麦肯锡招聘面试案例分析样题和答案

McKiney On line case study

To step through this case example, we will give you some information, ask a question, and then, when you are ready, give you a sample answer. We hope that the exercise will give you a sense of the flow of a case interview. (Please note, you can stop this exercise and pick up where you left off later. Your cookies must be on to use this feature).

In this exercise, you will answer a series of questions as the case unfolds. We provide our recommended answers after each question, with which you can compare your own answers. We want to emphasize that most questions in a case study do not have a single right answer. In a live case interview, we are more interested in your explanation of how you arrived at your answer, not just the answer itself. An interviewer can always assess different but equally valid ways of approaching an issue, and then bring you back to the particular line of inquiry that he or she wants to pursue.

You should also keep in mind that in a live case, there will be far more interaction with the interviewer than this exercise allows. For example, you will have the opportunity to ask clarifying questions.

Finally, a live case interview would typically be completed in 30 - 45 minutes, depending on how the case evolves. In this on-line exercise, there is no time limit. There are eight questions in this on-line case study. This case study is designed to roughly simulate one during your interview, so you will not be able to skip ahead to the next question until you have answered the one you are on. You can refresh your memory of previous answers by clicking the highlighted Q&A links to the left. To print the answer, click on the print icon that appears in the TOP RIGHT corner. At the end, you can print the entire on-line case study at once.

The case

Question 1

Client Goal: Double the number of recruits while maintaining their quality with minimal increase in resources expended

Our client recruits graduating college seniors for entry-level positions in locations around the world. It currently hires and places 500 graduates per year but would like to triple in size over the next ten years while maintaining quality. Assume that the increase must all come from hiring graduating seniors. (In an actual case, you may not be given this and other assumptions unless you ask.)

The client's current recruiting budget is $2 million annually, and while it is in a strong financial position, it would like to spend as few additional resources as possible on recruiting. McKinsey is advising the client on what steps it will need to take in order to meet its growth targets, while staying within its budget constraints.

Q1: What levers does the organization have at its disposal to achieve its growth goal?

A: Some possible levers are given below. It's terrific if you identified several of these and perhaps some others.

Attract more applicants at the same cost

Review the list of campuses targeted (e.g., optimize resource

allocation across schools). The review may result in adding certain

higher potential campuses and eliminating other ones that appear to

have more limited potential.

Review recruiting approach at each campus (e.g., optimize

cost-effectiveness of messages and approaches at each school).

Extend offers to a higher percentage of applicants while maintaining quality

(e.g., reduce the number of people who are turned down who would have performed equally well in the job)

Improve acceptance rates among offerees (e.g., better communicate the

benefits of the job relative to alternatives or improve the attractiveness of the job relative to alternatives)

Question 2

For the remainder of the discussion we'd like to focus on the two specific levers involving attracting more applicants at the same cost.

Review the list of campuses targeted (e.g., optimize resource allocation

across schools). The review may result in adding certain higher potential

campuses and eliminating other ones that appear to have more limited

potential.

Review recruiting approach at each campus (e.g., optimize

cost-effectiveness of messages and approaches at each school).

Please note that if you identified different but equally valid levers, the interviewer would be able to assess them. But for the purpose of this case study, we are going to focus on these two levers.

Q2: How would you initially approach determining whether the client can increase hiring by adjusting the list of campuses targeted? What sort of analysis would you want to conduct and why?

A: You might take the following approach, where we've outlined two avenues of analysis:

Estimate the hiring potential across schools

Analyze the number of hires by school over the last several years Develop a comprehensive list of schools that meet our requirements

and a minimum set of standards for recruits

Survey seniors at these schools to determine interest in an

entry-level position with the client

Consider the size of the graduating class at each school, determine

how that class might be segmented (e.g., each class could be

segmented by discipline or segmented based on career interests in

response to the survey), then calculate the size of each segment

Estimate the optimal cost-per-hire across schools

Helpful Tip

You may have a slightly different list. Whatever your approach, we love to see candidates come at a problem in more than one way, but still address the issue as Compare the current cost-per hire across schools Identify opportunities to decrease the cost-per-hire at each school

directly and practically as possible. In giving the answer, it's useful if you are clear about how the results of the analysis would help to answer the original question posed.

