Case_Study_from_Mckinsey

TipsAs part of the interview process, we will ask you to discuss a business problem. As you work through the business case with your interviewer, you will also become better informed about our firm and the kinds of problems we solve. Most candidates enjoy the cases and the business issues they raise. Your approach to the case and the insights you reach will give you an opportunity to demonstrate your problem solving abilities and help us get a sense of your potential. The following items are addressed in this section:Why We Use Case StudiesYour abilities in dealing creatively with complex or ambiguous problems in unfamiliar businesses, in structuring your thinking, and in reaching sensible conclusions with the available facts in a short time are critical to being a successful consultant.Since no particular background or set of qualifications necessarily prepares you to do this, we've come to rely upon the case study as an integral part of our interview process. The case study gives us an opportunity to see how you think about problems and whether you can reach a well-supported conclusion. It also gives us an opportunity to gauge your sense of prioritization and judgment within a business context.From your side, the case study should give you a real insight into the type of work that our firm does. If you enjoy the case discussion with your interviewer, it's likely that you will enjoy working at our firm.How You Should Approach the ProblemThe cases you discuss in each of your interviews will be different. Generally, they are based on the interviewer's professional experiences and will usually describe situations with which you are not familiar. For example, your cases might focus on deciding how a company should react to a new competitor or determining what attributes a company should look for in seeking a joint-venture partner.In addressing the case, it is important that you take a logical, well-structured approach and reach a reasoned conclusion. At a minimum, you should be sure that you:•Understand the underlying problem and the question. Ask for clarification on points that you feel are unclear.•Break the problem down into a logical structure and describe your overall approach.There may be several issues to be addressed in order to reach a conclusion. Don't dive intothese issues before describing your overall approach. Click here for an example of a commonway to structure the problem of declining profitability.•Address the issues one at a time. Focus on the most important issues first. Your interviewer will guide you on which issues to focus on, and they will also be reasonable in their expectations of what issues can be covered in the time allotted.•Address important issues, not just ones you feel comfortable with. Candidates often focus too much on their own area of expertise rather than the important issues (for example,accountants focusing on the financial aspects of new product development without mentioningcustomers). Follow your interviewer's guidance here.•Perform the important analyses. There may be important calculations or analyses to do in order to reach your conclusions. Follow your interviewer's guidance on these, and do them asbest you can. Remember, your interviewer is there to help, so be sure to ask for assistance ifyou need it.•Test your emerging hypotheses. Keep coming back to check that you are addressing the question you were asked.•Request additional information. As you build an understanding of the problem, there may be more information that you need.•Reach a conclusion. Synthesize your thoughts concisely and develop a recommendation.Don't just summarize what you have discussed. Think about what the actionable next steps are, and which ones are the most important.What We Are Looking ForIn most instances there is no right answer to the problem. It is critical that you demonstrate your ability to think in a structured way and that you reach a reasoned conclusion that is supported by the evidence. Listen carefully to the scenario; if you miss critical information, it can affect your ability to solve the problem.During the case study, we look for evidence of your ability on a number of dimensions — logical reasoning, creativity, quantitative skills, business judgment (not business knowledge), pragmatism, and an ability to structure problem solving. We also look for evidence of intellectual curiosity and enthusiasm for typical consulting issues.It is equally important for us to get a sense that you are comfortable with our working style — learning from the emerging facts and developing revised hypotheses as more information becomes available. You should be receptive to new information and use it to push your thinking forward. When you are asked a question, you should refer back to any relevant information that's already been discussed, rather than answering it in isolation.Case Study Tips•Listen to the problem. Make sure you are answering the question that you have been asked.•Begin by setting a structure. Think of four to five sub-questions that you need to answer before you can address the overall issue.