McKinsey & Company Consultant Interview Questions, Process, and Tips

It started with the basic introduction and the interviewer gave me a mini case.

Uber wants to launch chopper service in Mumbai, should they do it and if yes, what should be the pricing strategy?

(20 minutes)
I confirmed the case by iterating the case back. I asked some preliminary questions such as if they are the first one to launch such a service, what is the range of their service. I listed the potential market barriers and clarified the operating model (Company owned chopper or leased one).

I asked him about the initial pricing to ascertain if this business would be economically viable and he provided me a figure.

Identifying the expenditure from this transport mode helped me in identifying the earnings of such customers. I concluded that consumers in that earning band would rather prefer having their own chopper and might not want to have an uber service.

A firm with retail store chain (with basically 2 set of products) wanted to increase their forecast accuracy.

(30 minutes)
They initially asked me about the causes of poor accuracy and then they provided me a list of 5 different technology providers for accuracy improvement. They had the initial investment, promised forecast accuracy, yearly charge and some more data. I was asked to recommend the best out of them.

I asked them what is the payback period the client is looking for.

I compared the expected increase in revenue due to the improved forecast and the cost of investment to identify the best solution. The process included some number crunching, so I made sure how I arrive to a particular figure by breaking them into smaller pieces and keeping them informed about each calculation.

This round tested me on my analytical, decision making, and communication skills.

• Q1. This round started with my introduction and the interviewee asked me questions from my CV mostly from my work in TSL. He deep dived into many of my CV points to...read more
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McKinsey is working with an auto components supplier for automotive vehicles. Design a strategy to increase its revenues in the next 3-5 years.
[Please note that I stands for Interviewer and C stands for Candidate] 

C: Is there a target revenue increase?

I: Doubling in next 3 years.

C: Which geography is our client located in?

I: India

C: Who are the takers of these auto components and where are they based?

I: Indian companies: likes of say Maruti (for 4 wheelers) and Honda (for 2 wheelers).

C: What parts/components of the automobile exactly do they manufacture?

I: Exteriors (steel fabricated parts visible externally: say doors of the car, roof).

C: Should I focus on OEMs for 4 wheelers & if yes, which specific types of 4 wheelers (say passenger vehicles or commercial vehicles)?

I: Yes, both are serviced by the client. Focus on them.

C: I'd like to understand the industry landscape: growth rate of the company vis-a-vis industry.

I: Industry has been growing steadily. Our client is present & it's not losing market share.

C: What are the distribution channels: any direct-to-consumer touchpoint?

I: They supply to OEMs and also sell replacement parts via client --> distributors --> retailers -> car owners who need replacement.

At this point, I thought I fairly understood the case-at-hand and took a couple of minutes to think.

My structure was as follows:

Step 1: Identify the different sources of revenue existing and potential: Sales to car manufacturers & replacement market (existing), new product lines (car interiors like seats/steering): potential lines.

Step 2: For each revenue line, demarcated the markets (existing geographies v/s new ones)

C: What are the KPIs in this industry for the current geographies?

I: What do you think? Focus on existing product & market.

C:
1) Interoperability among different models/carmakers

2) Quality & longevity of product

3) Service guarantee

4) Price point

I: Point 1 & 4 were the key to success in this space.

C: Could you tell me about the players in the current space & if there are any foreign forces?

I: Mentioned Chinese players and how they were flooding the market with cheaper components to which the current costs stood no competition. Please recommend both short term & long-term solutions to combat this.

C: Mentioned few points like their source of low costs was cheap steel which was 80% of the auto-body. Short Term Solution: Demand exclusivity from OEMs to sign long term contracts.

Long Term Solution: Procurement Lever, Rationalizing steel usage, alternative material R&D, brand name development.

I: Thanks, that'll be all. Please synthesize the case for me.

Guesstimate the market for niche home products for smart personal devices for households.
[Please note that I stands for Interviewer and C stands for Candidate] 

It was more conversational. I did not realize when the case started.

Laid out the structure: number of HHs in India --> Urban/Rural Split --> Income split.

