Mckinsey & Company Case Interview
http://www.mckinsey.com/locations/Knowledge_Network/How_Do_I_Apply/Interview_Preparation.asp
x
Case Interviews
Demonstrate your ability to structure thinking, respond to complex or ambiguous problems, and reach
sound conclusions with limited facts in a short time.
We believe the best way we can assess your problem-solving skills is to discuss a typical McKinsey
business problem with you, using a case study during your interview.
Case interviews are broad, two-way discussions rather than one-way tests, and there is no perfect
answer. You will be assessed more on how you go about dealing with the problem than you will be on
the specific answers you come up with.
As you work through the business case with your interviewer, you will also become better informed
about our firm and the kinds of problems we solve. Most candidates enjoy the cases and the business
issues they raise. Your approach to the case and the insights you reach will give you an opportunity to
demonstrate your problem-solving abilities and help us get a sense of your potential.
Practicing before a case interview
Practice at case study discussions is recommended, especially if you are inexperienced at interactive
problem-solving discussions. To help you prepare for your interview, we've put together
some interactive case studies.
Why we use case studies
Your abilities in dealing creatively with complex or ambiguous problems in unfamiliar businesses, in
structuring your thinking, and in reaching sensible conclusions with the available facts in a short time
are critical to being successful at McKinsey.
The case study gives us an opportunity to see how you think about problems and whether you can reach
a well-supported conclusion. It also gives us an opportunity to gauge your sense of prioritization and
judgment within a business context, and to see you applying knowledge to a real business case.
From your side, the case study should give you a real insight into the type of work that our firm does. If
you enjoy the case discussion with your interviewer, it's likely that you will enjoy working at our firm.
Learn about techniques and tricks that can be helpful in a case interview
Case Study Tips and Mistakes
Learn tips and common mistakes that could help you in the case interview process.










Listen to the problem. Make sure you are answering the question that you have been asked.
Begin by setting a structure. Think of four to five sub-questions that you need to answer before you
can address the overall issue.
Stay organized. When discussing a specific issue, remember why you are discussing it and where it fits
into the overall problem.
Communicate your train of thought clearly. If you have considered some alternatives and rejected
them, tell the interviewer what and why.
Step back periodically. Summarize what you have learned and what the implications appear to be.
Ask for additional information when you need it. But make sure that the interviewer knows why
you need the information.
Watch for cues from the interviewer. Any information given to you by an interviewer is given to help
you—listen to them carefully and follow their lead.
Be comfortable with numbers. You will almost always have to work with numbers in a case. This
requires comfort with basic arithmetic and sometimes large quantities. You may also be asked to
perform estimations.
Don’t fixate on "cracking the case." It is much more important to demonstrate a logical thought
process than to arrive at the solution.
Use business judgment and common sense. Relax and enjoy the process. Think of the
interviewer as a teammate in a problem-solving process and the case as a real client problem that you
need to explore and then solve. Our clients need pragmatic solutions that they can act on as soon as
possible. Always focus on actionable recommendations, even though sometimes they may not be the
most elegant solution to the problem.
Some common mistakes






Misunderstanding the question or answering the wrong question.
Proceeding in a haphazard fashion. For example, not identifying the major issues that need to be
examined or jumping from one issue to another without outlining your overall approach.
Asking a barrage of questions without explaining to the interviewer why you need the information.
Force-fitting familiar business frameworks to every case question, whether they are relevant or
not, or misapplying a relevant business framework that you do not really understand, rather than simply
using common sense.
Failing to synthesize a point of view. Even if you don’t have time to talk through all the key issues,
be sure to synthesize a point of view based on where you ended up.
Not asking for help. Some candidates feel it is inappropriate to ask for help when they are stuck.
Whether it is a misunderstanding related to the overall problem, or whether you are struggling with a
specific analysis, be sure to ask for help when you need it.
Practice Cases
Magna Health
INTRODUCTION










Q1
Q2
Q3
Q4
Q5
Q6
Q7
Q8
Q9
Q10
To step through this case example, we will give you some information, ask a question, and
then, when you are ready, give you a sample answer. We hope that the exercise will give you
a sense of the flow of a case interview. (Please note, you can stop this exercise and pick up
where you left off later. Your cookies must be on to use this feature).
In this exercise, you will answer a series of questions as the case unfolds. We provide our recommended
answers after each question, with which you can compare your own answers. We want to emphasize
that most questions in a case study do not have a single right answer. In a live case interview, we are
more interested in your explanation of how you arrived at your answer, not just the answer itself. An
interviewer can always assess different but equally valid ways of approaching an issue, and then bring
you back to the particular line of inquiry that he or she wants to pursue.
You should also keep in mind that in a live case, there will be far more interaction with the interviewer
than this exercise allows. For example, you will have the opportunity to ask clarifying questions.
Finally, a live case interview would typically be completed in 30 - 45 minutes, depending on how the
case evolves. In this on-line exercise, there is no time limit.
There are ten questions in this on-line case study. This case study is designed to roughly simulate one
during your interview, so you will not be able to skip ahead to the next question until you have
answered the one you are on. You can refresh your memory of previous answers by clicking the
highlighted Q&A links to the left. To print the answer, click on the print icon that appears in the TOP
RIGHT corner. At the end, you can print the entire on-line case study at once.
QUESTION 1
What key areas would you want to explore in order to understand Magna's decline in
profitability?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 1
Some possible areas are given below. Great job if you identified several of these and perhaps some
others.
•Magna's revenues
◦Price paid by employer for employee health coverage.
◦Number of employees covered by Magna.
•Magna's costs (or fixed and variable costs)
◦Magna's main cost components consist of administrative (non-medical) and medical costs (e.g.,
hospital, drugs, outpatient care)
◦Outpatient costs can be split into internal physician costs versus external referral costs
•Magna's patient base demographics/overall risk profile which may affect medical costs
QUESTION 2
The team discovers that the demographics of Magna's subscribers have changed significantly
in the past 5 years, from majority industrial workers/laborers to majority office employees.
Knowing this, are there any specific areas you would investigate first?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 2
We are looking for a few responses, similar to the ones below:


Claim costs, as the change in the subscriber base will change the profile of diseases (e.g., more heart
disease/stress and less work related injury)
External referral costs, due to the change in the disease profile for which they have in-house
competency
QUESTION 3
After reviewing the basics of Magna's business, your team believes that one of the root
causes of Magna's financial problems is how it manages medical costs, particularly the cost of
referrals to specialists outside of its physician network. Your team has gathered the following
information on Magna and its primary competitor, Sunshine HMO:
Magna
Health
Sunshine
HMO
Number of
patients
Average cost of referral(per
member per month)
300,000
$20
500,000
$15
What are the most likely reasons that the average cost of referral at Magna is higher than at
Sunshine? (At this point you should feel free to offer hypotheses, and you could ask your
interviewer questions to clarify the information)
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 3
Although there are a number of possible responses, you might have the following suggestions:




Referral pricing: Magna might be paying more than Sunshine for specialist services (e.g., its outside
contracts with oncologists might be at higher rates than Sunshine's contracts).
Number of referrals: Magna's physicians might have different practice patterns than Sunshine physicians,
i.e., they may be less comfortable treating heart disease patients or have different training/protocols.
Mix of specialties: Magna's mix of specialties that requires referrals (cardiology and neurosurgery) are
probably more expensive specialties (than cardiology and psychiatry, Sunshine's referral specialties).
Mix of patients: Magna has sicker or older (>65) patients (individuals over 65 are more likely to need
medical care in the specialty areas outside of Magna's network, particularly cardiology).
QUESTION 4
What analyses would you do if the things you suggest were contributing to this problem?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 4
In giving the answer, it's useful if you are clear about how the analysis you are proposing would help to
answer the question posed.
You might take the following approach, where we’ve outlined different areas of analysis:

o
o

o
o

o
o

o
o
Referral pricing:
Gain data on prices currently being paid by Magna for a sample of common specialties
Gain similar data for a competitor if possible for an industry average (perhaps through interviews with
non-Magna specialists)
Number of referrals:
Interview Magna physicians and non-Magna physicians to see if any obvious behavioral differences exist
Consult industry publications on this issue
Mix of specialties:
Check number of referrals by specialty for Magna and estimate similar for Sunshine
Interviews with external specialties used by Sunshine may help again here
Mix of patients:
Compare demographic data for Magna and Sunshine: should be easy to obtain from Magna; a scan of
the employee schemes covered by Sunshine should give a good general picture of their demographic
profile
See if Magna's referral cost has increased in line with the change in demographics of the subscribers
QUESTION 5
Magna's CEO has a hypothesis that Magna is paying too much in cardiology referral costs for
its patient population. He asks the McKinsey team to look at Magna's cardiac patient
population more closely and tell him how many referrals he should expect on an annual basis.
Assume the following:



Magna has 300,000 patients in any one year
20 percent of its patients are age 65 or older
In the U.S., patients with serious heart disease visit specialists (cardiologists) on average of
five times per year
You should always feel free to ask your interviewer additional questions to help you with your
response. In this case, you should recognize the need to know the prevalence rate of serious
heart disease to complete this calculation. Once asked, your interviewer would provide you
with the following information:


The prevalence rate of serious heart disease in the 65+ population is 30 percent
The prevalence rate of serious heart disease in the under age 65 population is 10 percent
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 5
While you may find that doing straightforward math problems in the context of an interview is a bit
tougher, you can see that it is just a matter of breaking the problem down. We are looking for both your
ability to set the analysis up properly and then to do the math in real time.
Based on the correct calculations, your response should be as follows: Magna should expect 210,000
cardiac referrals annually based on its patient population. You should have approached the calculations
as follows to arrive at that answer:







300,000 total patients
20 percent x 300,000 = 60,000 patients age 65+
18,000 x 5 = 90,000 referrals per year
240,000 Magna patients under the age of 65
240,000 patients x 10 percent = 24,000 patients under age 65 with serious heart disease and 24,000 x
5 visits per
year = 120,000 visits per year total
90,000 + 120,000 visits per year = 210,000 total Magna patient external cardiology visits
QUESTION 6
When the team tells Magna's CEO that based on Magna's patient population he should expect
about 210,000 cardiology referrals a year he exclaims, "We currently pay for 300,000 annual
cardiology referrals for our patient population!"
Why might Magna's annual cardiology referrals be significantly higher than U.S. averages?
What would you do to try to verify if any of these were a key cause of this problem?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 6
We would not expect you to come up with all of these answers, but we hope some of your answers head
in the same direction as ours. Yours may bring some additional insights. In either case, be sure that you
can clearly explain how your reasons will bring you closer to why the referrals might be higher.
There are a number of answers to these questions, and you are on the right track if your responses
included some of the ones below:





The prevalence rate of heart disease in Magna's patient population is higher than average. To see if this
was a cause of the problem, McKinsey should audit the internal data on heart disease prevalence and
compare it to US National data.
Magna's primary care physicians are referring patients who do not have serious heart disease to
specialists. The team should interview specialists to get their opinion, or follow through a sample of
patients who were referred.
Primary care physicians are not comfortable (e.g., they are poorly trained or inexperienced) treating
cardiac patients, even those with minor problems; they want to avoid malpractice suits. McKinsey should
interview Magna physicians and institute an external review.
Magna doesn't have clear guidelines on when physicians should be referring patients to specialists (or if
guidelines exist, physicians are not complying with them). The team should gain an expert opinion on
the current guidelines to see if this was a key cause of the problem.
There are no incentives or penalties to prevent physicians from referring patients with less serious
problems to specialists. In order to verify this is a key cause of the problem, the team should review
incentive schemes if they exist. They should also compare similar companies/situations (e.g.,
prescription control mechanisms, etc.).
QUESTION 7
At this point in the study, you bump into Magna's Head of Health Services in the corridor. He
is responsible for all matters related to the provision of services to subscribers, both inside
and outside the Magna Network. He asks you if you have made any progress. How would you
respond?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 7
Think about the person you are talking with, and how best to communicate the findings you have come
up with so far.
The ability to come to a logical, defensible synthesis based on the information available at any point in
an engagement is critical to the work we do. Even though we'd consider ourselves to be early in the
overall project at this point in the case, we do want to be able to share our current perspective. One
ideal answer would include the following points:
Findings



We have investigated all the drivers of profit for Magna. Although there is likely to be room for
improvement in a lot of areas, it seems the claims cost is a big area for improvement.
Relative to the market and to competitors, Magna seems to have high claims cost per patient. Our initial
indication is that there may be highest room for improvements in the cost of referrals outside the
network.
There are a number of reasons as to why this may be happening (list as in previous question).
Next Steps


We are working to pin down the most significant reasons why Magna has high claims cost per patient.
We are going to be looking into other areas such as reduction potential in other costs, as well as
improvement potential in terms of premiums or other sources of revenue.
QUESTION 8
After some additional investigation, your team thinks that changing the behavior of Magna's
primary care physicians has potential to reduce cardiac referral costs while maintaining highquality care. The team believes that introducing some sort of incentive plan for physicians
might help reduce the referral rate.


