The most important skill you need in management consulting and strategy jobs

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You probably know about marketing, engineering, finance, accounting... but are you familiar with strategy?

To some, it is the holy grail of what it means to work in “business.” It is one of those functions that intrigues many students and at the same time is most poorly understood.

To me, a strategist is someone who uses logic and analysis to craft solutions to complex business problems.

Some popular roles that are strategy-heavy include:

  1. Management Consulting
  2. Corporate Strategy
  3. Product Strategy
  4. Business Operations and Strategy

For students and recent graduates, the most popular path to get into strategy is through management consulting. A consultant is simply an external strategist for clients.

These clients are often Fortune 500 companies, which pay $500k+/month for a team of 4-6 management consultants to help analyze and fix their business problems. Yup that’s a lot of money to pay for some consultants who don’t know much about your company. But that’s also why the bar for consulting (and other strategy jobs) is very high -- the potential for big impact on a company comes with big responsibility, and employers need to make sure they are hiring the best and brightest.

During my time at UC Berkeley, I was involved with a student consulting club where many of us had a strong interest in strategy jobs. By surrounding myself with people who were motivated to land these exclusive job offers, I was able to learn from them and improve my chances of doing well in the recruiting process.

The good news is it’s okay if you don’t have a consulting club on campus or a bunch of friends who have the same interest -- that’s what this blog is for. All the advice about cold emailing and landing interviews are lessons I’ve learned through my recruiting process and helping friends with similarly competitive jobs.

Yes, it’s harder to break in if you don’t go to a fancy brand-name school but it is possible and many have done it.

I’ve also found that once you prepare for strategy interviews, other job interviews tend to be easier by comparison. This is because strategy jobs focus on assessing your business intuition and problem solving ability at the same time. Some of you may see where I’m going with this -- I’m talking about a case interview.

A case interview is a common interview format where you are given a lofty business problem and are asked to to use logic to find a solution. They usually take 30-45 minutes and include lots of data, PowerPoint charts, and other materials that you must analyze to make a recommendation.

Case interview-type questions also apply to many other competitive jobs outside of strategy roles. Companies like to ask brain teasers or other forms of logic problems, and these problems are often testing your problem solving ability. I’ve found it incredibly valuable to practice this skill for my interviews and current job.

Here’s a basic example: “Your client is Toys-R-Us and they have been experiencing declining profits over the past 5 years. The CEO has hired you to figure out what is going on and how to turn the company around.”

Ambiguous? 100%.

Difficult? Sure.

Impossible? Certainly not.

After enough practice, you’ll retrain your brain to think like a strategist and will become much more comfortable at cracking these problems.

The key to solving case interviews is to use structure and logic. Interviewers always care more about your thought process and structure rather than the actual answer you get to.

Here are 2 (of many) ways to solve case interviews and difficult business problems:

Case interview problem solving method #1 -- What would have to be true?

Phrase the problem as a yes or no question, then ask yourself "what would have to be true in order to say yes"

Question: Your client is a foreign investor who wants to take down a highway and build real estate over it. Should she do it?

What would have to be true in order for it to be worthwhile for this foreign investor to invest in this project?

3 primary things must be true in order for this investment to be profitable.

  1. Assuming the investor is primarily interested in financial return, this investment is only successful if the return is positive.

What must be true for the return to be positive? The revenue from the investment must be greater than the cost.

  1. Revenue:
  1. Selling real estate -- maybe houses or condos
  2. Renting out real estate -- apartments or commercial facilities
  3. Other ways to generate revenue?
  4. How long will the real estate last? Maybe it won’t be livable after 20 years

        2. Costs:

  1. Purchasing price of the freeway 
  2. Cost to tear down freeway
  3. Cost to build real estate
  4. Cost to maintain real estate
  1. The return (profit minus investment cost) must be higher than any other projects she could also invest in with the same amount of money (opportunity cost).
  2. She must be an experienced investor who is able to take on a massive project like this.

            1. Will she be able to clear any regulatory hurdles (Is it possible to buy a freeway?).  

           2. Does she have the know-how to build real estate?

Therefore, if our analysis shows that

  1. the investment will generate a positive return
  2. the return is higher than any other project she could otherwise invest in
  3. she has the ability to execute on this project

… then she SHOULD invest in this project.

