4.2. case 4 storage ex 2 transcript

7/17/2019 4.2. Case 4 Storage Ex 2 Transcript

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Case 4 – Storage – Ex 2 – Transcript

In this next example of this case, you'll see another very common problem an mista!e that caniates "ill often ma!e in cases# In this particularcase, I "ant you to pay attention to three things, an the three mista!es are allvery interrelate, an I'll explain "hy in a secon#

The big one is that the caniate is not ta!ing a hypothesis riven

approach, that's the first mista!e$ the secon mista!e is they are not ta!ing a atariven approach$ an then the thir mista!e is they're %umping aroun a lot# &nthe three are very relate# &n the part that you'll notice that comes out uiteobviously in the recorings an in the transcript is the last one – %umping arouna lot# So is it this problem, is it that, is it this, let's tal! about this, let's tal! aboutthat# &n %ust really %umping all over the place "ith no real reason for "hy he"oul "ant to o that#

&n the right "ay to approach these cases is to start off initially a little bitmechanical "ith a frame"or! an as!ing some stanar sets of uestions, anthen at some point typically ten or fifteen minutes into the case hopefully, youstart getting information that's reveale in the case that starts to shape an iea of

"hat might be going on in this particular company# &n this ata that'semerging shoul lea you to form a hypothesis "hich is really %ust your bestguess as to "hat is happening, an then the next important step is rather than %ustta!ing the guess for "hat it is, you "ant to structure "hat pieces of ata you neeto prove "hether your hypothesis is correct or not# &n that is the big ifference bet"een a hypothesis riven approach versus a guessing base approach#

& guessing approach is basically %umping all over the place "ith one ieaafter another, after another, after another$ "hereas a hypothesis is really a "ellinforme guess so there's some ata that's leaing you to believe something to betrue, an then once you have your hypothesis, basically conucting – almost li!ea scientist that conucts an experiment – to try to test if their theory is correct or

not# (ou "ant to o the same thing, "hich is state in avance before youactually o it, "hat ata you nee to valiate "hether or not your particularhypothesis is correct#

00:02:07

&n there is a very important reason for that process# )hat happens is"hen you are incorrect, it typically leas you to another hypothesisautomatically, a very obvious one usually# )hen you're %ust %umping aroun alot, the %umping aroun oesn't al"ays lea you to the ans"er# &n so that's "hyconsultant firms li!e the hypothesis riven approach#

&n "hen you ta!e the hypothesis riven approach, then youautomatically avoi the last mista!e "hich is %umping aroun a lot# &n you'll

notice that this caniate %umps aroun, from customers to prouct, bac! tocustomers, bac! to prouct, an so on an so forth#So one other point I "oul say that's sort of is relate to all three of these

is, I thin! it's generally a very goo habit to thin! out lou# So "hen you arestuc! on a case, thin! out lou "hat you're thin!ing or leaning to"ars$ an even"hen you're not stuc! on a case an you get some ne" piece of information thatseems a"fully interesting, something that you "eren't expecting, if you %ust thin!out lou, oftentimes I fin that a number of caniates that perhaps are not very

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goo at communicating the hypotheses, are actually very goo about thin!ingabout their hypotheses#

&n in fact you see this a lot "ith caniates that on't come necessarilyfrom business or science bac!grouns# They're thin!ing in a hypothesis riven"ay, an they have no iea "hat the "or hypothesis means, an yet they are

still oing it correctly# &n I "oul say that I personally fit in that category"hen I "as intervie"ing# I ha a very hypothesis riven thin!ing process, I "asvery goo at %ust thin!ing out lou "hat "as going on in my hea, an I neveronce actually use the "or hypothesis in a case as a caniate, an I never onceactually sai, /)ell, I have a hypothesis an here's "hat it is#0 )hat I basicallysai "as /1h, that's really interesting# )ell, that must mean this is probablytrue, an I probably "oul nee this information to figure that out# o "e haveany ata on that30 &n that basically is a hypothesis even though I in't usethat particular term#

So it's very important to thin! out lou, "hich solves a lot of these problems an it's a lot easier than trying to remember all these little etails, is to

%ust thin! out lou "hat you are thin!ing# &n your natural hypothesis nature, ifyou have one, "ill %ust automatically come through typically#00:04:05

So on that note, "e'll start this case, an again pay attention to the lac! ofata, not being ata riven enough# So the hypotheses are not forme from theata, the hypotheses in this particular case are forme from the caniate %usthaving some pet iea that they really "ante to explore#

&n then once you have a hypothesis, you "ant to as! for ata an that prevents you from %umping aroun a lot# So on that note, let's go ahea an getstarte#

Intervie"er This company, the client, is locate in the mi5"estern part of the 6nite States#They are a iversifie business centere aroun storage# There are three parts ofthis business# 1ne part of the business is a resiential moving an storagecompany, "here they move goos an store them bet"een pic! up an eliveries,sometimes there is a lag time# The secon part of their business is in paperrecors storage, so if your octor7s office, your accountant, your employer hasemployment recors that they nee to !eep for some perio of time, but the filesare not active, they usually ship them off to some "arehouse to store thoserecors until the reuire amount of time has passe, this company provies thatservice as "ell# &n the thir ma%or part of this company7s business is atastorage, so storing bac!up tapes for computer systems for companies that have a

lot of ata# This company7s profitability has been suffering very recently an thecompany is very concerne about that an has as!e you to come help figure outho" the profits of the company can be turne bac! to profitability, an to increasean improve#

Caniate 1!ay that7s an interesting uestion# o you min if I ta!e a minute to structuremy thoughts3


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Intervie"er 1h, of course#

Caniate 1!ay, so in orer to unerstan "hy profitability is suffering an "hat to oabout it, I7 li!e to start loo!ing at the revenues an costs because they ma!e upthe profits# o "e have any information "hy the revenues have gone up or o"n

or staye the same3

00:05:53

8ere a caniate mae another really critical error an I've actually founthat an a"ful lot of people I have intervie"e have mae a very similar error#&n if you loo! very carefully at the transcript or %ust re"in this recoring alittle bit, you notice that "hen I introuce the case, I sai that the company's profitability has suffere an that the client has as!e you to figure out ho" toreturn the company bac! to being profitable# /8o" o you get the company bac! to being profitable30 that is the ob%ective of the case#

&n it sort of begs sort of one or t"o very natural uestions "hich is,"hat is the current level of profits for the company$ an "hat oes it ta!e, "hatnumerical improvement o you nee to get it bac! to profitability3

So if the business lost 9: million in net income last year, then are "ecorrect in assuming that "e %ust nee to get the business bac! to ;ero, brea!even, an the client is happy# 1r are "e trying to aim for a higher number, "hatis the ob%ective of this case3 That is the right uestion to as! in the first minuteor t"o of the case, particularly if a numerical goal has not been mentione# &nnot all the time "ill you have a numerical goal or ob%ective, but a fair amount oftime you "ill# &n it's very "orth"hile trying to clarify "hat that ob%ective isan also to fran!ly %ust "rite it o"n so you on't forget#

So I "oul efinitely encourage everyone to o that an I thin! "hathappene in hinsight is I i not state the numerical goal, mostly because I %ustoverloo!e it# I shoul have sai ho" o you get the company bac! to brea!even, "hich might have been a little more concrete an might have evenmentione "hat the current profits are# <ut I "as in a rush, an I in't, right3&n that happens#

&n actually in a "eir "ay, it actually turne out really "ell, becauseno" I got to see if the caniate "oul actually clarify the ob%ective of the case#&n by the "ay, this is very similar to real life# So "hen "e meet "ith a ne"client, "e try to figure out "hat is your ob%ective# 8o" o "e !no" "hen "e'reone "ith our "or!, right3 So the big problem "ith this particular case is the

caniate oesn't !no" "hen they've finishe the case# <ecause he's %ust comingup "ith ieas to increase profitability, but hasn't really gotten, isn't able toetermine "hether the ieas are sufficient or goo enough to reach the ob%ectiveof the case#

