Case Interview Starter Guide for Non-business Candidates
It is said that management consulting is for everybody and people with backgrounds outside of business can compete in case interview just as well as anybody and very little-to-no business background is needed for case interviews.
NO, it doesn’t work like that!
Hi, my name is Kim Tran, a former McKinsey consultant and the founder of the platform Management Consulting Prep.
Even though all consulting firms claim that the consulting career is for everybody of all education backgrounds. But no matter what, case interview always involve a few business concepts. For non-business students, this may bother you from the actual study of case interview skills.
So I hope through this very compact blog post, I will be able to provide you, non-business people, everything you need before starting to learn cases just like a business student. If you are already a business student, you may skip to the later part – Chapter 4. This latter section may contain some contents that not all business students know.
This article is presented using the 80:20 principle. 20% of business knowledge can get you 80% as equipped as normal business students. We will select most basic but high-impact terms and concepts. We divided this into 4 chapters:
- 1: Accounting and financial terms
- 2: How a company is typically organized
- 3: Business Strategy concepts
- 4: Management Consulting terms& concepts
Chapter 1: Accounting & Financials, the language of business!
Well, it takes accounting students years to learn these all concepts, but I will try my best to do it under 5 minutes.
There are three legendary Financial Statements: Balance Sheet, Income Statement, and Cash Flow
Balance Sheet is like a snapshot of the current stage of the company’s property, debt, and ownership AT one given point in time. Sure enough, the balance sheet shows three figures …:
- Assets: what the company owns: Building, Equipment, Cash, Inventory, along with some other intangible items as well.
- Liabilities: what the company owes: Loans, bills to be paid, etc. Debt is like negative assets.
- Take Asset subtract Debt, we have the “net worth” or “book value” of the company. It’s called Equity.
The neat thing about the Balance sheet is that it’s ALWAYS balanced. Every action, every transaction changes the three components but it’s always in harmony. A few examples:
- Take cash to pay debt? Both Assets and Liabilities reduced.
- Owners invest more money in the company? Assets and Equity both increased.
- Sold a service for some cash? Assets increases and so is the equity. We will talk about the mechanic of how Equity really changes in moreadvanced videos.
Above, I showed you a few important components of the three big parts: Assets, Liabilities, and Equity you may need to know. Sometimes they are categorized in one or other way, but most of the times you can easily grasp them.
Next, Financial Statement: the Income Statement, sometimes called the Profit& Loss, or P&L.
While the balance sheet is a snapshot at a given time, the Income Statement records the business performance through a period of time, says a quarter, a year. The Income Statement directly tells you how the company is doing in terms of making money, the heart of any business. From the top to bottom, the Income Statement showsthe Revenues, Costs, and Profits. That’s why often times, Profits is referred to as the “bottom line”.
While Revenue is straight forward, Cost has a number of tricky components. Here are a few most frequently-mentioned types of Costs:
- The Cost of Goods Sold: refers to the direct cost of the product or service sold. For example, if I sold you a $5 T-shirt which I bought at the price of $3 earlier from Walmart, then my revenue is $5, my Cost of Goods Sold is $3.
- Marketing Expenses
- Administration Expense
- Depreciation & Amortization: these are interesting types of cost because they are non-cash. It involves a big cost the company paysupfront for a big thing. But that big thing adds values over a long period of time and therefore being allocated throughout a longer period. An example of depreciation would be the cost of a building allocated throughout decades. Amortization is just the different version of depreciation used for intangible assets, such as patents, licenses, etc.
- Interest Expense
- and lastly, Tax
Depending on specific needs and conditions, companies break down the Statement into various further steps down the stream, along with a percentage of the total revenue, called “margin”. For example, we have:
- Gross Profit, which is just Revenue subtracts Cost of Goods Sold;along with this, we have “Gross margin percentage”
- EBITDA <pronounced “e bit da”>, which stands for Earnings Before Interest, Tax, Depreciation & Amortization; along with this we have “EBITDA margin percentage”
- EBIT, which stands for Earnings Before Interest and Tax; along with which we have “EBIT margin percentage”
One important thing to notice is that even though it may seem like, but the Income Statement does NOT necessarily relate to the cash and any money factor. Many of the times, especially for “Business to business” transactions, the selling happens before the money flow. So we may have to record a revenue without having the cash yet.
