SEVEN TYPES OF EVALUATION TOOLS
Quantitative Assessments:
1. the quantitative test
-maths
2. the estimation question
-make assumptions
-do maths
Hypothetical-Situation Case Interview
3. the candidate-led case interview
4. the interviewer-led case interview
-interviewer decides which parts are important, which questions worth asking
-abrupt case flow
5. the written case interview
-given lots of charts and exhibits
6. the group case interview
7. the presentation-only case interview
MCKINSEY PROBLEM SOLVING TEST
-solve math WORD problem
-data interpretation
-speed & accuracy
ESTIMATION QUESTIONS
Computation-Level Estimates
1. doing precise arithmetic with large numbers
-rearrange large numbers into simpler format
2. rounding numbers intelligently
-when looking for directionally correct answer
-use hand signals to modify estimate
Big-Picture Estimates
3. finding a proxy !
4. identifying how your proxy is imperfect
5. segmenting estimates to minimize proxy imperfections
6. solving the sub-estimates via assumptions
How To Prove Your Worth
-ask clients thought-provoking questions they hadn't considered previously
-analyze data to discover new insights that clients haven't seen before
-develop data-supported conclusions (especially counterintuitive ones) that lead the client toward a different set of decisions
WHAT INTERVIEWERS LOOK FOR
-act like a pro
-face pressure from clients
-be an independent problem solver
-do as little as possible
-accurate enough vs. precisely accurate (directional answers are enough)
-talk with factual justification
-choose your words carefully (soften language of arguments)
-being right diplomatically!
-the airplane test (don't be an asshole)
-process excellent (consistently able to follow a problem-solving process)
-good communication skills (synthesis, put recommendations in context)
THE CORE PROBLEM SOLVING TOOLS
• HYPOTHESIS
• ISSUE TREE/FRAMEWORK
•DRILL-DOWN ANALYSIS
•SYNTHESIS
HYPOTHESIS
-state in first 5 minutes
ISSUE TREE
A well-structure issue tree passes the following three validity tests:
1. your hypothesis
2. MECE test
3. conclusiveness test: if all branches are true, can I imagine a scenario in which the opposite of my hypothesis would be true
When using frameworks, you should:
1. recognize the situation
2. notice where the framework falls short
3. create a customized issue tree
THE HYPOTHESIS IS MUCH IMPORTANT THAN THE FRAMEWORK
TIPS FOR THE PROCESS-OF-ELIMINATION:
1. start with the branch that eliminates the most uncertainty
2. use both quantitative and qualitative analyses
3. don't stop drilling down a branch until you reach a conclusion
(the majority of time spent is not on solving client's problem--it's on isolating the underlying cause of the client's problem)
(never ever propose a solution to a case until you've isolated and defined the problem)
4. when to stop analyzing--the minimally necessary data to reach conclusion
5. use diagrams
SYNTHESIS
structure:
-state action-oriented recommendation/conclusion
• supporting point 1
• supporting point 2
• supporting point 3 (never more than 3)
-restate recommendation/conclusion
(restatement example: that's why I recommend that client expand program B in short term. In addition, given more time, we should evaluate options to turn around program A)
CORE FRAMEWORKS
PROFITABILITY FRAMEWORK
segmenting and isolating example:
I'd like to segment this metric into its component parts
(let interviewer choose the segmentation pattern)
always, always, always compare your metrics to something else
• compare a metric to itself in a previous time period
• compare a metric to the rest of the industry
BUSINESS SITUATION FRAMEWORK
CUSTOMER
• Who Is The Customer
-customer segments
-how big is each segment
-which ones are growing or shrinking
-percentage of market
-compare with historical data
• What Are The Customer's Segment Needs
-what are their needs
-what are their buying criteria
-what's important to them
-why do they buy
-how do they decide
• WHAT IS EACH SEGMENT'S PRICE SENSITIVITY
• WAHT ARE EACH SEGMENT'S DISTRIBUTION CHANNEL PREFERENCES
-is there's a conflict between current distribution channel and the one that customers prefer
• WHAT IS EACH SEGMENT'S CUSTOMER CONCENTRATION
-customer concentration: how many customers exist and how big or small they are
-once you know how concentrated the customers are, compare this to the concentration of suppliers----client's competitors,typically
PRODUCT
• WHAT IS THE NATURE OF THE PRODUCT
-what does product do
-why do people buy it
-why is it useful
-how, where, when and why customers buy and use the product, is it nice-to-have or must-have
• IS IT A COMMODITY GOOD OR A UNIQUE GOOD
-could the company increase differentiation?