00:08:08

So "hen you start off a case, it's very important to as!, to clarify theob%ectives, an then "rite it o"n an ma!e sure that if the ob%ective can bemeasure numerically, that you !no" "hat those numbers an numerical targets


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are#

Intervie"er +evenues have actually ecrease over the past year or so#

Caniate 1!ay, ecrease over the past years# 1!ay that7s interesting, ho" about costs3

o "e have any information "hether costs staye the same or increase orecrease3

Intervie"er Total costs have ecrease over the same time perio#

Caniate 1!ay, so it seems li!e this is more of a revenue issue# <ecause the costs haveecrease, "hich "oul inuce a profit might go up as a result, but since revenueshave ecrease over time, I7m going to focus on the revenue sie#

Intervie"er 1!ay#

8ere the caniate mae a very critical error very early in the case that Ithin! pose a really serious problem# The first is they mae an incorrectconclusion# So they mae a conclusion that "as not accurate base on theavailable ata, so here's the specific example I'm pointing to#

The caniate trie to figure out "hether this is a revenue problem, or acost problem in terms of "hat's riving the overall profitability issue# &n thecaniate as!e /generally spea!ing, have revenues ecline or increase0 an itturns out that revenues have ecline, o!ay3 So he's thin!ing that this is arevenue problem# &n next he as!e if costs have increase or ecline, an Imentione that costs also have ecline# So he has conclue that this musttherefore be a revenue problem# =o", "hat's "rong "ith that logic, "hy is that

not precise enough3 &n if you nee to ta!e a secon to pause an try to figurethat out, go ahea# It's a very important istinction an this caniate misse it#

00:09:57

&n here's the istinction "hen costs have – let's say costs faile by - percent but revenues faile by >? percent, is that a revenue problem or a cost problem3 otentially, it coul be both# (ou can't eliminate one of them %ust offof that piece of information# &n so the precision an the specificity of the atathat the caniate as!e for "as not goo enough, so the mista!e "as you shoulhave as!e ho" much have sales roppe by# It's not goo enough to !no"they've roppe, you have to !no" ho" much, an ho" much have costsroppe by3

&n you "ant to loo! at if there's a ifference in the percentages# So ifsales roppe :? percent an costs roppe :? percent that tells you one thing#If sales roppe :? percent but costs only roppe -? percent, that tells yousomething ifferent# If sales roppe :? percent but costs roppe >? percentthat tells you something ifferent yet again# So the magnitue of the change issomething the caniate i not as!# &n so "hat happens is it ma!es theconclusions he's mae potentially inaccurate or at least, he's mae a conclusion


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that's not supporte by the ata#So that's an important mista!e# 1ne "ay to practice, by the "ay as I'm

tal!ing about this, it remins me of @+E, @A&T, AC&T type exams an the olS&Ts "here there are these ata sufficiency uestions# (ou !no", is this true base on this information, yes or no, or not, if you on't !no" enough

information# The same !in of eal, very important in consulting, an this particular caniate misse it in this sort of case intervie" format#

Caniate The revenues are compose of revenue per unit, an number of units# o "ehave any information "here the revenue per unit has change over the years3

Intervie"er &cross the three businesses, the pricing structure an the revenues per unit have been fairly steay, so there has been no ecline in the revenue per unit – orrevenue per orer is the term they "oul use#

Caniate +evenue per orer, o!ay# &n %ust to clarify has the average revenue per orer

among these three units staye the same, or "ithin each unit the revenue per orerhas staye the same as "ell3

00:12:03

Intervie"er The average revenue per orer "ithin each unit has staye the same#

Caniate 1!ay, souns goo# &n it seems li!e the number of units sol has ecreaseover time#

Intervie"er That is true# The number of orers for the company overall has ecline#

Caniate o "e have a brea! o"n in terms of the number of orers3

Intervie"er Sure, I can give you revenue numbers first an if you nee a further brea! o"n Ican provie that as "ell# 1verall revenues "ere 9B: million last year, this yearthey are 9:: million, this is bro!en o"n across the three ma%or business units#The resiential moving business toay comprises 9.? million in revenue, the paper recors storage is 9-: million in revenue, an the ata storage li!e tapesan archival evices for ata represents 9-? million of sales toay#

Caniate 1!ay, o "e have any information about ho" this has change compare to last

year3

Intervie"er (es, actually for resiential, revenues "ere 9:? million$ paper recors "ere thesame 9-: million$ an ata storage "as actually technically the same, but "ithinthe year, it starte off much smaller than it ene by the last year, so it "as agro"th tra%ectory#

Caniate 1!ay, so it seems li!e revenues in the ata storage segment have been increasing,


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but the revenues in the resiential segment has been ecreasing#

Intervie"er That7s correct#

Caniate 8o" have the competitors one in the resiential segment3

Intervie"er The competitors in the resiential moving an storage, they too have experiencea ecline in revenues very comparable in magnitue to our client#

Caniate So it seems li!e the resiential storage segment overall in terms of the mar!et has been ecreasing an the client is "ell the ma%ority of the revenue of the client iscoming from the resiential segment, so there7s li!e a structural shift in themar!et, from resiential to maybe other storage segments, an it seems li!e thatthe ata storage segment has been gro"ing#

00:14:05

Intervie"er 1!ay#

Caniate 1!ay, so in orer to unerstan "hat to o in response to that, in response to thischange in the mar!et, I "ant to shift gears an loo! at the ata storage segment inmore etail#

Intervie"er 1!ay#

So here the caniate has ecie to focus on the ata storage segment#&n the big uestion here is "hy3 )hat ata from the case is leaing this person

to thin! about the ata storage segment as the only place to focus3 8o" has hearrive at that conclusion3&n "hen I intervie"e the caniate after"ars, he explaine that in his

o"n personal experience he !ne" that ata storage "as, in fact, a gro"ing business, or so he assume# &n so he assume that "as the right place to loo!#&n that's a very angerous "ay to approach things# <ecause sometimes you are"rong, all right3 So I coul have sai, "hat if this is the storage business,storage company not in the mile of the 6nite States, "here most people Ispo!e to are from, but let's say they're locate in the mile of Da;a!hstan, some place "here your o"n personal intuition an experience may not be relevant#

&n from an intervie"er's stanpoint, even if you get the right ans"er –

an he actually i get the right ans"er, ata storage is a very important place toloo! at – if you got the right ans"er but you in't actually get there using a atariven approach, meaning you in't uncover the ata that "oul lea you toconclue that's the right place to focus, then I assume you got luc!y# &n sothat's exactly "hat happene here, is I assume that this person %ust guesse an %ust happene to be a very goo guesser# &n if he i have ata an a thought process that "as leaing to "hy focusing on this particular segment, he shoulhave state it out lou, "hich he i not#


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00:17:58

Intervie"er (es, particularly it7s a sales force riven type of business# &n the company hasa very small sales force evote to securing ata storage contracts# &n that is the primary mechanism use to sell to customers#

Caniate 1!ay, that souns goo# oes the company have a strong bran in the sector or isthe prouct more oes the company have its o"n bran3

Intervie"er It7s I "oul say a lo" a"areness bran, not that "ell follo"e because they7restill a relatively small company in that particular inustry#

Caniate 1!ay, goo# It seems li!e the company has the capacity, but they have not reallyinveste a lot in terms of sales force in the ata storage segment# &n no" I7 li!eto it loo!s li!e my hypothesis is if they "ere to invest more into this part of the business they coul gro" their revenues further an maybe compensate for the

eclining revenue in the resiential segment#

Intervie"er 1!ay#

Caniate <ut to unerstan this further I "oul li!e to loo! at the customers next#

Intervie"er 1!ay#

Caniate In terms of the customers, o "e have any brea! o"n of their customers, thesegmentation of their customers3

