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Case Interview Fundamentals: Lesson 18 [How to Adapt Your Frameworks] — Transcript

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0:00In the previous videos in this module,
0:02I've shown you how to choose between
0:04issue trees and conceptual frameworks
0:06when structuring a case. I've shown you
0:09the anatomy of the 3 C's framework to
0:11solve business strategy problems, and
0:14I've shown you a proven four-step
0:16approach to use your frameworks. Be it
0:19the 3 C's or some other framework. In
0:23this video, I will show you how to adapt
0:25your frameworks so that you can have
0:27highly specific conceptual frameworks
0:30for any problem that you solve.
0:33This will make your frameworks much more
0:35valuable to solve the specific problem
0:38you get for a case, and it will also
0:41make them more unique. So, you're
0:43showing your interviewer your own
0:46thinking, and not the same memorized
0:48framework that the last candidate
0:50regurgitated a while ago.
0:53I will specifically teach you how to
0:55adapt the 3 C's to any business
0:58situation, but you can also use the same
1:01logic that I'll show you here to adapt
1:03any framework to a similar situation.
1:06I'll use the 3 C's instead of others
1:09because, as I've shown you in the last
1:11video, it is actually a super versatile
1:14framework that you can use in a wide
1:16variety of cases, especially once you
1:19learn to adapt it well, which is the
1:21goal of this video. So, let's jump right
1:23in. If you remember from the video that
1:26I went through with you about the 3 C's,
1:28there are three key decision-makers in
1:31every competitive market. There are the
1:34customers who decide what they will buy,
1:36if anything at all. There are your
1:38competitors who decide how will they
1:41manage their strengths, weaknesses, and
1:44resources to serve those customers'
1:46needs and desires. And then there's your
1:49own company or your client company,
1:51which will decide the same thing as your
1:53competitors given their own strengths,
1:57weaknesses, and resources. This is true
2:00because every market is the sum of all
2:03its transactions, and each transaction
2:06happens because these three
2:08decision-makers are making their own
2:10decisions. However, in some markets, in
2:15most markets, there's more going on.
2:19Adding those other things going on that
2:21may impact the transactions as extra
2:24categories in your framework is one of
2:26the two powerful ways to make your
2:28framework super specific to the problem
2:31you're solving. Adding these extra
2:33categories is what we call adapting the
2:373 C's. What's the other way to make your
2:40framework specific, you ask? Simple. It
2:43is to make the questions and issues
2:46within your categories problem-specific.
2:49So, a framework that has all the right
2:51specific categories and the relevant
2:54specific questions within each category
2:57to solve the client's problem is a
2:59highly specific framework that can
3:02uniquely solve this case and only works
3:05perfectly for this specific case. And
3:08that's what we're aiming for when we
3:10build frameworks. Unique categories and
3:14unique questions within each category,
3:17all of which working together to solve
3:20the problem your client has. Now, I dare
3:23to say that if you have a framework with
3:25unique categories, if you have each
3:28category
3:29uh filled with unique questions, and if
3:32you can justify each question with
3:34hypotheses that make sense and you can
3:36test each of those hypotheses, I dare to
3:39say that if you have all of these
3:41elements combined, that your interviewer
3:44will absolutely know that you're
3:47actually thinking about the problem and
3:49not being another framework robot. And
3:52this alone puts you in the top 10% of
3:55candidates. All right. So, I've gone
3:58through how to make your issues
4:00problem-specific
4:01and and doing the hypothesis and the
4:03tests when discussing steps two, three,
4:07and four in the four-step approach to
4:09use frameworks. This means that we will
4:13focus on adding extra specific
4:17categories in this video. So, how do we
4:19add new categories? Well, we have to
4:22find other things besides the customers,
4:26the competition, and your company that
4:29can affect how transactions are made in
4:32this market and which transactions will
4:34be made in your market. And there are
4:37three types of things like that. Number
4:39one, other decision-makers that happen
4:43to be key in a specific market. Number
4:46two, direct interfaces between those
4:49decision-makers.
4:51And number three, structural factors,
4:54which I'll loosely call rules of the
4:57game. So, let's start with other key
5:00decision-makers and build our reasoning
5:03from there.
5:05So, let's go back to first principles.
5:08It is always true that any market has a
5:12supply side that makes and sell goods
5:14and services, and a demand side that
5:18purchases and uses goods and services.
5:21On the demand side, the customers are
5:24always important. And on the supply
5:26side, your company and your competitors
5:30are always important. These three
5:32players are always important, which is
5:34why the 3 C's are a thing. And these
5:37three key decision-makers should always
5:39be understood well if the problem is a
5:42business competitive strategy problem.
5:46But some problems, most problems, have
5:49more relevant players to be understood,
5:51too. In many industries, such as the
5:53consumer goods industry, for example,
5:55the distribution channels are an
5:57incredibly important link between supply
6:01and demand. Not only are they involved
6:03in almost every transaction, they also
6:06take decisions to maximize their own
6:09profit. And these decisions are not
6:11always obvious, and they're not always
6:14what's best for the final customer.
6:17Think of a shampoo manufacturer, for
6:19example. If they only think about their
6:21final customer and their competitors,
6:24they may miss opportunities to increase
6:27the visibility of their products in the
6:29retail space. And they could also miss
6:31threats from these channels, such as
6:34them coming up with their own private
6:36label brands or making partnerships with
6:39your competitors or restocking your
6:42products poorly. To give you a very
6:45specific example, it could be that this
6:48shampoo company finds out a way to
6:51package their product that customers
6:53love. And this is important because, you
6:57know, you use your shampoo in the
6:58shower, so the packaging is kind of a
7:00big deal. But it could also be that the
7:03same type of packaging would make it so
7:06difficult for retailers to stock your
7:09products in their shelves that they
7:11choose not even to sell the product.