Question 3

Twenty-five percent of the annual recruiting budget is spent on candidates (i.e., attracting, assessing, and getting them to accept). Twenty percent of hires are categorized as "most expensive" and have an average cost-per-hire of $2,000.

Q3: What is the average cost-per-hire of all other candidates? Remember that the client hires 500 students per year and its annual recruiting budget is $2 million (information that we hope you noted earlier).

A: The answer is $750 per hire (or less than half the cost-per-hire of the "most expensive" candidates).

Amount spent on the less expensive candidates:

25% of $2 million budget = $500,000 spent on candidates

20% of 500 student = 100 students categorized as "most expensive"

100 x $2,000 cost-per-hire = $200,000 spent on "most expensive" hires

$500,000 recruiting budget - $200,000 = $300,000 remaining for all other hires The number of less expensive candidates:

500 hires - 100 = 400 "other hires"

Cost-per-hire of the less expensive candidates:

$300,000/400 =$750 per hire

Helpful Tip

While you may find that doing a straightforward math problem in the context of an interview is a bit tougher, you can see that it is just a matter of breaking the problem down. We are looking for both your ability to set the analysis up properly and then to do the math in real time.

Question4

Q: In order to decide whether to reduce costs at the least efficient schools (i.e., those with an average cost per hire of $2,000), what else would you want to know?

A: Some of the possible answers are given below.

Basic questions:

What are the components of costs at these schools (why is it so expensive to recruit there)?

What opportunities exist to reduce costs? How much cost savings would result from implementing each of the opportunities?

What consequences would implementing each of these opportunities have on recruiting at the least efficient schools?

Questions demonstrating further insight:

Why is the cost lower at more efficient schools, and are there best practices in resource management that can be applied to the least efficient schools? If we reduce costs at the least efficient schools, what will we do with the cost savings (i.e., what would be the benefit of spending the money elsewhere vs. where it is currently being spent)?

Helpful Tip

We would not expect anyone to come up with all of these answers, but we hope some of your answers head in the same direction as ours. Yours may bring some additional insights. In either case, be sure that you can clearly explain how your question will bring you closer to the right decision.

Question 5

The McKinsey team conducts some analysis that indicates that increasing spending on blanket advertising (e.g., advertisements/flyers on campus) does not yield any significant increase in hires.

Q5: Given that increased blanket advertising spending seems to be

relatively ineffective, and the client doesn't want to increase overall costs,

what might be some other ideas for increasing the candidate pool on a specific campus?

A: We are looking for at least a couple of answers like the ones given below:

Improve/enhance recruiting messages (e.g., understand target candidate

group, refocus message on this group, understand competitive dynamic on campus)

Utilize referrals (e.g., faculty, alumni) Come up with creative ways to target specific departments/clubs of the

school

Rethink advertising spending - while increasing blanket ad spending doesn't

seem to work, advertising might still be the most efficient and effective way to increase the number of candidates if it is deployed in a more systematic, targeted way

Helpful Tip

This question is a good one for demonstrating creativity because there's a long list of possible ideas. Additional insights into how a given idea would be approached and how much it would cost are helpful.

Question 6

For simplicity's sake, let's say we've conducted market research and found that there are two types of people on each campus, A and B. Historically, our client has also used two types of recruiting messages in its advertising. The first, called "See the World," gets one percent of type A students to apply, but three percent of type

B students. The second, called "Pathway to Leadership," gets five percent of Type A students to apply, but only two percent of type B students.

The chart below lists the breakdown of types A and B students at some of our major campuses, and the message our client is using on campus.

Q6: Assuming there's no difference between the costs of each message, what can you tell me from this information?

A: According to these numbers, the client should use the "Pathway to Leadership" message across all four universities. The "See the World" message is preferable only if more than 80% of the students at a given university are of type B.

Helpful Tip

An even more insightful response would mention that the ultimate answer depends on the cost of each message, whether the cost increases depending on the number of students at the campus, and how interested we are in students of Type A vs. Type

B (e.g., will one type be more likely than the other to get an offer and to be

successful on the job). One could imagine using both messages on some campuses if the additional cost were justified by the resulting increase in hires.

Question7

University 4 graduates 1,000 seniors each year.

Q7: How many new candidates might be generated by changing the recruiting message at University 4 to Pathway to Leadership?

A: The answer is 20 candidates (i.e., an increase of over 100%).