So how do we keep track of the cash? That leads to the third Financial Statement: the Cash Flow Statement.
There’s a famous saying that: Income statement is an opinion, Cash Flow statement is the fact. Interesting hah?
The Cashflow statement just strictly monitors the cash flow in or out, categorized in different sections. Three of them are: Operation, Financial and Investing.
Ok, so that the brief overview of all what accounting students learn during their colleges. These basic terms and concepts should help you have a head start in the realm of business.
Chapter 2: How a company is typically organized?
When it comes to that, it is important to notice the fine line between company’s ownership & management.
Technically, at the highest level, there are shareholders. Each share, or stock represents a part of company’s ownership. For private companies, the group of shareholders and their shares are not necessarily disclosed and publically tradable. For public companies, on the other hand, shares are publically traded on different stock exchanges. One of the most famous is the NYSE, stands for New York Stock Exchange.
Now a company can have one, a few, or millions of individual owners. So having that many people directly involved in companies’ decisions is not a good idea. That’s why they do it indirectly, through something called “the Board of Directors“, or sometimes “the Board“. They are a group of people elected by owners to help govern the company. The head of the Board is called the “Chairman” or the “President“. Technically, this is the highest position for a single person in a company.
Now while the Board does a lot of important work, they are not there to do the dirty day-to-day work. The board usually hires a management team to do that. The head of the management team is called Chief Executive Officer, or the CEO. The CEO is the highest position on the management side, making every decision on the day-to-day work. Most of the time, the board of directors doesn’t directly intervene in the CEO’s work, but they reserve the right to fire CEOs.
As I said before, the Board is not really there to work. It’s there to lead. So to further help them do that, there’s a committee called Supervisor. The supervisor’s job is to independently monitor the CEO and the management team and report up to the Board.
Now come an interesting part, below CEOs, there are two generally two ways of structuring the company. One way is through business lines and the other one is through functions. Think of business lines as mini companies themselves inside the big company.
Within functions, here are a few most typical divisions most companies have:
- Accounting: incharge of keeping the record of all companies’ transactions and making meaningful reports based on them.
- Finance: incharge of managing the money aspect. I often think of finance as how to not having too little cash and also how to not having too much Having that much cash sitting around and doing nothing is a waste of resources and companies usually involve in various investment activities to best utilize it.
- Marketing: now the definition of marketing can vary by a huge number of factors. To me, I often think of marketing as how to put the company in the position to sell as much as possible. This involves doing branding, communications, setting up pricing policies, developing distribution channels, and last but not least, to orient the products.
- Sales! In many companies, Sales &Marketing are put together. But there’s a slight separating line. Marketing is about putting ourselves in the position so that people can find us, quite a passive way. Sales, on the other hand, is to actively go out and sell products.
- Operation: incharge of running the company, making it efficient. This is so big that sometimes we have the notion that COO, Chief Operation Officer, is, in fact, the vice-CEO.
- Product Development & Research: incharge of making the product either it’s tangible or intangible.
- Strategy: in charge of planning and monitoring business performance to achieve goals and objectives. This is probably one of the most underrated division of all companies. Many companies don’t even have a strategy department, making it by default the role of the Board and CEO. This is where companies like McKinsey, Bain, and BCG often come to help.
Chapter 3: Business strategy concepts
Ok, here comes the part where even some business students may need to hear as well, especially if you are not a strategy major.
I am going to give you some of the most basic concepts about “strategy”, which you will need to use a lot if you become a management consultant.
- Organization: In general, this refers to “how a company is organized, what are different components that make up acompany”. Organization is often presented through “Org Charts”. Here’s an example of the Org chart of … my family. We have “mommy” as the big boss, “daddy” as the big boss’s assistant, and various business lines represented by my brothers and sisters.