7:14This is a selfish reason for this
7:16distribution channels to take that
7:18action. And a selfish reason that could
7:21harm both your company and your
7:24customers. But it's a decision that
7:26could still make sense to them, which is
7:28why we should study distribution
7:30channels if that were the case that we
7:33were solving. Let me give you another
7:35example of an industry that would need
7:37to think deeply about their distribution
7:39channels in most decisions they make,
7:42the airline industry. It's feasible to
7:45think that one airline can outperform
7:48others because they work so well with
7:50their distribution channels, such as the
7:52websites that sell their air tickets. It
7:55is also feasible to think that it would
7:57take just one of these websites to stop
8:00selling your tickets to severely harm an
8:03airline business. But distribution
8:05channels are not that important in many
8:07other markets. In the B2B software
8:09industry, for example, most companies
8:12have sales forces dedicated to go up to
8:14their customers directly and sell. They
8:17don't need a third-party distribution
8:19channel to do that for them.
8:21Here's another example of a
8:23decision-maker that is key in many, but
8:26not all industries, the suppliers.
8:29While they would rarely change the
8:31competitive positioning of a shampoo
8:33manufacturer or even an airline, they
8:36make a world of difference in the
8:38automotive industry. Any auto company
8:41that wants to make cars at a lower cost,
8:45with more predictability in their supply
8:47chain, and at a higher quality, has to
8:50work long-term with their suppliers and
8:53is exposed to decisions that they make
8:56for themselves. For example, if an
8:58automotive supplier decided to skimp on
9:01their quality controls, that could
9:03disrupt the whole chain of production of
9:06an auto manufacturer and cost them
9:09millions of dollars.
9:11If an auto company wants to launch a
9:12new, innovative car design that has
9:16unique parts, they need to worry about
9:18finding suppliers to make these new,
9:20unique parts. And there are many reasons
9:23why making these specific parts would
9:25not be feasible or even make sense to
9:28any supplier available.
9:30Suppliers are also important in other
9:33industries, such as smartphone
9:35manufacturing and the high-end
9:37restaurant kind of Michelin star
9:39restaurant industry. Now, I want you to
9:42notice something here. While suppliers
9:45are extremely relevant to most strategic
9:47decisions in an auto company,
9:50distribution channels rarely are. And
9:52what I mean here is not that auto
9:54companies don't need distribution
9:56channels, but that because they usually
9:58control them,
10:00they rarely have real leverage on
10:03whether an auto company is going to sell
10:05more cars or not. And this means that
10:08the auto companies don't need to
10:10carefully study that specific part of
10:13the system when making most of their
10:16decisions.
10:17Here's another key decision maker that
10:19is relevant in some industries,
10:22employees.
10:23Don't get me wrong. Having enough
10:25competent skilled labor is important in
10:28any industry, but just a few of them
10:31have to think of their workforce as a
10:34key source of threat and opportunity.
10:38That is the case in industries as
10:39diverse as consulting, software
10:42development, biotech, and professional
10:45sports teams.
10:47A consulting firm, a software house, or
10:50a football team that isn't able to
10:52attract, train, and retain the very best
10:56professionals in the market is doomed to
10:59lag behind competitors and eventually
11:01fail.
11:02In a consulting firm, for example, the
11:04quality of their professional force is
11:07one of the key strategic components of
11:09their business, which is why they spend
11:11so much time and effort trying to hire
11:14people like you.
11:16It is the reason why they promise so
11:18much professional development after you
11:20get in.
11:21It's the kind of promise that attracts
11:23the best people and also helps them
11:25reach their full potential in their
11:28careers.
11:29Another key decision maker to many
11:31industries, the government.
11:34These guys are important in any highly
11:36regulated industry such as utilities,
11:39airline, pharma, basic education, and so
11:43on.
11:44These companies need to consider the
11:46government as a decision maker in their
11:48market. And if they don't, they're
11:51taking high risks that their strategy
11:53will not work out. There are even some
11:56industries where the government is the
11:58single most important player to
12:00consider, such as the military defense
12:02industry and the pharma industry in
12:04countries with a high reliance in public
12:08health care. In these situations, the
12:10government has a dual role of regulator
12:13and major buyer of the goods and
12:15services being offered.
12:17Other examples of key decision makers,
12:20investors. They're important in
12:22scenarios such as startups and companies
12:25working on a project finance basis, such
12:28as companies specialized in building
12:30private infrastructure projects.
12:33The academia, super relevant for biotech
12:36firms as well as other non-software
12:40high-tech fields.
12:42For some B2B companies, their customer's
12:45customer might change their strategy.
12:48And there are even some other decision
12:50makers that are extremely specific to
12:52some industries, such as doctors who are
12:55key to the markets of many
12:57pharmaceutical drugs, especially
12:59specialized drugs.
13:01Teachers who would be key to a publisher
13:04of textbooks, for example, and so on.
13:08Okay, so that's one way to adapt the
13:10three Cs to your specific case.
13:14You should find the other key decision
13:16makers that really matter for the
13:18situation you're studying and that don't
13:21necessarily matter for other situations,
13:24other industries.
13:26Is this an exhaustive list of all
13:28possible key decision makers? Not at
13:30all. It's impossible to come up with
13:33such a list, but this is a good guide on
13:36how to think through this.