Intervie"er (es, in the inustry overall the mar!et consists of three ifferent segments ofcustomers – really to sort of over simplify – large companies, meium si;ecompanies an small ones# &n this represents, let7s say roughly for the mar!etoverall, it represents about 4? percent of the inustry are large customers, 4? percent are meium si;e ones an the small ones are represente by 2? percentof the business#

Caniate Is this the mar!et shares of the overall storage inustry or %ust the ata storage3

Intervie"er Fust the ata storage#

Caniate ata storage, o!ay# That7s very interesting# I "oul %ust li!e to step bac! to thecompany uic!ly an as!, "hich customers o "e serve in our current situation3

Intervie"er +ight no" the business is probably split evenly, "ell actually it7s probably about? percent is the meium si;e companies an 4? percent is the big companies#&n none of it comes out of small business#

00:20:08


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Caniate 1!ay# That7s interesting# )hat oes each customer segment "ant3 o "e havemore information about their nees3

Intervie"er )e o# The large companies, they have ata that is being store really globally,

but certainly "ithin across the 6nite States their first preference generally is tohave a single provier manage all the "arehousing for their particular bac! upmaterials# They also li!e to have a seconary provier so that in case that there issome sort of natural isaster in the location "here the primary provier is, thatthey have a secon bac! up in a very ifferent part of the 6nite States as "ell#

Hor the meium si;e businesses, their nees aren7t as complicate, they7resimply loo!ing for a full service solution, one that is regionali;e an sho"ing anacceptable level of storage so there are more businesses that are in close proximity to this company# &n they basically %ust "ant a service that is verysecure an easy# So the simpler the process is the better, an their assumption is

that their staff is going to forget to o the bac!ups or to sen them offsite, so they"ant some provier "ho is going to manage as much of that process as possible#

Caniate 1!ay# &n "hat7s the concentration in each segment3 I assume that largecompanies "oul have more concentration "ithin their customers# Can "e saythat3

Intervie"er )ithin this particular client or I7m not sure "hat your uestion is#

Caniate )ithin this client, "ithin the large companies, I "oul say "e have fe"er largecompanies ta!ing, generating more of the revenue in the sector terms, see3

Intervie"er I see "hat you mean, yes# So I "oul say the average contract si;e for a bigcompany is probably three times larger than the meium si;e ones#

Caniate 1!ay, an "hat istribution channels o these customer segments prefer3

Intervie"er They7re both the same# & sales force base type approach is typically ho" theyare accustome to buying# I "oul say the ifference "oul be that for the bigcompanies that that ecision is mae in corporate heauarters, an so even if alarge company has a part of their business in the region, these contracts areusually negotiate at the corporate level "hich sometimes is outsie the area#

00:22:10

Caniate 1!ay, I thin! that7s interesting# Seems li!e since the contract si;e is larger for thelarge companies seems that this is the most attractive segment "ithin the atastorage segment# I7 li!e to again go bac! to the company# o "e have anyinformation ho" much our sales force is evote to large companies3 I have thisinformation that they spen almost ? percent of their time on misi;e companies#


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1r ? percent of the efforts goes to misi;e companies, an 4? percent goes tolarge companies#

Intervie"er (es, they "oul staff their sales force roughly approximate to percentagerevenues in the company, so I "oul say about ? percent of the sales force is

geare to"ars the meium si;e businesses, 4? percent to"ars the nationalones, given that7s the mix "ithin the company terms of "here the revenues comefrom#

Caniate 1!ay, alright an o "e have any information about the gro"th in each segment3

Intervie"er &ctually both segments are gro"ing about -? to 2? percent per year#

Caniate 1!ay, it7s interesting so it seems that they prefer a sales force channel "hich "ecurrently have# )e can set asie the customer nees, large companies "ant asingle solution, a single provier an a seconary provier# Fust to as! you uic!

out of curiosity, are "e conitioning our company currently as a seconary provier or a single provier for these large companies3

Intervie"er )ell the company really hasn7t ta!en a position either "ay, but in terms of bestthey can tell, that most of their Hortune :?? clients have been purchase for the purposes of being a seconary provier, that7s probably BG percent of it# It seemsto be the seconary provier#

Caniate 1!ay# (es, it seems that this is efinitely a gro"ing segment an "e haveistribution channel reuire by the customers# )e might thin! of increasing oursales force to capture more of this gro"ing segment# <ut before I ma!e anyrecommenations about that, I "oul li!e to move to the competition, anunerstan the competition a little better# o "e have information about thecompetitors7 concentration an structure3

00:24:24

Intervie"er Sure, the competitors, number of large competitors on a national basis in atastorage particularly for the large companies, most of those competitors aregeographically locate on the east an "est coasts# Aeium proviers, there are a bunch of meium si;e companies across the country that service that segment,an small business companies are really base on the "est coast an they "illtypically sell to small businesses nation"ie, generally on line#

Caniate 1!ay# o "e have any geographic concentration currently in our company3

Intervie"er )e are mostly a mi5"est company so in the mile of the 6nite States, anmost of our personnel staff an sales people are, "ith a couple of exceptions,mostly base geographically in the mile of the country#


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Caniate 1!ay, is there anything that the competitors are oing that "e are not currentlyoing in serving this segment3

Intervie"er I "oul say mostly the competitors are offering the same service# The onlyifference being from a service stanpoint "oul be %ust the geographic locations

of the competitors7 facilities# These facilities ten to be east coast or "est coast,an the ma%or competitors o not have a mi5"est base facility typically#

Caniate 1!ay, interesting# &lso "hat has been the gro"th rate for competitors3 8as this been in line "ith our gro"th rate in this segment3

Intervie"er (es, all ma%or competitors are gro"ing, typically -? to 2? percent per year#

Caniate Ten to t"enty percent, o!ay# I thin! I7ve explore the ata storage segment of the business a lot an it seems that it7s a gro"ing segment, an it "oul pay off toinvest more in this part of the business, to either investing internally more or

maybe acuiring one of the competitors to increase our si;e in this segment# I %ust"ant to uic!ly loo! at the other segments of the business as "ell#

00:26:14

)henever you transition from one part of your frame"or! to another, orfrom one branch of an issue tree to another, on this particular case from one business unit to another, it's useful to synthesi;e "hat you've conclue so farabout "hat is true in this particular case an then also state a refine hypothesisthat "ill guie the uestions you as! going for"ar#

=o", for example, this particular caniate i sort of a very light

summary an ha a little bit of a hypothesis, but it coul have been one a lot better# So in this particular case, the caniate coul have sai that /<ase on"hat "e've learne so far of the ata storage segments, this is a gro"ing segmentof -? to 2? percent per year, an base on our competitiveness in the inustry, itseems li!e "e shoul be able to go at least at that rate, if not more# &n I "oulrecommen, my hypothesis is that this is a goo place to focus an one of thethings I "oul nee to verify that "oul be one, I "oul nee to !no" "hat thenumerical goal is to improve profitability by to see if a -? to 2? percentimprovement in out of ata storage business "oul be sufficient to reach thegoal$ the secon I have to feel comfortable that the paper recor storage anresiential moving businesses i not offer an opportunity for profit

improvement that exceee the -? to 2? percent improvement in this particularmar!et segment#/@iven those three things, then I coul ma!e a more firm conclusion as to

"hat the right recommenation is# So "hat I coul o no" is loo! at theresiential storage business to etermine "hether there's a chance to improve profits there, an if there is, "hether or not it excees the amount of profitopportunity that's present in the ata storage business# &n then if that oesn'tsolve my case, I still "ant to go on to paper recor storage an analy;e that