The team's idea for a pilot plan is to increase overall fees that Magna pays to primary care
physicians to handle more of their patients' basic cardiology needs. Overall fee increases
would total $1 million.
In addition to the team's proposal, Magna's medical director wants to pilot the following idea:
Magna pays bonuses of $100,000 per year to each of the 10 primary care physicians with the
lowest cardiac referral rates consistent with good patient outcomes.
Although the team mentions to the medical director that there are other issues to consider
relating to the pilot that are not financial, such as the ethical impact of incentivizing
physicians not to refer patients to specialist treatment, he wants the team to do the first
calculation including both ideas.
How many fewer cardiology referrals will Magna need to have in order to recoup the cost of
the pilot incentive plan (including the team's and the medical director's idea)? For simplicity’s
sake assume:


The cost of a cardiology referral is $200.
Magna currently has 300,000 cardiology referrals per year.
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 8
If the incentive plan reduces cardiology referrals by 3.3 percent or 10,000 referrals, Magna will recoup
the cost of the incentive plan. One potential approach to the calculation:



$1 million + (10 * $100,000) = $2 million for incentive plan
$2 million/$200 =10,000 referrals
10,000 referrals/300,000 total referrals = 3.3 percent reduction would pay for incentive program
QUESTION 9
Your team projects that the incentive plan has the potential to reduce referrals by 5 percent
in its first year, and an additional 2 percent in its second year. If these projections are correct,
how much referral cost could Magna save in total over the first two years of the incentive
plan?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 9
Referral costs would be $4.14 million lower in the second year. Over the two years Magna would save
$7.14 million. One potential approach to the calculation:
Year 1 Savings with Program



300,000 total referrals
5 percent reduction in referrals = 15,000 referrals
15,000 x $200 = $3.0 million in savings in year 1
Year 2 Savings with Program




285,000 total referrals
2 percent reduction in referrals = 5,700 referrals
5,700 x $200 = $1.14 million in savings
$3 + $1.14 = $4.14 million in savings
Therefore, total cumulative savings over the 2 years = Year 1 savings + Year 2 savings = $3.0m +
$4.14m = $7.14m.
QUESTION 10
Your team presents its physician incentive proposal to Magna’s CEO. The CEO, in consultation
with his medical director, agrees that this is feasible and says that they will definitely pilot
the overall higher fees to primary care physicians to handle more of the basic cardiology
needs and they will think about the idea with the bonuses again due to the ethical concerns
the team raised.
At the end of the meeting the CEO says, "I like the work you’ve done, but even if we did
implement the bonus payment it's not enough to address our current financial situation.
Physicians are professionals who care deeply about patient care and I think there's a limit to
how much cost we can expect to reduce utilizing financial incentives exclusively. Besides
cardiac financial incentive programs, what other ideas should we consider to reduce the cost
of Magna's specialist referrals?"
Based on what we have discussed today, and any other ideas you might have, how would you
respond to the CEO?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 10
You may have a slightly different list. Whatever your approach, we love to see candidates come at a
problem in more than one way, but still address the issue as directly and practically as possible.
This question is a good one for demonstrating creativity because there's a long list of possible ideas. You
might give the following response:

o
o
o




Pursue additional ways to change physician behavior
Provide training on how to treat patients with minor or stable medical problems
Define and clarify medical guidelines for referrals (e.g., establish a medical committee to define the
difference between “serious” and "minor" heart disease)
Institute peer review committee charged with approving a subset of referrals (e.g., those that are
considered "high cost")
Spend time investigating "outlier" physicians (i.e., those who seem to refer patients to specialists at
much higher rates than others) to determine how widespread the referral problem is and whether simply
focusing on a few physicians will dramatically reduce referral costs
Determine whether Magna can reduce referral costs in the other medical areas where it does not have
specialists (i.e., neurosurgery)
Look at the contracts Magna has for specialist services to determine if it is paying too much relative to
competitors
Consider whether bringing cardiology, neurosurgery, and oncology specialists in-house (i.e., within
Magna) might reduce cost
Great Burger
INTRODUCTION






Q1
Q2
Q3
Q4
Q5
Q6
To step through this case example, we will give you some information, ask a question, and
then, when you are ready, give you a sample answer. We hope that the exercise will give you
a sense of the flow of a case interview. (Please note, you can stop this exercise and pick up
where you left off later. Your cookies must be on to use this feature).
In this exercise, you will answer a series of questions as the case unfolds. We provide our recommended
answers after each question, with which you can compare your own answers. We want to emphasize
that most questions in a case study do not have a single right answer. In a live case interview, we are
more interested in your explanation of how you arrived at your answer, not just the answer itself. An
interviewer can always assess different but equally valid ways of approaching an issue, and then bring
you back to the particular line of inquiry that he or she wants to pursue.
You should also keep in mind that in a live case, there will be far more interaction with the interviewer
than this exercise allows. For example, you will have the opportunity to ask clarifying questions.
Finally, a live case interview would typically be completed in 30 - 45 minutes, depending on how the
case evolves. In this on-line exercise, there is no time limit.
There are six questions in this on-line case study. This case study is designed to roughly simulate one
during your interview, so you will not be able to skip ahead to the next question until you have
answered the one you are on. You can refresh your memory of previous answers by clicking the
highlighted Q&A links to the left. To print the answer, click on the print icon that appears in the TOP
RIGHT corner. At the end, you can print the entire on-line case study at once.
Client Goal: Should Great Burger acquire Heavenly Donuts as part of its growth strategy?
Our client is Great Burger (GB) a fast food chain that competes head–to-head with McDonald's, Wendy's,
Burger King, KFC, etc.
Description of Great Burger
GB is the fourth largest fast food chain worldwide, measured by the number of stores in operation. As
most of its competitors do, GB offers food and "combos" for the three largest meal occasions: breakfast,
lunch, and dinner.
Even though GB owns some of its stores, it operates under the franchising business model with 85
percent of its stores owned by franchisees (individuals own and manage stores, pay franchise fee to GB,
but major business decisions (e.g., menu, look of store) controlled by GB).
McKinsey study
As part of its growth strategy GB has analyzed some potential acquisition targets including Heavenly
Donuts (HD), a growing doughnut producer with both a U.S. and international store presence.
HD operates under the franchising business model too, though a little bit differently than GB. While GB
franchises restaurants, HD franchises areas or regions in which the franchisee is required to open a
certain number of stores.
GB's CEO has hired McKinsey to advise him on whether they should acquire HD or not.
QUESTION 1
What areas would you want to explore to determine whether GB should acquire HD?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 1
Some possible areas are given below. Great job if you identified several of these and perhaps others.

o
o
o
o
o

o
o
o

o
o

o
o
Stand alone value of HD
Growth in market for doughnuts
HD's past and projected future sales growth (break down into growth in number of stores, and growth in
same store sales)
Competition – are there any other major national chains that are doing better than HD in terms of
growth/profit. What does this imply for future growth?
Profitability/profit margin
Capital required to fund growth (capital investment to open new stores, working capital)
Synergies/strategic fit
Brand quality similar? Would they enhance or detract from each other if marketed side by side?
How much overlap of customer base? (very little overlap might cause concern that brands are not
compatible, too much might imply little room to expand sales by cross-marketing)
Synergies (Hint: do not dive deep on this, as it will be covered later)
Management team/cultural fit
Capabilities/skills of top, middle management
Cultural fit, if very different, what percent of key management would likely be able to adjust
Ability to execute merger/combine companies
GB experience with mergers in past/experience in integrating companies
Franchise structure differences. Detail “dive” into franchising structures. Would these different structures
affect the deal? Can we manage two different franchising structures at the same time?
The team started thinking about potential synergies that could be achieved by acquiring HD. Here are
some key facts on GB and HD.
Exhibit 1
Stores

o
Total
North America
Europe
o

o
Asia
o
Other
Annual growth in stores
Financials

Total store sales
GB
HD
5,000
1,020
3,500
1000
1,000
20
400
0
100
0
10%
15%
GB
HD
$5,500m $700m

