Consulting Hypothesis Tree: Everything You Need to Know

Hypothesis Tree

A hypothesis tree is a powerful problem-solving framework used by consultants. It takes your hypothesis, your best guess at the solution to your client’s problem, and breaks it down into smaller parts to prove or disprove. With a hypothesis tree, you can focus on what’s important without getting bogged down in details.

Are you feeling overwhelmed during a complex case interview? Try using a hypothesis tree! It’ll help you communicate your insights more effectively, increasing your chances of acing the case.

In this article, we’ll discuss:

  • What a hypothesis tree is, and why it’s important in consulting interviews
  • Differences between a hypothesis tree vs. an issue tree
  • The structure of a hypothesis tree and how to construct one
  • A hypothesis tree example
  • Our 4 tips for using a hypothesis tree effectively in consulting interviews

Let’s get started!

Definition of a Hypothesis Tree and Why It's Important

A hypothesis tree is a tool consultants use to tackle complex problems by organizing potential insights around a central hypothesis. It provides a structured framework for solving problems by forming sub-hypotheses that, if true, support the central hypothesis. This allows consultants to explore problems more effectively and communicate their insights.

Mastering the hypothesis tree can help you stand out in your case interview. It enables you to showcase your problem-solving skills and critical thinking ability by presenting insights and hypotheses in a concise and organized manner. This helps you avoid getting overwhelmed by the complexity of the client’s problem.

Hypothesis trees are not limited to consulting interviews; they are an essential tool in real-world consulting projects! At the beginning of a project, the partner in charge or the manager will create a hypothesis tree to scope the problem, identify potential solutions, and assign project roles. Acting as a “north star,” a hypothesis tree gives a clear direction for the team, aligning their efforts toward solving the problem. Throughout the project, the team can adapt and refine the hypothesis tree as new information emerges.

The terms “hypothesis tree” and “issue tree” are often used interchangeably in consulting. However, it’s important to understand their key differences.

Differences Between a Hypothesis Tree vs. an Issue Tree

The main difference between hypothesis trees and issue trees is their purpose. Hypothesis trees are used to test a specific hypothesis, while issue trees are used to identify all the potential issues related to a problem.

A hypothesis tree is less flexible as it is based on a predetermined hypothesis or set of hypotheses. In contrast, an issue tree can be more flexible in its approach to breaking down a problem and identifying potential solutions.

Let’s look at a client problem and high-level solution frameworks to illustrate the differences: TelCo wants to expand to a new geography. How can we help our client determine their market entry strategy?

If you were to start building a hypothesis tree to explore  this, your hypothesis tree might include:

Hypothesis: TelCo should enter the new market.

  • The new market is attractive.
    • It has immense potential and is growing rapidly.
    • The expansion is forecasted to be profitable as the costs to operate the service in the new market are low.
  • There are few large competitors, and our product has a competitive advantage.
If you were to start forming an issue tree, you might ask questions such as:
  • How attractive is the new market? What is the growth outlook? What is the profitability forecast for this new market?
  • What are the different customer segments?
  • How is our client’s service differentiated from local competitors?
The outcome of a hypothesis tree is typically a validation or invalidation of the hypothesis, while the outcome of an issue tree is a set of prioritized issues that need to be addressed to solve a problem. Let’s learn how to construct a hypothesis tree and then review a detailed example.

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6 Steps to Build a Hypothesis Tree

Here are the 6 steps to build a hypothesis tree. Practice doing these in your mock case interviews!

1. Understand the Problem

Before building a hypothesis tree, you need to understand the problem thoroughly. Gather all the information and data related to the problem. In a case interview, ask clarifying questions after the interviewer has delivered the case problem to help you build a better hypothesis.

2. Brainstorm

Brainstorm and generate as many hypotheses as possible that could solve the problem. Ensure that the hypotheses are MECE. In your interview, you can ask for a few moments to write down your brainstorming before communicating them in a structured way.

3. Organize the Hypotheses

Once you have brainstormed, organize your thoughts into a structured hierarchy. Each hypothesis should be represented as a separate branch in the hierarchy, with supporting hypotheses below.

4. Evaluate the Hypotheses

Evaluate each hypothesis based on its feasibility, relevance, and potential impact on the problem. Eliminate any hypotheses that are unlikely to be valid or don’t provide significant value to the analysis. During your interview, focus on the highest likelihood solutions first. You will not have the time to go through all your hypotheses.

5. Test the Hypotheses

Test your central hypothesis by confirming or refuting each of the sub-hypotheses. If you need data to do this, ask your interviewer for it. Analyze any information you receive and interpret its impact on your hypothesis before moving on. Does it confirm or refute it?

If it refutes your hypothesis, don’t worry. That doesn’t mean you’ve botched your case interview. You just need to pivot to a new hypothesis based on this information.

6. Refine the Hypotheses

Refine the hypothesis tree as you learn more from data or exhibits. You might need to adjust your hypothesis or the structure of the hypothesis tree based on what you learn.

Hypothesis Tree Example

Let’s go back to the TelCo market entry example from earlier. 

Hypothesis Tree Example: TelCo New Market Entry

Hypothesis: TelCo should enter the Indian market and provide internet service. 

Market Opportunity: The Indian market is attractive to TelCo.

