Transportation Tech Co.

Parthenon | Round 1 | Technology

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T RANS P ORTATION T E CH CO. B E H AV I O R A L

Parthenon | Round 1 | Technology INT E R VIE W
QUE S T ION:
Prompt:
Our client, Transportation Tech Co., is a key player in the transportation
technology space. Recently, the client developed an innovative GPS fleet 1 . Te l l m e a b o u t
a tim e yo u h a d
tracking device which it believes could prove valuable to K-12 schools in the
to m o tiv a te a
US. We have been engaged to help our client determine whether this product teammate to do
should be rolled out as a school bus tracking device. s o m e th in g
h e / s h e d id n ’ t
wa n t t o d o .
Clarifying Information:
Note: Provide this only if corresponding questions are asked 2 . Te l l m e a b o u t
• Product – The device transmits location and ETA info to schools and parents/legal guardians. Parents, bus a t im e wh e n yo u
drivers, and school administrators access transmitted data and messages via a proprietary phone/tablet
application
we n t b e yo n d
• Objective – The client’s primary goal is to figure out the best context/industry in which this product should be your
rolled out. Success is defined as profit maximization. re s p o n s ib ilitie s
• Business model – Our client will generate revenues by (1) initial sales of the devices and (2) technology service
to a c h ie v e a
plans. For purposes of this case, we are primarily focused on (1).
• Life span – The product would have a 5-year life span. g o a l.
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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

• Customers – who would our client be selling to in a school bus context?

• Competitors – What, if any, similar products are being used?
• Financial considerations – (2) Potential market size and (2) profit tree
• Candidate should think about the potential sources and drivers of revenues and costs associated with the product. These should be
case/industry specific!
• Push the candidate to think through the buying process. If the candidate asks, you can tell them that purchasing decisions are made by
different decision-making units across school settings (i.e. district-level, school-level, bus drivers, etc.
• If they don’t do so on their own, push candidates to consider the specific benefits which could be derived from this product, for specific
key stakeholders (i.e. schools, bus drivers, students, parents, etc.)

How to Move Forward:

To get to the next portion of the case, the interviewee should ask to explore:

• Market sizing
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.
QUE S T ION 1
What is the potential addressable year 1 market size for this device in the US school bus space?

Guidance:
Tip: Candidates should begin market-sizing by verbalizing their formula/approach to size the market. For each variable laid out, candidates should verbalize what information would
be needed to solve for that variable (i.e. sometimes there will be multiple layers) and then confirm that the approach is reasonable to the interviewer. The candidate should then ask
for the relevant info as they tackle each variable in solving the market-sizing problem.

1. # School buses in the US = (# K-12 students in the US * % students riding bus)/(# students per bus)

a. Assume school-aged kids are 4-18; assume 320M people in the US, evenly distributed across ages, with life expectancy of 80 yers (i.e. 4M/year) = 15 * 4M =
60M

b. Assume 60% of students aged 4-13 ride and 30% of students aged 14-18 ride = (10/15 * 60%) + (5/15 * 30%) = 120%/3 + 30%/3 = 150%/3 = 50%

c. Assume average bus has roughly 13 rows on each side and can seat 2 students per row = 13 * 2 * 2 = 53 students per bus (appropriate to round to 50 or 60)

d. ((a) * (b) / (c)) = (60M * 50%) / 50 = 600K buses

2. # units per bus = 2 (give to candidate once they ask)

3. Selling price per unit = $200 (give to candidate once they ask)

Total potential addressable year 1 market size: (1) * (2) * (3) = 600K * 2 * $200 = $240M

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QUE S T ION 2
If the client were to enter the school bus market, what do you think its year 1 new device sales would be?

Guidance:
• Year 1 revenues = Potential year 1 market size * year 1 product adoption percentage
There is no correct response to this question. Here the interviewer should be looking for the candidate to
demonstrate business acumen and support his/her response. For example, most schools are very resource-
constrained, so year 1 adoption of 10% might be reasonable. Whatever the case, the interviewer should push
the candidate for supporting rationale for the product adoption % chosen.

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QUE S T ION 3
What would you expect to be the annual revenues (in terms of new product sales) in year 5?

Guidance:
• If they ask, candidates can assume that the overall market will not grow
• Year 5 revenues = (Potential year 1 market size – year 1 revenues – year 2 revenues – year 3 revenues –
year 4 revenues) * year 5 product adoption percentage
• Here the key is to remember that the product has a 5-year life span, so any school purchasing the device in
years 1-4 would be “out” of the market in year 5
• Candidates should state their assumptions about adoption rates for years 2-5

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QUE S T ION 4
What are some other sectors and outlets that could make sense for this new technology?

Guidance:
• Push the candidate to brainstorm
• Some examples might include commercial freight, shipping, public transportation, flight, cruise ships, rescue
boats, tour buses, drone fleets, etc.

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QUE S T ION 5
Looking at the following data, which additional outlets do you think appear attractive? Why?