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particular area as "ell#000:27:55

So that's an example, you coul probably be a little bit better, but that's anexample of thin!ing out lou – stating a synthesis of "hat you're concluing sofar, an stating "hat ata you nee to ta!e a preliminary hypothesis an to prove

"hether it's true or not# So here the caniate is "illing to recommen that thecompany focus on ata storage, "hich again is actually the right ans"er, but it'snot clear that that's enough, or he hasn't proven that it's enough, because numberone he oesn't !no" "hat the goal is$ an number t"o, he hasn't calculate thefinancial impact of investing in the ata storage business or at least have somerange of "hat that "oul loo! li!e#

Intervie"er 1!ay

Caniate =o", "e sai that "e also have the paper recor storage business "hich has flatrevenues# 8o" have the competitors one in regar to this segment3

Intervie"er The inustry has been fairly flat for some time#

Caniate Hairly flat, o!ay# So really the gro"ing segment is the ata storage segment#

Intervie"er Hrom an inustry stan point, yes#

Caniate (es, from inustry stan point# 1!ay interesting# So I7 li!e to no" shift gearsan tal! a little more about the prouct# It seems that "e are a iversifie business, one is the paper storage, "hich is very ifferent from ata storage, an"hat oes the company see as its most important prouct3

Intervie"er They7re flexible an they continue to offer proucts actually let me clarify that#So your uestion is sort of regaring to the company overall or to the ata storage business3

Caniate Company overall#

So "hat you notice here is that the caniate is %umping aroun a lot#The caniate starte off the case as!ing about the company overall, "e s"itcheover to resiential business, then the ata storage business an the paper recorstorage business, an then bac! to the corporate level# &n no" %umping aroun

hapha;arly is, it comes across very poorly in a case# If there is a specifichypothesis in min, then it becomes a lot more obvious "hy you particularlynee to loo! at ifferent pieces of information#

00:29:58

So ha the hypothesis been that /I thin! ata storage is the place I "ant tofocus an I !no" ho" much I nee to get in terms of profit improvement toaccomplish the ob%ective of this case, I then nee to loo! specifically at this


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business, that business an to ascertain "hether there's enough upsie potentialthere to achieve the ob%ectives the clients are loo!ing for#0 &n "hat happens"hen you have a hypothesis, it gives you sort of a rationale for "hy you neecertain pieces of information#

&n in this particular case, the rationale isn't necessarily very clear# 8e's

%umping aroun a lot an it's possible he actually has a pretty goo iea in min,so it's possible he has a strong hypothesis in his hea, but it's not obvious "hatthe hypothesis is, that's the first problem$ secon, it's not obvious "here he gotthe hypothesis from$ an thir, he's not actually sharing the hypothesis#

So efinitely here, I thin! it's very much "orth"hile to share out lou"hat you're thin!ing, an to really either state a hypothesis explicitly or thin! outlou in a hypothesis riven "ay an let that rive an lea "here else you gonext in the case, "hich also ma!es it fran!ly a lot easier for the intervie"er tofollo" you#

Intervie"er They serve all three mar!ets an they have proucts in all three an on7t

istinguish in terms of their importance across the three#

Caniate 1!ay#

Intervie"er <ut they7re still open to any recommenations you might have#

Caniate Excuse me3

Intervie"er They are open to any recommenations you might have though#

Caniate 1!ay# That7s interesting, can the company o anything to increase the value that

they provie to the customers for each segment3 Is there a "ay for them toincrease the revenue per orer3

Intervie"er That7s !in of a broa uestion# I suppose there might be, but nothing comes tomin#

Caniate 1!ay, "oul you say this is more of a commoity prouct or a ifferential prouct3

Intervie"er )hich one are you tal!ing about3

Caniate The storage, resiential, paper recor an ata storage#

Intervie"er I "oul say that actually all of those services on7t seem to vary that much acrosscompanies so I guess that "oul put it more in the commoity category#

00:32:00

Caniate 1!ay# &n I "ant to shift uic!ly to the customers again#


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&n "hat happens is – an I thin! in this case, this person %ust ha thisiea that in his o"n personal life experience, he's noticing that there arecompanies that are using less paper an they're moving to automation an storingmore recors online, an through, in ata formats, in igital format rather# <utthat "asn't substantiate by the facts in the case#

&n so you can only ra" conclusions that are base on the facts in thecase# If you have a theory from your o"n intuition, it's o!ay to frame that as ahypothesis, as! for ata to valiate it, an then ra" conclusion base on the ata provie, that's o!ay# It is not o!ay to %ust reach a conclusion "ithout actuallyhaving any ata that's evolve an come through from the case itself#

It seems that the company has a fe" options# 1ne is to expan its business in theata storage segment to an acuisition of a competitor or investing moreinternally# The secon "oul be in aition to oing that, even though it7s aeclining mar!et, try to gain more mar!et shares in the other segments#

00:36:05

=otice here that the ieas that the caniate has in min o notnecessarily achieve the ob%ectives of the case# The ob%ective of the case is toreturn this business to profitability, "hich ta!en literally means to ta!e a businessthat's losing money an get them bac! to brea! even# =o", it "oul be "orthverifying that an confirming that's actually true "ith the intervie"er, but "e'llta!e it at face value that's "hat I intene to mean#

&n "ith that, "hen you loo! at the options that this caniate has inmin – an I'll uote him here – he sai that, The secon option "oul be to,even though it's a eclining mar!et, try to gain more mar!et share in the other

mar!et segments# So basically, his iea is if you sell more in these other mar!etsegments, you can return the business to profitability#

=o", the problem is these other businesses have either no profit margin,or negative profit margin# The only problem is, he in't as! for thatinformation, so he oesn't reali;e these other t"o businesses actually on't ma!eany money# &n so his conclusion that "e ought to gro", potentially gro" theseother mar!et segments, again, is not coming from the ata, an in fact "asactually mathematically "rong# (ou coul triple the mar!et share an the other businesses an it "on't actually increase your profits, because your one businesshas a negative margin, the other business has no profit margin, so you'll increasesales, but you "on't actually improve profitability#

So this is an example "here again, this is very late in the case no" at this point, but the caniate has really lost sight of "hat the ob%ective of the case is,an "hat he's trying to o is, he's trying to figure out ho" to ma!e the business better, but the case oes not as! you ho" to ma!e the business better, it as!s youho" to return the business bac! to being profitable, or at least brea! even, that'sthe uestion#

00:37:50


age -: of .-




So again, all this "or! if you on't get the uestion right, if you on'tunerstan the ob%ective, or you misunerstan it, or the intervie"er state itvery vaguely an it "as ambiguous an you in't really clarify it, you coul %ust"aste a lot of time# &n in this particular case he "ent o"n the "rong path tosome extent, because he "as confuse "hat the ob%ective of the case is# &n in

particular, I thin! he is thin!ing that the case he's trying to solve is ho" toincrease revenues for this business# The case I "ant him to solve, an as!e himto solve, "as not ho" to increase revenues, but ho" to increase profits bac! to being brea! even# &n so he "ent o"n completely the "rong path in somerespects#

Intervie"er )hich ones in particular3

Caniate In resiential an paper recors#

Intervie"er 1!ay, great# So let7s ta!e a little brea! briefly, I %ust "ant to give you one sort of

coaching point "hich I thin! "ill be very useful for you# 1verall again, verygoo in terms of being logical an as!ing for the right ata# I thin! the big areayou nee to "or! on a little bit more is, you nee to explain "hy you are as!inguestions, for "hat purpose an to "hat en or "hat ob%ective are you as!ingthese uestions, because you have been %umping aroun a lot#

articularly this is a complex case because there are multiple parts of the business#&n you !eep s"itching aroun a lot, "hich isn7t necessarily a ba thing, but it7sa little unclear "hy you are s"itching aroun sometimes#