Number of each type of student at University 4:

1,000 seniors x 60% = 600 Type A students

1,000 seniors x 40% = 400 Type B students

Candidates attracted be See the World message:

(1% x 600) + (3% x 400) = 18 candidates

Candidates attracted by Pathway to Leadership message:

(5% x 600) + (2% x 400) = 38 candidates

Increase in candidates resulting from change in message:

38 - 18 = 20 more candidates (an increase of over 100%)

Question8

Q8: What sort of next steps should we tell our client we'd like to take based on what we have discussed today?

A: The ability to come to a logical, defensible synthesis based on the information available at any point in an engagement is critical to the work we do. Even though we'd consider ourselves to be very early in the overall project at this point in the case, we do want to be able to share our current perspective. The ideal answer would include the following points:

FINDINGS

There appears to be an opportunity to significantly increase total applicants

of the same quality that we are getting today at the same or reduced cost:

Increasing blanket advertising is ineffective and costly, but changing

the advertising message on some campuses could increase

applicants significantly without increasing costs. At one of the

campuses we've looked at, University 4, the number of applicants

would go up more than 100 percent

The cost-per-hire varies dramatically from school to school. This

suggests that there may be opportunities to reduce costs in certain

places or reallocate resources more efficiently

NEXT STEPS

We plan to explore further ideas for increasing quality applications by

changing the mix of schools, beginning with a more detailed review of the opportunities to reduce costs at certain schools

After looking at levers to increase total applicants, we will be analyzing

opportunities to improve the offer rate (i.e., ensure we're not turning down quality applicants) and to increase the acceptance rate

We will examine additional methods for attracting more applications from

our current campuses (e.g., referrals, clubs) in addition to assessing the

impact of improved messaging on campus

1st Round:

1) We are back in the 80s, and Daewoo wants to enter the Italian market. They approach you and say that they want to sell 100,000 cars after one year. What do you tell them?

2) A steel producing company wants to cut costs. It currently operates 2 large mills at 75% capacity and four small ones at 100% capacity. It is experiencing profitability issues. What action would you recommend it takes?

3) Our client is a retail brokerage. We have seen our customer base decline over the past 18 months. Why this happening is and what can we do about it?

4) The client owns mines that produce high and low grade ore and processes it into an alloy that is then sold as an additive to strengthen steel (sold directly to steel manufacturers). A new foreign competitor has shown up in the market and the company is losing profits. A general manager of one of the processing plants asks what he should do to maintain profits.

5) The past few years a Health Insurance Company has been growing at a rate of about 15% a year. This past year it only grew by 1%. Costs are rising 12% each year. What is the problem and what should the company do?

6) Company X is a chemical manufacturer. They make a product that is very similar to Company Y’s product. Company X and Y are direct competitors in many geographic markets, but each also has unique areas in which the sales forces do not face direct competition. Company X buys Company Y. How do you integrate the sales forces?

7) You are working for a Brazilian soda manufacturer that is experiencing declining profits over the last two years. Why is this occurring? [competition from generics] What is the size of the market for canned cola? What are the company's options for improving profitability? What are the possible effects of a change in the cola's price?

8) Our client is a mid-Western HMO. They have 300 doctors and 300,000 subscribers. They handle mostly checkups and routine visits. The HMO outsources specific cases to local specialists. Over the last two years the HMO has seen their profits decrease. They've called us in to find out why.

2nd Round

1) A European iron mining company bought a piece of land in Australia with a high content of iron. Should they proceed with extraction of the ore or not? /

2) A PC manufacturer wants to add a new line of pocket PCs. Should they do it? What do you tell the CEO?

3) A health and fitness center, a chain of gyms, like Bally's is considering building more tennis courts. The cost of the land development is 2.5 million for 10 tennis courts per gym. Determine if the gym would break even if they charged an additional fee of $7 per game.

4) Our client is Burger King. Their growth has been slower than expected. They want to know why? And estimate for me the size of the hamburger market.

5) Tell me the annual revenues of a company you're following?

6) The law has recently changed. Consumers can now switch cell companies and keep their phone numbers. What are the effects of this legislation? What is the cost of this legislation? And can you recommend any options for the cell phone companies?