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E X HIBIT 1

Note: Colors
represent
competitor
companies.
Letters represent
products.
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Exhibit Guidance:
• The candidate should avoid getting confused by the large amount of detail included in the exhibit. They
should quickly drive to insights once they understand the data presented
• The key insights are:
• Commercial freighters and cruise liners are the two largest markets and lack dominant competitors (highly
fragmented)
• High growth rate in the commercial drone segment is not compelling enough to merit entry as annual segment
sales would only reach $120M in 5 years (using the rule of 72, sales wouldn’t double for 7.2 years), still making it
the smallest segment.
• Thus, commercial freighters and cruise liners would be the two most attractive additional segments from the exhibit.
This does not necessarily mean, however, that the client should enter these markets

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CONCLUS ION
How should the client proceed?
To conclude, the interviewee should provide the following:
Summary
• Recap the objective and important data and insights from the case
Recommendation:
• Make a recommendation about whether the client should enter the school bus segment and why
• Address any other segments that might be attractive for the client
Risks
Next Steps

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 INT E R VIE W E R F E E D B A C K F OR M Case Name _________________________ Interviewer ___________________________

Case Book ____________________ Case Type ____________ Difficulty ____________

Case Execution: Communication:

 Framework 1 2 3 4 5  Presence & Non-Verbal 1 2 3 4 5
 Logical approach Notes:  Confidence Notes:
 MECE  Poise / Posture
 Creativity  Clear & Concise
 Body Language
 Quantitative Ability 1 2 3 4 5  Coachability
 Accuracy Notes:  Case Materials 1 2 3 4 5
 Speed  Organized Page Layout Notes:
 Analytical Approach  Recognition of Errors
 Errors / Guidance  Resource References

 Business Acumen 1 2 3 4 5 Behavioral:

 Insightful Notes:
 Implementable  Overall Performance
 Business Judgment  Quality of Answers 1 2 3 4 5
 Creative Brainstorm  Relevance 1 2 3 4 5
 Clarity & Time 1 2 3 4 5

Strengths: Opportunities: Case Execution: ___ / 15

Communication: ___ / 10
Behavioral: ___ / 15

Total Score: ___ / 40

Total Time: _____: ______

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Lonely Gas Station
BCG | Final Round | Retail/Oil & Gas

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LONE LY GAS S TAT ION

BCG | Round 2 | Retail/Oil & Gas B E H AV I O R A L
INT E R VIE W
Prompt: QUE S T ION:
Our client is the owner of a gas station between towns A and B – 10 miles to each
town. He is wondering if it would make sense to add a convenience store to the gas
station. 1 . Te l l m e a b o u t
a tim e yo u ’ v e
This is intentionally open-ended. The interviewee will have to ask multiple questions to frame the fa ile d a s a
problem and gather the information necessary.
le a d e r.
Clarifying Information:
Note: Provide this only if corresponding questions are asked.
• There are no other gas stations in town A or B 2 . W h a t wo u ld
• Gas is 75% of revenue (10% profit margin) and the gas station also offers car washes (25% of yo u r le a rn in g
revenue, 20% profit margin) te a m te ll m e
• Criteria for “making sense” – 1) making profit, 2) having a better chance to hold off new
a bout you?
competitors enter the market, 3) diversifying income
• The gas stations current customers are residents of town A and B; there are no other customersc

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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

• Revenue/profit of current and potential business

• Gas station business
• Convenience store business
• Potential revenues, costs, up-front investment
• Would adding the convenience store bring in addition gas station customers?
• Market/Competition
• Market size
• Other convenience stores?
• Growth in town A and/or B?
• Changes in preference for gas (electric cars? Public transportation?
• Product and client capabilities
• Knowledge of retail/convenience stores
• Supplier contacts
• Management experience; potential to contract an external party to run convenience store

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QUE S T ION 1
How profitable is the current business?
The interviewee should structure a logical approach to market sizing on their own; provide these numbers only after they identify that they need
the information

Market information: Math:

• 1000 people in each town • Per town: 1000 * 80% = 800; 800 * 50% = 400
• 80% of population owns a car • Total: 400 * 2 = 800 person customer base
• 50% of car owners get gas from client
Profitability information: Math:
• Customers get gas on average 1x/week • 800 customers * $50 * 50 weeks/year = 2M on gas per year
• Can tell interviewee to round down to 50 weeks/yr • 2M * 40% of purchases made at client = $800K client revenue
• Spend $50 each time
• Customers make 40% of all gas purchases at the client’s station • 75% of revenue is gas: $800K * 75% = $600K * 10% profit
margin = $60K profit
Interviewee should have already asked about gas station • 25% of revenue is other: $800K * 25% = $200K * 20% profit
margin = $40K profit
revenue (clarifying questions) and learned that gas makes up
75% of revenue (10% profit margin) and other purchases are • $60K + $40K = $100K profit per year
25% (20% profit margin). Prompt if not: Do you think the
entire purchase is gas each time?
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QUE S T ION 2
How profitable would the convenience store be on an ongoing basis?

Information on convenience store: Math:

Gasoline customers will spend an additional $20 at the convenience • Revenue – existing customers:
store per purchase, but will not increase frequency of purchases • 800 customers * 50 weeks * 1 purchase/week * 40%
purchases made at our gas station = 16K total purchases
Recurring costs for convenience store are: • 16K purchases * $20 = $320K addl revenue
• Labor: $75K/year • Revenue – new customers:
• Utilities: $5K/month • 1200 non-customers * 50% * $5 per week * 50 weeks =
• COGS: 50% of revenue $150K
• Total revenue: $320 + $150 = $470K
ONLY PROVIDE IF ASKED: 50% of town population who currently are • Costs
not customers (the remaining 1200 non-customers, not just the 80% • COGS: $470K revenue * 50% = $235K
car owners) will spend $5 per week at the convenience store • Labor: $75K
• Utilities: 12 months * $5K = $60K
• Profit:
• $470K - $235K - $75K - $60K = $100K/year

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QUE S T ION 2B
Given that, what is the NPV of opening a gas station?

