How would you deal with a restructuring case in a tier one or tier two management consulting recruiting interview? Use Porter’s Value Chain!
If faced with a restructuring case in a tier one or tier two management consulting recruiting interview, utilizing Porter's value chain can provide a systematic approach to analyzing different aspects of a company and ensuring that all crucial areas are covered. The framework splits a company's activities into two categories: primary activities and secondary activities.
Priority should be given to primary activities, such as direct or operational purchasing, inbound logistics, and storage. Restructuring these areas can involve conducting an ABC analysis to optimize inventory management, addressing production or assembly issues, and managing outbound logistics and delivery issues. Additionally, services should be focused on, and opportunities to upsell additional products to clients should be created.
Secondary activities play a critical role in the restructuring process, being an important part of Porter’s Value Chain. Infrastructure, which includes general management, finance, controlling, and treasury activities, should be analyzed to minimize the restructuring process's impact. Human resource management and technology should also be taken into consideration to ensure the organization has the right talent and skills for successful restructuring and to empower employees. Procurement is another crucial supporting activity where conducting data analysis and identifying areas for savings are common consulting tasks.
To conclude, applying Porter's Value Chain to a restructuring case in a management consulting interview provides a structured approach to analyze a company's areas of operation and identify synergies. Core activities and supporting activities should be analyzed, which include primary activities like inbound logistics, outbound logistics, and operations, as well as secondary activities like infrastructure, human resource management, technology, and procurement. By utilizing Porter’s Value Chain, candidates can systematically evaluate all aspects of a restructuring case, ensuring a thorough analysis.
Video transcript:
How would you deal with a restructuring case in a tier one or tier 2 management consulting recruiting interview? I think Porter's value chain may be a good starting point. "What it is?" and "Why you should use it?" is the topic of today's video.
I'm Gabriel Goldbrain, inventor of the Goldbrain Success Training. This training will bring you to the next level; it will enable you to succeed in Tier 1 and Tier 2 management consulting recruiting interviews. If you're interested, go to my website www.GabrielGoldbrain.com and apply for my training. And don't forget, if you fail, it's free. It's success-based compensation only, so no money for Goldbrain if you don't succeed, and I want you to succeed.
So, what is Porter's value chain about? I consider it a wonderful tool to go through all areas of a company in a structured way so that you don't miss out any area in a company which matters. Porter separates the activities in a company into two big blocks.
The first block is about core activities; this is where the production takes place, where you have the logistics, the warehousing, and everything related to production. Then he talks about support activities. Support activities are things like HR, where you support the production process, but which are not crucial for the business, not at the core of the business.The framework is tailored to production-oriented companies; it's less suitable for IT companies or asset-light companies, but nevertheless, it may be useful there anyway. Although some of the areas of the core activities may basically are not existing or very thin. Another thing to consider is that you may find yourself in a situation where you have to analyze a business that has three business units. If you have something like this in a case interview, never apply the framework to the whole business but go business unit by business unit, at least for the core activities. Maybe there are some joint functions which you analyze by using the support functions part of the Porter model, but never analyze the whole business and all business units in one pass. So be careful about it because the interviewer might then think you're not structured. You are unstructured!
Let's first discuss the core activities. The first core activity is centered around direct purchasing or operational purchasing, inbound logistics, and storage. So when you're asked to do a restructuring case, ask yourself, could in this area be a problem for the specific business? And if so, you should ask questions that dig deeper in this core activity. You might, for instance, find out that the warehousing has a problem, that they have too large stocks of supplies, and that you need to restructure the warehouse. An ABC analysis of the warehouse and the supplies there might be the right tool. I'm gonna make a video on ABC analysis; make sure you don't miss out and subscribe to my channel.
The second core activity is the most important one; it's the operations activity. This is production or assembly together with quality control. In most cases, the problems of a company are located in this core activity; either it's bad quality, either it's poor production. You will find a lot of improvements in this area, so it's always a hot tip to pretty soon focus on the operations area if a business has problems.