Notice how each number represents a question or category of information that does not belong under the heading of another number. For example, revenue information from number 1 does not belong under her personal abilities in number 3. Yet both are absolutely necessary in finding the final answer to the problem.

This is called being mutually exclusive collectively exhaustive (MECE) -- one of the most important problem solving concepts. That’s business jargon for: make sure your ideas fall into distinct categories and that all categories combined fully solve the problem.

If you can think of an important question that needs an answer before solving the problem and it is not currently in one of your buckets, then by definition you are not being MECE.

Case interview problem solving method #2 -- First principles thinking

Distill the question to its most basic elements by  assuming as little as possible. This is Elon Musk's and Reed Hasting's (CEO of Netflix) favorite way to solve problems

Many experts objected to Elon Musk founding Tesla with some variation of the following:

“You're crazy to start an electric car company. Batteries are too expensive, they cost $600/KwH!”

There’s a few assumptions baked into that statement:

  1. Who said Elon has to use batteries? Is there any other way to build an electric car without the use of batteries? The answer to this question could be hidden in a PhD’s laboratory as the next great innovation.
  2. Too expensive = impossible? If someone tries to sell something and the input costs are too expensive does that automatically mean no one will buy it? I’m sure Elon could have sold expensive, high-end sports cars to a small number of customers (hint: that’s exactly what he did when he started Tesla when the battery costs were too high)
  3. Are batteries really too expensive?  Is there a way to buy cheaper batteries or is it literally impossible to get batteries for less than $600/KwH. What if you make them yourself?

There are more hidden assumptions in the original statement (depending on how extreme you are with breaking things down), but these are the 3 that stick out to me. By breaking down the problem (electric car company is impossible because batteries are too expensive) into its core assumptions, we can look for specific solutions to ultimately solve the overall problem.

Continuing with this example, let’s take a look at Elon’s thought process to the assertion that batteries are too expensive.

Elon’s thinking: What is a battery? The universe doesn’t just say “hey, here are batteries and you must pay this price to get them”

Batteries are man made. Specifically, they are combination of raw materials + chemical process to manufacture. Upon further research, Elon found that the total price of the raw materials (cobalt, nickel, aluminum, and carbon) is $80/KwH.

Elon’s insight: Clearly batteries CAN be cheaper--they just need to be manufactured in a way that is lower cost than it is today.

Interesting… figuring out how to get cheaper batteries would be a huge win for Elon in his quest to build an electric car company.

Given that he can buy the raw materials cheaply, the next question is will the cost of manufacturing batteries go down in the future or will it always remain the same?

li-ion battery pack cost image

And as you can see here, the price of batteries (purple line) is expected to go down significantly until around 2026. Meanwhile the production quantity is expected to rise drastically.

This is likely because of more efficient manufacturing techniques that were not available in the past.

By distilling the problem down to its most basic components we can see that Elon is not so crazy for thinking he can build an electric car company.

When using first principles thinking to solve case interviews or business problems, focus on breaking down the question into its absolute smallest truths. By getting rid of every assumption, first principles forces you to be MECE (mutually exclusive collectively exhaustive) and therefore find a high-quality answer.

More info on First Principles Thinking can be found here.

Wrapping Up

There are many great resources out there for improving your performance at solving case interview questions. Just like the SATs, the more you practice and flex this muscle the better you will become.  

A great way to practice this is to apply it in your everyday life. Whether you’re standing in line at the store or choosing an entrée off the menu, ask yourself what the key drivers are to making this decision and use your problem solving to get to an answer. For example:

  • Do I want chocolate or coffee ice cream? If my metric for success is that I want the flavor the tastes the best, how do I define that? Would my answer change if I just ate an entire chocolate cake 1 hour ago?
  • How many people are in this grocery store right now? How would that number change if it was Sunday evening and why?
  • How much would we value a lightbulb that never burns out? What are the key drivers of the price of a lightbulb?

A little ridiculous, I know… but the more you practice the better you will get. Just try not to annoy your friends by over-analyzing the menu at dinner.

If you are interested in a consulting or strategy-related career, use everyday problems as practice!

For bonus points reply back with your framework to answer the original case interview question from earlier: Your client is Toys-R-Us and they have been experiencing declining profits over the past 5 years. The CEO has hired you to figure out what is going on and how to turn the company around.

Most people won't reply because of the effort to write that email -- if you are serious about business problem solving I strongly encourage you to practice building this framework and reply.

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