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McKinsey Prep > Top Takeaways > Flashcards

Top Takeaways Flashcards

1
Q

Looking for substitutions in the market is a good idea in what time of market?

A

Declining market

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2
Q

The lowest hanging fruit to increasing revenues?

A

Raising prices

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3
Q

Alternative way to brainstorm costs vs. FC/VC?

A

Upfront, Recurring, Opportunity

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4
Q

When a competitor is doing better than average, what can you do?

A

Understand why and copy the strategy if you can

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5
Q

If a player drops out of a market from year to year, what could have happened?

A

Bankrupt or acquired, look for other clues (i.e. another competitor absorbing their revenue)

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6
Q

Good question for PE Acquisition on PE Firm bucket?

A

Can they run the business and optimize it? Do they have the expertise? Why do they want the business in their portfolio?

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7
Q

Good things about bankruptcy?

A

• Provides debt relief by discharging certain debts.
• Implements an automatic stay to halt collection activities.
• Offers a chance for financial reorganization
• Allows retention of essential assets through exemptions.

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8
Q

Often a missing piece of the incremental profit/rev equation

A

Cannibalization!

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9
Q

5 things about outsourcing partner

A

Industry expertise/certifications
Quality Assurance;
Scalability;
Security and compliance;
Pricing transparency.

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10
Q

Outsourcing might save on costs, but it could hurt you where?

A

Customer perception of brand

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11
Q

You might see increase in labor/OT costs and lower profit during whatt?

A

Short term demand spikes

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12
Q

What is the risk of large investment deals with a 3rd party?

A

large investment generally means long contract, partner/vendor could be bad and now you’re married

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13
Q

What are 5 things to think about before entering foreign market?

A
  1. customer habits 2. local competition 3. regulation 4. country’s economic and geo political situation 5. logistics
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14
Q

top KPIs for ecomm/subscription models

A

CAC, LTV:CAC, ARPU, churn

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15
Q

Great strategy for cases with leases

A

Can you negotiate by signing longer ones? Multi-year agreements?

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16
Q

A red flag when looking at market size of market to enter

A

How does it compare to company’s size? I.e. if the entire market is smaller than the company, does it make sense?

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17
Q

Maturity Phase: 3 strategies

A

Product diversification;
Cost leadership (by reducing operational costs);
Market segmentation

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18
Q

Great clarifying question about CapEx investments?

A

Is it all up front or phased in yearly (important for breakeven analysis)

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19
Q

When looking at investment targets in PE/M&A cases, what is something to keep in mind?

A

Better alternative use of cash

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20
Q

6 reasons to make acquisition

A

Company: 1. increase MS / market access 2. increase brand perception 3. target is a threat 4. talent 5. IP/Licenses 6. Rev/Cost synergies

PE: 1. diversify portfolio

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21
Q

5 Target Due Dilligence questions

A

What shape is it in?
How do they compare to market avg?
How secure are suppliers/cust/talent?
Have legal/reg?
Fair value?

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22
Q

Strategic Fit bucket for M&A:
4 items

A

Brand;
Customer base;
Synergies;
Ease of integration.

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23
Q

Market phases

A

Introduction, growth, maturity, decline, (renewal)

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24
Q

Introduction phase:
Challenges & Strategies

A

Challenges:
High costs (R&D, MKT, Distribution), low demand, financial risk

Strategy:
brand/product awareness; pricing: penetration vs. skimming; product development with early feedback

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25
Q

Growth phase: characteristics;
challenges & strategies

A

Characteristics:
sales up, profitability up, acceptance up;
Challenges:
Rapid expansion; Competition
Strategies:
Market expansion; product differentiation; marketing tô capitalize growing demand

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26
Q

Maturity phase:
3 characteristics (2 down, 1 up)
1 challenge

A

Characteristics:
profitability down;
sales growth down;
increased competition
Challenges: maintaining market share

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27
Q

Decline phase: characteristics, causes, challenges, strategies

A

Characteristics: sales and profits drop;
Causes: tech advancement, changing consumer preferences, market saturation;
Challenges: decide to phase-out; rejuvenate; divest
Strategies: substitution, cost reduction, harvesting, exit

28
Q

What are 3 strategies for decline phase?