13:38Find key decision makers in the supply
13:40side or in the demand side or making the
13:43bridge between supply and demand.
13:46For these decision makers to be key,
13:49they need to, out of their own interest,
13:52be able to make or influence decisions
13:55that would affect a large portion of the
13:58transactions in your market. If they
14:01can't do that, if they can't make
14:03decisions or influence decisions for a
14:07large portion of transactions in your
14:08market, then they have no real control
14:12over market and you can safely ignore
14:14them.
14:15Other key decision makers are the most
14:18important type of category that you
14:20should add to the three Cs in order to
14:23make your framework stronger. You can't
14:26ignore these other key players when
14:29creating a strategy for your clients
14:31because they matter in their specific
14:34industry or situation.
14:36In a few markets, you're not going to
14:38find any relevant ones and in that case,
14:41you should just stick to the three Cs.
14:44However, in most markets, you should be
14:46able to find at least one or two key
14:49decision makers on top of the three Cs
14:52that would be important.
14:55But regardless of sticking to the three
14:57Cs or adding a couple other key decision
15:01makers to your framework, there's
15:03another type of thing that could become
15:05a category in your framework on its own.
15:09Direct interfaces between decision
15:12makers. Let's explore them.
15:14Direct interfaces are critical ways
15:17decision makers interact with each
15:20other. In some situations, if the
15:22interface that makes two players
15:24interact change, the decisions they take
15:28might change as well.
15:30And it is in these situations that you
15:32want to create categories specifically
15:35for the interfaces.
15:38The most commonly used interface type
15:40category in case interviews is the
15:43product. It is an interface of how
15:46customers relate to your company and to
15:49your competitors. It is such a widely
15:52used category that there's a widely
15:54known framework called the business
15:56situation framework, which is simply the
15:58three Cs with the product added on to
16:01it.
16:02Most people don't even think about
16:04whether they should include the product
16:06as a category or not because in most
16:09cases, it does indeed make sense to look
16:13at the products in the market with a lot
16:16of care.
16:17The reason why it is usually worth it to
16:20make it a category for the product is
16:22because this is usually the most
16:24important consideration that customers
16:27take into account when deciding to buy
16:29from you or from your competitors. It is
16:33also usually multifaceted enough, so
16:36you'll have more than a couple questions
16:38to ask about and issues to consider.
16:42Still, I would not use the product
16:45category of analysis in every single
16:48structure that I made. In some
16:50industries such as utilities and
16:52commodity businesses, there are just one
16:55or two highly relevant questions about
16:57the product and you could ask those
17:00within the company and the competition
17:02buckets.
17:03Your products are part of your company,
17:05after all, and your competitors'
17:07products are part of their company. So,
17:10the decision to create a category
17:12exclusively for products and taking the
17:15questions about products out of the
17:17company and the competitor buckets
17:20depends on if they're a small part of
17:22the problem or a big part of the
17:24problem. To give you an example, let's
17:27say that we're doing a case about
17:29revenue growth in an electricity
17:31distributor. There are just a couple of
17:34considerations that a customer who has
17:36to choose among two electricity
17:38providers has about the product. For
17:41example, the downtime, the volatility of
17:44frequency, and the price. And these
17:47things can be explored as one issue
17:50within the company and one issue within
17:53the competitors bucket. In fact, I think
17:56it makes much more sense to do so
17:59because these things are more related to
18:01the infrastructure
18:02and the cost curve of these companies
18:04than to the product per se, which is
18:07merely energy.
18:08Now, this wouldn't be true at all if
18:11you're a smartphone manufacturer. In
18:13that case, the customer will interact
18:16way more with the product itself than
18:19with the company in general.
18:21In that case, your structure would
18:23probably be stronger if you separated
18:26the product category from the company
18:29category because, well, the product and
18:31the company are actually two different
18:33things, you know, my iPhone is different
18:35from Apple
18:37as a company. Now, while everyone
18:40remembers the product category, no one
18:43considers other interfaces.
18:46Take unions, for example. They're the
18:48interface between the employees and the
18:51company and its competitors.
18:53In some specific situations, such as the
18:56downsizing of a large manufacturer, for
18:58example, I would include unions as a
19:01category of analysis because they may
19:04have the power to limit our options.
19:07Another example of an interface is
19:10cartels. They're the interface between a
19:13company and its competitors.
19:15Most cases are in normal businesses in
19:18free economy markets and in these cases,
19:21cartels are illegal. But if you get a
19:24case in a situation where there is a
19:26cartel and you ignore it, you're
19:29probably leaving a ton of insight on the
19:32table. So, if you got a case on an oil
19:34company and you ignore the OPEC, for
19:36example, you're at risk of giving bad
19:39advice.
19:41Another example of an industry under
19:43strong influence of a cartel is the
19:45diamond market
19:46as just a few companies control
19:49production and pricing.
19:51Here's another example of an interface,
19:53regulatory agencies. These are the
19:56governmental bodies that control
19:58specific markets such as banking,
20:00airlines, telecommunications.
20:03You don't always have to include
20:05interfaces such as these ones in your
20:08framework. Many frameworks work just
20:11fine with just the key decision makers.
20:14But if there is a critical interface
20:17that could change a recommendation if
20:20studied in depth, you should use it,
20:22too.
20:23They will rarely be the most important
20:25components in your structure, but they
20:27may give you some nuance that will help
20:31you find insights that would
20:33differentiate you from other candidates.