•Stay organized. When discussing a specific issue, remember why you are discussing it and where it fits into the overall problem.•Communicate your train of thought clearly. If you have considered some alternatives and rejected them, tell the interviewer what and why.•Step back periodically. Summarize what you have learned and what the implications appear to be.•Ask for additional information when you need it. But make sure that the interviewer knows why you need the information.•Watch for cues from the interviewer. Any information given to you by an interviewer is given to help you - listen to them carefully and follow their lead.•Be comfortable with numbers. You will almost always have to work with numbers in a case.This requires comfort with basic arithmetic and sometimes large quantities. You may also beasked to perform estimations.•Don’t fixate on "cracking the case." It is much more important to demonstrate a logical thought process than to arrive at the solution.•Use business judgment and common sense.•Relax and enjoy the process — think of the interviewer as a teammate in a problem-solving process and the case as a real client problem that you need to explore and then solve. Ourclients need pragmatic solutions that they can act on as soon as possible. Always focus onactionable recommendations, even though sometimes they may not be the most elegantsolution to the problem.Some Common Mistakes•Misunderstanding the question or answering the wrong question.•Proceeding in a haphazard fashion. For example, not identifying the major issues that need to be examined or jumping from one issue to another without outlining your overall approach.•Asking a barrage of questions without explaining to the interviewer why you need the information.•Force-fitting familiar business frameworks to every case question, whether they are relevant or not, or misapplying a relevant business framework that you do not really understand, ratherthan simply using common sense.•Failing to synthesize a point of view. Even if you don’t have time to talk through all the key issues, be sure to synthesize a point of view based on where you ended up.•Not asking for help. Some candidates feel it is inappropriate to ask for help when they are stuck. Whether it is a misunderstanding related to the overall problem, or whether you arestruggling with a specific analysis, be sure to ask for help when you need it.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 ofapproaching 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 ten 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.Client Goal: To determine how to improve its financial situation.Some possible areas are given below. Great job if you identified several of these andperhaps some others.•Magna's revenueso Price paid by employer for employee health coverage.o Number of employees covered by Magna.•Magna's costs (or fixed and variable costs)o Magna's main cost components consist of administrative(non-medical) and medical costs (e.g. hospital, drugs, outpatientcare)o Outpatient costs an be split into internal physician costs versusexternal referral costs•Magna's patient base demographics/overall risk profile which may affectmedical costsThe team discovers that the demographics of Magna’s subscribers havechanged significantly in the past 5 years, from majority industrialworkers/laborers to majority office employees. Knowing this, are there anyspecific areas you would investigate first?We are looking for a few responses, similar to the ones below:•Claim costs, as the change in the subscriber base will change the profile of diseases (e.g., more heart disease/stress and less work related injury) •External referral costs, due to the change in the disease profile for which they have in-house competencyAfter reviewing the basics of Magna's business, your team believes that one of the root causes of Magna's financial problems is how it manages medical costs, particularly the cost of referrals to specialists outside of its physician network. Your team has gathered the following information on Magna and its primary competitor, Sunshine HMO:Number of patients Average cost of referral(per member per month)Magna Health300,000$20Sunshine HMO500,000$15What are the most likely reasons that the average cost of referral at Magna is higher than at Sunshine? (At this point you should feel free to offer hypotheses, and you could ask your interviewer questions to clarify the information)Although there are a number of possible responses, you might have the following suggestions:•Referral pricing: Magna might be paying more than Sunshine for specialist services (e.g. its outside contracts with oncologists might be at higher ratesthan Sunshine's contracts).•Number of referrals: Magna's physicians might have different practice patterns than Sunshine physicians, i.e. they may be less comfortable treatingheart disease patients or have different training/protocols.