The hypothesis-driven approach

Hypothesis driven is among the most commonly used buzzwords in the consulting (and consulting prep) industry. Going through the resources on the internet you’ll find tens of pages, books and recordings about the Hypothesis drive approach. We took a look at a few of them and, as ex- consultants we were quite puzzled: they were basically trying to complicate a very simple concept.

WHAT THE HyPothesis-DRIVEN APPROACH really is

Basically, if the cause of the problem is A, B, C or D, then a hypothesis driven approach recommends that you first assume ‘A’ is the problem and check whether that is true or not, and you do the same for B,C,D, to get to the final outcome. The heart of the matter relates very closely with creating a structure: you are essentially narrowing down a set of areas that you’ll investigate.

Now, this sounds pretty obvious. It is, to some extent. There are two main steps:

STEP 1

Identify the areas to investigate: this is the same as creating a sound structure. By creating a structure you are implicitly assuming that the source of the problem lies in one of the factors you included in your structure. For example, when there’s a revenue problem, you’ll assume that the cause might be either in price or in volume. But, after reading our chapter about Priority-driven structure you should be already very familiar with this.

STEP 2

Communicate your mental process effectively. This has a lot to do with showing the interviewer that you have a set of mutually exclusive potential causes in your mind with a clear rationale. This way the interviewer will be engaged while going through your structure and will be able to follow your steps.

examples

Take a look at two different ways to solve the problem below:

Problem: Revenues for a leading supermarket chain have been declining over the last 10 years.

After laying down a basic structure and understanding the key drivers of revenue (i.e. price and volume), the candidate can adopt two communication approaches:

Non-hypothesis driven approach

We know revenues have declined. I want to find out why:
  • Did customers change their preferences?
  • Which segment has shown the decline in volume?
  • Is there a price war in the industry?

The candidate is essentially coming up with a laundry list of questions. Despite some of them being relevant, the candidate is not showing the interviewer that he’s following any structured thinking. It is also unclear where he’s heading and interviewers are likely to get frustrated by the lack of a clear direction.

 Hypothesis driven approach 

We know revenues have declined. This could be due to price or volume. Do we know how they changed over the same period?
Price has remained constant, Volume has declined in line with Revenue.
Since we know Volume decline is the problem, It could be because the Market size has reduced or the client's market share has reduced. Do we know how has each metric has changed?
The market size has remained the same for the industry, our market share has reduced.
...

The candidate is using effectively the structure. Basically she’s choosing which of the two areas (price, volume) to investigate (eliminating the irrelevant one) and she’s clearly communicating the rationale behind her questions. Interviewers perceive a clear sense of direction and feel positively about the candidate's ability to frame unstructured problems and communicate a sound thought process.

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