20:37Now, the third type of category that you
20:39can add in your frameworks is typically
20:42even less important than direct
20:44interfaces. But they too may help you
20:47uncover critical insights in some
20:50specific situations. These are the
20:52structural factors.
20:55They're not specific players, and
20:57they're not direct interfaces between
20:59these players.
21:01They're kind of the rules of the game
21:03being played. Let's explore that.
21:08Underlying the limited world of the
21:11specific market you're studying,
21:13underlying the limited world of supply
21:16and demand, there's a broader world
21:19going on. When you add that to your
21:21framework, you can think of some of the
21:23broader aspects that influence both
21:26supply and demand. Some of the aspects
21:28that influence every single player in
21:31this market. And if you find one that is
21:34particularly important to the specific
21:37problem you're solving, it may be worth
21:39of a whole category in your framework.
21:43You can think of things such as
21:44technology, the country's
21:46infrastructure,
21:48the environment,
21:50the economy,
21:52the law,
21:53culture and social beliefs. So, just to
21:56give you a couple of examples. Suppose
21:58you're solving a case on whether or not
22:00a client should buy land in Africa or
22:03South America to grow crops.
22:06Any framework that doesn't consider an
22:09environmental study of whether or not
22:12this land will be as productive in the
22:14future due to climate change is
22:17short-sighted. People buy land as
22:19multi-decade investments. So, that study
22:22would help understand the risks.
22:25Another example. If you're a company
22:28like Twitter trying to define its
22:30long-term strategy, the culture and
22:33social beliefs around media, privacy,
22:36and such things become important.
22:38Twitter shouldn't just think about its
22:41direct customers because many of their
22:43users are public figures such as
22:45journalists and politicians. So, the
22:48overall social beliefs around what they
22:51do and what's what's their role to the
22:53world become important to consider.
22:57Now, I rarely use structural factors in
23:00my frameworks because their influence is
23:03usually captured in a more direct way as
23:07they influence each of the key players
23:09we'll study. The law, for example,
23:11already influences your company, your
23:13competitors, and the government. The
23:16culture and social beliefs already
23:18influence how your customers and how
23:20other players in the market behave.
23:23Still, in some cases, such as the two
23:25examples I mentioned, the the company
23:28trying to buy land to grow crops in the
23:30long term and the Twitter strategy, in
23:33some cases, this critical information
23:36isn't fully captured in the key players.
23:39And this usually happens because the
23:41rules of the game are changing. The
23:44environment is changing, and that may
23:47affect a crop grower. The culture around
23:50social media is changing, and that may
23:52affect Twitter.
23:54When the rules of the game change, you
23:56need to be extra wary for which
23:59structural factors are contributing to
24:01that change. You may or may not want to
24:04add them to your structure.
24:07So, this is how you adapt the three Cs
24:09to create highly customized frameworks.
24:11You add other categories of analysis to
24:14the core framework that are highly
24:17relevant to your specific situation. And
24:20these categories come from three main
24:22types.
24:23They're the other key decision makers
24:25beyond the three Cs
24:27that are relevant to your specific
24:29situation.
24:30There are the key direct interfaces
24:32between these key decision makers that
24:35are relevant and that may change how
24:37these decision makers change make their
24:40decisions. And there are the structural
24:42factors that may change the rules of the
24:45game.
24:46But star candidates do something extra.
24:50Instead of just memorizing a ton of
24:52options like you see on the screen and
24:54replicating them, they also see options
24:58analogous to the ones that I just
25:00mentioned, so they can make their
25:02categories more specific. Let me go
25:05through that with you.
25:07So, what I've shown you in the previous
25:09slides are pretty generic categories
25:11that you can use as you see fit.
25:14But you want to create a framework
25:16specifically for the problem that you
25:19have at hand.
25:20And the best way to do it is to think of
25:23which traditional categories
25:26make sense to your case, but then name
25:28them into an expanded or specific
25:32meaning to solve the specific problem
25:35you have at hand. For example, one
25:37traditional area to explore is
25:39competitors.
25:41While you can, in many cases, use the
25:44plain old competitors bucket, you can
25:47also have a bucket specifically for your
25:50direct competitors
25:52and another one for indirect
25:54competitors. So, for example, if your
25:57client makes plastic packaging for food
26:00products, an indirect competitor would
26:03be a company that makes aluminum
26:05packaging for food products.
26:07Or another option you have is to merge
26:10these two categories into a category
26:12called direct and indirect competitors.
26:17This makes your structure slightly
26:20stronger than just calling it
26:22competitors because you're showing the
26:24interviewer that you're aware that in
26:26that specific situation, in that
26:29specific industry, indirect competitors
26:32are as important as direct competitors.
26:35Not every industry is like that.
26:38Here's another way you can add nuance.
26:40If you're in an industry that is prone
26:42to new entrants and they could affect
26:44your strategy, you could add a bucket on
26:47them. Sure, you could talk about them
26:50within competitors, but in some
26:52early-stage, high-growth industries,
26:55they could be even more important than
26:57your current competitors, so they may
26:59deserve a category on their own.
27:02That could also be true if you're a
27:04local player in a market that's quickly
27:07being taken over by global companies.
27:10These new entrants could wreak havoc in
27:12your market, so you want to prepare for
27:14that when you're making strategy.
27:17And a simple way to make your structure
27:19more specific is if you're in the market
27:22that has just one competitor, you can
27:25call it by name instead of using the
27:28generic term competitors. I know this
27:31sounds silly, but most candidates
27:33actually use the generic term because
27:36that's what comes in their minds, and
27:38but that sounds unnatural to the
27:40interviewer.