•Mix of specialties: Magna's mix of specialties that requires referrals (cardiology and neurosurgery) are probably more expensive specialties (thancardiology and psychiatry, Sunshine's referral specialties).•Mix of patients: Magna has sicker or older (>65) patients (individuals over 65 are more likely to need medical care in the specialty areas outside of Magna'snetwork, particularly cardiology).What analyses would you do if the things you suggest were contributing to this problem?You might take the following approach, where we’ve outlined different areas of analysis:•Referral pricing:o Gain data on prices currently being paid by Magna for a sample of common specialtieso Gain similar data for a competitor if possible for an industry average (perhaps through interviews with non-Magna specialists)•Number of referrals:o Interview Magna physicians and non-Magna physicians to see if any obvious behavioral differences existo Consult industry publications on this issue•Mix of specialties:o Check number of referrals by specialty for Magna and estimate similar for Sunshineo Interviews with external specialties used by Sunshine may help again here•Mix of patients:o Compare demographic data for Magna and Sunshine: should be easy to obtain from Magna; a scan of the employee schemes covered bySunshine should give a good general picture of their demographicprofileo See if Magna's referral cost has increased in line with the change in demographics of the subscribersMagna's CEO has a hypothesis that Magna is paying too much in cardiology referral costs for its patient population. He asks the McKinsey team to look at Magna's cardiac patient population more closely and tell him how many referrals he should expect on an annual basis. Assume the following:•Magna has 300,000 patients in any one year•20% of its patients are age 65 or older•In the U.S., patients with serious heart disease visit specialists (cardiologists) on average of 5 times per yearYou should always feel free to ask your interviewer additional questions to help you with your response. In this case, you should recognize the need toknow the prevalence rate of serious heart disease to complete this calculation. Once asked, your interviewer would provide you with the following information:•The prevalence rate of serious heart disease in the 65+ population is 30%•The prevalence rate of serious heart disease in the under age 65 population is 10%Based on the correct calculations, your response should be as follows: Magna should expect 210,000 cardiac referrals annually based on its patient population. You should have approached the calculations as follows to arrive at that answer:•300,000 total patients•20% x 300,000 = 60,000 patients age 65+•18,000 x 5 = 90,000 referrals per year•240,000 Magna patients under the age of 65•240,000 patients x 10% = 24,000 patients under age 65 with serious heart disease and 24,000 x 5 visits per•year = 120,000 visits per year total•90,000 + 120,000 visits per year = 210,000 total Magna patient external cardiology visitsWhen the team tells Magna's CEO that based on Magna's patient population he should expect about 210,000 cardiology referrals a year he exclaims, "We currently pay for 300,000 annual cardiology referrals for our patient population!"Why might Magna's annual cardiology referrals be significantly higher than U.S. averages?What would you do to try to verify if any of these were a key cause of this problem?There are a number of answers to these questions, and you are on the right track if your responses included some of the ones below:•The prevalence rate of heart disease in Magna's patient population is higher than average. To see if this was a cause of the problem, McKinsey should auditthe internal data on heart disease prevalence and compare it to US Nationaldata.•Magna's primary care physicians are referring patients who do not have serious heart disease to specialists. The team should interview specialists toget their opinion, or follow through a sample of patients who were referred.•Primary care physicians are not comfortable (e.g., they are poorly trained or inexperienced) treating cardiac patients, even those with minor problems;they want to avoid malpractice suits. McKinsey should interview Magnaphysicians and institute an external review.•Magna doesn't have clear guidelines on when physicians should be referring patients to specialists (or if guidelines exist, physicians are not complying withthem). The team should gain an expert opinion on the current guidelines tosee if this was a key cause of the problem.•There are no incentives or penalties to prevent physicians from referring patients with less serious problems to specialists. In order to verify this is akey cause of the problem, the team should review incentive schemes if theyexist. They should also compare similar companies/situations (e.g.prescription control mechanisms, etc.).At this point in the study, you bump into Magna's Head of Health Services in the corridor. He is responsible for all matters related to the provision of services to subscribers, both inside and outside the Magna Network. He asks you if you have made any progress. How would you respond?