Interviewee should ask for:

• Up-front investment cost: $1M
• Client’s Discount rate: 10%
• Town population growth rate: 0%
• Expected life: perpetuity
Calculation:
• $100K annual profit/10% discount rate = $1M
• Investment cost of $1M
• NPV = 0

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QUE S T ION 2C
What does the NPV of 0 mean for our client?

A strong interviewee would have moved to these insights after calculating that NPV = 0. if not, prompt with this question.

The interviewee can provide a recommendation either for or against the convenience store as long as it recognizes the NPV of 0 and is backed
up by logic.

Possible Answer:

For investment: Against investment:

• Diversification • NPV of 0
• Gain new customers who may start purchasing gas/potentially • Could be even worse in reality
increase frequency of visits of current customers to store
• High investment cost

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QUE S T ION 2D
What happens to the NPV if a convenience store competitor enters the market?

The interviewee should recognize that a competitor entering the market would make the situation less attractive for our client.

Should also mention that a competitors likely has a 0 NPV at best given our client is an established brand in the market with an established
customer base, so it seems unlikely that a competitor would want to enter.

Strong interviewees could take initiative to discuss ways to improve NPV if a competitor enters the market.

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QUE S T ION 3
The client also asked us to provide him with a list of things to consider in this decision. What would you tell
him?

Looking for a qualitative discussion of things to consider; a balanced answer will indicated both potential benefits and threats to widening the
client’s business.

The interviewee can ask for a minute to brainstorm; a strong interviewee will have a structured approach

Possible answer:

Current Customers New Customers Competition Other

• Greater convenience • Converted to buy gasoline • New entrants • Is there enough space to add
a store?
• Higher revenue • Potential to attract customers from • Supermarkets/restaurants/other
other cities similar offerings • Are there any regulatory
• Increasing frequency of visit issues?
• Differentiate with week/night hours
• Longer wait times or something similar

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 INT E R VIE W E R F E E D B A C K F OR M Case Name _________________________ Interviewer ___________________________

Case Book ____________________ Case Type ____________ Difficulty ____________

Case Execution: Communication:

 Framework 1 2 3 4 5  Presence & Non-Verbal 1 2 3 4 5
 Logical approach Notes:  Confidence Notes:
 MECE  Poise / Posture
 Creativity  Clear & Concise
 Body Language
 Quantitative Ability 1 2 3 4 5  Coachability
 Accuracy Notes:  Case Materials 1 2 3 4 5
 Speed  Organized Page Layout Notes:
 Analytical Approach  Recognition of Errors
 Errors / Guidance  Resource References

 Business Acumen 1 2 3 4 5 Behavioral:

 Insightful Notes:
 Implementable  Overall Performance
 Business Judgment  Quality of Answers 1 2 3 4 5
 Creative Brainstorm  Relevance 1 2 3 4 5
 Clarity & Time 1 2 3 4 5

Strengths: Opportunities: Case Execution: ___ / 15

Communication: ___ / 10
Behavioral: ___ / 15

Total Score: ___ / 40

Total Time: _____: ______

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 Copier Co.
Boston Consulting Group | Round 1 | Information Technology

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COP IE R CO.
Boston Consulting Group | Round 1 | Information Technology
B E H AV I O R A L
Prompt: INT E R VIE W
Copier, Co. is a national distributor of office equipment, particularly commercial-grade QUE S T ION:
copiers. The firm sells the equipment directly to companies for use in their offices, as
well as provides regular service including maintenance, repairs, and replacing
disposable parts. Recently, the company has experienced declining profit margins; we 1 . Te l l m e a b o u t
have been hired to determine why this is happening and what to do to reverse the a c h a lle n g e yo u
trend. s e t fo r yo u rs e lf
and then
Clarifying Information: a c c o m p lis h e d .
Note: Provide this only if corresponding questions are asked
Sales Process – The company actually bids on contracts; contracts are typically awarded to the
lowest bidder. The bid consists of a per copier cost which includes 1 year of maintenance as part of
sales price. Salesmen have free reign to determine bid price and are compensated based on 2 . W ha t do you
commission (% of overall sales) wa n t t o g e t o u t
Competition – One major competitor (American Copiers), but a new, low-cost competitor (Bottom o f a c o n s u ltin g
Dollar Copier) has recently entered the market. These three companies are distributors and service e x p e rie n c e ?
technicians, NOT manufacturers.
Product – This case will focus on one identical copier sold/distributed by multiple firms
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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

Profit: Non-Financial:
• Revenue: • Competition:
• Volume: # copiers sold/contracts awarded • Size and share of competitors (AC, BDC), bidding
• Price: Avg. copier sale price/bid price process
• Costs: • Product:
• FC: Sales force (base), warehousing, overhead • Product quality and characteristics
• VC: Service/labor costs, COGS, transportation, sales • Customer:
force (commission) • Changing customer preferences, different markets
• Company:
• Salesforce compensation, product mix

How to Move Forward:

To get to the next portion of the case:

The candidate should ask for data related to revenue and costs to help determine why profitability is declining. Let the candidate probe until
they ask for information regarding unit price and copier quantity. Then, show them Exhibit 1 and ask for reactions.