27:41And it also sounds like you would use a
27:44generic term to your client instead of
27:47the more specific one even when there's
27:50no reason for that.
27:52Now, other examples of making your
27:54categories more specific. In some
27:56markets, besides talking about the
27:59products, it's also worth talking about
28:02the substitutes.
28:04The customer is always important, but in
28:07some markets, the decision maker of the
28:10purchase is not the end customer, so you
28:12have to factor that person out as well.
28:15And as the distribution channels make
28:18the physical bridge between supply and
28:20demand, in a lot of markets, there's
28:23also a bridge of awareness and meaning
28:26done by the media and influencers.
28:29Naming the categories in a way that
28:31makes more sense and is more specific to
28:34your case is super important for the
28:36same reasons that you want to make your
28:38issues within each category problem
28:41specific. The less generic and the more
28:44specific you are, the better you'll be
28:47at solving your client's problems, and
28:50it'll also make the perception of your
28:53interviewer uh that your interviewer and
28:56your clients have of you much, much
28:58better.
29:00Now, let's pause for a second. There are
29:02three main concerns that most people
29:04have at this point. Concern number one
29:07is how to prioritize all this.
29:10What are the categories that happen the
29:12most so that you don't forget them?
29:15Concern number two is how many
29:17categories should I have in a single
29:19framework? And concern number three is
29:22that some people can't see how this
29:25technique will generate a MECE
29:28framework. Let me help you out with
29:30these three issues so that I can be more
29:32confident in using this technique to
29:34adapt your frameworks. First, let me
29:36show you the categories from this video
29:39in order of priority. As we know, there
29:42are three types of categories to add on
29:44top of the three Cs. Number one, key
29:47decision makers. Number two, direct
29:51interfaces between those decision
29:53makers. And number three, structural
29:55factors, the rules of the game that go
29:58way beyond the specific market that
30:01we're studying.
30:02Now, some of these categories happen
30:05fairly frequent in cases. Let's say that
30:09each of these appear in 10% of cases or
30:12more. So, the product category here
30:15should be relevant in far more than 10%
30:18of business strategy cases, say 60 or
30:2070% of them. While the supplier category
30:23will be relevant in about 10% of cases.
30:27The percentages don't really matter. I'm
30:29just giving you a rule of thumb so you
30:31know what I'm calling a fairly frequent
30:34category here.
30:35Now, you don't want to be overwhelmed
30:38when adapting your framework. So, when
30:41you're starting out, you should focus on
30:43seeing if any of these five categories
30:46you see on screen should be added to
30:48your framework as you build it. When
30:50starting out, you can disregard all
30:52others. Just focus on these five and
30:55you'll be able to add one relevant
30:57category or two and that will already
31:00make your framework better.
31:02Then, once you're comfortable with these
31:04ones and once you have internalized them
31:07and you don't need to make an effort to
31:09remember them in case they're relevant,
31:12you can focus on the not frequent
31:14categories.
31:16These are those that could be relevant
31:18in about 1 to 10% of cases each. Now,
31:22you notice that there are more
31:24interfaces and structural factors here,
31:26as well as decision makers that have
31:28less influence in most markets. Now,
31:31this pattern doesn't have any profound
31:34meaning or anything. It's just my guess
31:36about their frequency and it's a good
31:38guess because I've seen thousands of
31:40cases over the years. So, you can
31:43have a rough idea of how frequent these
31:46categories should appear.
31:48Your goal is to try to internalize these
31:51categories so that they pop up in your
31:54head if they're relevant to the case.
31:56Your goal is not to memorize them or
31:59anything. Now, that said, you can have a
32:02checklist of this as you start
32:04practicing just to make sure that you
32:09learn, but then dump the checklist later
32:11on because of course you won't have that
32:13in your interview.
32:15Then, there are the categories that are
32:17so rare that you've probably never seen
32:20them. I haven't seen many of these and
32:23that's okay. Once you internalize the
32:26logic of thinking through decision
32:28makers, direct interfaces, and
32:31structural factors, you'll be able to
32:33reason from first principles what is
32:36important without having to run down a
32:38list in your head as you build your
32:41framework. Now, if you want, go ahead
32:44and take a screenshot of this slide and
32:46have it with you as you build your next
32:49few structures. This may help you choose
32:52which categories you want to have in
32:53your framework without needing to worry
32:55about remembering them.
32:57Needless to say, this is not an
32:59exhaustive list.
33:00So, you may want to think for yourself
33:03if there's another category that is not
33:05in this list that would make sense to
33:07your case. Now, one thing people ask me
33:11a lot, how many categories should I have
33:14in my framework? And the answer is that
33:16there's no one right answer. Some cases
33:19are well solved with the three C's
33:21alone, while others are so complex that
33:25they heavily involve six or seven
33:28players, interfaces, and structural
33:31factors.
33:32You'll be able to solve most cases well
33:34with four to five categories. And that
33:37includes the three C's, so you just have
33:39to add the one or two categories that
33:42make the most difference to the case
33:44you're solving and that makes things a
33:47lot easier.
33:48Now, there is a reason for this four to
33:51five category figure.
33:53You will want to focus only on the
33:55categories that really matter. And in
33:58most markets, there's not that much
34:00stuff that really matters beyond the
34:03customers, the competition, and your
34:05company.
