All consulting firms claim that the consulting career is for everybody of all educational backgrounds. But no matter what, case interview reflects real-life problems of our clients and you will, therefore, come across business concepts when you are in the interview. These business concepts involve a wide range from fairly basic to advanced knowledge.
For non-business students, the difficulty is that there is an endless list of business concepts you have to learn. But you do not have time to learn all of them or doing so should not be the objective of your preparation for the case interview.
So I hope through this very compact blog post, I will be able to provide you, non-business people, everything about business concepts you need to master to ace the case interview.
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 the most basic but high-impact terms and concepts. We divided this into 4 chapters:
Chapter 1: Accounting and financial terms
Chapter 2: Organizational structure
Chapter 3: Business strategy concepts
Chapter 4: Management consulting terms & concepts
Accounting & Financial Terms, the language of business!
Accounting & Financial Terms is often called the language of business; it is the language that managers use to communicate the firm’s financial and economic information to external parties such as shareholders and creditors. Therefore, if you want to be a consultant, you have to learn how to talk business with your clients!
It takes accounting students years to master these all concepts, but I will try to provide you with the accounting language’s essentials.
There are three legendary Financial Statements:
1. The Balance Sheet:
The balance sheet shows a company’s financial health at a certain point in time (usually at the end of a quarter and at the end of the fiscal year). Its purpose helps us answer these questions:
These are all included in 3 figures in the balance sheet:
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.
2. The Income Statement:
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 shows you whether the company made a profit or loss during that period. In other words, it is how company is doing in terms of making money, the heart of any business.
From the top to bottom, Income Statement shows the 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.
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”.
3. The Statement of Cash Flow:
One important thing to notice is that Balance Sheet and Income Statement do not record our cash and any monetary factors. 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. The Cash Flow Statement just strictly monitors the cash flow in or out, categorized in different sections. Three of them are:
Upon completion, you should be able to read and interpret financial statements for business diagnosis and decision-making. More importantly, you possess the conceptual base to start solving case interview on your own. Do not forget that, as with any other language, becoming proficient with accounting and financial terms requires constant practice.
Organizational Structure – The heart of every company
At one point in our life, we all have asked the age old question: “Who owns the company, exactly?”.
When it comes to organizational structure , 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. It takes accounting students years to master these all concepts, but I will try to provide you with the accounting language’s essentials.
The Structure of A Company
For private companies, the group of shareholders and their shares are not necessarily disclosed and publicly traded.
For public companies, on the other hand, shares are publicly traded on different stock exchanges. One of the most famous is the NYSE, which 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”, who is 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.
- The board usually hires a management team. 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.
- Besides 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.
- Think of business lines as mini companies themselves inside the big company.
- Within functions, here are a few most typical divisions most companies have:
Business Strategy concepts
Through this chapter, you will be provided some of the most basic concepts about “strategy”, which you will need to use a lot if you become a management consultant.
- In general, this refers to “how a company is organized, what are different components that make up a company”. The organization is often presented in “Org Charts”.
Here’s an example of the Org chart of Kim’s family. We have “mommy” as the big boss, “daddy” as the big boss’s assistant, and various business lines represented by his brothers and sisters.
- This refers to how a company is managed and directed, how well the leader team runs. The team leader 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.
His family has an amazing governance. Dad and mom’s roles are very clear. They hold a brief meeting with them every day through their dinner. And once a week, they sat down together 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 of each other; and many many more.
- 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 accompanying tools.
- 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.
- This refers to two opposite school of thought or action, each with its pros and cons.
Management Consulting terms & concepts
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.
- 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
This refers to how things should be done, especially if it has been successfully implemented where elsewhere.
Industry vs function vs location
These are three parameters the consulting world uses in the categorization of businesses. In general, in consulting world, 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.”
- Industry: Is used to group different companies mostly based on their PRODUCT.
- 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.
- 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 geographical.
- This refers to how specific and detailed a break-down or an issue goes.
- 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 is so important, you can see more details here. But in short, MECE is the standard, per which we can divide things down in a systematic, comprehensive, and non-overlapping way.