A
  • Rejuvenate: Revitalize a product or service to extend its lifecycle and boost its appeal.
    • Phase Out: Gradually withdraw a product from the market in a controlled and planned manner.
    • Divest: Sell off or dispose of a business unit, product line, or other assets to focus on core activities or improve financial health.
29
Q

5 Pros in outsourcing

A

• Cost Savings
• Access to Expertise
• Scalability without investment
• Focus on Core Competencies
• Risk Management

30
Q

5 Pros in outsourcing

A

• Cost Savings
• Access to Expertise
• Scalability without investment
• Focus on Core Competencies
• Risk Management

31
Q

5 cons in outsourcing

A

• Loss of Control: Reduced oversight and potential quality issues.
• Hidden Costs: Unforeseen expenses or service fees.
• Security Risks: Data breaches or IP theft concerns.
• Dependence on Partners: Vulnerabilities if the partner fails.
• Cultural Misalignment: Communication issues and misaligned goals.

32
Q

5 outsourcing examples:
tech; retail; manufacturer; finance; health

A

• Tech Co.: R&D to specialized firms to cut costs
• Retailer: Logistics management for smooth market entry
• Manufacturer: Production scaling via third-party partners
• Finance: Compliance management for new regulations
• Healthcare: Billing and claims processing to reduce overhead

33
Q

Concentrated market: 5 challenges

A

High Barriers to Entry
Strong Competitor Control over distribution
Price Competition
Customer Loyalty to Big Players
Economies of Scale by Competitors

  • High Barriers to Entry: Established players may have strong brand recognition, economies of scale, and control over key distribution channels, making it difficult for new entrants to compete.
  • Price Competition: The dominant players may engage in aggressive pricing strategies to protect their market share, squeezing margins for new entrants.
  • Customer Loyalty: Customers may be highly loyal to existing brands, making it hard to attract and retain them.
34
Q

Concentrated market: 5 opportunities

A

High Profit Margins if Successful
Potential for Disruption
Leveraging Niche Markets
Partnerships with Established Players
Focus on Quality Over Quantity

  • High Profit Margins: If successful, a new entrant might capture a niche market or disrupt the status quo, leading to significant profitability.
  • Differentiation: Entering with a highly differentiated product or innovative approach could give a new entrant an edge, even in a concentrated market.
35
Q

Concentrated market: 5 strategies

A

Differentiation & Innovation: Unique products/services
Niche Focus: Target underserved markets
Strategic Alliances: Leverage established networks
Aggressive Marketing: Build a strong brand presence
Penetration or Value-Based Pricing: Compete effectively

  1. Differentiation and Innovation:
    • Unique Value Proposition: Offer something that the established players do not, whether it’s a unique product feature, superior technology, or exceptional customer service.
    • Disruptive Innovation: Introduce a disruptive product or business model that can shift the market dynamics, such as a new technology or a significantly lower-cost offering.
  2. Niche Market Focus:
    • Target Underserved Segments: Identify and focus on a niche within the market that the larger players may be neglecting. Tailor your offerings to meet the specific needs of this segment.
    • Specialization: Position your company as a specialist in a particular area that is too small for the dominant players to focus on but large enough for your business to thrive.
  3. Strategic Partnerships and Alliances:
    • Collaborate with Established Players: Form partnerships with existing companies for co-branding, distribution, or technology sharing, leveraging their market presence to gain entry.
    • Leverage Distribution Networks: Use existing distribution networks or partner with established distributors to overcome entry barriers and reach customers effectively.
  4. Aggressive Marketing and Branding:
    • Brand Positioning: Invest heavily in marketing to build brand awareness and differentiate your brand from established competitors.
    • Customer Loyalty Programs: Implement loyalty programs that offer more value than those of established players to attract and retain customers.
  5. Pricing Strategy:
    • Penetration Pricing: Use a lower pricing strategy initially to attract customers away from dominant players, especially if you have a cost advantage.
    • Value-Based Pricing: Charge a premium price by emphasizing the superior value or innovation of your offering compared to existing products.
36
Q

Non-concentrated market: 5 challenges

A

High Competition: Many players, intense rivalry
Low Profit Margins: Price-sensitive market
Fragmentation: Difficult to capture market share
Overcrowding: Difficulty standing out
Rapid Price Erosion

  • High Competition: A large number of competitors can make it challenging to stand out, and price competition can be intense.
  • Low Margins: In highly competitive and fragmented markets, profit margins might be lower, and companies might need to operate efficiently to remain profitable.
37
Q