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E X HIBIT 1

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Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question

• Good Response: Candidate should realize that there is a negative correlation – the more copiers in the contract, the
lower per copier bid price (price wars for more contribution). A candidate should hypothesize why that may be so –
perhaps the salespeople may be lowering bid price in effort to increase commission (due to higher sales from larger
quantity contracts) or looking to increase overall profit while overall margins are smaller.
• Great response: Candidate should point out that there are a few contracts with high bid prices. With the information
about the new competitor in hand, candidate should ask for information for average sales price based on the competitors
for the contract.

How to Move Forward:

To get to the next portion of the case, the interviewee should ask to explore:

• Information for average sales price based on the competitors for the contract

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E X HIBIT 2
Copier Co. Successful Bid Info

Competing against Competing against Competing against

American Copier ONLY Bottom Dollar Copier both AC and BDC
ONLY
Average bid price $5,000 $4,000 $3,000
Average copiers in order 20 25 30
Cost of copier $3,000 $3,000 $3,000
Service cost* (per page $0.05 $0.05 $0.05
printed)
Average pages printed 1,000 1,000 1,000
per copier (per month)
* Service for 1 year included

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Math Guidance:

Competing against Competing against Competing against

American Copier ONLY Bottom Dollar Copier both AC and BDC
ONLY
Contribution per copier $2,000 $1,000 $0
Service cost per copier $600 $600 $600
Profit per copier $1,400 $400 ($600)
Total profit $28,000 $10,000 ($18,000)

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Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question

The candidate should start by determining profit for bids against American Copier only – if he/she does not immediately
begin the profit calculation, prompt them to do so. Common pitfalls will be failing to realize the pages printed are provided
in months (needs to multiply by 12 months to get annual) and that service is only included for a year.
After the candidate calculates profit for bids against American Copier, ask them whether the other bidding scenarios are
profitable. If candidate begins to lay out the math, ask them to just answer without doing the entire extent of the math.

How to Move Forward:

• Good response: Candidate should recognize that bids against BDC are profitable (but less so) and that bids against
all three competitors are generally not profitable, due to a contribution margin of zero. A good candidate would do
profit calculations on a contribution basis (rather than total revenue and cost).
• Great response: Candidate should transition into possible solutions to the problem.

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BRAINS TORM
Have the candidate brainstorm solutions to the low bid issue.
Don’t allow the candidate to stop with “don’t bid on contracts with all three competitors.” Let them know that the
firm’s management wants to bid on all contracts and they need to come up with creative solutions to solving the
profitability problem in those scenarios.
Possible answers include:
• Minimum allowable bid prices for sales people
• Change compensation structure
• Offer different packages (no service component, multi-year service contracts)
• Negotiate better pricing for copiers
• Offer complementary products to copier sales (paper, other equipment, etc.)
• Joint venture with competitors on large orders

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CONCLUS ION
The CEO is anxiously awaiting your analysis and recommendation – what answers do you have for
Copier Co?
To conclude, the interviewee should provide the following:
Summary
• Succinctly identify that the new competitor and commission-based compensation structure is resulting in
lower bid prices and thus lower margins.
Recommendation:
• One or two actionable solutions from brainstorming
Risks
Next Steps

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 INT E R VIE W E R F E E D B A C K F OR M Case Name _________________________ Interviewer ___________________________

Case Book ____________________ Case Type ____________ Difficulty ____________

Case Execution: Communication:

 Framework 1 2 3 4 5  Presence & Non-Verbal 1 2 3 4 5
 Logical approach Notes:  Confidence Notes:
 MECE  Poise / Posture
 Creativity  Clear & Concise
 Body Language
 Quantitative Ability 1 2 3 4 5  Coachability
 Accuracy Notes:  Case Materials 1 2 3 4 5
 Speed  Organized Page Layout Notes:
 Analytical Approach  Recognition of Errors
 Errors / Guidance  Resource References

 Business Acumen 1 2 3 4 5 Behavioral:

 Insightful Notes:
 Implementable  Overall Performance
 Business Judgment  Quality of Answers 1 2 3 4 5
 Creative Brainstorm  Relevance 1 2 3 4 5
 Clarity & Time 1 2 3 4 5

Strengths: Opportunities: Case Execution: ___ / 15

Communication: ___ / 10
Behavioral: ___ / 15

Total Score: ___ / 40

Total Time: _____: ______

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 Maxicure
McKinsey | Round 1 | Industrials/Manufacturing

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M AX ICURE
McKinsey | Round 1 | Industrials/Manufacturing B E H AV I O R A L
INT E R VIE W
Prompt: QUE S T ION:
Your client, Maxicure, manufactures and sells an over-the-counter cough and cold
medicine. Their sole plant in Kentucky is aging, and its increasing maintenance costs
are leading to low margins on their products. How would you advise Maxicure proceed 1 . Te l l m e a b o u t
to solve this problem? a n e th ic a l
d ile m m a yo u
hav e faced.