34:06Anyway, the other question that I get a
34:09lot is how is this going to generate a
34:12MECE structure? Great question. Now,
34:16this way of building frameworks
34:17guarantees mutually exclusiveness
34:21and achieves the right balance between
34:23being exhaustive and being 80/20. Let me
34:27explain. The reason why you achieve no
34:31overlaps and achieve a mutually
34:33exclusive framework is because a key
34:36decision maker is never an interface
34:41and an interface is never a structural
34:44factor.
34:45They're all different by nature.
34:48Now, within each of these types, there's
34:50no overlap either, right? Each key
34:52decision makers always different from
34:54each other and also each interface is
34:58always different from each other and
35:00each structural factor is different from
35:02each other. So, unless you really mess
35:04up and have, for example, a product
35:07category but also talk about products
35:09within company and competition, then
35:12your framework will always be mutually
35:15exclusive.
35:16Period. Now, to achieve MECE, you also
35:19need it to be collectively exhaustive,
35:22so no gaps. And the easiest way to
35:24achieve that would be to add all
35:26categories that I've shown you
35:28throughout this video and then some
35:30more. This would make your framework
35:32fully MECE.
35:34But you don't want just MECE. You also
35:37want it to be relevant. That's why
35:40consultants tell you to be 80/20 so you
35:42can focus on your time on what really
35:46matters. Being relevant is as important
35:50as being MECE in consulting. So, instead
35:54of just putting all 17 categories you
35:56see on screen plus some more, you pick
36:00and choose the ones that will be more
36:02relevant to your case and then you add
36:04them to the three C's, which are always
36:07relevant for business strategy cases as
36:10we've seen in the previous video.
36:13Doing this will make your framework 99%
36:17exhaustive and super to the point, the
36:20best of both worlds.
36:22All right, so enough with theory. Let me
36:25put all of this in practice along with
36:27the four steps I've shown you in the
36:29previous video to building communicate
36:31frameworks so you can see how a good
36:34framework is actually done. All right,
36:37so I'll create a framework using the
36:39four-step approach and the techniques
36:41for adapting the three C's that I taught
36:43in this video. Feel free to pause the
36:45video after I show you the key question
36:47to build your own framework so you can
36:49get some practice if you want.
36:51So, here's the case question.
36:54Your client is a global food company, so
36:56think Nestle or Unilever,
36:59uh that is thinking of acquiring a
37:01growing European company focused on
37:04healthy snacks made of organic,
37:07ethically sourced ingredients. Should
37:10they do it? All right, so the first step
37:12is to define the case well so we can
37:15structure it.
37:16Here are the three questions I'd ask to
37:19define this case better.
37:21Number one, do they have a specific
37:23reason to wanting to buy this company?
37:26Number two, do they want to expand this
37:29company's products outside of Europe or
37:32just stay in the European market? And
37:34number three, are they looking at other
37:36targets as well? Now, suppose the
37:38interviewer tells me that they think the
37:41healthy organic snacks segment will be
37:43relevant in the future and so they want
37:46to be involved in it for strategic
37:48reasons.
37:49Uh they could expand outside of Europe
37:52in the future, but for now they just
37:54uh uh want to play on the European
37:56market with this new company.
37:58And they might consider other targets
38:01later, but for now they just want to
38:03know if
38:04if acquiring this specific company makes
38:07sense.
38:09Uh now, notice that the first question I
38:12asked was there to define the objective
38:15better and this is helpful because if I
38:17don't understand why this company wants
38:20to acquire the other company, then I'd
38:22have to make a lot of unnecessary
38:24assumptions that I'd rather not have to
38:27make. And the other two questions were
38:29helpful because they limit the scope of
38:32the case. It's easier to solve a
38:34one-target acquisition case in one
38:36market than a multi-target acquisition
38:39case in multiple markets.
38:42Okay? So, one type of clarifying
38:44question that I didn't ask was one
38:46related to business model. And the
38:49reason why I didn't ask that is because
38:51I'm fairly confident about how the
38:53packaged food uh
38:55industry works and how a company in this
38:57industry makes money. All right, so now
39:01that I have a well-defined problem, I
39:03want to structure my case.
39:06Should I go with an issue tree or a
39:08conceptual framework at this point?
39:10In this case, I want to go with a
39:12conceptual framework because the problem
39:15is strategic and the company is not just
39:18looking at increasing profits or any
39:20other metric for that matter. Right? So,
39:23to have a good logical issue tree, you
39:26need a well-defined metric to optimize
39:28for. And this problem is more long-term,
39:31more complex, more contextual, and it
39:34will make more sense to look at the
39:36whole market and all of the players
39:38involved. Cool. All right, so since
39:42we're going with a conceptual framework
39:44and this is a business case on
39:46competitive strategy, I'll use the three
39:48C's and then adapt it.
39:51From now on, I will just show you how I
39:53present my framework to the interviewer
39:56as I think this is the best way for you
39:58to understand how everything fits
40:00together. And you'll notice three things
40:03as I present it.
40:04The first is that I will walk the
40:07interviewer through all categories first
40:09and then for each category move forth
40:12and back between issues and their
40:14hypothesis. You only see the issues on
40:17the screen.
40:18Uh
40:19but I'll speak about the hypothesis and
40:22once in a while I'll also hint at the
40:24test that I would use to test the
40:27hypothesis. Now, this last step isn't
40:28necessary, but I thought that you'd like
40:31to see how this is done.
40:33You also notice that the phrasing I use
40:35for the categories and the issues is
40:37super specific to the problem. And this
40:40shows specificity
40:41and professionalism to the interviewer.
40:44And the last thing that you'll notice is
40:46that the presentation's fast-paced and
40:49presented like a plan to understand the
40:51situation and find an answer to our
40:54client.