Parent company revenue

Key expenses (% sales)
o
o
Cost of sales
Restaurant operating costs
o
Restaurant property & equipment costs
o
Corporate general & administrative costs

Profit as % of sales


Sales/stores
Industry average
$1,900m $200m
51%
40%
24%
26%
4.6%
8.5%
8%
15%
6.3%
4.9%
$1.1m
$0.7m
$0.9m
$0.8m
QUESTION 2
What potential synergies can you think of between GB and HD?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 2
We are looking for a few responses similar to the ones below:

o
o
o

o
o
o
o
Lower costs
Biggest opportunity likely in corporate selling, general, and administrative expenses (SG&A) by
integrating corporate management
May be some opportunity to lower food costs with larger purchasing volume on similar food items (e.g.,
beverages, deep frying oil), however overlaps may be low as ingredients are very different
GB appears to have an advantage in property and equipment costs which might be leveragable to HD
(e.g., superior skills in lease negotiation)
Increase revenues
Sell doughnuts in GB stores, or some selected GB products in HD stores
GB has much greater international presence thus likely has knowledge/skills to enable HD to expand
outside of North America
GB may have superior skills in identifying attractive locations for stores as its sales per store are higher
than industry average, whereas HD's is lower than industry average; might be able to leverage this
when opening new HD stores to increase HD average sales per store
Expand HD faster than it could do on own–GB, as a larger company with lower debt, may have better
access to capital
QUESTION 3
The team thinks that with synergies, it should be possible to double HD’s U.S. market share in
the next 5 years, and that GB’s access to capital will allow it to expand the number of HD
stores by 2.5 times. What sales per store will HD require in 5 years in order for GB to achieve
these goals? Use any data from Exhibit 1 you need, additionally, your interviewer would
provide the following assumptions for you:


Doughnut consumption/capita in the U.S. is $10/year today, and is projected to grow to
$20/year in 5 years.
For ease of calculation, assume U.S. population is 300m.
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 3
You should always feel free to ask your interviewer additional questions to help you with your response.
Possible responses might include the following:




Market share today: $700M HD sales (from Exhibit 1) ÷ $3B U.S. market ($10 x 300M people) = 23%
(round to 25% for simplicity sake)
U.S. market in 5 years = $20 x 300 = $6B
HD sales if double market share: 50% x $6B = $3B
Per store sales: $3B/2.5 (1000 stores) = $1.2M
Does this seem reasonable?

Yes, given it implies less than double same store sales growth and per capita consumption is predicted
to double.
QUESTION 4
One of the synergies that the team thinks might have a big potential is the idea of increasing
the businesses' overall profitability by selling doughnuts in GB stores. How would you assess
the profitability impact of this synergy?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 4
Be sure you can clearly explain how the assessment you are proposing would help to answer the
question posed.
Some possible answers include:






Calculate incremental revenues by selling doughnuts in GB stores (calculate how many doughnuts per
store, times price per doughnut, times number of GB stores)
Calculate incremental costs by selling doughnuts in GB stores (costs of production, incremental number
of employees, employee training, software changes, incremental marketing and advertising, incremental
cost of distribution if we cannot produce doughnuts in house, etc.)
Calculate incremental investments. Do we need more space in each store if we think we are going to
attract new customers? Do we need to invest in store layout to have in-house doughnut production?
If your answer were to take into account cannibalization, what would be the rate of cannibalization with
GB offerings? Doughnut cannibalization will be higher with breakfast products than lunch and dinner
products, etc.
One way to calculate this cannibalization is to look at historic cannibalization rates with new
product/offering launchings within GB stores
Might also cannibalize other HD stores if they are nearby GB store–could estimate this impact by seeing
historical change in HD’s sales when competitor doughnut store opens nearby
QUESTION 5
What would be the incremental profit per store if we think we are going to sell 50,000
doughnuts per store at a price of $2 per doughnut at a 60 percent margin with a
cannibalization rate of 10 percent of GB's sales?
Exhibit 2
Sales and profitability per store
Units of GB sold per store
300 thousand
Sales price per unit
$3 per unit
Margin
50 percent
Units of HD sold in GB stores
50 thousand
Sales price per unit
$2 per unit
Margin
60 percent
Cannibalization rate of HD products to GB products
10 percent
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 5
While you may find that doing straightforward math problems in the context of an interview is a bit
tougher, you can see that it is just a matter of breaking the problem down. We are looking at both your
ability to set the analysis up properly and then do the math in real time.
Based on correct calculations, your response should be as follows:
Incremental profit = contribution from HD sales less contribution lost due to cannibalized GB sales
= 50K units x $2/unit x 60% margin – 300K units x 10% cannibalization x $3/unit x 50% margin
= $60K – 45K = 15K incremental profit/store
QUESTION 6
You run into the CEO of GB in the hall. He asks you to summarize McKinsey’s perspective so
far on whether GB should acquire HD. Pretend the interviewer is the CEO–what would you say?
YOUR ANSWER
Please take a minute to compose your answer, write it in the box below, and then click below to
compare your response to the recommended one.
ANSWER 6
You may have a slightly different list. Whatever your approach, we love to see candidates come at a
problem in more than one way, but still address the issue as directly and practically as possible.
Answers may vary, but here is an example of a response:

o
o


Early findings lead us to believe acquiring HD would create significant value for GB, and that GB should
acquire HD
Believe can add $15 thousand in profit per GB store by selling HD in GB stores. This could mean $50
million in incremental profit for North American stores (where immediate synergies are most likely given
HD has little brand presence in rest of world)
We also believe there are other potential revenue and cost synergies that the team still needs to
quantify
Once the team has quantified the incremental revenues, cost savings, and investments, we will make a
recommendation on the price you should be willing to pay
We will also give you recommendations on what it will take to integrate the two companies in order to
capture the potential revenue and cost savings, and also to manage the different franchise structures
and potentially different cultures of GB and HD
Practice Case
Electro-Light
Client goal
Our client is SuperSoda. SuperSoda is a top-three beverage producer in the United States and has
approached McKinsey for help in designing a product-launch strategy.
Description of situation
As an integrated beverage company, SuperSoda leads its own brand design, marketing, and sales
efforts. In addition, the company owns the entire beverage supply chain, including production of
concentrates, bottling and packaging, and distribution to retail outlets. SuperSoda has a
considerable number of brands across carbonated and non-carbonated drinks, five large bottling
plants throughout the country, and distribution agreements with most major retailers.
SuperSoda is evaluating the launch of a new product, a flavored sports drink called Electro-Light.
Sports drinks are usually designed to replenish both energy (sugars) and electrolytes (salts) in the
body. However, Electro-Light has been formulated to focus more on the replenishment of
electrolytes and has a reduced sugar content compared to most other sports drinks. The company
expects this new beverage to capitalize on the recent trend away from sugar-rich products.
McKinsey study
SuperSoda’s vice president of marketing has asked McKinsey to help analyze the major factors
surrounding the launch of Electro-Light and its own internal capabilities to support the effort.
Question 1:
What key factors should SuperSoda consider in deciding whether or not to launch Electro-Light?
Helpful hints
Take time to organize your thoughts before answering. This tells the interviewer that you think
about the problem in a logical way.
Develop overall approach before diving into details.
Reveal Answer
A good answer would include the following:
Consumers. Who drinks sports drinks? Are there specific market segments to address?
Cost/price. Is the sports drinks market more profitable than those markets for SuperSoda’s current
products? Is it possible to profitably sell (at a price set by the market and internal production costs)
Electro-Light? Given the fixed costs involved, what would be the break-even point for ElectroLight?
Competitors. Which products will Electro-Light compete with? Which companies are key players
and how will they react?
A very good answer might also include multiple additional key factors
SuperSoda should consider. For example:
Capabilities and capacity. Are the required marketing and sales capabilities available within
SuperSoda? Does the product require specialized production, packaging, or distribution? Is it
possible to accommodate Electro-Light in the current production and distribution facilities? What
impact does geography have on the plant selection?
Channels. What is the ideal distribution channel for this product? Are current retail outlets willing
to add Electro-Light to their product catalog?
Question 2:
After reviewing the key factors SuperSoda should consider in deciding whether to launch ElectroLight, your team wants to understand the beverage market and consumer preferences to gauge
potential success of Electro-Light.
Your team has gathered the following information on the US sports-drink market. The information
shows an estimate for the share of electrolyte drinks, as well as the current share for the two main
electrolyte products: CoolSweat and RecoverPlus.
Based on the target price and up-front fixed costs, what share of the electrolyte drink market would
Electro-Light need to capture in order to break even? Here is some additional information for you
to consider as you form your response:



Electro-Light would launch in a 16-ounce presentation (one-eighth of a gallon) with a
price of $2 to retailers.
In order to launch Electro-Light, SuperSoda would need to incur $40 million as total fixed
costs, including marketing expenses as well as increased costs across the production and
distribution network.
The vice president of operations estimates that each bottle would cost $1.90 to produce
and deliver in the newly established process.
Helpful hints




Ask for clarification of information.
Take notes of the numbers, and don't be concerned if the units are unfamiliar to you.
Take time to plan out how to approach the calculation.
Describe your approach and talk the interviewer through your calculation. The more you
talk the easier it will be for your interviewer to help you.
Reveal Answer
A very good answer would include the following:
Electro-Light would need to capture a 12.5 percent market share of electrolyte drinks in order to
break even. Therefore, Electro-Light would need to be the number-two product in the market:
1. Electro-Light would need to sell 400 million units in order to break even:


Variable profit per unit = $2.00 – $1.90 = $0.10
Break even units = Total fixed costs/Variable profit per unit = $40 million/$0.10 per
unit = 400 million units
2. Electro-Light would need to capture a 12.5 percent market share:



Electrolyte drinks market = 5% x 8,000 million gallons = 400 million gallons
Electro-Light sales in millions of gallons = 400 million units/8 units per gallon = 50
million gallons
Market share = 50 million gallons/400 million gallons = 12.5%
Question 3:
SuperSoda executives believe that the company's position as a top three beverage company gives
them strategic strengths toward achieving the desired market share. However, they ask the team to
outline what would be needed to achieve the target of 12.5 percent share of the electrolyte-drinks
market. What would SuperSoda need to do to gain the required market share for Electro-Light
following its launch?
Reveal Answer
A very good answer would include the following.
Match with consumer preferences. Ensure product image, attributes, and quality fulfill the needs
of all consumers or niche segment, reaching desired market share. Ensure target price is consistent
with other products in the market and the consumer’s expectations
Strong branding/marketing. Create a successful introductory marketing campaign, including
advertising, pricing, and bundling promotions. Leverage top-three producer status and limited
market fragmentation in order to position Electro-Light brand within top three in the market
segment. Anticipate response from competitors (for example, advertising, pricing, distribution
agreements). Ensure product positioning does not cannibalize on other, more profitable SuperSoda
products. (Note: in marketing, the decreased demand for an existing product that occurs when its
vendor releases a new or similar product is called “cannibalization.” It is not important for you to
use this business terminology.)
Operational capabilities. Ensure access to preferred distribution channels. Ensure sales-force
capabilities to sell the new product. Ensure production ramp-up that allows response to increased
demand.
Question 4:
To help SuperSoda determine how best to launch the new Electro-Light product, the team
conducted a consumer-research study. The following information shows results from the study.
What can you conclude from this regarding how the new Electro-Light product should be
launched?
Reveal Answer
A very good answer would include the following insights:
Branding should emphasize “healthy natural” identity. “Leisure drink” identity is dominated by
CoolSweat product, “energy replenishing” by RecoverPlus, and “healthy natural” fragmented in
other products. There is a clear niche within the “healthy natural” identity, with top-two brands
currently occupying only 30 percent of share of mind. “Healthy natural” branding should also
determine thinking around the sales channels (for example, sales through health and nutrition
outlets, health aisles at supermarkets).
Distribution differs from current outlets and needs new agreements/research. Major shifts
compared to current distribution model required in “supermarkets,” “other,” and “convenience
stores.” Agreements with major retail players may accommodate product introduction, with
SuperSoda managing mix across channels. “Other” channels need further research, since they are
a major component of the sports-drink segment.
Marketing message to emphasize identity and availability. Marketing campaign should be built
around the currently unaddressed market need for “healthy natural” drink in order to connect with
customers in that segment. Given required changes in distribution channels, Electro-Light
messaging should clarify new distribution strategy.
Practice Case
GlobaPharm
Client goal
Our client is GlobaPharm, a major pharmaceutical company (pharmaco) with $10 billion a year in
revenue. Its corporate headquarters and primary research and development (R&D) centers are in
Germany, with regional sales offices worldwide.
Description of situation
GlobaPharm has a long, successful tradition in researching, developing, and selling “small
molecule” drugs. This class of drugs represents the vast majority of drugs today, including aspirin
and most blood-pressure or cholesterol medications. GlobaPharm is interested in entering a new,
rapidly growing segment of drugs called “biologicals.” These are often proteins or other large,
complex molecules that can treat conditions not addressable by traditional drugs.
R&D for biologicals is vastly different from small-molecule R&D. To gain these capabilities,
pharmacos have three options: they can build them from scratch, partner with existing start-ups, or
acquire the start-ups. Since its competitors are already several years ahead of GlobaPharm,
GlobaPharm wants to jumpstart its biologicals program by acquiring BioFuture, a leading
biologicals start-up based in the San Francisco area. BioFuture was founded 12 years ago by
several prominent scientists and now employs 200 people. It is publicly traded and at its current
share price the company is worth about $1 billion in total.
McKinsey study
GlobaPharm has engaged McKinsey to evaluate the BioFuture acquisition and to advise on its
strategic fit with GlobaPharm's biologicals strategy. Our overall question today, therefore, is
“Should GlobaPharm acquire BioFuture?”
Helpful hints