I: Please do the entire calculation and give me the numbers.

C: Started calculating & speaking the figures aloud.

I: Tell me the specific customer segments to target at the outset.

Identified the following target segments:

1) Rich & affluent urban nuclear families

2) Double Income No Kids segment

3) Tech-inclined singles

4) Old aged rich grandparents looking for convenience.

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I am running a very niche NBFC targeted at MSMEs. I offer hassle-free small ticket loans of about 5-10-15 lakhs through digitization. We are not growing as per our expectations, please help.
[Please note that I stands for Interviewer and C stands for Candidate] 

C: Since when are we facing the problem and what is our target for growth?

I: We want to grow 3x-4x in a year, and the problem is happening for the last 12-18 months.

C: Which cities are we targeting currently? And MSMEs in which sector particularly?

I: We are currently focused on top 10-15 cities of India, on front end, we don't have any sectoral preferences, however, in the backend, most of our loans have been granted to MSME construction firms, restaurants and garages.

C: Can I know more about the loan terms: Collateral, documentation needed, time taken to disburse loans, Interest rates, payment terms etc.?

I: Loans are collateral free, we do full documentation check: where we need bank statements and P&L statements of the MSME for cash flow estimation, GST linkages etc. As I told the process is hassle free, we provide loans in 1-2 days, and since the loans are provided quickly, interest rates are little on higher side.

C: What is the time frame we are looking at? Is there any budgetary constraint?

I: Time horizon is 6-12 months and definitely no NBFC would be burning money like that.

(CASE SOLVING: STRUCTURE)

C: As we wish to grow the number of loans disbursed, we can divide it into: Number of customers * number of loans per customer
Focusing on number of customers: we can look at 3 dimensions:

1) New markets: Outside India and Inside India (Tier 2-3 cities where most of the MSMEs are based out of)

2) New products: Expanding into banking, Fintech (Digital payments, digital insurance, wealth tech etc.)

3) Market penetration: Attracting more no. of customers in the existing market.

I: Start with 3rd part.

C: Can I know more about the distribution model, is it all digital or we also have salesforce?

I: We operate largely online, however, salesforce is used to spread word amongst MSMEs.

C: I would like to structure this ahead in terms of

1) Awareness of our NBFC

2) Loan terms attractiveness

3) Accessibility of our salesforce and digital platform

4) Experience: issues in loan disbursal process

I: Okay, start from the first one then.

C: I would like to explore all possible mediums of lead generation like telephone calls, face to face visits, emails, website, apps and affiliate marketing. is there problem across any?

I: No.

C: Based on my prior case competition experience, where I did personal surveys with 30+ MSMEs, most of the mails etc. are made in English and loads of calls and emails are considered as SPAM by MSMEs, thus I would suggest calls and mails should be made in the regional languages of the MSMEs, and for greater trust and credibility, we should reach out to trade associations like Shankar Market Trade association in Delhi.

Generally, the MSMEs. are organized into trade associations and thus reaching out directly to these trade associations and their presidents, provide greater credibility and support from MSMEs.

I: Yes, this could be done, what else? You talked about Amazon; how can we leverage them?

C: Yes, we can do affiliate marketing on Amazon and their home page.

I: What about the various sellers who are selling on Amazon, aren't they also our target market?

C: Yes, absolutely, we should rather partner with Amazon to list us as SME loan provider while a seller is registering and creating profile with Amazon, to target them in the beginning only.

I: Yes, this could also be done. What next?

C: I would like to shift to loan terms now.

You mentioned that our rate of interest in higher, is it a possibility that we can reduce them a notch?

I: The problem is that we have little data, and thus interest rates are charged higher due to limited data.

C: In that case, for gathering more data, we should make use of open banking, partner with various digital payments providers like Paytm, PhonePe, Google Pay that these MSMEs use for collecting payments so that we can estimate cash flows of the MSMEs with greater accuracy based on thus data, as a result, our interest rates can also reduce.

I: Okay, what else?