Clarifying Information:
Note: Provide this only if corresponding questions are asked 2 . Did yo u lik e
• There are 2-3 larger players in this over-the-counter business who have distribution yo u r p re v io u s
across the country. Maxicure is one of them. jo b ? W h y o r wh y
• Maxicure sells all of its products in the US not?
• Objective is to reduce production costs while maintaining product quality (cost,
quality and brand image all matter to customers).

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QUE S T ION 1
What options does Maxicure have for purposes of tackling this problem, and what factors would you consider in
deciding which options to choose?

Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

Options/Considerations Refurbish Rebuild, same site Rebuild, new location Outsource

Investment cost

New per unit cost

Financial/non-financial benefits

Effect on quality

Opportunity to improve tech/capacity

Proximity to distribution centers

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QUE S T ION 2
Maxicure has narrowed down its decision to 2 options: (1) build a new facility next to eh old plant, or (2) outsource the
manufacturing to a competitor. With the information given below, how many bottles of medicine would Maxicure need to sell
for the in-house option to be more profitable than the outsourcing option?
Data:
Candidate should ask for the following in order to answer the question:

• Selling price per bottle: $4.50

• In-house:
- Initial investment: $50M
- Total cost per bottle: $2.00
• Outsource:
- Total cost per bottle (first 20M bottles, regardless of total order size): $2.25
- Total cost per bottle (bottles after the first 20M, regardless of total order size): $2.50

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Question 2 Guidance:
• Margin in-house: $2.50
• Margin outsourced: $2.25 <20M and $2 >20M
• Let’s say Maxicure needs to sell x bottles to make the two options have equal margins
• In-house margin = 2.5x – 50M
• Outsource margin = (x – 20M) * 2 + 2.25 * 20M
• Setting the profits as equal: 2.5x – 50M = ((x – 20M) * 2) + (2.25 * 20M)
• X = 110M Units
Note: After the calculation, push the candidate to select an option and give reasons why.

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QUE S T ION 3
Maxicure has decided to build a new production facility, but it wants to build the plant in Indiana instead to be closer to a
major distribution center. How should it convince the governor of Indiana to offer Maxicure the necessary tax breaks to make
the move more profitable for the firm?
Question 3 Guidance:
Note: There are many acceptable answers. The following are just examples.

• More tax collection for the state, stimulating the economy

• More job creation
• Good press for the governor
• Attract other manufacturers to the state
• Suggestions to conduct community-building initiatives like building schools, parks, etc.

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CONCLUS ION
What is your final recommendation for the client?
To conclude, the interviewee should provide the following:
Summary
• Recap the objective and important data and insights from the case
Recommendation:
• Make a recommendation about how the client should approach building the new production facility
Risks
Next Steps

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QUE S T ION 4
What is your final recommendation to the client?

Conclusion Guidance:
A strong response should include the following:

Summary
Recommendation, with 2-3 supporting, data-driven pieces of evidence
Risks
Next Steps
Restatement of recommendation

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 INT E R VIE W E R F E E D B A C K F OR M Case Name _________________________ Interviewer ___________________________

Case Book ____________________ Case Type ____________ Difficulty ____________

Case Execution: Communication:

 Framework 1 2 3 4 5  Presence & Non-Verbal 1 2 3 4 5
 Logical approach Notes:  Confidence Notes:
 MECE  Poise / Posture
 Creativity  Clear & Concise
 Body Language
 Quantitative Ability 1 2 3 4 5  Coachability
 Accuracy Notes:  Case Materials 1 2 3 4 5
 Speed  Organized Page Layout Notes:
 Analytical Approach  Recognition of Errors
 Errors / Guidance  Resource References

 Business Acumen 1 2 3 4 5 Behavioral:

 Insightful Notes:
 Implementable  Overall Performance
 Business Judgment  Quality of Answers 1 2 3 4 5
 Creative Brainstorm  Relevance 1 2 3 4 5
 Clarity & Time 1 2 3 4 5

Strengths: Opportunities: Case Execution: ___ / 15

Communication: ___ / 10
Behavioral: ___ / 15

Total Score: ___ / 40

Total Time: _____: ______

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To Automate or Not
BCG | Round 2 | Operations

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B E H AV I O R A L
TO AUTOM ATE OR NOT INT E R VIE W
QUE S T ION:
BCG | Round 2 | Operations
Prompt: 1 . Te l l m e a b o u t
After returning from a trade show, the CEO of a large grocery distribution a t im e wh e r e yo u
center calls you. He enthusiastically describes a new technology which could m a d e a m is ta k e .
be used to automate part of his company’s process. He asks whether you W h a t le s s o n s
think this would be a good idea for his business. Knowing that this CEO is a d id yo u le a rn ?
tech-enthusiast who loves innovation for the novelty of it, you ponder the
implications. How would you tackle this problem?
2. W hat are
Clarifying Information: t h r e e wo r d s t h a t
• The company does not have a specific goal in mind with this decision. This CEO trusts us and yo u r le a rn in g
will do whatever we advise. This is to test the candidate’s business judgment. t e a m wo u ld u s e
• Shipments are made to roughly 50 grocery stores in the immediate area, and the company does to d e s c rib e yo u ?
1M shipments per year W hy?
• Costs to automate – (1) one-time outlay of $4M, plus (2) recurring OH, training, and additional
maintenance costs of $1.0M (make the candidate request BOTH pieces of info)
• The candidate should visualize the distribution process (i.e. receiving, holding & picking,
shipping) to think through this question