Non-concentrated market: 5 opportunities

A

Lower Barriers to Entry
Flexibility in Targeting Segments
Room for Cost Leadership
Potential for Strong Branding
Acquisition and Consolidation Potential

  • Lower Barriers to Entry: The lack of dominant players often means that the barriers to entry are lower, making it easier for new entrants to establish themselves.
  • Market Segmentation: There may be opportunities to target underserved segments or to innovate in ways that differentiate the new entrant from the competition.
38
Q

Non-concentrated market: 5 Strategies

A

Cost Leadership: Achieve efficiency, reduce costs
Strong Branding: Build a standout brand identity
Market Segmentation: Tailor offerings to specific needs
Consolidation/Acquisition: Reduce market fragmentation
Customer Loyalty Programs: Encourage repeat business

  1. Cost Leadership:
    • Efficiency and Scale: Focus on achieving cost leadership by optimizing operations, economies of scale, and efficient supply chain management to compete on price in a fragmented market.
    • Standardization: Offer standardized products or services that can be produced at lower costs and appeal to a broad customer base.
  2. Differentiation through Branding:
    • Build a Strong Brand: Invest in brand-building activities to stand out in a crowded market. This could include storytelling, consistent messaging, and creating an emotional connection with customers.
    • Quality Focus: Emphasize superior quality, reliability, or customer service to differentiate from competitors who may be focused solely on price competition.
  3. Market Segmentation:
    • Target Specific Segments: Segment the market based on demographics, geography, or customer needs, and tailor your products and marketing strategies to each segment.
    • Customized Offerings: Offer products or services that are tailored to the unique preferences of different customer segments, providing a competitive edge.
  4. Consolidation and Acquisition:
    • Acquire Competitors: Consolidate the market by acquiring smaller competitors, reducing fragmentation, and gaining market share.
    • Strategic Alliances: Form alliances with other companies to combine resources and offer a more comprehensive solution to customers.
  5. Customer Experience and Loyalty:
    • Exceptional Customer Service: Focus on providing outstanding customer service as a key differentiator in a fragmented market where customers have many choices.
    • Loyalty Programs: Implement programs that reward repeat customers, fostering loyalty in a market where switching costs are low.
39
Q

Assess the target market

A

Customer: Size/growth/trends
Competitive landscape: #, [ ]
Social/geopolitical/economical

40
Q

5 key sales strategies

A

Solution Selling:** Focus on solving the customer’s specific needs or problems by offering tailored solutions through your products or services.
Consultative Selling:** Engage as a trusted advisor, understanding customer challenges and providing insights and recommendations.
Value-Based Selling:** Highlight the unique value and ROI of your product, emphasizing benefits over price.
Social Selling:** Utilize social media platforms to build relationships, share valuable content, and engage with potential customers.
Account-Based Selling (ABS):** Target specific high-value accounts with personalized pitches, coordinating marketing and sales efforts for focused engagement.

41
Q

Market Entry: 4 Opportunity aspects

A

Share to be captured
Financials (revenues, costs, margin)
Outstanding risks
Opportunity cost

42
Q

3 go-to-market strategies

A

Acquisition;
Partnership;
Organic growth (same brand or new brand)

43
Q

6 cost drivers of production

A
  1. Equipment (including maintenance and depreciation)
    1. Raw Material (including procurement and storage)
    2. Labor (including wages, benefits, and efficiency)
    3. Overhead Costs (utilities, rent, administrative expenses)
    4. Logistics and Distribution (transportation, warehousing)
    5. Waste and Scrap Management (reducing inefficiencies and defects)
44
Q

5 revenue synergies of M&A

A
  1. Cross-Selling Opportunities
    1. Market Expansion
    2. Pricing Power
    3. Product Development and Innovation
    4. Brand Strengthening

  1. Cross-Selling Opportunities:
    • Leveraging the combined customer base to sell additional products or services from both companies, thereby increasing overall sales.
      2. Market Expansion:
    • Gaining access to new geographic regions or customer segments, allowing the merged entity to capture additional market share and boost revenue.
      3. Pricing Power:
    • With increased market share, the merged company may have enhanced pricing power, enabling it to increase prices without losing significant customers.
      4. Product Development and Innovation:
    • Combining R&D efforts and intellectual property can lead to the creation of new products or services, driving future revenue growth.
      5. Brand Strengthening:
    • Enhancing the brand portfolio by combining strong brands can increase customer loyalty and attract new customers, leading to higher sales.
45
Q