7) A healthcare company that sells to individuals and small businesses has seen growth in the last 5 years, but this last year there has been a decline. What is going on? What sort of incentive system do we have and what kind can we create? (There were a number of graphs and charts that the student had to

8) You and your colleagues are McKinsey partners trying to decide which nonprofit to help. Your goals are doubling their revenue and improving their management. Each participant has information the others don't have. Which one should you pick? [what criteria to use, etc.

9) Our client is a travel agency in NYC which employs 25 people. They have seen their commissions cut from 10% to 8%. They are wondering what strategy they should adopt to increase their profits, and what else they should do to remain profitable and grow their business?

10) "First, I would say that globally, the cases had a bit of a different felt to them than many I had worked on. All three were business cases, however, in two of the three, there was less opportunity to structure the cases——the questioners asked specific questions about data that they presented to me a bit at a time—usually in graphic format. In two out of my three cases, there were multiple graphs and charts that built on one another. Conclusions drawn from the first graph were applied to graphs presented later in the same interview. Also, when I analyzed the data, I was usually given a ratio or series of ratios that I needed to calculate. At the beginning of each graph/data series, the interviewer would explain the significance of each of the ratios I was to calculate. When I finished calculating them, he asked me to explain what the results meant. To be honest, the ratios may have been quite common, but they were new to me."

3rd Round (Nov. 2003)

1) Assuming zero costs. What are the first three industries that will appear in outer space?

1) It's October 2001, with the current gloomy economy. One of the most affected industries is the luxury industry: People tend to postpone buying luxury goods, and even if they have the money, after what happened it is not the right time for them to buy something which is unnecessary. A client approaches our firm and asks us to increase his sales. What do we tell him?

BCG

1st Round (Nov. 2004):

1) Our client is a mid-sized manufacturer of industrial batteries for the aerospace and defense industry. For example, the company's batteries can be found in various military missiles as well as in the Hubble Space Telescope. Over the last few years, the defense and aerospace industries have been flat or declining, so the client is looking for high-growth industries that might be able to make use of its battery technology. After a review of possible industries, the client wants us to look at whether they can enter the market to provide batteries for implantable cardiac defibrillators. Estimate the size of the market for implantable cardiac defibrillators, and then tell me how you might go about helping the client decide whether or not this is a good market to enter.

2) Our clients are a consortium of 10 commercial real estate companies (2-3 big companies, 4-5 mid-sized companies, and 1-2 small companies) that collectively own 350-400 buildings in downtown areas of cities all over the country. Together, they spend $1 billion/year on all of the non-sexy aspects of owning commercial real estate: cleaning and general maintenance, plumbing and electrical repair, etc. They have come together to explore the possibility of setting up a "buying pool" to realize cost reduction by achieving economies of scale in purchasing products and contracting for services to conduct this general maintenance. This "buying pool" will cost $40 million (one-time fixed cost) to set up and will cost $10 million/year to maintain. Is this a good idea? What kind of information do you need to know to help your clients decide if this is a good idea?

3) The client is a four-year music university in Boston that specializes in classical music for pre-professional students. The university is under performing in three key areas when compared to its

biggest competitor. The areas are: applications per seat, high-quality applications, and accepted applicants that enroll. The mission of the university is to increase the number of high-quality students.

4) The industry is the Yellow Pages. What is the business? What do they do for money? What is their profit?

5) A small agrichemical company wants to triple its revenue by 2005. What are some of its options, and how would you evaluate those options?

6) A Vietnamese manufacturer of cooking oil wants to improve its revenue. How would you figure out how big the domestic market is [not a back of envelope calculation; assume you had a week—— whom would you talk to?]?

7) Constantly breaking down. The government is fighting over how to fix and fund it. The train drivers’ union says it will go on strike unless the government guarantees that there will be no layoffs. What steps would you take to "fix" the problem?

8) How would you increase recruitment and retention in the military?(

9) BCG gave me a lot of data to sift through to determine which demographic of cell phone users it should target to increase revenues.

2nd Round(Nov 2004)：

1) A cleaning product supply company's profits and revenues have been falling, but market share has remained the same. What's going on? (Charts and graphs given)

2) Our client owns 120 hotels. He has left the management of the properties to a management company. Since 2001 they haven't broken even even though occupancy rates averaged 80 percent. - Charts given

3) A music company is bringing out a CD for a new artist. How would you market and price, knowing that you'd like to charge a premium for the cd?

