Case Prep (BCG)

MECE

"Mutually Exclusive, Collectively Exhaustive" - a principle for structuring ideas so categories do not overlap (mutually exclusive) and together cover every possibility (collectively exhaustive).

Issue Tree

A visual breakdown of a problem into progressively smaller, MECE sub-components, used to isolate root causes and organize analysis.

Driver Tree (Profit Tree)

An issue tree that decomposes a metric such as profit into its mathematical drivers (revenue and cost, then price, volume, etc.) to locate where a problem originates.

Profitability Framework

Analyzes declining or low profit by breaking Profit into Revenue (price x volume) and Costs (fixed + variable), then drilling into each side to find the driver.

Revenue-Cost Decomposition

The first split in a profitability case: Profit = Revenue - Cost; used to isolate whether the issue is a revenue problem, a cost problem, or both.

Market Entry Framework

Evaluates whether a company should enter a new market by examining market attractiveness, competition, company capabilities and fit, financials, and entry mode.

Market Attractiveness

An assessment of a market's size, growth rate, profitability, and trends used to judge whether the market is worth entering.

Entry Mode

The method of entering a new market - organic build, acquisition, joint venture, partnership, or licensing - each with different cost, speed, and risk.

M&A Framework

Evaluates an acquisition by assessing the standalone value of the target, strategic rationale, synergies, integration risk, price and valuation, and alternatives.

Synergies

The added value created by combining two companies; revenue synergies (cross-selling, new markets) and cost synergies (eliminating duplicate functions, scale).

Pricing Framework

Determines optimal price using three lenses: cost-based (cost plus markup), competitor-based (benchmark to rivals), and value-based (customer willingness to pay).

Cost-Based Pricing

Setting price by adding a target margin or markup on top of unit cost; simple to apply but ignores customer value and competition.

Competitor-Based Pricing

Setting price relative to competitors' prices for similar products; common and useful in commoditized markets.

Value-Based Pricing

Setting price based on the customer's perceived value or willingness to pay; typically the most profitable pricing approach.

Porter's Five Forces

A framework for analyzing industry attractiveness via five forces: threat of new entrants, supplier power, buyer power, threat of substitutes, and competitive rivalry.

Threat of New Entrants

A Five Forces element measuring how easily new competitors can enter an industry; high barriers to entry reduce this threat.

Bargaining Power of Suppliers

A Five Forces element measuring the leverage suppliers have to raise prices; high when suppliers are few or inputs are unique.

Bargaining Power of Buyers

A Five Forces element measuring the leverage customers have to push prices down; high when buyers are concentrated or switching costs are low.

Threat of Substitutes

A Five Forces element measuring the risk that customers switch to alternative products that satisfy the same need.

Competitive Rivalry

A Five Forces element measuring the intensity of competition among existing players; high in fragmented, slow-growth, or undifferentiated markets.

3C Framework

Analyzes a business situation through three lenses: Company (capabilities, financials), Customers (segments, needs), and Competitors (positioning, share).

4C Framework

An extension of the 3C framework adding Collaborators (partners, suppliers, distributors) to Company, Customers, and Competitors.

4P (Marketing Mix)

A marketing framework covering Product, Price, Place (distribution), and Promotion.

SWOT Analysis

Assesses the internal Strengths and Weaknesses and the external Opportunities and Threats of a company or initiative.

Value Chain

Porter's model of the sequence of activities - inbound logistics, operations, outbound logistics, marketing and sales, and service, plus support activities - that add value to a product.

BCG Growth-Share Matrix

BCG's portfolio framework plotting business units by market growth and relative market share into Stars, Cash Cows, Question Marks, and Dogs.

Star (BCG Matrix)

A business unit with high market share in a high-growth market; needs investment but is a likely future cash generator.

Cash Cow (BCG Matrix)

A business unit with high market share in a low-growth market; generates strong cash with little new investment.

Question Mark (BCG Matrix)

A business unit with low share in a high-growth market; requires investment and a decision to grow it or divest.