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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

A strong framework could include:

Revenues

• Strong candidates will recognize that this is primarily a cost issue

• The company is not experiencing capacity issues and is satisfying customer demand, so optimizing the distribution process will not result in additional
revenues
Costs
• Existing
- Fixed Costs, Rents/Mortgage/Leases, Overhead, Salaries
- Variable – Hourly employees, repairs& maintenance, inventory holding, shipping
• Incremental
- One-time – Initial cost of automating, cost of initial training, downtime (there is none), severance pay for any employees terminated, etc.
- Ongoing – Servicing, repairs, additional costs of running upgraded facility (i.e. energy, insurance, etc.)
Product
• Considerations around changes to product quality (there are none)
• Ability to distribute additional types of product, etc. (none)
Other
• Potential for future synergies (i.e. could the new technology interface with other future tech)
• Impact on relationships with employees, grocers, and/or suppliers

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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

A strong framework could include:

Guidance:
• If the candidate hasn’t already visualized the process flow for a distribution center, press them to do so.
• After they’ve conceptualized the company’s business tell them that the 3 phases of the company’s
distribution process are 1) Receiving, 2) Holding & Picking, 3)
Shipping Brainstorm:
• Move them into brainstorming exercise around the potential costs associated each phase:
• Potential examples: Labor (time), equipment (forklifts, etc.), insurance, storage (i.e. cold and dry)
• After the interviewer is satisfied with the depth and breadth of the brainstorming, provide Exhibit 1

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E X HIBIT 1

Receiving

2,000 hrs.

Holding & Packing

10,000 hrs.

Shipping
3,000 hrs.

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Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question

• After confirming their understanding of the process flow, candidates should focus in on the total time required for the
existing process
• Candidates should attempt to quantify the hours in terms of dollars of cost for each area of the process
• Info to provide upon request:
• Each employee works 40 hours per week
• Employee pay per hour is as follows: Receiving - $12/hr, Holding & Picking - $17/hr, and Shipping - $14/hr
• Once they obtain the above info, ask the candidate the calculate the total number of employees required in each
function and the annual cost of labor (NOTE – Force them to use 52 weeks instead of 50 weeks)

Total # Employees • After doing the calculations to the right,

Hours Required Cost per Hour Cost per Week strong candidates will want to see how
Receiving 2,000 50 $12.00 $24,000
automating the process would change the
Holding &
Packing 10,000 250 $17.00 $170,000 data in exhibit 1
Shipping 3,000 75 $14.00 $42,000 • Provide exhibit 2 when they ask for that info
$236,000
x 52 weeks / yr.
$12,272,000
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E X HIBIT 2

Receiving

2,000 hrs.

Holding & Packing

5,250 hrs.

Shipping
6,000 hrs.

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Math Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 2. This is where you insert question and the answers to the question

• Once they obtain the above info, ask the candidate the calculate the change in the # of employees required in each
function and the change in the annual cost of labor

# Employees Cost per Current Automated

Total Hours Required Hour Cost per Week # Employees # Employees
Receiving 2000 50 $12.00 $24,000 Required Required Change
Holding & 50 50 0
Packing 5250 131.5 $17.00 $89,250 250 131.25 119
Shipping 6000 150 $14.00 $84,000 75 150 -75
$197,250 Employee
x52 per Yr. Decrease 44
$10,257,000

Current Costs: 12,272,000

New Costs: - 10,257,000__
Annual Savings: 2,015,000
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Math Guidance:
• Strong candidates should revert to the prompt and answer the initial question posed. This requires the candidate to
compare the annual cost savings to the costs of automating.

Question 3:
• Ask the candidate to calculate a break-even in years for this investment:

Ask the candidate whether a break-even of 5 years seems attractive

Annual Savings $2,015,000
Annual Incremental
Costs $1,000,000 • There is no correct answer, and the Company does not have any policy
Annual Incremental on such matters. This should be used as an opportunity to test the
CM $1,015,000 candidate’s business sense.

One Time Outlay $4,000,000

• Attentive candidates will consider the attractiveness of this payback
Break Even Years 3.9 period in light of the prompt. For example, if the CEO is potentially
interested in the technology simply because of his love for innovation,
would he really be willing to tie up his firm’s cash for 5 years?
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CONCLUS ION
Recommendation:
• “The CEO is about to call you to ask for your recommendation. What would you say?”
• A strong recommendation will include:
• Bottom Line – Automate or Do not automate
• 2-3 Supporting Reasons
• Risks pertaining to the bottom line
• Next steps
• Recommendations should be rooted in the prompt and should include numbers/data

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 INT E R VIE W E R F E E D B A C K F OR M Case Name _________________________ Interviewer ___________________________

Case Book ____________________ Case Type ____________ Difficulty ____________

Case Execution: Communication:

 Framework 1 2 3 4 5  Presence & Non-Verbal 1 2 3 4 5
 Logical approach Notes:  Confidence Notes:
 MECE  Poise / Posture
 Creativity  Clear & Concise
 Body Language
 Quantitative Ability 1 2 3 4 5  Coachability
 Accuracy Notes:  Case Materials 1 2 3 4 5
 Speed  Organized Page Layout Notes:
 Analytical Approach  Recognition of Errors
 Errors / Guidance  Resource References

 Business Acumen 1 2 3 4 5 Behavioral:

 Insightful Notes:
 Implementable  Overall Performance
 Business Judgment  Quality of Answers 1 2 3 4 5
 Creative Brainstorm  Relevance 1 2 3 4 5
 Clarity & Time 1 2 3 4 5

Strengths: Opportunities: Case Execution: ___ / 15

Communication: ___ / 10
Behavioral: ___ / 15

Total Score: ___ / 40

Total Time: _____: ______

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Rubber Bumper
McKinsey | Round 1 | Manufacturing

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RUBBE R BUM P E R
McKinsey | Round 1 | Manufacturing B E H AV I O R A L
INT E R VIE W
Rubber Bumper Co is a small family owned producer of rubber products. It QUE S T ION:
prides itself on producing a limited range of products but producing the
highest quality on the market. In general, new products are introduced after
much deliberation and careful market study. The company has recently 1 . W hy do you
appointed a new President who noticed decreasing profits over the last wa n t t o p u r s u e a
couple of years. c a re e r in
Co n s u ltin g ?
(See the next page for Framework directions)

Clarifying Information:
Note: Provide this only if corresponding questions are asked. 2 . (Op tio n a l)

What type of products do they sell? The company only sells two products; rubber bands and
condoms
Is the company seeing similar declines in topline sales? Topline sales have remained relatively
stable over the last 3 years
What is Rubber Bumper’s market position? Rubber Bumper is the market leader in both of their
product industries

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Framework Guidance:
Note: There are many possible alternatives to this framework. These are only provided as possible suggestions.

Rubber Bumper Co has hired our firm to fix the decline in profits. What are all of the areas that need to be
examined in order to identify any major issues that should be a priority?

How to Move Forward:

To get to the next portion of the case, the interviewee should ask to explore:

Expected Analysis: There are a number of possible frameworks for this question. A good answer will cover
all areas you’d expect: industry trends, margins, product mix, competitors, etc within reason. Generic
frameworks are inappropriate.

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E X HIBIT 1
Rubber bands sold each year (millions of pounds of rubber)
2011 2012 2013 2014 2015 2016 2017
Rubber Bumper 4 3 3 2.5 2.5 2.5 2
Max Rubber 17 19 21 21 22 23 24
Others (8) 9 9 8 7.5 6.5 4.5 5
Total 30 31 32 31 31 30 31

Condoms sold each year (millions of condoms)

2011 2012 2013 2014 2015 2016 2017
Rubber Bumper 1 2 5 10 10 10 10
Spartan 100 110 108 115 117 115 115
Durable 150 155 152 158 159 165 170
Others (15) 99 93 105 107 119 130 155
Total 350 360 370 390 405 420 450
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Exhibit Guidance:
The interviewee should notice and verbally acknowledge the following in Exhibit 1. This is where you insert question and the answers to the question

Question 1: The team decided to look at the product mix and their industry wide positions. The company only has two
products: rubber bands and condoms. The analysts on our team compiled these two tables. (Display Ex. 1). What does this
tell you?

How to Move Forward:

Expected Insights:
[Link] rubber band market is flat whereas the condom market is showing strong growth in the United States
[Link] dominant player in the rubber band industry is gaining more and more market share
[Link] the condom industry is growing (30% from 2005 to 2011) the major competitors are not growing as fast (~15% each).
[Link] condom industry is more fragmented than the rubber band industry, and the smaller players are getting a larger proportion of the market

Commentary:
The candidate should ultimately start to see that the rubber band industry is becoming less attractive and the condom
industry is showing growth and the major market players are not keeping up with the growth. A great response will
automatically want to see why Rubber Bumper’s condom growth has tapered off while the industry keeps expanding. If they
do not get to that issue, prod them until they do.

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Question 2: Rubber Bumper Co has two factories, each producing one of their two products. They essentially do not share
any fixed costs and for the most part are run as separate P&L’s. The team would like you to put together a quick summary
and compare the financial profitability of each of the two factories for the most recent year.
Rubber Band Factory
• They make boxes of 500 rubber bands that they sell to retailers for $20 a box
• 1 pound of rubber makes approximately 125 rubber bands
• They should already have the amount of rubber they used from the exhibit
• The rubber band factory has an inclusive $4MM in annual overhead
• [ONLY PROVIDE WHEN ASKED] It costs $1 to turn a pound of rubber into a pound of rubber bands (assume no
waste)
Condom Factory
• They sell 4 packs of condoms to retailers for $3 a pack
• They factory is smaller than the rubber band factory and only costs $2 MM in annual overhead, inclusive of everything
• [ONLY PROVIDE WHEN ASKED] Each condom costs $0.10 to make

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Expected Calculations: (Question 2)