C: We can also look at the tenure and frequency of payments (EMIs), increasing the tenure of loans, provides greater cushion to MSMEs and flexible loan payment terms like balloon payments, quarterly, half yearly or yearly installments rather than monthly payments, would ease the pressure on the clients. Also, we can facilitate Auto debits, ECS/NACH mechanism so that MSMEs are regular in their payments, and they don't default.

I: We are already having auto debit facility, what else?

C: I would now like to look at accessibility part. is our app present on Android/Apple phones?

I: Yes.

C: Is there any problem with loading of the website/app and working speed?

I: No.

C: Ok, then I would shift to our salesforce. Here, I would look at quantitative and qualitative factors. Quantitative: number of salesforces, number of visits made by each. Qualitative: quality of engagement with the MSMEs, negotiation skills, training, experience etc.

I: (Abruptly ended the case, and asked to tell 2-3 major ideas from the entire discussion).

Numerical Problem

I: We are a cellphone manufacturer; we are facing the following issue -

Current price: 1000$
Margin per unit: 200$
Currently selling 2 million units:

Sales head has come with the following proposal:

Reduce price by 5%, and volume would go up by 25%.

Evaluate the proposal on contribution margin basis.

Now, if you don't want your contribution to get impacted, by what percentage should your cost reduce.
Solved the numerical based on my course knowledge.

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Your client is a financial institution who provides loan services. They plan to extend loan facility to lifestyle products (TV, mobile phones) in the online market. Consider they plan to tie up with e-commerce platforms like Amazon, Flipkart etc. How many loans could they expect, given that more than 50% of the market will avail the service for products over ₹5k.
[Please note that I stands for Interviewer and C stands for Candidate]

C: Starting with India's population (took 1.4 Bn for ease of calculation), I would first split them on the basis of urban and rural population. Then I would consider Internet penetration in these regions. Further I would divide each region on the basis of age as it influences people's preference towards online medium for purchase of Lifestyle products. Am I heading in the right direction?

I: Go ahead.

C: So here we have the total market for lifestyle products. Next, the average life of a product is generally 3 years which I would factor in to get the annual demand. I would then look at income division to understand which people will actually turn towards loans for their purchases (Took the interviewer's buy in while fitting the number to get the market size)

I: So Disha, now that we do not have much time left can you summarize what steps would you take after this to get to the answer.

C: Sure, I would consider the 50% market size and considering around 80% lifestyle products (assuming phones, TVs, smart watches) are above 5K I would come up with the final market size.

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A private equity firm is interested to invest in metros and ports in India. Help them decide.
[Please note that I stands for Interviewer and C stands for Candidate]

C: Understood the motivation behind entry into the Indian market and this sector and their existing portfolio. Clarified if there was any other motive for entering this market apart from profits. For the valuation part, I analyzed the targeted rate of return and time for recuperating the investment and the desired cost of capital.

I: A Canadian firm wants to invest in India and is looking for good income flow. The timeline is 2-3 months. There is no specific location or other constraints.

C: I analyzed the regulatory environment (given the nature of the sector, wanted to understand if there were any current / upcoming regulation regarding investments in infrastructure). Clarified that tolls form a major source of revenue for the highway (95% w.r.t this case). Therefore, I restricted the analysis to the revenue earned via tolls as a matter of this case. I mentioned about different types of valuations and clarified that Discounted Cash Flow (DCF) method will be used to value this project.

I: What are the potential risks to this investment?

C: Used a graph to show the risk factors and ROI indifference curve. Future economic outlook, systematic risk, operational, Technology changes in future, currency risk. Spoke about the risk equation of r = (1/N) *Var + (1-1/N) * Cov to highlight that there is always going to be some systematic risk and mentioned the risk mitigation strategies through hedging.

I: Can you calculate the loss in case a type of commercial vehicles stopped using the highway (agri vehicles)?

C: (Got data related to different type and proportion of vehicles that use the highway and calculated revenue lost if 50% of agri: commercial vehicles stop using the highway.

