What Is A Hypothesis

Case interviews are often challenging because they are open-ended, with limitless possibilities of where you can go. There is some truth to this predicament – there is always more than just one way to crack a case. However, there are also ways to follow a system for every case you encounter that leads to fruitful results. One key component systematic way of consistently cracking cases involves being hypothesis-driven. But what is a hypothesis?

What Is A Hypothesis, hypothesis driven approach, hypothesis examples, hypothesis definition

Hypothesis Definition

In the context of a consulting interview, a hypothesis definition is “a testable statement that needs further data for verification”. In other words, the meaning of a hypothesis is that it’s an educated guess that you think could be the answer to your client’s problem.

A hypothesis is therefore not always true. Instead, it is a starting point that ultimately leads you to the end point. Imagine your client comes to you with a problem, and the root cause is A, B, C, D, or E. Forming a hypothesis allows you to start with A, gather data to see if it’s correct, and if not, move onto B. You then keep going until you get to the right “letter” or answer to the case.

To be clear, you don’t always know your options upfront at the start of a case. Usually, after you gather data, you may find that option A was completely wrong, somewhat wrong, or right on track. Depending on the data, you either move onto a new hypothesis, revise it, or dig for more data, respectively. But for purposes of using it in a case interview, we feel this is a good hypothesis definition.

Hypothesis Example

Let’s use an example to shed some more light on what a hypothesis is, and how to use them in case interviews. Imagine your client is a shoe manufacturing company that has experienced a decrease in profitability over the past 12 months.

Non-Hypothesis Driven Approach

An approach without a hypothesis might result in a laundry list of questions like in the following exchange:

I understand that our client is looking to solve its profitability issues. I have identified a few areas that I’d like to look into.

  • Q: Has our client’s customer base declined?
  • A: No, the number of customers has actually increased.
  • Q: Oh, interesting. Has the client’s market share decreased?
  • A: No, market share has actually increased.
  • Q: Got it. Then has there been an increase in costs?
  • A: Yes, the shoe manufacturer recently invested in a new facility and has less negotiating power with its suppliers, driving up costs. Here is the data…

In this exchange, even though the candidate is getting closer to the right answer, there is no structure in the approach. The candidate is merely guessing potential problems rather than systematically getting to a solution.

Hypothesis Driven Approach

Using a hypothesis driven approach requires the following steps:

  1. State a hypothesis based on the provided information.
  2. Gather data to test the hypothesis.
  3. Revise hypothesis as needed or offer a completely new one if the data proves your original hypothesis wrong.
  4. Repeat steps 2-3 for additional buckets in your framework.

For example, you may start your hypothesis with a focus on revenue for a profitability issue. If you find that the reason is due to a decrease in volume, you may next hypothesize that the issue is due to an increase in competition. You then ask for data regarding the competition, and adjust your hypothesis accordingly to the data or lack thereof.

Hypothesis Driven Approach Example

Let’s next see what a hypothesis driven approach looks like:

I understand that our client is looking to solve its profitability issues. My hypothesis is that the client is experiencing a decrease in revenue due to intense competition in the shoe market.

  • Q: Do we have any data on the sales volume?
  • A: We do, volume has actually been increasing.
  • Q: Oh, interesting. In that case, do we have any information on how prices have changed recently?
  • A: Prices have stayed the same.
  • Q: Got it. In that case, it seems like revenue is not the problem here. I would like to revise my earlier hypothesis and assume that our client is experiencing cost issues. Perhaps the fixed costs have increased due to investments or variable costs have increased due to an increase in raw material costs. Do we have any information on the fixed and variable costs?
  • A: We do, both variable and fixed costs have increased dramatically over the past 12 months. Here is the data…

As you can see, in this exchange, the candidate is drilling down into a hypothesis and sounds structured in his or her approach. The interviewer can be sure that even if the candidate is provided with another problem, he or she would be able to systematically get to the answer.

To be clear, you don’t need to always state “my hypothesis is X.” In fact, it may sound too robotic in an actual interview. This is just an example to show you how the hypothesis-driven approach looks.

Summary

Using this approach ensures that you are displaying some of the key skills that consulting firms care about in the case interview: structure and clarity. If you can be hypothesis-driven in your interview, you are displaying to your interviewer that you will be hypothesis-driven on the job. This means that you will be a much more efficient data collector, and conduct more efficient data analysis, to arrive at a solution quickly.

Do yourself a favor – use our hypothesis definition and approach as you practice for your case interviews, and watch your performance soar.

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Filed Under: Consulting skills