supply

  • What locations are the goods being supplied to?
  • What kind of effect will the relocation lay on lead-time product supplies?
  • Will there be a need for a supply facility to keep up with customer-demanded lead times regularly?
  • How much effect will the relocation lay on lead-time product supplies? 

Overall Considerations On The Brand

Under the brand considerations, our hypothetical question will be:

“What will happen to the firm if it relocates its plant to Germany?”

There are three major categories to analyze under this hypothesis question:

Will The Company Suffer If It Relocates? 

  • To what extent will it suffer?
  • How long will the brand suffer?

Will It Maintain Its Market Stance?

  • What are the possibilities of experiencing a rise and fall over time?
  • How long will it maintain its stance?
  • Will its maintained market stance give it an edge or a loss to its competitors?

Will The Firm Grow After Relocating?

  • Will its maintained market stance give it an edge or a loss to its competitors?
  • What will be the company’s growth margin after relocating?
  • How consistent will the company’s growth be?

 

At this point, we have successfully established an issue tree for this business problem. We can deduce that this issue tree is not even. There are several areas to examine under the financial aspect. No matter the number of branches you cover, ensure that every element is adequately considered.

Furthermore, you can hint to your interviewer that the end decision will be centered around the financial aspects. However, they will be matched against the brand and operational aspects.

Example 2.

Let’s look at another issue tree example. Let us consider another business problem that can pop up during a second session interview. 

In second session interviews, the structure can strategically change, making the business problem sound more realistic. Here we go:

“Why was there a liquor scarcity on retail shelves in the U.S during the early stage of the Covid-19 pandemic?”

Now, to solve this one, our first stage on the issue tree is the query:

“Was there a higher liquor demand than supply during the early stage of the pandemic?”

Then, the second stage of the tree will be divided into two layers:

  • Liquor demand
  • Liquor supply

Liquor Demand

The hypothetical question for this layer is:

“Did the demand for liquor exist in the U.S?”

This question takes us to the next stage, the third stage under liquor demand. The third stage comprises three layers:

  • Liquor usage
  • The behavior of consumers
  • Liquor alternatives

Liquor Usage

Speaking of liquor usage, the center point of consideration is how the consumption of liquor changed during the first Covid-19 season.

  • How much liquor did each customer consume every week?
  • How much time did people spend at home compared to their offices and public places?
  • How did that influence the demand levels?
  • What conditions caused the increase in liquor consumption? (NOTE: You can speculate that boredom and uncertainty caused the spike in alcohol intake).

 The Behavior of Consumers

The behavior of consumers towards shopping was different at the early stage of the pandemic. How did it change? Hence, these queries.

  • What was the liquor shopping rate of Americans before the Covid-19 pandemic?
  • Did the shopping rate rise at the beginning of the pandemic?
  • How much impact did the lockdown and its anticipation have on shoppers’ behaviors?
  • What impact did panic purchases have on the demand levels?
  • To what extent did the panic purchase affect the demand?

Looking at the liquor demand queries above, we can see that the consumption hiked because of panic purchases and boredom at home. Although there was no factual information, we could still coin vital, relevant, and resourceful questions to solve the problem.

Liquor Alternatives

There are some alternatives for liquor. However, they might not be widely adopted as substitutes. Hence, these queries:

  • How many people opted for liquor alternatives?
  • Were the alternatives as affordable as liquor? 
  • By what margin was the cost of the alternatives different from liquor?
  • What was the demand level for these substitutes?

Now let us head to the supply stage.

Liquor Supply

The hypothetical question for this stage is:

“Did the U.S experience a liquor supply deficit?”

This query takes us to the third stage under liquor supply. The third stage comprises five layers:

  • Market prediction 
  • Production capability
  • Distribution
  • Inventory status
  • Raw materials and resources

Market Prediction

Did liquor producers predict the rise in demand? Hence, these questions:

  • How do liquor producers expect market demand?
  • How much liquor is manufactured annually?

Production Capability

Do liquor producers have the ability to contain demand spikes?

  • How much capacity do liquor producing plants have?
  • How much time and resources are needed to improve plant capacities?
  • Are there places that could be redesigned to manufacture liquor?

Distribution

How well can the distribution sector handle hikes in demand? 

  • Is there an effective distribution system for raw materials and finished products?
  • What difficulties do distributors experience when shipping or supplying?

Inventory Status

Is there a need for an increment in inventory to handle the increased demands?

  • Is there a need to add inventory at production plants?
  • Should there be an inventory concentration at warehouses and shops?

Raw Materials and Resources

What amount of resources are available to be supplied to producers to handle the demand hike?

  • What are the primary raw materials for liquor production?
  • Is there enough supply of resources and raw materials?
  • What kind of hindrance prevented the importation of raw materials and human resources? E.g. reduced labor due to ailments and Covid-19 safety precautions.

Now we have an exhaustive list of case questions to aid our client. This is how trees can be very instrumental in solving business cases and complex problems.

Let us look at techniques we can use to create great issue trees. 

Ideas And Best Practices For Creating Actionable Issue Trees

These ideas will make you effective, productive, and fast when you are creating issue trees. Remember, when it comes to case interviews, you don’t have all day. So, you need to come up with potential solutions to the case question within a limited time frame. These best practices will surely come in handy for your consulting interviews

  • Constantly Write Out An Issue Tree For Basic Frameworks

Writing out issue trees for every essential framework helps your fluency. This habitual practice helps your flow in foundational business frameworks like supply, profitability, demand, etc.

  • Spend Enough Time Reflecting On Your Framework Before You Analyze

You can take as long as two minutes to ponder on your framework before moving on to the analysis. You don’t have to be anxious about how your client will feel during your silent period. The beautiful thing is that your result will turn out to be very helpful.

  • Ensure It Is Mutually Exclusive And Collectively Exhaustive

By making it MECE, you make your client trust that you have the bases for tackling complex problems and that you will address the problem in a structured manner. So, after creating your issue tree, ask yourself, is my issue tree MECE? If it isn’t, you might want to revisit your issue tree to ensure that all key points are covered and there are no overlapping points. 

  • Ensure You Create More Than Two Stages In Your Tree

You may not address the case question substantially if you just handle it in two layers. Remember that one of the aims is to break down the complex question into simple successive units. However, avoid having too many stages so you don’t get interlocked in the issue.

  • Let Your Issue Tree Be An Effective Communication Medium

Ensure to keep constant communication with your interviewer or client when creating your logic trees. This way, you won’t miss out on vital details, opportunities, and intuitive ideas. You need to keep a consistent focus on the tree to address every point, and at the same time, you have to relate your thought process and potential solutions to your interviewer from time to time. 

  • Make Effective Use Of The Issue Tree Throughout The Discussion

The issue tree keeps you effective and guided during your case interview. If you fail to leverage it, you may miss relevant points that will lead to practical solutions.

 

 

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