40:55Okay, ready? If you want to pause the
40:57video and do the structure as a first
41:00drill, an unofficial drill,
41:03uh now's the time to do it, okay?
41:04Because I will start speaking the
41:06structure from now on.
41:08So, to help this client understand if
41:11they should acquire this new healthy
41:14snack food company, I'd look into five
41:16major areas or categories. The first one
41:19is the customers. I want to validate the
41:22fit of this acquisition with the demand
41:25side of the market, see if this is
41:27really a relevant trend. Then I would
41:30look into the target and I want to
41:32understand if they're strong enough
41:34player and if we can add value to them
41:37after we acquire.
41:39Uh then I'd look into the company and
41:41understand our abilities. First to do
41:44this uh by ourselves and perhaps create
41:48uh uh a business like this instead of
41:51acquiring one. Also, our abilities to do
41:53the acquisition and then to add value
41:56once we do the acquisition if we do it.
41:59Fourth area I want to look at are the
42:01competitors and I want to get a sense of
42:03their moves in this market in the near
42:05future. And finally, the suppliers
42:08because I want to understand if this
42:11business can grow on the supply side of
42:13things if demand is actually that
42:16promising. So, starting with the
42:18customer, there are two main things I
42:20want to look at. The first is if there's
42:22growing demand in healthy organic
42:25snacks. And the the underlying reasoning
42:28here is to confirm the client's
42:29hypothesis that this is a strategically
42:32important market. The second thing I
42:35want to look within customers is their
42:37perception of our brand and the target's
42:40brand. And the hypothesis is that their
42:43brand may have some conflicts in
42:45positioning with ours. So, to give an
42:48example, they're a family business
42:50against mass production of food and
42:52we're a huge global food company. And if
42:54that is the case, it could put the
42:57acquisition at check. Right? Uh now,
43:00within the target, there are two main
43:01things I want to look at I again. The
43:04first one is their performance against
43:07their competitors. And the hypothesis is
43:11that they underperform competitors only
43:15in ways that we could add value. For
43:17example, distribution efficiency,
43:20marketing. And or that they don't
43:23underperform competitors at all.
43:25Both of these things would be good. The
43:28bad uh scenario would be if they
43:30underperformed competitors in things
43:32that we cannot add value and that are
43:34important in this industry. Now, I know
43:36it's kind of hard to measure uh
43:38performance by area in a private
43:42company, but we
43:44I I would do this by gathering as many
43:46indicators and benchmarks as we can.
43:49Uh
43:50And then obviously, if we move forward
43:53with this idea, we could do due
43:55diligence with them. Uh the second thing
43:57I'd look at within the target is their
44:00financial and organizational health. And
44:02there are two underlying hypotheses
44:04here. The hypothesis for the financial
44:07side is that even if they're profitable,
44:11maybe we could buy them cheaply
44:13uh if they're lacking capital to fuel
44:15their growth. So, if they're in a growth
44:17market and they're a small company uh
44:20and they're growing a lot, maybe
44:22uh their financial position is harming
44:26them on their growth and then we could
44:28jump in at this time with a huge uh
44:31uh
44:32with a huge bank account and and fuel
44:34that growth for them and buy them more
44:36cheaply because of that. And then on the
44:38organizational side uh my hypothesis is
44:41that perhaps because this is a
44:44fast-growth market and company, it has
44:47created a lot of organizational problems
44:49in their processes. Maybe their systems,
44:52their chain of command. And this could
44:55make it extra hard to absorb them into
44:58our organizational structure.
45:00Uh Perhaps even hindering the
45:02acquisition. And I think this is pretty
45:04hard to measure, but one way we could do
45:07it is to interview former employees,
45:09suppliers
45:11uh and other parties.
45:13Now, within the company, I think this is
45:16our company, the global food company. I
45:18think this is one of the main uh
45:21main areas. I think there's three things
45:23that we need to assess. The first one is
45:25if we have the ability to enter this
45:27market by ourselves.
45:29And the hypothesis obviously is that we
45:32if we can start up a competing brand
45:34quickly, we may not even need to
45:36acquire. Now, it may still even make
45:38sense to acquire so that we can do this
45:41even faster and learn with their with
45:44their experience. Uh but maybe it's
45:47cheaper to do it uh by ourselves and it
45:50may make more sense. Now, the second
45:53thing is our historical abilities in
45:56acquiring other companies like this. And
45:59by like this, I mean in this type of
46:01market
46:02uh or growing as fast as this.
46:05And
46:07because if we don't have the ability to
46:09make acquisitions like this work then it
46:12may not even make sense to do this even
46:14if it would be a good thing in case we
46:17had the abilities.
46:19And the third thing the third this is
46:21kind of my
46:22my hypothesis is that we can bring
46:25revenue and cost synergies to the table.
46:27Uh maybe we can improve their marketing
46:31and distribution of products creating
46:33more demand, more volume, and also price
46:36premiums. Maybe we can bring on the cost
46:38side operational efficiencies uh such as
46:42better purchasing and negotiation with
46:44suppliers or even manufacturing
46:47efficiencies. And these things could
46:49improve their bottom line because we
46:51have some knowledge or size that they
46:54don't.
46:56Now, under competitors
46:59I would look at two major things. The
47:01first is I would look at our
47:04competitors' M&A and product launch
47:07activity in this market. And by
47:08competitor here, I mean all other global
47:10food companies.
47:12Uh I won't look at other targets because
47:15I think it was pretty clear that they
47:17want to look at this specific target for
47:19now, not others.
