Most candidates would tackle a McKinsey profitability case by presenting a revenue-cost framework and offer options to lower costs and increase revenue. The reality is that such a framework and explanation shows a deep misunderstanding of business and business strategy. In this podcast, we present the correct way to understand profitability cases which require candidates to understand the growth and cost of growth needs of shareholders. This logic never fails to impress interviewers.

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4 responses to Why Candidates Fail Profit Cases

  1. Daniel,

    I am not sure if you listened to the entire podcast but you are repeating, loosely, what I discussed in the podcast.

    Michael

  2. Well this podcast is a little incomplete. The essential answer to profitability cases can be:

    1) Finding new ways to invest money to increase our revenue relative to costs (as you say).
    2) Finding inefficiencies in the cost structure that are not necessary and can be cut.
    3) Finding a misallocation of resources that are leading to poor revenue growth (no new investment needed just realignment).

    Thus, to say that cutting costs is a poor way to grow profits in the long run is not exactly true. I think a better way to say it would be that it depends on what costs you are cutting and the reason you are cutting them.

  3. Hi Benjamin – that is correct. That is the way turnaround cases, for example, are managed. Michael

  4. Hi Michael,

    A very enlightening podcast. I realised that I have been approaching and understanding Profitability cases all wrong.

    Would you agree though, that during a profitability case, cost cutting measures could be qualified as a short term measure? So perhaps saying something like: “reducing costs would help profitability in the short term, but for sustained profits, it is critical to identify growth opportunities and how to win in them.” – would this make sense?

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