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 early in the overall project at this point in the case, we do want to be able to share our current perspective. One ideal answer would include the following points:Findings•We have investigated all the drivers of profit for Magna. Although there is likely to be room for improvement in a lot of areas, it seems the claims cost is a bigarea for improvement.•Relative to the market and to competitors, Magna seems to have high claims cost per patient. Our initial indication is that there may be highest room forimprovements in the cost of referrals outside the network.•There are a number of reasons as to why this may be happening (list as in previous question).Next Steps•We are working to pin down the most significant reasons why Magna has high claims cost per patient.•We are going to be looking into other areas such as reduction potential in other costs, as well as improvement potential in terms of premiums or other sources of revenue.After some additional investigation, your team decides that changing the behavior of Magna's primary care physicians has potential to reduce cardiac referral costs while maintaining high quality care. The team believes than introducing some sort of incentive plan for physicians might help reduce the referral rate. You propose the following pilot plan:•Magna pays bonuses of $100,000 per year to each of the 10 primary care physicians with the lowest cardiac referral rates consistent withgood patient outcomes.•Magna increases overall fees paid to primary care physicians to handle more of their patients’ basic cardiology needs. Overall feeincreases would total $1 millionHow many fewer cardiology referrals will Magna need to have in order to recoup the cost of the pilot incentive plan? For simplicity’s sake assume:•The cost of a cardiology referral is $200•Magna currently has 300,000 cardiology referrals per yearIf the incentive plan reduces cardiology referrals by 3.3% or 10,000 referrals, Magna will recoup the cost of the incentive plan. One potential approach to the calculation:•$1 million + (10 * $100,000) = $2 million for incentive plan•$2 million/$200 =10,000 referrals•10,000 referrals/300,000 total referrals = 3.3% reduction would pay for incentive programYour team projects that the incentive plan has the potential to reduce referrals by 5% in its first year, and an additional 2% in its second year. Ifthese projections are correct, by how much would Magna's referral costs be reduced over a two-year period with this program?Referral costs would be $4.14 million lower in the second year. Over the two years Magna would save $7.14 million. One potential approach to the calculation:Year 1 Savings with Program•300,000 total referrals•5% reduction in referrals =15,000 referrals•15,000 x $200 = $3.0 million in savings in year 1Year 2 Savings with Program•285,000 total referrals•2% reduction in referrals = 5,700 referrals•5,700 x $200 = $1.14 million in savings•$3 + $1.14 = $4.14 million in savingsTherefore, total cumulative savings over the 2 years = Year 1 savings + Year 2 savings = $3.0m + $4.14m = $7.14m.Your team presents its physician incentive proposal to Magna’s CEO. The CEO, in consultation with his Medical Director, agrees that this is feasible and says that they will pilot it for cardiac referrals.At the end of the meeting the CEO says, "I like the work you’ve done, but it's not enough to address our current financial situation. Physicians are professionals who care deeply about patient care and I think there's a limit to how much cost we can expect to reduce utilizing financial incentives exclusively. Besides cardiac financial incentive programs, what other ideas should we consider to reduce the cost of Magna's specialist referrals?"Based on what we have discussed today, and any other ideas you might have, how would you respond to the CEO?This question is a good one for demonstrating creativity because there's a long list of possible ideas. You might give the following response:•Pursue additional ways to change physician behavioro Provide training on how to treat patients with minor or stablemedical problemso Define and clarify medical guidelines for referrals (e.g., establish a medical committee to define the difference between “serious” and"minor" heart disease)o Institute peer review committee charged with approving a subset of referrals (e.g., those that are considered "high cost,")•Spend time investigating "outlier" physicians (i.e., those who seem to refer patients to specialists at much higher rates than others) to determine how widespread the referral problem is and whether simply focusing on a few physicians will dramatically reduce referral costs•Determine whether Magna can reduce referral costs in the other medical areas where it does not have specialists (i.e. neurosurgery)•Look at the contracts Magna has for specialist services to determine if it is paying too much relative to competitors•Consider whether bringing cardiology, neurosurgery, and oncology specialists in-house (i.e., within Magna) might reduce cost。