Final Round (Nov. 2002)

1) You are consulting to the manufacturer of airplane engines (2 main engines: for wide body planes and narrow body planes ——> regional and low cost airlines, which are growing, use the narrow body planes). The client is considering entering the airplane leasing market, because one of its competitors (GE) is already there, and the client hypothesizes that GE's presence in leasing helps its engine sales. What do you tell him?

2) Last year, lawsuits cost corporations $200 billion compared with $70 billion in 1990. How would you advise a roundtable of CEOs to attack tort reform?

3) The U.S. Post Office lost millions last year. How would you advise the new CEO to turn the Post Office around?

4) We have been hired by a Mexican company that has a dominant position in all of its markets but one: ketchup. Although its ketchup sales have been increasing, its market share is stagnant (10%) and its profit margin remains below that of its competitors. What do you think might be happening? What would you suggest the client do in order to increase market share and profits?

A small pharmaceutical research company is about to start clinical trials for a new and promising molecule. The trial process has three phases, with different associated costs and probabilities of success: Costs (million) Pr. Success

- Phase 1 $10 .40

- Phase 2 $5 .2

- Phase 3 $80 .105

If the process is successful and the new drug is introduced in the market, it would generate total income

flows of $300 million.

+ Draw a graph showing the income stream for the next ten years (assume that full adoption is reached in year 7)

+ The pharmaceutical company is looking for a buyer. How much should it ask for?

Booz

1st Round

1) Our client is a magazine publisher. They are considering a new pricing program where the price for subscriptions would increase every year. Evaluate how such a decision would impact their business. Would you advise they do it?

Bain

1st Round (Nov. 2003)

1) Our client is Apple Publishing, the largest publisher of children’s fiction in the industry. Seven years ago the CEO became concerned that childhood literacy rates were low and decided to make a difference. He entered the telemetry textbook market. He thinks they are the best now, but hasn’t been rewarded. Seven years later he has 70 million dollars in sales and 20 million dollars in losses. They are less than 5% of the market, but the CEO wants to stay in the market, how can he do it?

2) Our client produces 2-inch wrenches. They sell to Home Depot and also to auto-mechanics directly. If you were a store manager at Home Depot, how many varieties of wrenches would you display to sell and at what price points? How are the Home Depot wrench buyers different from the auto mechanics? If you wanted to provide discounts to the auto mechanics, which of them would you target and why? What information would you want from them first?

3) University town has a population of 40,000 students. Currently there are nine restaurants. You're client is thinking about opening up the tenth. Is this a good idea and should she open up a fast food or a specialty restaurant?

4) A major airline is thinking about going head to head with the discount airlines by offering "cheap" fares. Does this make sense? Estimate the size of the European "discount" airline market.

5) Your client sells coffee on the five Japanese Bullet trains (high speed trains). Estimate the size of the market. How would you advise them to increase sales?

6) Our client, a private equity firm, is considering an investment in a manufacturer of digital inkjet printers (printing large billboards). The manufacturer wants to enter the screen printing market (printing signs and point-of purchase posters, e.g. for supermarket sales). How big is the screen printing market? Which particular segment is the most attractive?

7) Estimate the market size of printers in Hong Kong. A U.S.-based PC manufacturer now wants to get into the printer market. Assess the opportunity.

8) We have been hired by a global wealth management company that has 2 divisions: asset management and private banking. Our asset management profits have been decreasing, and our private banking profits have been increasing. We need to help our client determine strategy to increase all his profits.

9) We have been hired by the Board of a company that is loosing money. The Board has asked us to determine whether any of this loss can be attributed to the Leer jet that the management team uses.

10) We have been hired by a company that has just finished making the Millennium Eye, a large Ferris wheel that will be placed in the middle of London. Our client wants to know how big the market is and how much we should charge per ticket.

