McKinsey & Company Consultant Interview Questions, Process, and Tips

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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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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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• Q1. The first interview was majorly an interaction on different concepts of Statistics.
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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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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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Client is the owner of a Research Institute and wants you to estimate the number of sport scientists that he can potentially interview for the position.
[Please note that I stands for Interviewer and C stands for Candidate] 

C: So, the skills that we’d be looking for would be a combination of nutrition/ medicine and physical education. Would that be correct?

I: Yes, the candidate should have knowledge of nutrition, biomechanics, recovery, physical activity etc.

C: Okay. I would like to divide this estimate in 2 parts. First- I’d like to estimate the potential number of candidates who have graduated recently, Next- I’d like to estimate the candidates who are already working in similar roles. Does that sound fair?

For estimating the number of recent graduates who can be our potential candidates, I’d like to first estimate the number of people who would have taken Biology and Physical Education as their subjects in class 12.

For reaching this number, I’d like to start with the total population of the country divide it into rural and urban. I would ignore the rural population as this is a relatively niche field.

I: Here he interrupted me to tell me that this approach is very broad, and we can’t possibly reach the solution this way.

C: Got it! So, if we know that approximately 10 lakh people sit for engineering entrance exams each year, we can take a factor of double that i.e., each year ~20 lakh people are looking to join graduate colleges.

I: This is fine. But this approach is similar to the one you used before. (This gave me the clue that he wants me to use the supply side approach).

C: Okay, we can try and estimate the number of colleges in the country and see the colleges that would have these subjects e.g., medical/ home science colleges.

I: Yes, Good. How would you estimate that?

C: We know in India there are state universities and central universities so we can proceed with that.

There are 30 states in India. We can assume that each state has at least 10 medical colleges. So, we get 300 medical colleges. We can multiply this by a factor of 1.5 to incorporate other home science and colleges of the related field.

Now, in these 450 colleges we can assume that there are 1500 students on average. This gives us a pool of ~650000 students. Of these 650000 students, we can assume that 50% go into pure sciences (medicine) 30% go for PHD/ other higher education and 20% want to change their field.

This gives us 130000 students. Out of these we need students who have the combination of skill set that we are looking for (knowledge of nutrition and body mechanics).

Since these are niche subjects, we can take a factor of 0.2 to get to our potential pool of graduate candidates which is 26000 candidates.

Now we can move to the second part of the guesstimate which is number of people who are already working in some related vocation.

For estimating the number of people who are in a similar vocation, I would first define the type of vocations. So, we can have people who are currently in the sports industry working as physiotherapists etc.

We can have dance trainers and gym enthusiasts as one category, The next category would be freelancers like dietitians etc. The last category would be ‘others’ primarily comprising of those graduates who had opted for research roles after their graduation and now want to return to the industry.

First we estimate the number of potential candidates in the sporting industry.

Let’s assume there are 16 IPL teams, each of these teams would have 10 people with the required skillset. Let’s say there are 20 such sports and leagues. We get a pool of 3200.

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You have been approached by the CEO of a gym chain, currently having 5-6 outlets in India.

Due to COVID, they are experiencing lower footfall, with their revenues falling. You have been hired to help the company adapt to the new normal.
[Please note that I stands for Interviewer and C stands for Candidate] 

[The flow was conversational. It started with calculating revenue numbers, explored various streams of revenue and potential areas of improvement. Concluded the case with recommendations for increased subscription and retention]

C: Started with asking questions about the location of the gym, capacity, target customer segment (Low, medium or high-income brackets)

I: Location: Metro cities; capacity: 50 people; Income bracket: Medium to high.

C: What are the services currently provided by them apart from gym equipment and professional trainer? Do they have planned alternate sessions on say, Yoga or Zumba as well?

I: No, just traditional gym facilities.

C: Since we are considering the covid era, were there any restrictions imposed by the state/central government?

I: Yes, strict regulations on sanitization, temperature check and 50% capacity utilization were imposed. All of which has been duly obliged by the chain.

C: What was the fall in revenue and was the decline evident before Covid or sudden due to Covid restrictions?

I: The decline was sudden. Let me provide you with some case facts to better evaluate the situation. Current revenue: 10,000 per customer per month, average capacity utilization pre covid 80% and post covid 10%.

C: Based on the data, pre-covid revenue: 10,000*12*50*0.8*5 = Rs 24 crore across 5 outlets.

Post-covid: 10,000*12*50*0.1*5 = Rs 30 lakhs i.e., 85-90% fall in revenue.

For our analysis, should we also consider the cost aspect as some of the trainers may not be full time employees or were laid-off due to low footfall at the gym?

I: Assume all trainer to be full-time employees and no lay-off as it was against the company policy. We can focus only on the revenue aspect for now.

C: Since they have a traditional setup, can we explore potential avenues for revenue generation?

Gym has 2 targets currently, to acquire new customers and retain existing ones.

Recommendations to address both are:

• Starting transport facility: pickup and drop facility from home to gym

• Invite celebrity star to the gym and use social media handles to promote assurance and safety in opting for their services

• Personal reminder and motivation calls from trainers

• Develop online platform like Cult fitness and offer services like Yoga, Zumba and Mindful meditation sessions

• In-house restaurant: providing healthy food alternatives