Dog (BCG Matrix)

A business unit with low share in a low-growth market; generates little cash and is often divested.

McKinsey 7S

A framework analyzing organizational effectiveness via Strategy, Structure, Systems, Shared Values, Skills, Style, and Staff.

PESTEL Analysis

Scans the macro-environment via Political, Economic, Social, Technological, Environmental, and Legal factors.

Ansoff Matrix

A growth framework with four strategies: market penetration, market development, product development, and diversification.

Porter's Generic Strategies

Three fundamental ways to compete: cost leadership, differentiation, and focus (serving a narrow niche).

Cost-Cutting Framework

Structures a cost-reduction case by separating fixed vs variable costs, mapping the cost base by function or process, and prioritizing cuts by size and ease.

Growth Strategy Framework

Structures how a company can grow - by customer (new segments, more per customer), by product, by geography, or by channel; organic vs inorganic.

Competitive Response Framework

Structures how to react to a competitor's move by analyzing the competitor's action, its impact, the customer, and the company's available options.

Turnaround Framework

Structures how to rescue a failing business by stabilizing cash, cutting costs, fixing the revenue model, and restructuring operations.

Hypothesis-Driven Approach

Starting with a likely answer and using analysis to confirm or reject it, rather than analyzing everything exhaustively; central to consulting problem-solving.

Top-Down Communication

Stating the conclusion or recommendation first, then supporting it with reasons and evidence; the preferred communication style in consulting.

Pyramid Principle

Barbara Minto's communication structure - lead with the main answer, then group supporting arguments beneath it, each backed by data.

80/20 Rule (Pareto Principle)

The observation that roughly 80% of effects come from 20% of causes; used to prioritize the highest-impact drivers and analyses.

Root Cause Analysis

Drilling past visible symptoms to find the underlying cause of a problem, often using techniques such as the "5 Whys."

Benchmarking

Comparing a company's metrics or practices against competitors or industry standards to identify gaps and opportunities.

Hypothesis

A proposed, testable explanation or answer that guides which analyses to run during a case.

Customer Segmentation

Dividing a market into distinct groups with shared needs or behaviors so strategy can be tailored to each group.

Break-Even Analysis

Determining the volume or revenue at which total revenue equals total cost, so a product or project makes neither profit nor loss.

Make-vs-Buy

A decision framework comparing the cost and strategic implications of producing in-house versus outsourcing or purchasing externally.

Capacity Expansion Framework

Structures whether to add capacity by weighing the demand forecast, current utilization, expansion cost, and alternatives.

New Product Launch Framework

Structures a launch decision via market demand, product fit, economics (price, cost, volume), go-to-market plan, and risks.

Profit Pool

The total profit available across all activities in an industry's value chain; analyzing it reveals where money is actually made.

Three Horizons of Growth

A McKinsey model balancing Horizon 1 (core business), Horizon 2 (emerging opportunities), and Horizon 3 (future bets).

Profit

Profit = Total Revenue - Total Costs; the fundamental measure of financial gain.

Revenue

Revenue = Price x Quantity (volume of units sold); also called the "top line" or sales.

Total Cost

Total Cost = Fixed Costs + Variable Costs.

Fixed Costs

Costs that do not change with output volume in the short run, such as rent, salaried wages, insurance, and equipment.

Variable Costs

Costs that change in proportion to output volume, such as raw materials, direct labor, and shipping.

Gross Profit

Gross Profit = Revenue - Cost of Goods Sold (COGS).

Gross Margin

Gross Margin % = (Revenue - COGS) / Revenue x 100; the share of revenue left after direct production costs.

Operating Profit (EBIT)

Earnings Before Interest and Taxes = Gross Profit - Operating Expenses such as SG&A, R&D, and depreciation.

Operating Margin

Operating Margin % = Operating Profit / Revenue x 100.

Net Profit (Net Income)

Net Profit = Revenue - all costs including operating expenses, interest, and taxes; the "bottom line."