Data: 100,000 vehicles per day; 40% cars, 20% buses and 40% commercial vehicles with toll charges 100, 200 and 300 respectively. 50% agri and remaining auto commercial vehicles. Calculated per day loss of 3 Mio and was asked to list down the reasons for decline in agri commercial vehicles and ways to compensate for the lost income.

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The client is a PE firm and would like to evaluate an Indian asset portfolio of roads, railways, highways, ports etc. We have received the cash flow position from target company. Suggest a list of risks to the cash flows.
[Please note that I stands for Interviewer and C stands for Candidate]

I: The client is a PE firm and would like to evaluate an Indian asset portfolio of roads, railways, highways, ports etc. We have received the cash flow position from target company. Suggest a list of risks to the cash flows.

C: Asked about the firm, its location of operations, any particular asset they would like me to look at first and where does the firm lie in terms of its value chain of managing the assets (i.e., whether the client is involved in building assets, maintaining the assets, etc.).

I: The client is an established PE Firm, operates Pan India, and no particular asset is a priority at the moment. In terms of value chain, the client bids for an asset, and once the contract is won, client is responsible to construct the asset (say a highway or a port), then maintain it for a certain period before handing it over to the government in about 35 years.

C: Could you give me a moment to structure my thoughts?

I: Sure, go ahead.

C: We can start by looking at multiple factors that could affect the operating cash flows. The factors could be external to the firm and beyond its control, such as any regulatory changes by the government (since one of the major stakeholders in the contracts is the government), contractual changes, any substitutes to the assets that come up (alternatives to highways, roads, etc.) or could be internal to the firm, such as efficiency in managing traffic, maintenance of assets (allowing more users), rates of tolls (if any), etc.

I: Good. What would be the operating inflow and outflow of cash for acquiring or maintaining an asset, say a highway?

C: Sources of inflow of cash would be toll collection, lease money for renting out area in and around the highway, for instance - for petrol pumps, small restaurants and leasing out advertising spaces. Sources of outflow of cash can be looked at by considering the value chain. We would pay out the bid money, outflow of cash for buying raw materials and machinery, hiring labor to construct the highway and the regular maintenance costs of the highway until the asset is handed over to the government.

I: Good, now let us consider that we won a bid for a highway between Mumbai and Hyderabad. It has been 5 years since construction. We have projections of the cash flow for the next the 25-30 years. Evaluate the risks to this cash flow in term of
revenue from toll.

C: The way I would calculate the revenue would be as follows - Number of cars x Frequency of visit x Toll per visit.

I: Would only cars be paying the toll?

C: No, the vehicles would include passenger cars, cabs, buses, trucks, and two wheelers.

I: Right. Let us focus on trucks. What are the risks to toll revenue from trucks?

C: Could you give me a moment to structure my thoughts?

I: Sure.

C: Toll revenue would be a function of number of trucks and the toll charges. We could have direct and indirect factors impacting the toll revenue from trucks. In case of direct factors, we could have any alternate routes available to the truck drivers (could be another highway) affecting the number of trucks taking the highway. Changes in toll charges could also have an impact on the revenue. Since the trucks are travelling between two cities (Mumbai and Hyderabad), they would primarily be serving as inbound and outbound transportation for the companies. So, the indirect factors could be inter-state taxes, cost of raw materials within the two cities, and regulatory & legal requirements especially with respect to transportation of trucks (for e.g.- timings within which trucks can operate).

I: Take two industries - agriculture and automobile. Trucks supplying to these two industries contribute maximum to the toll revenue, about 40%. Inter tax rates between the states have increased, toll revenue from trucks supplying to which industry would be impacted the most?

C: It is hard to switch supply from one source to another in case of agriculture industry since its dependent on climate, soil, etc., while for automobile industry it could be relatively easier to shift the source.

Client is a financial institution (FI), estimate the number of loans the FI would disburse in one month to customers buying a product online via e-commerce platforms.
[Please note that I stands for Interviewer and C stands for Candidate]

C - By products being purchased on an e-commerce platform, do you mean a platform like Flipkart and Amazon?

I - Yes, for simplicity, assume it to be Flipkart.

