Issue Tree Framework - II in Formulating Hypothesis

Moving to the problem statement, as a business consultant to the e-commerce firm, you need to check why is the profitability of the company negative. The revenues are increasing at a rate of 50% annually but, the profitability is between -5% and -10%. Let's see how to use the issue tree framework in this case. One important thing to note is that you will be introduced to a bunch of new terms. You may not be familiar with them; hence, pay attention to have clarity.

(Note: In the video, Soudhakar talks about the scenario when you have conducted the interviews before and are now trying to formulate a hypothesis based on the findings.

However, the issue tree framework can also be used in a live interview where you proceed with a branch based on the response that the interviewee provides.)

As you have seen in the video, Soudhakar has broken the profitability problem into two components: Revenue side and Cost side. While covering the revenue side of the issue, you can see that at each level, the question 'How?' is raised. Based on the responses you receive in the interview, you will dig deeper into a particular component and proceed in the branch. At the end of the video, you can see multiple hypotheses which are prioritised accordingly.

One good way to check whether the problem lies in a particular component is to ask for the past trend for it. Let's consider the elements under the revenue section once. You want to check which component to follow among the three (alternate revenue paths/number of units sold/price per unit). If the past data suggests that the alternate revenues and the number of units sold have been increasing and the prices have been falling over the past years, you will surely want to check the branch for 'price per unit'. Therefore, past trends can sometimes be beneficial to prioritise the faulty areas from the good ones.

Let's see the cost side analysis now.

Similar to the revenue side, the analysis has been performed on the cost side. After you have all the hypotheses and you have prioritised them, the next step is to validate them by collecting the required data. Some hypotheses will pass the test while others will fail. Hence, you need to come up with solutions only for those hypotheses that have passed the test. This part will be dealt with in the later part of the course.

In the next session, you will learn more frameworks that will be useful in different business scenarios.