A hypothesis-driven approach in consulting is a structured method of problem-solving. Consultants formulate a hypothesis for the solution to a business problem, then gather data to support or disprove it.
Cracking a case interview can be a daunting task, with a wide range of potential solutions and approaches to consider. However, using a hypothesis-driven approach is a systematic and effective problem-solving method. It will impress your interviewer and demonstrate your readiness for a career in consulting.
In this article, we will talk about:
- The definitions of a hypothesis and a hypothesis-driven approach
- The differences between a hypothesis-driven approach and a non-hypothesis-driven approach
- An example of how to solve a case using both approaches
- Our 5-step process for using a hypothesis-driven approach to solve consulting cases
Let’s get started!
Contents
What Is a Hypothesis & a Hypothesis-Driven Approach?
Hypothesis
In the realm of science, the term “hypothesis” is used to describe a proposed explanation for a question or phenomenon, based on limited evidence, as a starting point for further investigation. Similarly, consultants act as scientists or as doctors solving their clients’ business problems, constantly forming and testing hypotheses to identify the best solutions.
The key phrase here is “starting point,” as a hypothesis is an educated guess at the solution, formed from currently available information. As more data is gathered, the hypothesis may be adjusted or even discarded entirely.
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Hypothesis-Driven Approach
Consultants are engaged to efficiently and effectively solve their clients’ problems and assist in making critical business decisions. With the vast amount of data available and an array of options to consider, it can be overwhelming to examine everything. Time constraints on projects make it imperative that consultants avoid getting bogged down in excessive analysis and questioning, without making meaningful progress toward a recommendation.
Instead, consultants begin by forming a hypothesis after gaining an understanding of the client’s problem and high-level range of possibilities. Then, they gather data to test the initial hypothesis. If the data disproves the hypothesis, the consultants repeat the process with the next best hypothesis. This method of problem-solving is commonly used by top consulting firms, such as McKinsey.
Differences Between a Hypothesis-Driven Approach vs. Non-Hypothesis-Driven Approach
A non-hypothesis-driven approach is the opposite of a hypothesis-driven approach. Instead of forming a hypothesis, the individual makes a recommendation only after thoroughly evaluating all data and possibilities. This approach may rely on intuition, trial and error, or exhaustively exploring all options to solve the problem. This is not an efficient method for a case interview, where time is limited.
An analogy that illustrates the distinction between the two methods is to look at problem-solving as trying to find a needle in a haystack. A non-hypothesis-driven approach would involve randomly searching through the entire stack without any clear strategy.
On the other hand, a hypothesis-driven approach would involve dividing the haystack into smaller piles, and systematically searching through one section at a time. The searcher would gather information from the person who lost the needle, such as their location when it was lost, to identify the most likely pile to search first. This not only saves time but also increases the likelihood of finding the needle. If the needle is not found in the initial pile, the search can then move on to the next most probable pile.
Solving a Case Interview Using the Hypothesis-Driven Approach vs. the Non-Hypothesis-Driven Approach
To further illustrate the advantages of a hypothesis-driven approach, let’s examine two different approaches to the same case interview example. We’ll compare and contrast these approaches, highlighting the key distinctions between them. By the end, you’ll have a clear understanding of the benefits of using a hypothesis-driven approach in problem-solving.
The client is SnackCo, a consumer goods company that manufactures and sells trail mixes in the United States. Over the past decade, SnackCo has seen significant growth following the launch of premium trail mix products, capitalizing on the trend toward healthier snacking options. Despite this success, the company’s operations have remained unchanged for the past decade. SnackCo is asking for your help to improve its bottom line.
Let’s look at how two candidates, Alex and Julie, solve the same case.
The Non-Hypothesis-Driven Approach
After hearing this prompt, Alex jumps right into listing possible questions related to how to improve the bottom line.
Alex: I understand SnackCo wants to improve profitability. Here are some questions I want to look into. Has SnackCo’s retail prices remained the same in recent years?
Interviewer: No, SnackCo has adjusted prices quite closely to what competitive products are selling at.
Alex: Oh interesting. Are consumers willing to pay more for premium trail mix? Do we know if we are underpricing?
Interviewer: SnackCo’s Director of Sales strongly believes that they should not change product prices. He believes the consumers love the product and it is priced fairly.
Alex: Got it. Has the client’s market share decreased?
Interviewer: No, the market share has increased over the years.
Alex: In that case, it seems like our growth is fine. Have the costs increased?
Interviewer: SnackCo has not made many changes to its costs and operations in the last decade. What are some ways we can help them look at their cost savings opportunities?
Although Alex is making progress and may eventually solve the case, his communication style gives the impression that he is randomly guessing at the sources of the problem, rather than using logical reasoning and structure to pinpoint the solution.
The Hypothesis-Driven Approach
Julie has prepared for her case interviews with My Consulting Offer’s coaches so she is well-versed in the hypothesis-driven approach.