C – Okay. Are we focusing on any particular region or is it Pan India? Do we have any specific criteria for disbursing the loan?

I - Nothing specific.

C: Okay, just give me a moment here.

I - I would like to calculate the number of online purchases and then find out the proportion of purchases for Flipkart and finally the proportion of loans disbursed by the FI. So, number of online purchases = Population (130 Crore) x Rural / Urban (~7:3) x Internet penetration (30%) x Income Classes (40% of middle/lower middle class) x Age (35% - 15-35 years) x Proportion of online purchasers (assumed 30%) x Frequency of high-cost purchases (Once in 6 months) x Factor for mode of financing (EMI, Loans, self-finance), Then, Loans for purchases on Flipkart = number of online purchases x Market Share of Flipkart (~30%)

Finally, Number of Loans for FI in one month = Loans for Purchases of Flipkart x Market share of FI (For market share of FI, I asked the interviewer if we had information on the market share directly or if we knew the number of FIs in the sector. The interviewer told me that there were 3 close competitors, hence I could assume 1/4th of the market share for simplicity.)

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Your client is "CFA" a credit card issuer based in UK & West Europe. They are involved in issuing & servicing of credit cards. Currently are the 2nd largest player. 90% of the customers are retail consumers and 10% are small businesses. Further, CFA divides the customers as 'revolvers' and 'convenience'. Revolvers carry a balance & pay interest; Convenience customers pay the balance every month (i.e., do not default). They have built a strong reputation for consumer service. However, they are currently facing a decline in profitability over past 5 years.

We need to look into the reason and suggest a strategy for the same.
[Please note that I stands for Interviewer and C stands for Candidate] 

C: (Clarified the problem statement, all the points mentioned by the interviewer and the objective)

I would like to understand what function comes under servicing of a credit card: is it payments, partnerships?

I: Yes, servicing is basically end-to-end payments.

C: Alright, also, do they offer multiple types of credit cards for example a premium version, exclusive version etc.?

I: No, just one credit card.

C: Okay. The decline in profitability was seen just by CFA or was it an industry wide issue?

I: This was just limited to CFA.

C: Got it. I think I have all information I need to approach the case at hand. In case I need more information, I'll ask that as and when we are solving.

Now, I would like to take a minute to lay down my approach.

I: Sounds good.

C: (Made my approach chart, laid down the revenue & cost approach)

I: This looks good. However, I have some numbers with me that I would like for you to look and make sense out of it.

(Showed the following Exhibit)

Avg. customer tenure: 3 (5 years ago)
2 (Now)

Customer servicing cost: $3/customer/month (5 years ago)
$3/customer/month (Now)

Revolvers:-

Revenue: $1800 (5 years ago)
$1200 (Now)

Percentage of total customer: 50% (5 years ago)
40% (Now)

Acquisition cost: $50 (5 years ago)
$100 (Now)

Convenience:-

Revenue: $360 (5 years ago)
$240 (Now)

Percentage: 50% (5 years ago)
60% (Now)

Acquisition cost: $50 (5 years ago)
$100 (Now)

C: I'll just take a moment to note down these numbers & analyze these numbers.

Are these revenue & cost numbers per customer?

I: Yes.

C: Alright, so what I can see is that Avg. customer tenure has reduced and so has the Revenue across segment.

However, the CAC (customer acquisition cost) has increased. Even the share of the customer segment has changed. With this data, I would like to calculate the difference in profit from a customer 5 years ago vs today.

(Calculated profit for revolver & convenience individually 5 years ago, then took an avg.
Similarly, for today and took a weighted avg.)

(Numbers: 5 years ago, average profit CFA was earning: $922; Today: $452)

(Made sure to keep the interviewer in loop with my formula and then calculations)

I: This looks great! Let's sum up the case.

C: Yes, sure. So, we can see that overall, the profits have gone down. The points of issue seem to be the following: 2x increase in overall CAC, 33% decrease in the average tenure of a typical customer and percentage of convenience customers has increased. All this affects the profitability.