Net Profit Margin

Net Profit Margin % = Net Income / Revenue x 100.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization; a proxy for operating cash flow used to compare core profitability.

EBITDA Margin

EBITDA Margin % = EBITDA / Revenue x 100.

Contribution Margin

Contribution Margin = Price per unit - Variable Cost per unit; the amount each unit contributes toward covering fixed costs and profit.

Contribution Margin Ratio

Contribution Margin / Price; the fraction of each sales dollar available to cover fixed costs and generate profit.

Break-Even Volume

Break-Even Units = Fixed Costs / Contribution Margin per unit.

Break-Even Revenue

Break-Even Revenue = Fixed Costs / Contribution Margin Ratio.

Markup

Markup % = (Price - Cost) / Cost x 100; profit expressed as a percentage of cost.

Margin vs Markup

Margin expresses profit as a percentage of price; markup expresses it as a percentage of cost. The same dollar profit yields a higher markup % than margin %.

ROI

Return on Investment = (Gain from Investment - Cost of Investment) / Cost of Investment x 100.

Payback Period

The time required to recover an initial investment = Initial Investment / Annual Cash Inflow.

ROA

Return on Assets = Net Income / Total Assets; measures how efficiently assets generate profit.

ROE

Return on Equity = Net Income / Shareholders' Equity; measures profit generated per dollar of equity.

ROIC

Return on Invested Capital = Net Operating Profit After Tax / Invested Capital; a core measure of value creation.

NPV

Net Present Value = the sum of all future cash flows discounted to today, minus the initial investment; a positive NPV signals a value-creating project.

Discount Rate

The rate used to convert future cash flows into present value, reflecting the time value of money and the project's risk.

Present Value

PV = Future Value / (1 + r)^n, where r is the discount rate and n is the number of periods.

Perpetuity

The present value of a constant cash flow received forever = Annual Cash Flow / Discount Rate.

Growing Perpetuity

PV = Cash Flow / (Discount Rate - Growth Rate); used for cash flows that grow at a constant rate forever.

CAGR

Compound Annual Growth Rate = (Ending Value / Beginning Value)^(1 / number of years) - 1; the smoothed annual growth rate over a period.

Rule of 72

A quick estimate: the number of years to double an investment is approximately 72 / annual growth rate (in percent).

Market Share

Market Share % = Company Sales / Total Market Sales x 100.

Market Size

The total revenue or unit volume of a market; estimated top-down (from a large population) or bottom-up (from unit economics).

Market Sizing

Estimating the size of a market using structured assumptions and round numbers; tests logical reasoning rather than memorized facts.

TAM

Total Addressable Market - the total revenue opportunity if a product captured 100% of its market.

SAM

Serviceable Addressable Market - the portion of TAM a company can realistically serve given its business model and geography.

SOM

Serviceable Obtainable Market - the share of SAM a company can realistically capture in the near term.

CAC

Customer Acquisition Cost = total sales and marketing spend / number of new customers acquired.

LTV (CLV)

Customer Lifetime Value - the total profit expected from a customer over the entire relationship.

LTV:CAC Ratio

A measure of customer-economics health; a ratio of roughly 3:1 or higher is generally considered healthy.

Churn Rate

The percentage of customers or revenue lost over a period = customers lost / customers at start of period.

Retention Rate

The percentage of customers kept over a period; Retention Rate = 1 - Churn Rate.

Price Elasticity of Demand

% change in quantity demanded / % change in price; elastic (greater than 1) means demand is price-sensitive, inelastic (less than 1) means it is not.

Operating Leverage

The degree to which a firm's costs are fixed; high operating leverage means profits swing sharply with changes in revenue.

Working Capital

Working Capital = Current Assets - Current Liabilities; the short-term capital needed to fund day-to-day operations.

Inventory Turnover

COGS / Average Inventory; how many times inventory is sold and replaced during a period.

Cash Conversion Cycle

Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding; the time cash is tied up in operations.

Free Cash Flow

Operating Cash Flow - Capital Expenditures; the cash available to investors after necessary reinvestment.