&lright so if you state the hypothesis an you say, /)ell no" my hypothesis is

this but to figure out "hether that is right or not I nee to loo! at these t"o things,so I7m going to go loo! at those t"o things no"#0 Then you go loo! at the t"othings an say, o!ay that7s interesting# &nytime you say /that7s interesting,0 thatusually means you have a ne" hypothesis, but you in7t bother to say it out lou#&n so I thin! if you can o a little bit better %ob there in restating the hypothesisthat you are trying to go after, then all the uestions you as! ma!e sense# Theyare for a logical purpose that you share "ith the intervie"er# If you on7tmention the hypothesis, an particularly if it7s not an obvious one, then theintervie"er can7t tell if you are %ust as!ing uestions to as! uestions or you areas!ing uestions for a particular reason# &n you7ll get more creit if there is ahypothesis there even if you as! the exact same uestions# If you have state a

hypothesis first, it becomes clear "hy you are as!ing an you "ill be rate higher because of that#

00:40:00

That last sentence I mentione is extremely critical, extremely critical# Ifyou have a hypothesis an you state it first, it becomes very clear "hy you are


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as!ing the uestions you are as!ing, "hy you are as!ing for the ata that you'reas!ing for# &n because of the hypothesis, you'll be rate higher because it'svery clear "hy you are as!ing for information#

Caniate I thin! I initially focuse on the ata storage part of the business as I sa" that the

gro"th is there, an loo!e at "hether "e can expan the business there# &nonce I have exhauste my uestions there, I "as unsure "hether to go bac! toother segments an try to loo! at revenues in those segments as "ell#

Intervie"er &n that "oul be a function of time, an I thin! you coul even %ust say that#(ou coul say that, /Ay conclusion so far is that ata storage loo!s li!e a veryattractive business# It clearly seems li!e a gro"th area, an the company ought tofocus more there# I on7t !no" ho" this compares to the other t"o parts of the business, it seeme, at least initially less attractive# If "e have the time, I "oulli!e to explore resiential or paper storage to buil a firmer conclusion, but this is"here my conclusion stans currently#0 &n that "oul be very acceptable#

Caniate 1!ay#

Intervie"er The other thing you "ant to be careful about is – an I see actually a lot of peopleget these t"o confuse – o you recall the original uestion I as!e3

Caniate rofitability is o"n#

Intervie"er +ight, an "hat are current profits for the company3 o you !no"3

Caniate =o#

Intervie"er 1!ay, so that7s a mista!e# 1r you ha enough information in the ra" ata, because I thin! I gave you cost information, but you in7t actually calculate theactual number, an it "oul be goo to o that# &n the uestion you "ant to as!,that I thin! is a fair uestion from an intervie" stanpoint is, if the client "ere tofocus on ata storage, "oul it matter3 )oul it ma!e a big enough ifference interms of the profits3

Caniate I guess my problem "as since I isolate that the issue of revenue an more particular the number or orers, I %ust forgot to go bac! to profits an chec! thatgoal#

00:42:13

Intervie"er Correct, an you7re not the only one# & lot of people "ill get the t"o confuse,an especially if the case is long# (ou !no" "e have been tal!ing, about .:minutes on this most recent case, an you sai something really insightful inminute one, but it7s been .4 minutes since you sai it, an you7ve forgotten,right3


age -B of .-




That is fairly common, so one thing I suggest is particularly for anything that you"ant to come bac! to, all the !ey issues – an I see a lot of people struggle "iththis for some reason – I thin! it is useful to someho" mar! them in your notes,an perhaps even mar! them on a separate piece of paper# I7m !in of thin!ing

that you ought to really have t"o pieces of paper, one is to o the computationsthat you7re oing as you o them, an the other one is a more high level one,almost li!e a to o list, that you can cross off an come bac! to# 1ther"ise it7svery har, because once you7re in it it7s very confusing# &n I thin!, I7m veryconfient you have the ability to o the analysis, but you !in of %ust forgot aboutit or you misse it, an you in7t have some sort of mechanism to ouble chec!to see if you misse anything because you are so far into the etails#

Caniate So in this case "hat "oul I have mar!e in my notes as a to o list#

Intervie"er So in this particular example I might have mar!e, you starte off in ata storage,

"hich seeme li!e a very reasonable place to start, an you opte to either notloo! at, or at least not loo! at initially, paper recors an resiential moving#Correct3

Caniate (es#

Intervie"er So that shoul have been on your to o list as an option of "here you might come bac! to# (ou starte loo!ing at sales an you i loo! at costs, an you i loo! atsales# &n I thin! you mae actually one mista!e an that "oul – I thin!actually "as potentially very significant, is %ust because costs go o"n, it7s stilluseful to !no" "hy they "ent o"n# <ecause I thin! I gave you overall cost, Ion7t thin! you as!e for fixe verses variable, or the components of costs, iyou3

00:44:03

Caniate =o, I i not#

Intervie"er 1!ay# &n costs coul have gone o"n in a particular segment or gone up inothers, for example, is a possibility# 1r fixe costs coul have gone up butvariable costs have actually gone o"n# So maybe they have mae some ma%orinvestment in technology, so their variable costs are very lo" no", but no" theyhave this big fixe cost of service, that "as a possibility# So there7s a lot ofreasons ho" costs change, an %ust !no"ing that they have gone in a irectioncountere your hypothesis, it7s not certain enough that you !no" "hy thathappens# So I thin! the last couple of times I7ve given this case people ten to %ump into the revenue sie an into the uantity sie, but there really actually is alot going on on the cost sie, you can7t fix the cost very easily, "hich is "hat Ithin! you figure out, but there are insights in there that "oul help prioriti;e"hat else you loo! at#


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Caniate I agree# &n even if the costs "ere flat, they may not be flat for each segment#

Intervie"er Correct, absolutely# &n it7s very common in real life actually, that you "ill haveoffsetting changes, so maybe costs ouble in resiential but fell in half in ata

storage, so on average they haven7t change# So flat cost is not the same thing asstatic cost#

Caniate That7s a very goo point# 1bviously "e can al"ays focus on the costs especiallyin a iverse type business li!e this# )hat7s the best "ay to convey to theintervie"er in terms of giving them irections3 Shoul I say I "ill no" focus onthe number of orers but then later I "ill also explore the costs further per eachsegment or something li!e that3

Intervie"er &ny of those "oul be fine# I thin! it is important to say, if you o plan to come bac!, I thin! it is useful to say I plan to come bac!# &n you sai that costs "ere

not important an "e basically "ante to focus on revenues, "hich is one "ay tosay it# If you ha sai /I7 li!e to come bac! to costs# I on7t thin! it7s the primary factor but I on7t !no" enough to be sure, but it seems li!e, base on"hat I !no" it7s not as important, I "ant to start "ith revenue first an then come bac! to cost later#0

00:46:09

=o" if you ha sai that, but you ha sort of forgotten you ha sai that, as anintervie"er I "oul say, /(ou !no" "hat, no" that "e7ve one so much onrevenue, "hy on7t "e go bac! to "hat you suggeste earlier as part of your plan,"hy on7t "e loo! at the cost sie no"30 I7ll feel comfortable helping youexecute your plan#

Caniate 1!ay#

Intervie"er <ut if your plan "as to ignore cost, then I on7t "ant to bring you bac! to cost because you in7t say it "as important# So that7s "hy it7s useful to lay out inavance "hat you plan to o, your to o list – that one separate piece of paper isyour to o list if you "oul# <ecause once you lay that out, as an intervie"er they"ill feel more comfortable, I thin! in general, reirecting bac! to the other partsof your plan, because you came up "ith the plan# It "as your plan an you getcreit for the insight#