5 cost synergies M&A

A

Economies of Scale
Supply chain optimization
Overhead reduction
Facilities consolidation
Fixed assets

  1. Economies of Scale:
    • Reducing per-unit costs by increasing production or purchasing volume, which leads to lower manufacturing, procurement, or operational expenses.
      2. Overhead Reduction:
    • Eliminating duplicate functions and roles, such as in HR, finance, or IT, to reduce administrative and operational costs.
      3. Supply Chain Optimization:
    • Consolidating suppliers, optimizing logistics, and improving inventory management to reduce overall supply chain costs.
      4. Consolidation of Facilities:
    • Merging manufacturing plants, offices, or distribution centers to reduce costs associated with real estate, utilities, and maintenance.
      5. Better Utilization of Fixed Assets:
    • More efficient use of existing assets, such as machinery or technology, reducing the need for capital expenditures and lowering depreciation expenses.
46
Q

5 risks M&A

A
  1. Cultural Misalignment
    1. Integration Challenges
    2. Overpayment
    3. Regulatory and Antitrust Issues
    4. Customer and Market Reactions

  1. Cultural Misalignment:
    * Differences in corporate cultures between the merging companies can lead to conflicts, decreased employee morale, and reduced productivity, ultimately affecting the success of the integration.
  2. Integration Challenges:
    * Integrating operations, systems, and processes can be complex and time-consuming. Poor integration can result in disruptions to business operations, loss of key talent, and failure to achieve anticipated synergies.
  3. Overpayment:
    * Overestimating the value of the target company or underestimating the challenges of integration can lead to overpayment, resulting in a poor return on investment and potential financial distress.
  4. Regulatory and Antitrust Issues:
    * M&A deals often face scrutiny from regulatory bodies. Failure to obtain necessary approvals or address antitrust concerns can delay or even derail the transaction.
  5. Customer and Market Reactions:
    * Negative reactions from customers, suppliers, or competitors to the merger can result in loss of market share, decreased sales, or damaged brand reputation.**
47
Q

Outsourcing:
5 frameworks

A

Cost-benefit;
Strategic alignment;
Risk and Mitigation;
Financial impact;
Implementation and Execution.

48
Q

Outsourcing:
Cost-Benefit Analysis Framework

A

Cost Savings
Quality Considerations
Speed and Efficiency
Risks and Challenges
Scalability

  • Cost Savings: Analyze potential cost reductions, including labor costs, operational efficiencies, and potential economies of scale.
    • Quality Considerations: Evaluate whether outsourcing could impact the quality of the product or service, positively or negatively.
    • Speed and Efficiency: Consider if outsourcing would enhance speed to market or improve operational efficiency.
    • Risks and Challenges: Identify potential risks, such as loss of control, dependency on vendors, and potential impacts on brand reputation.
    • Scalability: Assess whether outsourcing offers scalability and flexibility in operations.
49
Q

Strategic Alignment Framework to evaluate outsourcing

A

Core vs. Non-Core Activities
Competitive Advantage
Long-term Vision
Capabilities and Expertise
Technology and Innovation

  • Core vs. Non-Core Activities: Determine if the tasks being considered for outsourcing are core to the company’s strategic objectives or if they are peripheral.
    • Competitive Advantage: Assess whether outsourcing would enhance or detract from the company’s competitive advantage.
    • Long-term Vision: Consider if outsourcing aligns with the company’s long-term strategic goals and vision.
    • Capabilities and Expertise: Evaluate if the third-party vendor offers expertise and capabilities that the company lacks internally.
    • Technology and Innovation: Consider whether the vendor’s technology and innovation align with the company’s future needs.
50
Q

Risk and Mitigation Framework for outsourcing

A

Operational Risks
Financial Risks
Reputational Risks
Compliance and Security Risks
Mitigation Strategies

  • Operational Risks: Identify risks such as supply chain disruptions, dependency on vendors, or loss of control over key processes.
    • Financial Risks: Consider potential hidden costs, cost fluctuations, or contractual risks.
    • Reputational Risks: Assess the potential impact on the company’s brand and customer perceptions.
    • Compliance and Security Risks: Evaluate risks related to data security, compliance with regulations, and intellectual property protection.
    • Mitigation Strategies: Develop strategies to mitigate identified risks, such as robust contracts, performance monitoring, and contingency plans.
51
Q