    • The Indian telecommunications market is growing rapidly, and there is room for another provider.
    • Margins are higher than in TelCo’s other markets.
    • There is significant demand from local customers.
      • The target customer segments are urban and rural areas with high population densities.
    • The competition is low, and there is an opportunity for a new provider for customers who need reliable and affordable service.

Operational Capabilities: The company has the capacity and resources to operate in India.

      • TelCo can leverage its existing expertise and technology to gain a competitive advantage.
      • TelCo should build out its Indian operations to minimize costs and maximize efficiency.
      • TelCo should consider investing in existing local infrastructure to ensure reliable service delivery.
      • There are potential local companies interested in forming partnerships with Telco.
        • TelCo can explore alliances with technology content providers to offer value-added services to customers.

Regulatory Environment: The local regulators approve of a new provider entering the market.

      • TelCo must ensure compliance with Indian telecommunications regulations.
      • TelCo should also be aware of any upcoming regulatory changes that may impact its business operations.

Overall, this hypothesis tree can help guide the analysis and process to conclude if TelCo should enter the Indian market.

4 Tips for Using a Hypothesis Tree in Your Interview

1. Develop Common Industry Knowledge

By familiarizing yourself with common industry problems and solutions, you can build a foundation of high-level industry knowledge to help you form relevant hypotheses during your case interviews. 

For example, in the mining industry, problems often revolve around declining profitability and extraction quality. Solutions may include reducing waste, optimizing resources, and exploring new sites. 

In retail banking, declining customer satisfaction and retention are common problems. Potential solutions are improving customer service, simplifying communication, and optimizing digital solutions.

Consulting club case books like this one from the Fuqua School of Business frequently have industry overviews you can refer to. 

2. Practice Building Hypothesis Trees

Building a hypothesis tree requires practice. Look for opportunities to practice generating hypotheses in everyday situations, such as when reading news articles or listening to podcasts. This will help you develop your ability to structure your thoughts and ideas quickly and naturally.

3. Use Frameworks to Guide Building a Hypothesis Tree

Remember, you can reference common business frameworks, such as the profitability formula, as inputs to your hypothesis. Use frameworks as a starting point, but don’t be afraid to deviate from them if it leads to a better hypothesis tree.

Interviewers expect candidates to tailor their approach to the specific client situation. Try to think outside the box and consider new perspectives that may not fit neatly into a framework. 

For an overview of common concepts, we have an article on Case Interview Frameworks.

4. Embrace Flexibility

Don’t be afraid to pivot your hypotheses and adjust your approach based on new data or insights. This demonstrates professionalism and openness to feedback, which are highly valued traits in consulting.

Limitations to Using a Hypothesis Tree

Using a Hypothesis Tree in Your Interview

Although hypothesis trees are a helpful tool for problem-solving, they have limitations. 

The team’s expertise and understanding of the problem are crucial to generating a complete and accurate hypothesis. Relying on a hypothesis tree poses the risk of confirmation bias, as the team may unconsciously favor a solution based on past experiences. This is particularly risky in rapidly evolving industries, such as healthcare technology, where solutions that have worked for past clients may no longer be relevant due to regulatory changes.

A hypothesis tree can also be inflexible in incorporating new information mid-project. It may accidentally limit creativity if teams potentially overlook alternative solutions. 

It’s important to be aware of these limitations and use a hypothesis tree with other problem-solving methods.

Other Consulting Concepts Related to Hypothesis Trees

Several concepts in consulting are related to hypothesis trees. They all provide a structure for problem-solving and analysis. Each has its unique strengths and applications, and consultants may use a combination of these concepts depending on the specific needs of the problem.

Let’s look at some concepts:

  • Issue Trees: As mentioned earlier in the article, issue trees are similar to hypothesis trees, but instead of starting with a hypothesis, they start with a problem and break it down into smaller, more manageable issues. Issue trees are often used to identify a problem’s root cause and to prioritize which sub-issues to focus on. If you want to learn more, we have a detailed explanation of Issue Trees.
  • MECE Structure: MECE stands for mutually exclusive, collectively exhaustive. It is used to organize information and ensure that all possible options are considered. It is often used in conjunction with a hypothesis tree to ensure that all potential hypotheses are considered and that there is no overlap in the analysis. For an overview of the MECE Case Structure, check out our article.
  • Pyramid Principle: This is a communication framework for structuring presentations, such as case interviews. It starts with a hypothesis and three to four key arguments, each with supporting evidence. You can use it throughout the case for structuring and communicating ideas, such as at the beginning of a case interview to synthesize your thoughts or when  brainstorming ideas in a structured way. To better understand why this tool is valuable, we have a deep dive into The Pyramid Principle.
  • Hypothesis-Driven Approach: This is an approach to problem-solving where consultants begin by forming a hypothesis after understanding 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. To see more examples, read our article on how to apply a Hypothesis-Driven Approach.

– – – – – – –

In this article, we’ve covered:

  • Understanding the purpose of a hypothesis tree
  • What is different about a hypothesis tree vs. issue tree?
  • How to build a hypothesis tree
  • A hypothesis tree example
  • 4 tips on how to successfully use a hypothesis tree in your consulting case interview
  • Other consulting concepts that are related to hypothesis trees

Still have questions?

If you have more questions about building a hypothesis tree, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

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