<ut perhaps you "eren7t managing your time very "ell an perhaps this particular part of the case isn7t that interesting an I "ant to %ust stop it off, I7ll stop it offan reirect you to the other part of your plan# <ut, if you on7t have a plan thenI %ust let you go as long as you "ant#

Caniate (es, I thin! that "as the issue here, I %ust exhauste the ata storage part an then


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mae some conclusions about that an I "as expecting you to say, /1h that7sgoo, "hat7s your conclusion30 to tie up the case, but since you in7t o that I"as lost "hat o to next#

Intervie"er I thin! in that case, you can actually say you7re !in of unclear on "hat to o next

given time, that7s al"ays a goo excuse, you !no" given our time constraints#&n /Is there one other area out there that "e shoul focus on30 or /8ere are myoptions that I7m consiering, perhaps "e got to !no" enough an "e can "rapup,0 or /If I ha more time I "oul li!e to loo! at these other areas, as seconaryan thir priorities#0 &ny of those I thin! "oul be reasonable# &n I thin! thereason I in7t say anything "as I "asn7t clear "hat your plan "as# )ere you planning to go bac!3 &n maybe in your hea you planne to go bac!, an I"ante to give you the chance to o that, I "ante to see if you "oul or not, or ifyou "ere one# &n so I "as a little unclear on "hat the plan "as, I %ust sort oflet you o "hat you "ante to o, %ust in case you actually "ere planning to othe right thing# I on7t "ant to cut you off too early an prevent you from going

bac! an touching on some !ey issues#

00:48:01

Caniate 1!ay#

Intervie"er &nother little t"ist, an this is interesting that people have ha problems "ith this particular case, is that particularly "hen you have a profitability case "hichconsists of multiple components, revenues an costs, this one has an aitionallayer of complexity in that its profitability across three businesses#

&n so there are t"o "ays to analy;e costs, you can analy;e it overall, analy;e profitability overall, but you can also o it for each business#

&n so t"o ifferent approaches I thin! that "oul have "or!e in this case oneis to o the profitability frame"or! for each line of business separately$ or youcan start "ith – since the uestion is ho" to improve profits, not revenues but profits – you coul have starte "ith profits overall, brea! o"n profits into itsthree components, one for each business unit, an then o the profitabilityframe"or! for each business unit# That "oul be a logical "ay of oing thatsegmentation#

&n ha you one that you "oul have notice – you !in of got to the rightans"er any"ay, but the ata "oul have been much more obvious# In this particular case resiential "as actually losing a lot of money an ata storage "asextremely profitable# <ut you coul have figure that out in the first . minutes,an you figure it out maybe at 2: minutes in# =ot the en of the "orl, it still"oul be consiere favorable in terms of the overall evaluation of your cases!ills# <ut you coul have figure that out in : minutes, an you coul have better allocate your time because of that#


age 2? of .-




Caniate (es, an also one of the challenges I thin! I have in this case, I use all this myexisting !no"lege# I !no" that ata storage is a gro"ing segment in general, "ehave more information igitally, an !in of have my assumption in my min isthat, listening to the case, that that7s the area "here I nee to focus on# Aaybe

that lea me to !in of move uic!ly to that area, an %ust move most of theenterprise out of the "ay#

00:49:56

Intervie"er (es it7s very angerous, that7s very angerous to o# Sometimes I haveanother case I o aroun a cell phone inustry, but I assume that7s the year ->B:,an it7s very easy – "ell I !no" "hat happens, right3 <ut you on7t !no" "hathappene in ->B:, so you have to go by ata# &n sometimes intervie"ers,they7ll change things aroun, or they7ll say it7s the ata storage business but it7s inHinlan, an so you have less personal experience in that particular country for

example# &n it7s o!ay to let your prior !no"lege maybe bias the creation ofyour hypothesis, but it is not o!ay to not get the ata to valiate that hypothesis before moving on#

Caniate 1!ay#

Intervie"er So no" this particular case, I7ll tell you "hat my thoughts "ere# I thin! you ien up on the ata storage sie, but you in7t really have any clear ata as to"hy you pic!e ata storage over the other t"o# (ou ha some ata, but youin7t have enough concrete you obviously have to focus on ata storage# (ouin7t %ustify "hy, you sai you "ent for three hours, /I "ant to focus on atastorage,0 an you in7t explain "hy#

Caniate Ay explanation from my sie "as that obviously the gro"th in this sector, but theissue of profitability

Intervie"er +ight it "as profits, not necessary gro"th# =o" gro"th can help, but not al"ays,right3 =o", so in this particular case it happene to be correct that ata storage,gro"th in ata storage "oul actually improve profitability, but you in7tactually o the analysis that "oul inicate that# So for me it feels, as anintervie"er I felt li!e /)ell, once you got in there you got the right ans"er for the parts that you chose to focus on, you i it pretty "ell, "hat oes come to min isthat I thin! you got a little luc!y#0

Caniate (eah, not goo#

Intervie"er (es, an luc!y is goo an ba, you got the ans"er but coul he o it again3 (ou!no" if "e ha another case an you in7t happen to !no" anything about that particular segment "oul he get to the right ans"er next time3 1r i he %ust getluc!y this time3 It7s very har for me to tell# <ut if you7 as! a couple !ey


age 2- of .-




uestions up front an you ha the ata that sai clearly you got to focus on atastorage, "ell then I feel li!e /1!ay he ha the right process, he in7t get luc!y,he "as very ata riven, an therefore I give him full creit for the case becauseclearly he coul o it again#0

00:52:07

Caniate 1!ay, I thin! you "ere suggesting "hether "e can o this#

Intervie"er (es, I "as thin!ing maybe "e shoul start %ust the opening part of this case anreo it in a very logical an structure "ay#

Caniate 1!ay, that "oul be goo# Fust one uestion before that#

Intervie"er Sure#

Caniate &fter I reali;e that the focus "as the ata storage, I move into the business caseframe"or! – company, customer – an I !in of got some information there butmaybe in7t get as much impact in the information, o you thin! that "as li!e a"rong trac! for me to go into3

Intervie"er I on7t thin! it "as "rong, but it "asn7t maybe necessary# The business situationframe"or! is goo for mar!et entry, it7s goo for prouct introuction, it7s goofor, /ualitatively is this a goo business that7s "orth gro"ing30 <ut the uestion"asn7t ho" to gro", the uestion "as ho" to be more profitable#

&nytime there is a more profitable uestion, there is usually math involve, anyou "ant the math to then rive "here you "oul apply that potential frame"or!#So if I guess the intermeiary conclusion that you i not reach "as that theata storage business is an absurly extremely profitable business, an is therefore"orth gro"ing, then the uestion is ho" o you gro"3 &n if that is the uestion,then you s"itch to the business situation frame"or!#

Caniate 1!ay, I get that#

Intervie"er So you %umpe right to ho" to gro", but you in7t actually verify# (ou ha ageneral sense it "as profitable, you in7t have concrete numerical terms of precisely ho" profitable it "as# &n so for example if you "ere to ouble salesin ata storage "oul it fix the profitability problem3 6nclear, on7t !no", right3

Caniate )ell, I guess in real life though, profitability of these ne" technology businessesare not really goo in general# Ji!e the profitability of some online businesses, or big companies, they %ust erive their business sta!e from revenue#

00:54:02


age 22 of .-




Intervie"er This is not an online business#

Caniate (es#

Intervie"er This is a bric! an mortar one#

Caniate This is again an assumption that I ha obviously#

Intervie"er (es#

So overall in this case, as "e "rap up this particular example, I "oul nothave passe this particular person to the next roun or extene an offer baseon the performance I hear on this particular case# &gain, the main problems"ere they "ere not really being hypothesis riven$ the hypotheses "ere not being evelope base on the ata provie$ an the person "as really %ust %umping aroun a lot from iea to iea to iea base on intuition, prior life

experience, an not really base on the facts an ata provie an reveale inthe case itself, "hich again is very, very important# &n you'll hear meemphasi;e that over an over again – ata riven, hypothesis riven – it's veryimportant for consultants to o that#