Financial Impact Framework for outsourcing

A

Cost Analysis
Return on Investment (ROI)
Budget Impact
Contractual Terms
Exit Costs

  • Cost Analysis: Compare the cost of outsourcing versus keeping the function in-house, including both direct and indirect costs.
    • Return on Investment (ROI): Calculate the expected ROI of outsourcing, considering both short-term and long-term financial impacts.
    • Budget Impact: Assess how outsourcing will affect the overall budget and financial health of the company.
    • Contractual Terms and Payment Models: Evaluate the financial implications of different payment models (e.g., fixed price, cost-plus, performance-based).
    • Exit Costs: Consider potential costs associated with reversing the outsourcing decision in the future.
52
Q

Implementation and Execution Framework

A

Transition Plan
Vendor Selection
Performance Metrics
Change Management
Continuous Improvement

  • Transition Plan: Develop a clear plan for transitioning the function or process to the outsourced vendor.
    • Vendor Selection: Establish criteria for selecting the right vendor, including experience, capacity, and cultural fit.
    • Performance Metrics: Define key performance indicators (KPIs) and service level agreements (SLAs) to measure success.
    • Change Management: Plan for managing internal and external stakeholders during the transition to outsourcing.
    • Continuous Improvement: Identify mechanisms for ongoing evaluation and improvement of the outsourced function.
53
Q

McKinsey software for procurement

A

Spendscape

54
Q

Importance of product innovation for CPG companies

A

Provides companies with a fresh message to continually deliver to customers.

55
Q

SG&A meaning

A

Selling, General and Administrative

56
Q

Buy: 5 Pros

A
  • Provides instant market presence and immediate access to new customers.
    • Comes with a proven business model and operational structure.
    • Offers access to a skilled workforce without the need for recruitment.
    • Brings economies of scale that can reduce operational costs.
    • Can eliminate competition by acquiring a direct competitor.
57
Q

Buy: 5 Cons

A
  • Requires a high initial capital outlay, potentially with premium pricing.
    • Merging different organizational cultures can be challenging.
    • May face regulatory hurdles and scrutiny in competitive sectors.
    • Integrating systems, teams, and technology can be a complex process.
    • Acquires existing liabilities and debt from the acquired company.
58
Q

Build: 5 Pros

A
  • Allows complete customization to meet specific business needs.
    • Ensures full ownership of intellectual property and proprietary technology.
    • Provides independence from third-party vendors and partners.
    • Aligns directly with long-term strategic goals of the company.
    • Can lead to long-term cost savings once established and operational.
59
Q

Build: 5 Cons

A
  • Delays time to market compared to acquisition or partnership.
    • Involves significant upfront investment in development and infrastructure.
    • There’s a risk the project may not meet business expectations.
    • Requires internal expertise, which may be limited or require training.
    • Needs continuous allocation of resources for updates and scaling.
60
Q

Partner: 5 Pros

A
  • Shares the risk and financial burden between parties involved.
    • Offers access to complementary expertise, skills, or technology.
    • Enables faster market entry by leveraging the partner’s infrastructure.
    • Allows for flexible scaling and commitment adjustments.
    • Reduces in-house resource requirements through shared contributions.
61
Q

Partner: 5 Cons

A
  • Reduces control over decisions, as they are shared with the partner.
    • Requires sharing profits, limiting the financial returns.
    • Misalignment in goals or execution may lead to operational conflicts.
    • The performance of your partner can directly impact your success.
    • Managing a partnership can introduce administrative and operational complexities.
62
Q

Risk-wise assessment of profits in R&D

A

[(Expected profit - R&D cost) x chance of sucess)]-(Cost x chance of failure)

63
Q

What to do when market estimation arrives to a financial number?

A

Compare to company’s current revenue or profits

64
Q

NPV formula with perpetuity?

A

(CF/discount rate) - CF0

65
Q

Positive NPV. Next steps.

A

Validate assumptions (different scenarios);
Sensitivity of variables;
IRR;
Payback time;

66
Q
A
67
Q
A

McKinsey Prep (10 decks)

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