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Case 1: You are a consultant to the CEO of Hyundai sitting in March 2020. What would be your priorities/measures/concerns in the next 30 days with the COVID19 lockdown having just been imposed?
[Please note that I stands for Interviewer and C stands for Candidate]

C: (asked scoping questions about the company, its operations, and the situation) I think the way I would approach this is to look at the value chain of Hyundai and see where all one could face issues with the imposition of the lockdown - right from procurement of raw materials to sales and distribution.

I: I like the approach, but you are using a framework here. Let us change up the problem. Your client is a large dairy product manufacturer who is a market leader in India. They want to double their revenues in the next 2 years. Suggest possible avenues available to them.

C: (asked scoping questions about the company, products, competitors, customers, market context and constraints) So here we could look at multiple options. We could expand using our existing business and grow organically. However, given that we are a market leader, we may be unable to meet our growth targets. So, we could look at new products like frozen yoghurt or enter new geographies where we are likely or expect similar success like at home. Alternatively, we could go with the inorganic route and acquire a player in the existing or new markets that we presently operate in. Would you like me to look into any particular idea?

I: These are all good suggestions. Let us do another one - Your client is a large FMCG manufacturer/ company with multiple brands and products under its ambit. It has seen a decline in profitability despite no change in profit per unit or production costs. Why might this have occurred?

C: (broke down profitability mathematically) Could it be because prices and costs are both increasing by the same amount, leading to a decline in percentage terms?

I: Suppose that is not the case.

C: Then it could also be because the product mix has changed.

I: Absolutely. Thanks, Sathya, we can stop solving cases now. Would you regret your decision of ranking McKinsey first if you get rejected right now?

C: I would certainly cry myself to bed tonight, but I would take the same decision if given the choice once again.

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Your client is a large FMCG company, and you are speaking to their supply chain head. This is post COVID second wave and he wants you to suggest some interesting things that they can do with their supply chain.
[Please note that I stands for Interviewer and C stands for Candidate] 

C: Started with asking about the business, geography etc. but was interrupted.

I: Assume it to be similar to Unilever. I don't want more questions, tell me how you would approach such a question.

C: Sure, I'd start by looking at their value chain, starting from R&D, forecasting, raw material acquisition, logistics, manufacturing, distribution, sellers, after sales activities.

I: Great, now what are the few main things you would want to know before evaluating?

C: I would want to know more about the network that the company has, how they handled the 1st wave of COVID and how those changes helped with the second wave.

I: They have 100 suppliers, 50% of the material is imported, 25 plants pan India, 3000+ distributors. During COVID, the plants were shut down for 2 months, and the whole supply network was shut as well. Manpower was reduced. Later, warehouses were increased to stock more, increased inventory days. So, let's look at forecasting and logistics. Let's start with forecasting.

C: Sure. When looking at the forecasting efforts I would look at it from a business and technical perspective. On the business end, the demand and supply would be coordinated. On the technical front, I would look at the kind of tools we have been using and if there is a scope for an upgrade.

I: Which tools?

C: Advanced analytics, machine learning, IoT etc.

I: How can IoT help?

C: It can provide some real time data, can help us identify consumer spending patterns, store traffic, improving communication between distributors and retailers.

I: Great. Let's move to logistics. Suppose the diesel price has doubled and the transporters are asking for double the money we used to pay them. What should we do then?

Data:
• Initial Cost of Diesel: 50/L
• Truck runs 200 Km/day, 25 days a month
• FC: 60,000/month
• VC: (2+price of diesel) per Km

C. Since there are fixed costs, the transporter is obviously not facing double the costs. To calculate the proper rise in costs, can I also get the number for mileage?

I: 5 Km/L

C: Initial cost = 60000 + [2*200 + (200/5)*50]*25 = 1,20,000
New cost = 60000 + [2*200 + (200/5)*100]*25 = 1,70,000
Percent change = 50000/120000*100 = 41%

The actual rise is 41%. Do we want to compensate them exactly or do we want to negotiate?

I: No, we want to be fair. Can you explain the methodology?

C: Explained my calculations step by step.