&n in the next case, "hat you'll hear is the same caniate basicallyoing the same case all over again, trying to incorporate some of the feebac!that I gave him# So you'll hear that it is a better case, an still some mista!es are being mae, but I'll point those out in the next example#

8ere I've as!e the caniate to reo the very first part of the case "herehe's structuring the overall approach on ho" to solve this case# &n a fe" things

that you'll "ant to notice in this particular version, "hich I o thin! is better#The first is that he's much more explicitly stating a hypothesis, "hich "as goo#8e is as!ing for ata to valiate that hypothesis "hich is also goo# So efinitelytrying to incorporate that feebac! he hear from me, from the prior example#T"o things to pay attention to, one is a mista!e, an one is I thin! a goo habit#

The first is in as!ing for ata, you'll notice that he tens to as! for veryspecific ata# The general rule of thumb is you al"ays "ant to as! for thegeneral number before you as! for the more specific number# So you "ant to as!for overall sales before you as! for brea!o"n of east coast sales versus "estcoast sales# (ou "ant to !no" the overall profits, before you unerstan profit by region, or profit by prouct line#

00:56:09

)henever you as! for a number, al"ays as! for the "hole number first, before you as! for the pieces that a up to the "hole# &n the reason you "antto o this is because the "hole number sometimes "ill tell you "hether theetails are even relevant or not, so as an example if you ha a case "here a client"ante you to increase revenues by :? percent from 9- billion to 9-#: billion,let's say, an the business consists of three ivisions, "ell you "oul be tempte


age 2. of .-




They are a iversifie company base in the Ai"est, their core strength isaroun storage, an they store three ifferent !ins of things or they have three parts of the business that all reuire storage# The first part of the business is theyhave a resiential moving storage company# They have a secon part of the business that is in recor storage, paper recors# The thir part of their business is

in ata storage, so bac! up evices, tapes, ata bac!up types of things# This business is suffering from profitability, they lost 94 million last year, an they arevery concerne that this tren be reverse, an have as!e you to help them figureout ho" to get the company bac! to profitability#

01:00:13

Caniate Interesting# 1!ay goo, given that the client has been less profitable, they lost 94million, an "e "ant to unerstan "hy an "hat to o about it#

Intervie"er Correct#

Caniate oes the client have any other ob%ectives3

Intervie"er =o, the main one is ma!e more net income#

Caniate 1!ay, great# So I7 li!e to start "ith loo!ing at revenues an costs because theyma!e up profits# &n o "e have any information "hether revenues havechange over the years3

Intervie"er Hor the company overall revenues have roppe from 9B: million a year to 9::million a year#

Caniate 1!ay, interesting# &n o "e have any information on the cost in general,"hether they have change3

Intervie"er (es they have# Costs "ere 9B4 million a year, an they have fallen to 9:> milliona year#

Caniate 1!ay# 9:: million revenue an 9:> million in costs, so that7s "hy they ha a 94million loss#


Caniate 1!ay interesting# It seems my intuition is that this is a problem about revenues,the revenues have been eclining#

Intervie"er 1!ay#

Caniate &n so I7 li!e to first focus on that, but since "e have three ifferent segments I"oul li!e to come bac! to costs an unerstan the change in costs per each


age 2: of .-




segment#

Intervie"er 1!ay, sure#

Caniate So revenues are mae of up revenues per orer an number of orers# o "e

have any information on "hether revenues per orer have change3

Intervie"er &ctually %ust a little time out here# It7s al"ays best to as! for a most general ormost summary number first, before as!ing for the brea!o"n# So, the logicalnext level of etail "oul be to !no" "hat the brea!o"n in revenues is acrossthe three businesses, as oppose to "hat7s the unit shipments across the three businesses# <ecause perhaps some of the unit shipments are not relevant#

01:02:10

Caniate 1!ay#

Intervie"er So you s!ippe one level, you "ent t"o levels of etails rather than %ust one# So"hy on7t you as! that uestion again, an then "e "ill ta!e it from there#

Caniate 1!ay, so o "e have any information on the brea!o"n of revenues3

Intervie"er Hor the company, "e o# +evenues this year in the resiential segment "ere 9.?million in sales, "hich is o"n from about 9:? million in the prior year$ revenuesin the paper recors storage is 9:? million a year, "hich is the same as the prioryear$ an ata storage is about 9-? million this year an, although not reflectevery "ell an accurately in numbers, that has been a gro"ing part of the business#

Caniate 1!ay#

Intervie"er <ut it "as 9-? million last year as "ell, numerically#

Caniate @ot it# So it seems that the resiential part of the business ha been shrin!ing,an the ata storage part of the business is gro"ing# So my initial hypothesis isthat the company has to focus more on the ata storage part of the business, but before I go further along that roa, I7 li!e to go bac! to the cost an analy;e the profitability of each business#

Intervie"er 1!ay#

Caniate So o "e have any information about the cost structure per segment3

Intervie"er Sure, o you "ant the cost structure or o you "ant the profits3

Caniate I7 li!e to !no" the profits#


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Intervie"er 1!ay# Jet me thin!, I have to choose# The profits the more general number, anthe cost is more specific# &n it7s better to as! the general first to figure out if it7seven relevant, to as! for something more specific#

Caniate 1!ay#

Intervie"er 1ther"ise, I coul give you lots of costs ata, but then you7 have to o a lot ofcomputations to figure out profits an it7s a lot of "or! for you "ithout !no"ing"hether it7s actually "orth it or not#

Caniate 1!ay, got it#

Intervie"er =o" if the profits loo! unusual, then you as! for cost to analy;e it further, but it7sa more efficient "ay to o it#

Caniate 1!ay#

Intervie"er So, to your uestion regaring profits, I o have profits by business unit# Theresiential business unit has lost 9-? million this year$ an the paper recors business bro!e even, so no profit no loss, ;ero ollars in net income$ an the atastorage business generate 9 million in net income this year#

01:04:13

Caniate 1!ay, so that7s interesting# It seems that the ata storage business is not onlygro"ing, but it is also profitable#

Intervie"er 1!ay#

Caniate o "e have any sense of ho" the competitors have been oing in terms of profitsfor each segment3

Intervie"er Sure, I "oul say generally spea!ing that the other companies in the resientialmoving inustry have seen a significant rop in sales, an are either less profitable than before, most unprofitable or a fe" at brea! even#

Caniate 1!ay, my hypothesis is there7s a structural change in the mar!et "hich isaffecting every company in the resiential storage segment# The revenues areo"n, the profitability is o"n, on the other han the ata storage business isgro"ing an it7s profitable# So my sense is that the company, our companyshoul invest more in the ata storage segment# In orer to ig eeper into theata storage business, no" I7 li!e to analy;e "hat "oul be the effect ofaitional investment in terms of generating revenues an profits#

Intervie"er 1!ay, so pretty goo analysis so far, I "oul o a little time out intervene# Thelast t"o sentences you sai, you tal!e about investment an ata storage, but


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again the uestion "as aroun profitability# Slightly on a – an it7s very pic!y, but it7s actually pretty important – it7s more precise to say that my hypothesis isthat gro"ing the ata storage business "ill increase profitability of this business,enough to ma!e a ifference, let7s say# 1r /Ay hypothesis is gro"ing the atastorage business is possible an coul restore profitability to the business#0 If the

goal is to return the business to profitability, that means the goal is to return the business to ;ero net income# It is useful to boun the case a little bit# 8o" muchoes the business have to gro" on the ata storage sie to return the overall business to brea! even3