47:21But I want to know if our competitors
47:23are even considering
47:25to uh a- either acquire companies like
47:28these or launch products in this market.
47:32And this is kind of extra validation of
47:34the strategic importance of this market
47:36in the future. Now, if they're not doing
47:38anything, this doesn't mean we're wrong.
47:41We could be the first uh guys thinking
47:44about this, but I think this would be
47:46pretty unusual and would put a question
47:48mark on that assumption. And the second
47:51thing I'd look at within our competitors
47:54is their likelihood to try to acquire
47:58the same uh the same company, the same
48:01target or a competitor of that target.
48:04And we could do this by looking at the
48:06news, for example. Uh but the idea is
48:12or the hypothesis here is that we may
48:14need to do this deal very carefully not
48:17to be on in the weaker side of the
48:19negotiation table and overpay this.
48:22Because if our uh
48:25say we announce we're thinking of buying
48:27this company or a company in this uh
48:30in this space, this may trigger a
48:36an arms race of acquiring strong
48:39companies in this space, which would
48:40drive the cost of acquiring these
48:43companies up. And finally, with
48:45suppliers, I think this is pretty
48:47important. I want to know the ability of
48:52increasing volumes of uh of acqui- of
48:55buying uh raw materials with current or
48:59new suppliers without losing quality.
49:02And the hypothesis here is
49:04this is a growing market, there may be
49:07volume synergies, and this all means
49:10that we could need more raw materials
49:12because we're thinking of growing.
49:15Now, this company's positioned as
49:17organic, healthy, ethically sourced raw
49:22materials. And these types of
49:24ingredients are often hard to scale
49:27production.
49:29Uh
49:31So, for example, certain nuts uh the
49:34they you You to grow trees, which take
49:37years to grow that and we may not even
49:40be able to grow that fast because of a
49:42supply constraint. And I just want to
49:45check that before we do that because
49:47maybe on the demand side of things
49:49things are great. But on the supply side
49:52there could be problems. I wouldn't
49:54worry too much about manufacturing and
49:56things like this because we can just uh
49:59invest in case it's worth it. But uh on
50:02the raw material ingredient side of
50:04things
50:05uh this would be important.
50:08And
50:10what I would start is
50:13just checking with the customers
50:15quickly, the brand analysis and the
50:17demand analysis.
50:19Uh and then I'd move right into the
50:21target to see if they are actually a
50:24good target in terms of performance uh
50:28competitive performance, financial, and
50:29organizational health.
50:32And that's it. That's how I adapt and
50:34present a framework to an interviewer.
50:37Now, I took a whole 9 minutes to
50:40communicate this framework. This may be
50:42too long, especially at BCG and Bain. At
50:46McKinsey, you can
50:47uh communicate a pretty thorough
50:49framework. So, why did I take so long to
50:52do it? It's simple. I gave hypothesis
50:56for every single issue in this
50:57framework. And I counted after recording
51:00this. I'm actually speaking to you now
51:02after I recorded the framework so I
51:04could count. And of the 9 minutes, 5
51:07minutes and 15 seconds were used to
51:10explain the hypothesis. Now, the reason
51:13why I did it, the reason why I explained
51:16every single
51:17uh hypothesis behind every single issue
51:20is so you could understand why each
51:23thing was there in this framework. And
51:26in this course and in other courses, I
51:28will often uh on the longer side of
51:30explaining my structures better so that
51:33you can learn. But in a real interview,
51:35you may want to go a little quicker. And
51:37the way to do that is not to make your
51:40framework less comprehensive, but to
51:42explain less hypothesis. You just need
51:45to explain a few of them instead of all
51:48of them. And by doing that, you could
51:50easily cut 4 minutes of your
51:52presentation as the hypothesis part is
51:55the one that takes longer to go through.
51:57And if you do that, you'll be down to 5
51:59minutes to present a thorough,
52:02comprehensive framework, which is well
52:04within the best practices of candidates
52:06who get multiple offers.
52:09Just another note here. This is not a
52:11perfect framework and there are many
52:13other ways to do it. For example, you
52:15could argue that the product category
52:17would be very useful here. Or at least
52:19that studying the products within the
52:21target category, so our target
52:25uh product portfolio would make sense to
52:27see how it looks like. You could also
52:30argue otherwise. You could say who cares
52:31about the specifics of their product
52:33portfolio if they're performing well
52:36financially and if customers like their
52:38brand, we as a global food company could
52:41fine-tune the product portfolio after we
52:44acquire them. Now, you may have also
52:47thought about other issues that I didn't
52:50in this framework and this is normal.
52:53There is no one right answer, but there
52:55are many good answers that you can give.
52:58If your framework solves about 90% of
53:00the problem, it's good enough for the
53:02interview.
53:03Now, if you didn't mention one or even a
53:06few of the issues that I did, my advice
53:09to you is to think about why that issue
53:11would be important. And if you think it
53:13is indeed important, then to use similar
53:17ideas in the future
53:19uh if you get a a case that is similar
53:21to this one.
53:22When you're at the stage of preparing
53:25for the interview, it's much more
53:27important to learn as you do cases and
53:29drills than to obsess over not making
53:33mistakes. Uh
53:34you know, you're practicing. You're not
53:36performing yet.
53:38With that said, this is the end of this
53:41video and now's the time for you to go
53:43uh do a couple of drills to solidify
53:46your learnings into practice. So, I'll
53:48see you in the next video, which is a
53:50drill and there's another one after
53:51that. And then I'll teach you how to
53:53create completely brand new structures
53:57from scratch.

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