A.T. Kearney

1st Round (Oct. 2003)

1) The CFO of a top 3 retailer wants you to evaluate the viability of developing exclusive contracts with distributors. The three questions you should address are:

1. Pro's and Con's of pursuing exclusive contracts

2. Identify the categories that should be explored for exclusive contracts

3. How would you operationalize these contracts?

2) Case setup (facts offered by interviewer):

Your client is a U.S. based oil refinery. The refinery has a single location and is a small to medium-sized refinery. Your client, although profitable, believes it is lagging behind the competition and could improve. You are brought in as part of a joint consultant-client team that will review overall operations and make recommendations on ways to improve the bottom line. You have been assigned to work with the maintenance division. The maintenance department’s primary objective is to prevent equipment failure and to repair equipment when it does fail. Understanding of its organization is important. It consists of three primary areas: nine assets areas, one central maintenance area and one group of contractors. The first two areas are employees of the client, the third an external source of labor. An asset is a physical area of the plant that contains various pieces of equipment (pumps, heat exchangers, etc.). There are nine assets. Each asset has a Maintenance Supervisor who is responsible for all maintenance to be performed in his/her asset. Working for the Maintenance Supervisor in each asset is, on average, eleven “craftsmen”. The craftsmen are the actual workers that perform the maintenance. The craftsmen are unionized and divide into twelve different craft designations (e.g. electricians, pipefitters, welders, etc.). Each craft designation has a defined set of skills they are qualified to perform. They are not allowed to perform skills outside of their defined craft, or help in the performance of activities involving skills beyond their craft. Collectively the twelve different crafts can perform any maintenance job that might arise at the refinery. The maintenance supervisor and his/her assigned craftsmen are “hardwired” to their asset. That is, they work only on equipment in their given asset.

Central maintenance is a centralized pool of Maintenance Supervisors and Craftsmen, who are dispatched to support the different assets during times of high workload. They are employees of your client and fit the description contained in the above Asset explanation. The only difference is that they may work in any of the different assets as determined by workload. There are a total of 11 Maintenance Supervisors and 100 Craftsmen that comprise Central Maintenance

Contractors are a group of outside Supervisors and Craftsmen who support your client during times of high workload. They also are capable of performing any maintenance job that may arise, but differ from your client’s Craftsmen in that they divide the collective skills required into five designations rather than twelve. Thus, the craftsmen of the contractor are capable of performing a broader set of skills. They, like your client’s craftsmen, don’t perform skills outside of their defined craft but do allow different craft designations to help each other. There are an average of 7 contractor Maintenance Supervisors and 140 contractor Craftsmen at the refinery on any given day.

Question:

What opportunities exist to increase profits?

What recommendations can you make to capture savings related to the identified opportunities? What is the cost savings associated with your recommendations?

Suggested solutions:

The first question involves identifying opportunities to improve profits. The candidate must start with either revenues or costs. Although one could make the argument that maintenance supports revenue by maximizing the operating time of the refinery equipment, maintenance should be seen to be a support function. Thus, it is more appropriate to focus on costs and cost reduction. The following questions will help the candidate gain insight into cost reduction opportunities.

How does the maintenance department track its costs?

If the candidate phrases the question about material or overhead costs, the interviewer would inform the candidate that detailed reviewed showed no major opportunities. The candidate would be steered toward labor costs and given the following tables regarding maintenance labor costs for the past year.

To support understanding of the following tables, Turnaround work is long term preventive maintenance (e.g. complete rebuilding of a boiler) that may be performed once every few years. All other work (short term emergency repairs, small scale preventive maintenance, other routine work, etc.) fits into the category of Daily work

Craftsmen Daily work Turnaround Total

Client $ 8MM $ 2MM $ 10MM

Contractor $ 5MM $ 9MM $ 14MM

Total $ 13MM $ 11MM $ 24MM

Supervisor Total

Client $ 1MM

Contractor $ 0.5MM

Total $ 1.5MM

Since the Craftsmen table represents a larger dollar amount than the Supervisor table, it is logical to pursue cost savings opportunities in this area first.

What is the utilization of Craftsmen in the assets?

In central maintenance?

And for contractors?

Assume each area is utilized 100% of the time, 50 weeks per year, 40 hours per week.

How does the labor cost of craftsmen ($24MM) on a refinery-sized basis (i.e., $cost / per barrel of crude oil processed) compare with industry averages?

Consulting your industry data base shows that costs appear to be about 20% above the average of peer refineries.

This is an important question to determine if there is a problem with costs (don’t assume there is, the client may be performing better than industry average!)

Is there any particular reason why turnaround work is so heavily skewed toward contractors?

Turnaround work tends to be more cyclical. An external workforce is used to absorb some of this additional work. Keep in mind that both client and contractor Craftsmen are capable of performing any maintenance job at the plant.