After hearing the same prompt, she takes a moment to write down the key issues she wants to dig into to solve this case and organizes her thoughts.
Julie: For the goal of improving profitability, we could look at how to improve revenue or decrease costs. For revenue, we could look at if prices or volumes have changed. Since the client said they haven’t made any changes to the business operations in the last decade, I would like to start with a better understanding of their costs. However, before we begin, I want to confirm if there have been any changes to prices or volumes recently.
Interviewer: SnackCo’s Director of Sales strongly believes that they should not change product prices. They also believe the volumes have grown well as SnackCo is one of the market leaders now.
Julie: Great. That confirms what I was thinking. It’s likely a cost problem. We could look at their variable costs, such as ingredients, or fixed costs, such as manufacturing facilities. Given that this is an established business, I would assume their fixed costs are likely consistent. Therefore, let’s start with their variable costs.
Interviewer: How should we think about variable costs?
Julie: Variable costs for SnackCo likely include ingredients, packaging, and freight. The levers they could pull to reduce these costs would be through supplier relationships or changing the product composition.
Julie quickly identifies that variable costs are likely the problem and has a structured approach to understanding which opportunities to explore.
Key Differences
The interviewer is looking for candidates with strong problem-solving and communication skills, which are the qualities of a good consultant. Let’s look at how the two candidates performed.
Problem-Solving
Alex’s approach to solving the client’s problem was haphazard, as he posed a series of seemingly unrelated questions in no particular order. This method felt more like a rapid-fire Q&A session rather than a structured problem-solving approach.
On the other hand, Julie takes a structured and analytical approach to address profitability concerns. She quickly realizes that while revenue is one factor of profitability, it is likely costs that are the main concern, as they haven’t changed much in the last decade. She then breaks down the major cost categories and concludes that variable costs are the most likely opportunity for cost reduction. Julie is laser-focused on the client’s goal and efficiently gets to a solution.
Communication
Alex is not making a positive initial impression. If this were an actual client interaction, his questioning would appear disorganized and unprofessional.
On the other hand, Julie appears more organized through her clear communication style. She only considers the most pertinent issues at hand (i.e., the client’s business operations and costs) and avoids going down irrelevant rabbit holes.
Our 5-Step Process for Using the Hypothesis-Driven Mindset to Solve Cases
- Understand the client’s problem; ask clarifying questions if needed.
- Formulate an issue tree to break down the problem into smaller parts.
- State the initial hypothesis and key assumptions to be tested.
- Gather and analyze information to prove or disprove the hypothesis; do not panic if the hypothesis is disproven.
- Pivot the hypothesis if necessary and repeat step 4. Otherwise, make your recommendation on what the client can do to solve their problem.
Other helpful tips to remember when using the hypothesis-driven approach:
- Stay focused on the client’s problem and remember what the end goal is.
- Think outside the box and consider new perspectives beyond traditional frameworks. The basic case interview frameworks are useful to understand but interviewers expect candidates to tailor to the specific client situation.
- Clearly communicate assumptions and implications throughout the interview; don’t assume the interviewer can read your mind.
Other Consulting Tools that Will Strengthen Your Problem-Solving
A hypothesis-driven approach is closely tied to other key consulting concepts, such as issue trees, MECE, and 80/20. Let’s take a closer look at these topics and how they relate.
Issue Trees
Issue trees, also known as decision trees, are visual tools that break down complex business problems into smaller, more manageable parts. In a consulting interview, candidates use the issue tree to outline key issues and potential factors in the client’s problem, demonstrating their understanding of the situation. This structure is then used to guide the case discussion, starting with the candidate’s best hypothesis, represented as one branch of the issue tree. For more information and examples of issue trees, check out our issue tree post.
MECE
During the interview process, consulting firms look for candidates who can demonstrate a MECE (mutually exclusive and collectively exhaustive) approach to problem-solving, which involves breaking down complex issues into distinct, non-overlapping components.
A MECE approach in case interviews involves identifying all potential paths to solving a client’s problem at a high level. This allows the candidate to form an initial hypothesis with confidence that no potential solutions have been overlooked. To gain a deeper understanding, read our comprehensive guide on the MECE case structure.
80/20 Rule
Consultants use the 80/20 rule, also known as the Pareto principle, to prioritize their efforts and focus on the most important things. This principle states that 80% of effects come from 20% of causes, which means a small number of issues often drive a large portion of the problem. By identifying and focusing on the key issues, consultants can achieve significant results with relatively minimal resources.
By following these tips and developing a solid understanding of the hypothesis-driven approach to case-solving, you will have the necessary tools to excel in your case interview. For more interview resources, check out Our Ultimate Guide to Case Interview Prep.
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In this article, we’ve covered:
- Explanations of a hypothesis and hypothesis-driven approach
- Comparison between a hypothesis-driven approach and a non-hypothesis-driven approach
- Examples of the same case using both approaches and the key differences
- Practical tips on how to develop a hypothesis-driven mindset to ace the case
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