• ARE THERE ANY COMPLEMENTARY GOODS
-can the company piggyback off growth in complements
-if you bundle commodity product with unique product, you sometimes get a unique bundle with higher price
• ARE THERE ANY SUBSTITUTES
-is it vulnearable to indirect competitors
• WHAT IS THE PRODUCT'S LIFE CYCLE
• HOW IS IT PACKAGED
-what products or services are bundled and sold together
COMPANY
• CAPABILITIES AND EXPERTISE
-what does this company do well
-what does this company do differently than its competitors
• DISTRIBUTION CHANNELS
-compare to competitor's distribution channel mixes and customer's distribution channel preferences
• COST STRUCTURE
-ratio of fixed cost vs. variable cost, compared with competitors' ratios, which is entry barrier
• INVESTMENT COST
• INTANGIBLES
-whether intangibles such as brand names, reputation and culture are relevant in testing hypothesis
• FINANCIAL SITUATION
-segmented sales and costs
• ORGANIZATIONAL STRUCTURE
COMPETITION
• COMPETITOR CONCENTRATION AND STRUCTURE
-monoply, oligopoly, competitive, market share concentration
-competitor's power: (1) dramatically lower cost structure that can support lowering prices while maintaining profitability (2) concentration so high that customers have no alternatives
-question examples: how many competitors are there? how big are they (in terms of sales or market share)?
• COMPETITOR BEHAVIORS
-what strategic choices do key competitors make
-who are their customers
-what product do they offer, what's their pricing
what distribution channels do they use
• BEST PRACTICES
-what is the competitor doing that we aren't
-refocus your client's business on a competitor's weakness
• BARRIERS TO ENTRY
-for a new company to compete with established players, it has to either beat these companies in R&D or in sale, or find an entirely different way to compete.
• SUPPLIER CONCENTRATION
• REGULATORY ENVIRONMENT
MERGERS AND ACQUISITIONS FRAMEWORK
-most common M&A cases center on either strategic value or cost savings
FRAMEWORKS IN ACTION
1. in the opening of a case, write down and confirm the client's specific goal
2. compare a metric
-across different historical time period
-with the rest of the industry
3. rationalize and argue for why you want to start the case in one place instead of another
HOW TO OPEN A CASE
1. STALL!
-pause, and repeat the question slowly
2. CLARIFY YOUR UNDERSTANDING
-verify your understanding of facts and terminology
-understand the situation and objective
3. STALL AGAIN!
-example: is it ok if I take a minute to organize my thoughts?
4. STATE YOUR HYPOTHESIS
-if you don't have enough information to make a well-informed hypothesis, state an arbitraryhypothesis. Be sure to tell the interviewer it's an arbitrary hypothesis
5. DECIDE, DRAW, AND COMMUNICATE YOUR CASE STRUCTURE
HOW TO ANALYZE A CASE
Segment a number or problem because totals and averages always "lie"
THE ANALYSIS PROCESS, STEP-BY-STEP
1. PHRASE EACH QUALITITATIVE BRANCH AS A SUB-HYPOTHESIS
2. DRILL DOWN EACH BRANCH BY ASKING FOR DATA
3. USE A PROCESS OF ELIMINATION
4. REVISE YOUR HYPOTHESIS (AS NEEDED)
5. STOP ONE BRANCH AND MOVE TO ANOTHER
6. FINISH THE LAST BRANCH
TIPS FOR BETTER ANALYSIS
1. DON'T JUMP AROUND ARBITRARILY
you swith branches for one of the only two reasons:
-you've hit a logical dead end
-you've revised your hypothesis and the issue tree
2. PROPOSE A SOLUTION ONLY AFTER YOU'VE ISOLATED AND DEFINED THE PROBLEM
3. DON'T MAINTAIN YOUR HYPOTHESIS WHEN DATA DISPROVES IT
4. SHOW YOUR ISSUE TREE TO THE INTERVIEWER
5. COMPARE YOUR NUMBERS TO SOMETHING ELSE
-historical comparison & competitive comparison
6. REMEMBER TO SEGMENT AND CHOOSE YOUR WORDS CAREFULLY
-ask in a way that the interviewer reveals to you the preferred segmentation pattern
HOW TO CLOSE A CASE
STRUCTURE:
conclusion (action oriented)
• supporting data 1
• supporting data 2
• supporting data 3
restate conclusion
CREATING A GOOD SLIDE
THREE COMPONENTS:
-a chart or data table
-a chart label
-a title
TITLE TIPS:
-what's the most important thing about a chart?
- SO WHAT?
THE FOUR STEPS TO MASTERY
1. build knowledge
2. find role models
3. practice in a live setting
4. seek assessment from a mentor or coach
TEN MOST COMMON MISTAKES TO AVOID
1. no hypothesis
2. framework or issue tree not linked to hypothesis
3. framework or issue tree not mutually exclusive enough
4. framework or issue tree missing a key factor
5. key insight missed due to insufficient quantification
6. key insight missed due to lack of qualitative questioning
7. math mistake
8. jumping around vs. linearly, logically drilling down
9. pursuit of analysis that's unnecessary to test hypothesis
10 activity-based summary vs. big-picture synthesis