- Governance: This refers to how a company is managed and directed, how well the leader team runs. The leader team includes Board of Directors (BOD) and Board of Managers (BOM). A company with good governance has good leadership people, tight control, and effective check & balance processes, etc.
My family has an amazing governance. Dad and mom’s roles are very clear. They hold a brief meeting with us every day through our dinner. And once a week, we sat down together for on big meeting, where big family issues are discussed and voted if necessary. They even have all the children act as supervisors, monitoring the activities ofeach other; and many many more.
- Process: This is like rules and common practices of having a number of processes, entailing every single activity. A process design should include 4 factors: who, what, when, and accompanied tools.
For example, let’s look at my family’s Excursion process (see the video).
- The who part is presented on the y-axis, left-hand side, labeling all departments, a.k.a: family members, involved.
- The what part is presented through the big midsession with each box represents each single activity.
- The when and tools parts are presented at the bottom
- B2B vs B2C: stand for “Business-to-business” and “business-to-customers”. These two terms refer to two types of transactions a company typically does: transactions with other companies and transactions with individual customers.
- Bottom-up vs Top-down: this refers to two opposite school of thought or action, each with its pros and cons.
For example, if the problem is: where is my lost key… then:
- A Top-down method would divide the search area into different regions: floor 1, floor 2, floor 3; then tackle each region one by one.
- For a bottom-up method, on the other hand, I would go right into the very specific spot I think I may have placed my key … say … on top of a microwave … behind the TV … etc.
Chapter 4: Consulting business terms
Ok, in previous chapters, I introduced to you some of the most commonly-used terms and concepts in business strategy; now, we will talk about those that are particularly popular in consulting.
- Lever: Think of this as one or a group of initiatives, actions to perform or to meet certain goals. e.g. some levers to help increase customer experience in a hotel are:
- Free breakfast
- Free Wi-Fi
- 24/7 support
- Best practice: This refers to how things should be done, especially if it has been successfully implemented where else.
- Industry vs location vs function: Now these are three parameters the consulting world uses in the categorization of businesses.
- Industry: used to group different companies mostly based on their PRODUCT. For example:
- Banking Industry
- Construction Industry
- Education Industry
- Steel Industry
- Function: is the categorization mostly based on missions and type of roles of different parts of a company. For example:
- Human Resource takes care of people-related missions
- Finance takes care of money-related missions
- Some other important functions most companies have: Strategy, Operation, Sales & Marketing, Product Development, etc.
- Location: is where things are geographically.
- Industry: used to group different companies mostly based on their PRODUCT. For example:
So normally, when two consultants asking each other on “what do you work on?”, they need to give 3 pieces of information in all of those three parameters, such as “So I worked on a Cement project, focusing on Finance, in Southeast Asia.”
In fact, all of the McKinsey support networks are organized in this way. During my projects, I would need to speak to some Cement experts, some Finance experts, and some local experts as well.
- Granular:This refers to how specific and detailed a break-down or an issue goes. For example, a not-so-granular break down of the NBA is: the West and the East conferences. A much more granular is something like this: Leagues, Conferences, Divisions and Teams.
- MECE: MECE is so important, we have a whole video on it. See it here. But in short, MECE is the standard, per which we can divide things down in a systematic, comprehensive, and non-overlapping way.
Phew, this is a relatively long article, but it is still way shorter than 4 years of college business education. I hope this will act as a great prerequisite to your case interview study. Feel free to go back to read or watch this video a few times if you need to. Once you have got all content here, you know what, you are ready to tackle Case Interview. Go right ahead to the “Case Interview 101” video, you will have a great time there!
Also, if you are interested in learning even more consulting terms and concepts, please get hold of a detailed PDF, which you can download for free from our website. There you will find way more terms and concepts with descriptions and examples.
Now the fact that you make it to the end of this proves your commitment to learning case interview, despite the non-business background. Well, keep up your spirit and soon you will find yourselves compete toe-to-toe or may even perform better than business students. It’s harder at first for you, but the more you study case interview, the more yourealize it is more about problem solving and the business things are just the context!
At Management Consulting Prep, we believe everybody can make it to consulting. You a believer?