Business situation framework

Question

Hello.

I'm trying to develop my own business situation framework, which will be easy to follow and will be broad enough for really tough cases.

I used to apply standard one (Customers, Competition, Company, Product), but sometimes I realize that this framework is really tight and there are situations when I'm trying to "insert" the case in this frame. What I don't like about it:

1) Where can we put really important market metrics (e.g. market size, growth, profits for entry strategy)? If it's a geographical expansion, where can we put comparisson of different locations?

Thus, I see it's logical to add a different block, which is Market(s) metrics, where I can ask straightforwardly what are the revenues (or interviewer can ask me to calculate market sizing), growh, profits, etc.

2) Where can we put barriers to entry? Usually it's not only related to competition, so it also can be a separate block (e.g. legislation, capital requirement, cultural gap etc.)

3) I understand why we separate product and company, and usually I put price to the "product" part. Is it better to uncover pricing part in the "company block"?

For now, what do you think about following structure for business situation (of course it is still situational):

External factors:

- Market(s) metrics (size, growth, profits)

- Customers (segments, preferences, price sensitivity)

- Competition (fragmentation, best practise, core capabilities, possible M&A?)

Internal Factors:

- Company (revenue, profit, growth, costs structure, resources, management, marketing, core capabilities, distribution channels)

- Product (product lines, pricing, how does it match consumer preferences, USP's etc.)

Answer 1

Hi Elisey,

I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easily remember the framework, it would make more difficult to present a customized structure when the interviewer asks the initial question. Moreover, since every business situations has some peculiar key elements (eg how to enter in a market-entry case, price valuation in M&A, etc), this could lead to completely miss one core bucket.

Based on my experience, it thus make sense to make the extra effort to learn 3-4 different structures for business situations (potentially with some elements in common), and be able to present from the beginning something ad hoc when needed.

Moving to the framework per se, using as an example market entry, this is how I would structure it:

1) Goal clarification. It is always good to start with the end in mind – thus what is the specific reason why you want to enter the market? Is it revenues, profits or specific synergies?

2) Industry. There are two macrovariables here.

Key industry numbers/facts. This includes for the market and potential subsegments the following
- Growth
- Size
- Barriers to entry
Key industry players. This includes:
- Customers segmentation
- Competition
- Occasionally for some cases: suppliers and substitutes.

You should present this area connecting with the goal, and not purely listing the elements to analyse as if it was a laundry list. The best way to do so is explain how a certain variable will help you to achieve you goal. Eg, if your goal is to increase revenues, don’t simply say “I want to look at growth, size and barriers”, rather “I want to look at growth and size – this will tell me if the market has the potential to provide enough revenues for our client. I would also like to check the barriers, to understand which are the obstacles in entering such a market and thus increase revenues”.

3) Company - Target objective feasibility. Here you want to check the fit between the client and the selected industries.

Can our specific client reach its objective in the selected market (eg profits, revenues, market share, etc)?
Are there positive or negative synergies in such industry?

In the first point, you will probably have to go through a profitability/revenue/cost framework, to calculate the effective result.

4) Best way to enter. Once you know the industry is attractive and you can reach you goal, you should consider the entry options.

Which are the possible ways to enter the market? Usually you should consider (i) starting from scratch; (ii) M&A; (iii) Joint Venture or licencing
Which option meets better our capabilities to enter the market? Each specific way to enter will require some different capabilities. If you start from scratch you may need skilled people in all the phases of the value chain; if you buy another company you may need less people, but more upfront capital, etc.

5) Risks and next steps. What are the major elements that we should further analyse based on the previous points (eg regulator decision, unexpected competitor reactions, potential wrong pricing in the new market, etc)?

This would include all important market metrics, presenting barriers to entry into the industry. I would not consider the price or the product in the first or second level for a market entry, but rather as a possible third level once reached step 3, when we have to understand if/how we can meet the client's goal.

Hope this helps,

Francesco