Take time to organize your thoughts before answering. This tells the interviewer that you
think about the problem in a logical way.
Develop overall approach before diving into details
Question 1:
What factors should the team consider when evaluating whether GlobaPharm should acquire
BioFuture?
Helpful hints
Take time to organize your thoughts before answering. This tells the interviewer that you think
about the problem in a logical way.
Develop overall approach before diving into details.
Reveal Answer
A good answer would include the following:




The value of BioFuture’s drug pipeline, number of drugs currently in development,
quality of drugs (likelihood of success), potential revenues and profits
BioFuture’s R&D capabilities (future drug pipeline), scientific talent, intellectual
property (for example, patents, proprietary processes or know-how for biologicals
research), and buildings, equipment, and other items that allow BioFuture’s R&D to
operate.
BioFuture’s marketing or sales capabilities. Especially how promotional messages
will be delivered, for example, relationships with key opinion leaders that can
promote biologicals; key opinion leaders can come from the academic arena, like
prominent medical school professors, or from the public arena, like heads of
regulatory bodies or prominent telejournalists.
Acquisition price.
A very good answer might also include multiple additional key factors GlobaPharm should
consider:



BioFuture’s existing partnerships or other relationships with pharmacos.
GlobaPharm’s capability gaps in biologicals, R&D, sales and marketing, etc.
GlobaPharm’s alternatives to this acquisition. Alternative companies GlobaPharm
could acquire. Other strategies for entering biological segment, for example, entering
partnerships rather than acquiring, and pursuing other strategies than entering the
biological segment
Question 2:
The team wants to explore BioFuture’s current drug pipeline. The team decides to focus first on
evaluating the value of BioFuture’s current drug portfolio. What issues should the team consider
when evaluating the value of BioFuture’s existing drug pipeline?
Helpful hints

Be sure to mention a range of potential issues to explore instead of immediately diving
very deep into one issue. Then ask your interviewer if he or she wants to go deeper on any
of them specifically
Reveal Answer
A good answer would include the following:





Further cost of R&D until each drug is ready to be sold.
Potential value of selling each drug.
Market size, for example, size of patient population, pricing
Market share, for example, number of competitive drugs in R&D or on the market;
different side effects, convenient dosing schedule (that is, patients are prescribed to
take a drug at regular intervals that are easy to remember such as once a day or every
12 hours)
Costs to manufacture and sell, for example, marketing, distribution

Press about these drugs, for instance, have famous doctors called for this kind of drug?
Is it only slightly improving on what is on the market already?
A very good answer would also include the following:






Risk level
Likelihood clinical trials of a drug will prove effective
Likelihood that a drug will win regulatory approval
Side effects and potential legal exposure, for example, potential law suits due to
unexpected side effects
Emergence of substitutes: are competitors working on substitutes already? Is it about
speed and does BioFuture have enough researchers working on the respective drugs?
Strength of underlying patents, that is, how likely is it that a competitor can
successfully copy BioFuture’s drug?
Question 3:
Below is a description of expected probability of success, by stage, in the Pharma R&D pipeline.
Note: “Filing” is the process of submitting all of the clinical and safety evidence from Phase I, II,
and III trials, and asking for regulatory approval to actually sell the drug.
GlobaPharm believes that the likelihood of success of BioFuture’s primary drug candidate can be
improved by investing an additional $150 million in a larger Phase II trial. The hope is that this
investment would raise the success rate in Phase II, meaning that more candidate drugs
successfully make it to Phase III and beyond. By how much would the Phase II success rate need
to increase in order for this investment to break even?
The interviewer would tell you to assume that if the drug is successfully marketed and sold, it
would be worth $1.2 billion (that is, the present value of all future profits from selling the drug is
$1.2 billion).
Helpful hints




Ask for clarification of information if necessary.
Take notes of the numbers.
Take time to plan out how to approach the calculation.
Describe your approach and talk the interviewer through your calculation.
Reveal Answer
A very good answer would include the following.
Investment would need to increase the probability of success in Phase II from 40 to 80 percent
(that is, increase of 40 percentage points). There are multiple ways to approach this calculation.
One method is shown here:




If a candidate drug passes Phase II, then it has a 50% x 90% = 45% chance of being
successfully marketed and sold. Since a successful candidate drug is worth $1.2
billion, a candidate drug that passes Phase II is worth 45% x $1.2 billion = $540
million.
To break even (that is, to make the $150 million investment worthwhile), the value of
the candidate drug that passes Phase II would need to increase to $540 million + $150
million = $690 million. This means, the probability of combined success in Phase I
and II would need to increase by (150/540) = 28 percentage points.
So the current probability of Phase I and II, that is, 70% x 40% = 28% would have to
increase by 28 percentage points, to 56%. In order to come up to 56%, Phase II
probability would have to increase from 40% to 80% (70% x 80% = 56%).
This seems like a very big challenge, as an increase by 40 percentage points means
that the current probability of 40% needs to double.
Helpful hint
 It is always good to provide a “sanity check” on your numbers and to provide commonsense commentary and insights on the implication of your calculations.
Question 4:
Next, the team explores the potential setup with BioFuture after the acquisition. Although
BioFuture's existing drug pipeline is relatively limited, GlobaPharm is highly interested in its
ability to serve as a biological research “engine” that, when combined with GlobaPharm's existing
R&D assets, will produce many candidate drugs over the next 10 years.
What are your hypotheses on the major risks of integrating the R&D functions of BioFuture and
GlobaPharm?
Reveal Answer
A very good answer would include the following:





Scientists do not have overlapping disease (therapeutic area) interests or expertise and
are unable to materially collaborate.
Integration into the process-driven GlobaPharm culture kills the entrepreneurial
culture at BioFuture that has been key to its success.
Language barriers severely hinder communication and sharing of information.
Poor management and sense of community as a result of R&D operations that might
come with a time difference of 9 hours.
Key scientific talent leaving BioFuture after the acquisition – either because
acquisition makes them independently wealthy or because they don't want to be a part
of the new big GlobaPharm pharmaco.
Helpful hint

Recognize the “human element” of organizational change is always a key component
of our work. Don't forget to include these types of insights in your answers.
Practice Case
Transforming a national education system
Client goal
Loravia is a fictional country located in Eastern Europe with a population of 20 million. The
government of Loravia wants to achieve major improvements in both the quantity and quality of
education for its children. Because McKinsey has great deal of global knowledge and expertise in
the education sector, the Loravian Department of Education has asked McKinsey to provide
advice on how they can achieve this transformation in its school system.
Description of situation
Loravia’s free-market economy is still developing, having emerged from many decades under
communism. Recently, the government of Loravia put in place a new economic plan, with
aspirations to transform its economy and “turbocharge” its development so that it is well
positioned to compete with its European neighbors. The government of Loravia realizes that the
education of its children is a critical factor in meeting its economic-development goals. It intends
to transform its school system over the next 10 years so that it is able to support its economic
aspirations.
Schooling in Loravia is completely public, and is provided by a network of government-run
schools, which admit children from ages 5 through 18.
The first stage of this effort is to diagnose the current state of education in schools in Loravia to
determine how best to meet the government’s future aspirations.
McKinsey study
McKinsey has been asked to support the Loravian Department of Education in diagnosing the
condition of its current school system, and in identifying the most important areas for
improvement.
Helpful hints