01:06:17

This is an example of si;ing the opportunity or estimating the financialimpact for a particular opportunity, an it's useful to !no", it's useful to o because it helps you figure out "hether you solve the case or not# So I as! theuestion ho" much oes the business have to gro" on the ata storage sie to

return the overall business to brea! even3 That gives you sort of a bounary of"hether this one opportunity "ill be enough to accomplish the ob%ective or not#&n if it's more than enough, then you !no" that if this option "or!s, you'reone "ith the case# If it only gets you half "ay there, then you reali;e that younee some other opportunity to reach the rest of your ob%ective#

So it's important to o this "henever you can, an oftentimes "hat you'llfin is if you have a situation that is "orth oing – "hat "e call bouning the problem or estimating the impact or si;ing the impact of a particular option – "eoften times fin this in the mile of a case, an intervie"er "ill %ust as! you, you!no", 8ey it souns li!e a great conclusion# If they follo" yourrecommenation, "ill it be enough to accomplish their goal3 &n that's

basically an estimation uestion sort of thro"n in the mile of a case intervie",an it's a very legitimate one# So if they follo" your recommenation, is itenough3 )ill they actually get you "here you "ant to go3

So be a"are if an intervie"er as!s you that, a uestion li!e that, they're basically "anting you to si;e the opportunity that you're recommening or theimpact of the recommenation you're ma!ing, an then to see if that's sufficient#&n so that's something you'll see as you listen to the rest of this recoring, forsomething you "ant to efinitely pay attention to an be able to o#

Caniate 1!ay, got it# So then that "oul lea me to margins an calculating the aitionalrevenue reuire#

01:07:58

Intervie"er Correct, so then your uestion then becomes, /=o" I nee to unerstan is it possible for the ata storage business to gro" probably by 4: percent3 Is it possible to gro" that, an to unerstan that uestion I nee to loo! at the fourareas#0 <ecause, before you "ere as!ing /Can I gro" the business at all ingeneral,0 "hich is a very broa uestion, as oppose to /Can I gro" it enough to


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bring the business bac! to brea! even,0 "hich is more specific#

Caniate Then that "ill put up ne" avenues, an in aition they coul thin! of isposingthe resiential businesses#

Intervie"er &bsolutely, absolutely# &n in fact that "as one of the conclusions in case that Itypically "oul loo! for#

Caniate 1!ay#

Intervie"er (ou see if you structure the frame"or! approach that "ay, it immeiately prompte you to get ri of the resiential# Correct3

Caniate Correct# 8o" else am I going to get this to ;ero, right3

Intervie"er +ight, because if you get ri of the resiential, you7re automatically profitable

immeiately#

Caniate (es#

Intervie"er =o" the uestion then becomes "hich one is easier3 So, any"ay I on7t "ant toget too off trac!, but you7re right, an so I thin!, the subtle thing is if I ha to pinpoint "here the mista!e "as mae, I thin! it "as you assume a little toomuch# &n you assume a little too much !no"lege, an I thin! it le you o"na much tougher uestion to as!, "hich is can you gro" this business as opposeto can this business become profitable again3

)hy on7t you o that calculation, an more precisely introuce the businesssituation frame"or!, given the metrics you are trying to accomplish# Set that up,an then separately I "oul also set up the analysis on the resiential sie of /canthe business be fixe0 an if not, set the right hypothesis, an perhaps you "ant tosell it, or get out of it someho"#

Caniate 1!ay# So that7s interesting "e have profits of 9 million in the ata storage business, o "e have any information on the margin, because "e "ere not reallysure about the exact revenue from this business3 I7 li!e to calculate ho" muchaitional revenue "e "oul nee from this business to ma!e up for the lossesfrom other segments#

01:10:05

Intervie"er Sure, this business oes 9-? million a year in sales this year# It has a total costs base of about 94 million, leaving a 9 million net profit# &n the cost of 94million is about half of it 92 million is from fixe costs, 92 million is variablecosts#


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Caniate 1!ay# 1!ay that7s interesting# So, if "e increase the revenues, so the variablecosts are about 2? percent of the business#


Caniate &n then 2? percent is the fixe cost# =o", "e !no" that the company lost 94million this year, in orer to restore it bac! to profitability "e nee to finaitional 94 million by gro"ing this ata storage business# &n I7 li!e toanaly;e "hether that is possible or not#

Intervie"er &n ho" much "oul you have to gro" this ata storage business by in orer to brea! even3

Caniate Hor 9-? million revenues per unit of costs 9 million of profits, to get 9-? millionof profits I nee to, I7m guessing "e nee to increase the business by t"o thirs#

Intervie"er 1!ay#

Caniate &n to o that, if you increase the sales by t"o thirs it7s about 9-: million ofrevenue, but 92 million of that is going to be fixe costs an about 94 million ofthat is going to be variable costs# So I "oul say about maybe 9: million or 9million of it#

Intervie"er Seems reasonable# @reat, so that7s a pretty goo set up, as you transition togetting more information about the customers, the competitors an "hatnot# Sothat7s one hypothesis, the one analysis, branch of analysis you coul o# )hyon7t you introuce the other options that you coul use to get you bac! to profitability3

Caniate Sure, the other "ay the company coul get bac! to profitability "oul be toeliminate its losses in the other segments, the paper an the resiential segments#&n in orer to o that, it "oul either nee to cut costs, or if that7s not possiblethen maybe ispose of the business#

01:12:11

Intervie"er 1!ay#

Caniate So, I7 li!e to then loo! at "hether it7s possible to cut costs in this segment or not#I guess my next uestion "ill be then if this is a high fixe cost or a variable cost business#

Intervie"er erfect# &n so actually "hat I "oul o is I "oul say on your – if you have ato o list that is separate, I "oul say there are t"o big uestions "e nee toans"er in orer to return this business to profitability can "e gro" the atastorage business by another 9: million in sales, "hich "ill help the business brea!


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even3$ or, can "e reuce the 9-? million loss in the resiential business, either bycutting costs or increasing revenues, an if "e can7t can "e get out of the businessan %ust exit the business entirely3 So those are the three ma%or uestions gro"ata storage, reuce the losses in resiential, or sell resiential# Those are thethree areas I "oul li!e to loo! at, let me start first "ith ata storage, but I7 li!e

to come bac! to those other t"o areas if "e have sufficient time#

Caniate 1!ay#

Intervie"er Something li!e that# &n then on7t forget you i it# on7t forget you7ve got tocome bac!#

Caniate (es, o!ay# I !no" that ma!es a lot of sense once I exhaust that first option then I"oul have a place to go, an having sai this in the beginning I "oul remembergoing bac! to this#

Intervie"er Correct# The other reason to o that is both you an I "ill !no" "hen you7reone# <ecause you exhaust one, you exhaust the secon one, you exhaust thethir, I "oul say t"o of the three on7t "or!, there7s only one option that oes,you have your conclusion, boom, you7re one# &n that7s the same thing "e oin managing an engagement in real life, is "e "oul structure# If I ha threeassociates on my team, I "oul say o!ay, you focus on ata storage, this otherassociate you go focus on trying to return profitability, an the thir you go "or!"ith the ban!ers an let7s see if "e can sell the business# &n each got onemonth, go# &n so the actual scheule you "or! "ill actually be very similar tothat# <ut yes I thin! that "as a very goo structuring an I thin! you sort of pic!e up on "hy to o it an ho" to o it# <efore "e finish up, any sort ofgeneral uestions about anything "e covere toay or anything in general3

Caniate =o, I appreciate your help an it7s been more clear to me# The profitability case"as complex "ith the ifferent segments, an I lost trac! of the ob%ective therefor a "hile, but it7s goo to fin out "here my mista!e "as an %ust restructure it#That "as more clear#

4.2. case 4 storage ex 2 transcript

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