After further analysis of the tables the key fact that should become appear odd is the large difference in the cost per unit of labor between your client’s Craftsmen and the outside contractor’s Craftsmen. Often candidates will ask for the hourly wage rates of these two groups. There is sufficient data to calculate these numbers. The calculation is:

Annual cost of client craftsmen = $10MM/ (11 Craftsmen/asset x 9 assets + 100 Craftsmen in Central

maintenance) = $50,000 / year

Annual cost of contractor craftsmen = $ 14 MM/ 140 contractor Craftsmen = $100,000 / year Again, this difference should provoke a series of questions to understand the difference.

Is there any difference in the work performed by the client and contractor craftsmen?

No, other than the different levels of Turnaround work vs. Daily work performed as noted in the previous table. Both groups are capable of doing any job with roughly equal levels of quality.

Is there any difference in efficiency between the two groups of Craftsmen?

The candidate would at this point be asked how they would measure this.

After reaching an understanding of the difficulty involved in measuring the efficiency of a workforce (especially a unionized workforce), the candidate would be told that through a series of interviews with maintenance supervisors, there is a consensus that contractor Craftsmen are roughly twice as productive as client craftsmen.

This is a critical point in the case. The candidate must recognize that in the present environment the client is largely indifferent about units of labor. You can have a client worker who is half as efficient or a contractor worker who is twice as expensive. The key now is to determine if there are ways to create an opportunity where the client would no longer be indifferent.

What is causing the inefficiencies associated with the client’s labor?

Again, the candidate would be encouraged to offer their own ideas.

After some discussion the candidate would be told that many of the Maintenance Supervisors complain endlessly about restrictions placed on them by the existing union labor contract and the tightness of craft designations.

The interviewer would probe to ensure the candidate understands why the present craft designation creates the inefficiencies. Essentially work is too finely divided. It makes planning and supervision extremely cumbersome. As an example, if one of six crafts required to perform a job is absent or late, the entire job must shut down, as craft designations are not allowed to support other craft designations. Is it possible to change the existing union contract?

The present labor contract is a three year contract that is due to be renegotiated/renewed in six months. Will the union resist changes to the existing contract?

Indeed!!

At this point, the candidate should recognize a major (albeit difficult) opportunity to reduce labor costs. The client would essentially like to have its own employees look and function like its contractors, but continue to get paid at present rates. In reality, management will need to make wage concessions in order to change present work practices. However, through planned negotiations a scenario can be created which presents a favorable opportunity for your client to begin to replace outside contractors with its own Craftsmen.

There are several ways to address the third question of the case, the actual savings that might be achieved. One quick method is to assume that these changes would bring maintenance costs back in line with industry average. Utilizing the cost benchmark mentioned earlier, one could assume costs could be reduced to $24MM/1.20 = $20MM, a $4MM savings.

A second, and more detailed, method would be to take the extreme scenario where the client’s Craftsmen is paid its present rate, but is made as efficient as the contractor’s Craftsmen. In this case, you begin with the present level of 200 client craftsmen who are functioning as 100 equivalent contractor Craftsmen (they’re one-half as efficient). By improving their efficiency, you are effectively “creating” 100 equivalent contractors. Thus, you are immediately able to replace 100 contractors and save $10MM. This could be

taken one step further by assuming you would want to replace all contractors. This would save an additional $2.5MM ($4MM existing contractor expense - $2MM required to hire additional client craftsmen + $0.5MMin contractor supervisors). As noted earlier, in reality, this approach would require wage concessions to the union, so actual savings may be something significantly less.

Key takeaways:

This case requires the candidate to quickly digest a large amount of organizational issues and then quickly check some ratios to uncover the basic problem (the client workforce is inefficient). Creativity must then be used to structure a recommendation that would create a more favorable situation for the client. As in other cases, acceptable solutions need not follow the exact method above nor cover all of the above points.

Mercer

1st Round

1) A New England telephone company is thinking of entering the home security market. What is the potential market size and what would you recommend they do?

2) If I gave you $10 million dollars to invest in any one business, which would it be?

3) Should Kraft Foods expand and incorporate ice cream into their product mix? If yes, how should they enter this market?

4) You are starting a new business, a gourmet coffee shop. The shop is located next to a train station. You're building the business with the hope of selling it within two years. What is your strategy?

5) How big is the market for window display marketing books?

2nd Round(Nov 2004)：

We have been hired by a client to help her evaluate his product mix and determine the best one going forward. Refer to graphs.

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