Write down important information.
Feel free to ask interviewer for explanation of any point that is not clear to you.
Question 1:
What are the issues you would want to investigate in diagnosing the condition of the current
school system in Loravia?
Helpful hints


Take time to organize your thoughts before answering. This tells the interviewer that you
think about the problem in a logical way.
Develop overall approach before diving into details.
Reveal Answer
A good answer might consider both the quantity and the quality of available education and how
these influence key education outcomes, such as performance in key assessments. Such an answer
might also suggest comparisons with other countries (such as regional neighbors, or comparable
countries in size or economic output).
Issues related to quantity might include:



access to education and how this differs by age, region and demographic groups
supply of teachers and education resources both at a national level and a regional or
local level
spend on education nationally and regionally/locally
Issues related to quality might include:






quality of the current curriculum, for example the subjects taught in schools and the
attainment/knowledge objectives
quality of teaching, for example the qualification level of teachers, results of teacher
assessments
A very good answer might acknowledge a need to consider Loravia's broader
economic objectives in the diagnostic or the current overall structure of its school
system, for example:
What industries and sectors will be a priority for Loravia in the future and what skills
will be needed?
How well does the current education system develop these skills?
Should alternative models to a public education system be considered, for example,
independent or private schools?
Question 2:
The chart below shows some important education-related measures for Loravia, and also for some
comparison countries. Three sets of comparison countries have been used. In the first set are some
of Loravia’s neighboring countries in Eastern Europe. In the second set are some of the most
developed economies in Europe. Finally, in the third set are some countries that have similar sized
economies to Loravia on a per person basis (similar GDP per capita).
What can you observe from this chart?
Helpful hints



Take some time to look at the information and note any observations you have.
Challenge yourself to identify trends that are not immediately obvious within the data.
If you need to, ask your interviewer some clarifying questions. For example, your
interviewer can tell you that a higher score indicates a higher level of average student
achievement in the international assessment.
Reveal Answer
A good answer might include the following observations:





Loravia spends a higher amount on education compared to the majority of its
neighbors and its economic peers.
Loravia also has a lower student/teacher ratio compared to the majority of its
neighbors and its economic peers.
Despite both of the above, Loravia has one of the lowest international assessment
scores.
Broadly, there seems to be no direct relationship between student to teacher ratio and
education outcome as measured by the international assessment.
Developed countries clearly spend more per student on education and have better
outcomes as measured by the international assessment. However, among Loravia’s
peers and neighbors there is no clear relationship between spending and education
outcomes.
A very good answer might suggest some reasons for the trends observed, draw some conclusions
and/or refer back to the initial aims of the work:



The variation in the number of students per school is likely to reflect the geographical
distribution of the populations of the countries.
While student/teacher ratios and per student funding are levers that could be
considered important in improving education quality, the data here indicates that these
may not in themselves provide the sought for improvement. Issues such as teacher
quality and curriculum content should be investigated.
The international assessment may not be the best measure of the skills that will be
needed in the future Loravian economy. Further research on the international
assessment would be needed to determine how seriously its results should be taken.
For example, if language abilities or technology skills are important for the Loravian
economy, what are the best assessments/measures of these?
Question 3:
One of the clients at the Loravian Department of Education mentions the example of neighbor
country C, which outperforms all of Loravia's economic peers and neighbors in the international
assessment. She believes that the more concentrated school structure in this country is a big reason
for its better outcomes in the international assessment. She suggests that having larger, less
fragmented schools allows for more effective selection and training of teachers, leading to
improved education outcomes for the students.
What would be the reduction in the total number of schools in Loravia if it were to reach the same
average school size as neighbor country C?
Your interviewer can provide you with the following information if requested:

15 percent of Loravia's population are currently attending school.
Helpful hints


Don't feel rushed into performing calculations. Take your time.
Talk your interviewer through your steps so that you can demonstrate an organized
approach.
Reveal Answer
A good answer to this question might involve the following steps:




There are 3 million school children in Loravia (15% x 20 million).
There are currently 6,000 schools across Loravia (=3 million school children divided
by 500 per school).
Assuming the same school size as neighbor C would give 3,750 schools across
Loravia.
Therefore, 2,250 schools would be closed (or 37.5% of schools).
A very good answer to this question might acknowledge that this is probably an unrealistic
target. Although some consolidation of schools may be possible in certain areas, a wholesale
restructure could be counterproductive, given that many students and teachers would now have to
travel much longer distances to school. This could generate other problems such as staff shortages
or poor attendance, and could create much higher financial burden on the government and families.
Question 4:
Based on the issues and information discussed so far, what further issues would you want to
investigate as part of the diagnostic of the current education system in Loravia?
Helpful hints



Take some time to consider what has been investigated in previous questions and what the
conclusions have been.
Summarize for the interviewer what has been determined so far. What further
investigations might be necessary?
Keep your eye on the overall objective. Refer back to the set of issues that were outlined in
question 1 as you answer this question.
Reveal Answer
A good answer to this question might outline what issues we have attempted to investigate thus
far and what has still to be investigated:



We have looked mostly at quantity issues (for example, teacher and school supply,
education spend) and how these relate to a single education outcome.
We could continue to investigate these issues, and there are likely to be other
measures of education outcomes that could be considered, such as alternative
assessments, progression to post-secondary education or employment outcomes.
We have also yet to investigate the quality issues, such as the quality of the
curriculum and of the teachers.
A very good answer might “color” these issues with the conclusions from earlier questions, for
example:


Care should be taken not to address the problem purely with “quantity” measures (for
example, improving student/teacher ratios or increasing spend per student) as there is
no clear indication so far that these would necessarily result in significant
improvements in the situation.
Quality issues are likely to be important. We saw previously that, despite higher
spending compared to its economic peers and a lower student/teacher ratio, Loravia
was still underperforming in the international assessment. This indicates that the
quality of teaching and the content of the curriculum are important issues to
investigate thoroughly.
Practice Case
Diconsa
Client goal
The Gates Foundation is a private organization with vast ambitions; one of its goals is to reduce
extreme poverty worldwide. In this case study, the foundation asked McKinsey to design a basic
financial-services offering for inhabitants of remote communities in Mexico.
Description of situation
The majority of Mexico’s rural inhabitants are relatively poor, relying in part on government
benefits for their livelihood. As they tend not to have bank accounts, they usually collect
government benefits in cash from a limited number of state-bank branches. These branches are
often a long way from where the recipients live, so it can take a lot of time and effort for them to
collect their benefits. In addition, traveling to the branches can sometimes expose benefit
recipients to crime along the way.
The Mexican government also owns and operates a chain of 22,000 stores, throughout Mexico,
called Diconsa, which provide basic food, clothes, and other essential goods to the rural population.
These stores are supplied via a network of central and regional warehouses and several thousand
delivery trucks.
McKinsey study
McKinsey has been asked to investigate and assess the possibility of using the Diconsa network to
provide a basic set of financial services to supplement the limited number of state-bank branches.
The offer would start with dispensing government-benefit payments and move progressively to
include savings accounts, bill payment, insurance, credit, and other financial products.
Helpful hints