The third core activity is the outbound logistics and delivery. Here you can also find a lot of problems. Things you see happening here is that articles or products are lost or damaged at an incredibly high rate or that shipments go out in the wrong order, that important customers are not served with priority, and so on. There are a lot of problems to talk about in the outbound logistics core activity. You may have an inefficient sales team, or if you're talking about a merger case, you may need to reorganize the sales organization and the marketing organization. So this also is a broad field of activities of management consultants. So you may expect the one or other business case related to sales and marketing organization topics.
The fifth core activity are services. In some industries, services are a very important contributor to the overall profit of the company. A good example is the escalator industry; maintaining and repairing escalators can be a very rewarding and profitable activity for a company. But in other industries, the services area often is neglected, and there is room for improvement, either be it by free services to upsell more of your own products or services which come at a good price performance ratio that you can also use to upsell other or cross-sell other products into a client.
Now let's continue with the supporting activities. The first supporting activity, according to Porter, is infrastructure. This is about general management, finance controlling, treasury, and similar activities. If things go wrong in the infrastructure area, that's typically a general management or a shareholder topic. So they will usually act concerning these matters.
A lot of things can go wrong in the second supporting activity, which is human resource development. You can have a slow recruiting department which has problems quickly hiring candidates. You can have problems with the H pyramid, that the HR department does not proactively manage it, and you can have several other problems that the HR department is not up to speed and does not support the business or the business's needs very well. They may not be able to find suitable candidates quickly enough for certain growing business areas, and they may struggle transferring employees or outplacing business segments which are underperforming.
The third support activity is technology. This includes R&D, process improvement, and IT. There also a lot can go wrong; for instance, you may have an IT department which is not providing adequate software and tools. They may have a wrong priority on IT security versus usability, and so they can slow down a whole organization if they make the wrong decisions and limit the software and resources in an irrational way. Sometimes it's the task of the consultants to get these roadblocks out of the way and to empower the employees with modern software and modern technology. You can also see problems in the R&D department where you see a lot of money is going in, but product-wise they don't produce any new products or any significant new products. So you may have to realign and refocus their activities on products or products to be developed that are attractive, that bring good business, that expand the company's revenues and earnings. This is also often a task where management consultants support.Process optimization is a very important topic because this can save you money and time and also improve the quality or the perceived quality by your customers. If you can deliver orders faster, if you can produce faster, that's what the customers will honor.
The fourth support activity, according to Porter, is procurement, indirect procurement. Here also you see a lot of things going wrong. Sometimes procurement policies are too strict; they have too strong limits on expenses. They make purchasing very bureaucratic. Sometimes they're too lax so that employees spend too much or spend things too easily, that they don't go for competing offers, and therefore, there always is a lot of consulting demand in the purchasing of indirect materials. You may get cases where you have to do ABC analysis, cut through big loads of data and identify where you have problematic things in the purchasing where you can generate savings most easily. Where it's not worth discussing products which you purchase which is not worth discussing or worth limiting, and these are the things you may have to deal with either during your interview process and more likely in your career as a management consultant.
As I mentioned before, Porter's value chain is a nice tool to go through a whole company in a systematic way. It can also be a handy tool for doing a merger. So you basically go through all the areas, and then you identify the synergies by category. And so you have a structured way to browse through the company and identify synergies in a systematic way. It could happen to you that in a recruiting interview, you have to calculate synergies. So remember Porter's value chain to go through the company and systematically check where you can find synergies between the two companies you're provided with. You will get some data; sometimes you may need to ask; sometimes you must develop hypotheses where you think the biggest synergies lie for the companies. And then use Porter's value chain and then do a deep dive in the areas where you think the most synergies can be created.From time to time, you may need to adapt Porter's value chain to the company you're analyzing. For instance, if you're talking about IT companies like Microsoft, for sure, there are two core activities missing which is the inbound and the outbound logistics, but you can discuss most of the other areas because that is also what this company has. So always tailor Porter's value chain to the company you're analyzing. Try to figure out as quickly as possible in which areas is the company thin, where is not a lot of resource required, and then go for the areas where you think a lot of resources or a lot of problems could arise.
I summarized Porter's value chain for you on a slide; you will find it on my website www.GabrielGoldbrain.com. And don't forget to like and share my video.
You must see my video on the SCR method so that you never again sell yourself under value, and also watch my video on Porter's five forces which I did last week. Thanks for liking my video and for subscribing my channel.
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