Students may get tripped up because one starts with the number of condoms, and the other starts with the amount of pure
rubber and need to infer the number of bands sold. (rb = rubber band):
• 2MM lbs of rubber x 125rb’s/lb = 250 MM rb’s
• 250MM rb’s / 500 rbs/box = 500K boxes x $20 box = $10MM in Revenue
• 2MM lbs of rubber x $1 = $2MM in variable costs
• RB Profit = $10 - $2 - $4 = $4MM in profit
• 10 MM condoms / 4 pack = 2.5 MM packs x $3 = $7.5MM in Revenue
• 10MM condoms x $0.10 = $1MM in variable costs
• Condom Profit = 7.5 – 1 – 2 = 4.5MM in profit
Commentary: A good answer will arrive at the math and note that the two profits are fairly comparable. A great answer will
also note that the margin on the condoms is significantly higher (4.5 MM in profit for 3 MM in costs, rather than 4MM in
profit for 6 MM in costs). Also, a great answer will question why the overhead for the condom factory is small compared with
the rubber band.

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Question 3: It turns out that the two overhead figures are significantly different because the capacity of the second factory
is much smaller, about half as much. The President has asked us to evaluate whether we should switch production of the
first plant to make more condoms since we have reached capacity at the smaller plant (assume a factory can only make 1
thing).
Supplementary Information
Give out the following information ONLY WHEN REQUESTED.
• It will cost $2MM dollars to refurbish the new plant and take 1 year to complete during which time the factory will be off
line. (If asked, assume there are no tax benefits from depreciating the CapEx and no cost of capital)
• Overhead would remain the same
• During this time, we won’t be able to make any rubber bands
• The bigger plant can produce twice the volume of condoms as the smaller plant.
• Rubber Bumper Co’s payback period for such projects is 4 years.
• Assume that Rubber Bumpers rubber band demand has stabilized at 2MM lbs per year.

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Expected Calculations: (Question 3)

A bad answer will simply look at 4.5MM in profit and 4.0MM and say that Rubber Bumper should make more condoms. A
great answer will look into the costs, the opportunity costs, and the payback period to evaluate whether this should go
forward. Also a great interviewee will recognize the timing of the payments, and while we don’t have a cost of capital there
is a timeline such investments must prove profitable.
• 1 year offline they are losing (10MM – 2MM ) = $8MM in contribution
• Capital Expenditures = $2MM
• Total Cost of Project = 8 + 2 = $10MM
Note we assume that overhead will be paid while the factory is offline, but it should not count as an additional cost, since we would pay that
anyways.
• The benefit is the difference in profitability between the two products.
• The bigger factory can produce twice as many condoms; 6.5MM x 2 = 13MM
• The bigger factory is currently producing 8MM in contribution (because we are looking for the difference, the $4MM of overhead is a
wash)
• Switching will create an additional $13 – 8 = 5MM in profit.
• The interviewee should draw a conclusion towards the end noting that under these assumptions the project will repay itself in year 3 (1
year offline + 2 years of operation) and that it is within the required time frame. Additional second level insights are encouraged.

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BRAINS TORM
What are some of the risks involved with this project?

Brainstorming Guidance
This is a “what else” section. Below are some basics but ideally you’re looking for the interviewee to be as creative as
possible. As with most questions of this type, a bad answer will stop at one or two. A good answer will have a creative list. A
great answer will have a structure that makes the answer MECE. A great answer should also prioritize the findings indicating
which ones he thinks are the most important.

Key Points to Consider

• Assumes that Rubber Bumper can sell 3x the number of condoms it sells today, immediately.
• Assumes that rubber band demand wont rebound. The bigger plant is equally profitable because it is being underutilized
• Political parties could kill sex ed.
• Less diversification in products exposes them to increased market risk
• Condoms are not as generic of a product as rubber bands and may require a larger investment in advertising to compete on a higher level
• Potentially more legal risk in selling contraception than rubber bands
• Employees may not want to make condoms.
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CONCLUS ION
The President is walking in the board room and expects a summary. Please summarize your findings.

Expected Analysis
The summary should start with a recommendation. “You should convert the plant” and then back track into the
reasoning: industry trends and financial justification. Finally it should mention which of the risks are the most
problematic and how he would mitigate it. The interviewer should feel free to challenge any part of the
conclusion and expect a well worded response.

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 INT E R VIE W E R F E E D B A C K F OR M Case Name _________________________ Interviewer ___________________________

Case Book ____________________ Case Type ____________ Difficulty ____________

Case Execution: Communication:

 Framework 1 2 3 4 5  Presence & Non-Verbal 1 2 3 4 5
 Logical approach Notes:  Confidence Notes:
 MECE  Poise / Posture
 Creativity  Clear & Concise
 Body Language
 Quantitative Ability 1 2 3 4 5  Coachability
 Accuracy Notes:  Case Materials 1 2 3 4 5
 Speed  Organized Page Layout Notes:
 Analytical Approach  Recognition of Errors
 Errors / Guidance  Resource References

 Business Acumen 1 2 3 4 5 Behavioral:

 Insightful Notes:
 Implementable  Overall Performance
 Business Judgment  Quality of Answers 1 2 3 4 5
 Creative Brainstorm  Relevance 1 2 3 4 5
 Clarity & Time 1 2 3 4 5

Strengths: Opportunities: Case Execution: ___ / 15

Communication: ___ / 10
Behavioral: ___ / 15

Total Score: ___ / 40

Total Time: _____: ______

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