Write down important information.
Feel free to ask the interviewer for an explanation of any point that is not clear to you.
PRACTICE CASE QUESTIONS
Question 1:
What should the team investigate to determine whether the Diconsa network could and should be
leveraged to provide a range of basic financial services to Mexico’s rural population?
Helpful hints


Take time to organize your thoughts before answering. This will help show your
interviewer that you have a logical approach and can think in an organized way, regardless
of the “accuracy” of the outcome.
Develop an overall approach before diving into details.
Reveal Answer
A good answer might include the following:
What are the benefits that might come from providing financial services via the Diconsa network?
For the Mexican rural population


How much time, effort, and expense would the benefit recipient save through the
Diconsa network (for example, through shorter travel time)?
Beyond what was stated in the summary, what would be the benefits to the rural
population of access to a broader range of financial services? (for example, better
security for their money)?
For the government, state bank, and Diconsa network



Would there be benefits for the government in terms of increased
compliance/collection of benefits (for example lower administration costs)?
Would these financial services result in better financial management among the rural
population (for example, more business for Diconsa stores)?
Would this alternative model reduce pressure and increase efficiency for the bank
branches that are currently distributing benefit payments?
What are the risks that could occur from the venture? Some examples follow:



Lack of capacity or ability of the Diconsa network to deal with financial payments
and products
Lack of capacity of state bank to operate financial services across a much greater
network of outlets
Greater risk of fraud of theft due to less centralized control of benefit payments
A very good answer might articulate some less obvious benefits or risks to be
investigated, such as the following example:



The possible benefit of less cash being transported within the Diconsa network
because stores are now receiving cash and paying some of that cash out again, so cash
balances may be lower and less cash needs to be transported to and from the
warehouses. This may result in a lower cost as well as lower security risk for the
Diconsa network.
Benefits for the Gates Foundation of potentially providing a model that may be
replicable in other countries
Benefits to the government in proving a model for distribution of a broader range of
services (for example, telecommunications or healthcare).
Question 2:
The team has estimated that it currently costs a family 50 pesos per month in transportation and
food to make the journey to collect their benefit payments. The team also estimates that if benefits
were available for collection at local Diconsa stores, the cost would be reduced by 30 percent.
Twenty percent of Mexico’s population is rural, and of this number half currently receive state
benefits.
If all families could receive state benefits at their local Diconsa stores, how much in total per year
would be saved across all Mexican rural families receiving state benefits?
Your interviewer can provide you with the following information if requested:
You can assume that Mexico has a population of 100 million.
You can also assume that families in Mexico have four members, on average, and that this does
not differ by region.
Helpful hints


Don’t feel rushed into performing calculations. Take your time.
Talk your interviewer through your steps so that you can demonstrate an organized
approach.
Reveal Answer
A good answer to this question would involve the following steps:





There are 5 million families in rural Mexico (20% x 100m ÷ 4 per family).
There are 2.5 million families receiving benefits (50% x 5 million families).
Each family currently spends 600 pesos per year to receive their benefits (50 pesos
per month x 12 months).
In total 1.5 billion pesos per year is spent by families in receiving their benefits (600
pesos x 2.5 million families).
450 million pesos could be saved (30% x 1.5 billion pesos).
A very good response might note that these potential savings could be redirected to enhance the
benefit system further, and that there may be other costs that could be saved also, such as the cost
of lost working time in making the journey to collect benefits (that is, opportunity costs).
Question 3:
The team conducted a survey on a sample of the rural population in three different regions of
Mexico. These populations were given a number of statements about the concept of collecting
their benefits at the nearest Diconsa store and asked how much they agreed with each statement.
The average response to some of the questions by region is shown below:
What are your observations about this information, and how would you explain these trends?
Helpful hints


Take some time to look at the information and note down any observations you have.
Challenge yourself to identify trends that are not immediately obvious in the data.
Reveal Answer
A good answer might include the following:





There are significant differences by region on how interested people are in collecting
their benefits at their nearest Diconsa.
All people have a security concern about collecting their benefits at a Diconsa, but
this is particularly the case in Region B.
People are not so concerned about whether they will receive their benefits, except in
Region B.
Not everyone is completely convinced that it will cost them less to collect benefits
from their nearest Diconsa, despite the fact that they all agree it will save them time.
Broadly speaking, security, trust and cost effectiveness all seem to influence whether
someone is interested in collecting their benefits at a Diconsa. People’s perception of
these seem to differ by region, with Region B being a particular issue.
A very good answer to this question might also suggest possible reasons for
the observations above:



One potential explanation for the results of Region B is that this region has
significantly greater levels of crime and corruption, which means that people are less
convinced that they will receive their benefits or that they can keep them secure once
received.
Security overall is the issue that is consistently lowest rated across the regions which
may indicate that there is a relatively high degree of crime in all these areas.
Even though everyone agrees that this idea would save them time, there is
disagreement that it would save them money. This might indicate that certain stores
are distrusted more than others. For example, store proprietors may not be happy to
just dispense cash without the recipient making a purchase. This is supported by the
fact that the responses on ‘trust’ and ‘cost’ are correlated. This might have
implications for the compensation/incentive model of managers of the Discona.
Question 4:
In a meeting with representatives of the state bank, they express concern about how challenging it
will be to offer basic financial products to the rural population.
One of the representatives mentions that these are regions where people are poorly educated and
unfamiliar with banking products, and where there is a high degree of crime and fraud. He asks for
the team’s thoughts about how the bank could sell these services effectively to this population
given the challenges.
Helpful hint

Consider the issues raised in the question, and group your thoughts around them. This will
ensure that you are giving the most relevant answers.
Reveal Answer
A good answer to this question might include:
If available, examples of how basic financial services have been successfully introduced into other
poor populations, and how that learning could be leveraged in this case.
Suggestions for how to overcome the lack of education and familiarity with banking products,
for example:






Pilot some products in certain regions where the population might be more receptive,
so that less receptive people can see that they are already being used by others in
similar situations.
Arrange in-store talks and demonstrations, focusing on educating people on what the
products are and how they can be used, and dispelling common causes of distrust.
Partner with brands or organizations that are already well known and trusted by the
rural poor.
Advertise using individuals who have benefited from similar products, for example,
people who have made successful insurance claims, or who managed to save money
for a specific need.
Motivate Diconsa employees to encourage take-up of the products.
Offer promotions to encourage initial take-up, for example, pay 50 pesos when the
first savings deposit is made
Suggestions to overcome crime and fraud could include the following:



Increase security in Diconsa stores.
Impose daily or weekly limits on transactions.
Introduce technology such as chip cards to reduce fraudulent activity and to
discourage crime through less use of cash.
A very good answer may involve suggestions that can address all of the
concerns together such as the following:


Introduce compulsory secure chip cards for all benefit recipients to verify their
identity when collecting benefits can help reduce fraud.
These chip cards can be designed to handle financial-services transactions such as
savings accounts or bill payment, and the fact that the population is already familiar
with the technology can make them more open to the new services.