question archive Question This question was asked by Mckinsey in a 2nd round interview
Question This question was asked by Mckinsey in a 2nd round interview
Subject:ManagementPrice:9.82 Bought3
Question This question was asked by Mckinsey in a 2nd round interview. Your client is a large multinational conglomerate with multiple plants globally. They were formed through mergers and acquisitions of many small firms over the last decade and there are still integration issues. The CEO would like to increase the ROIC of the firm from 10% to 20% in 3 years. Is it possible and how would you achieve this? Information to be given if asked: ROIC Definition . ROIC is Return on Invested Capital. This can be achieved by growing the profits of the firm and/or by decreasing the invested capital. . There are firms in the industry that have 20-30% ROIC. Hence the client's target looks achievable. Competitive Landscape . This is a highly fragmented industry with 20,000 competitors. Customers . Client has 30% customers in Europe, 10% in Asia, 50% in North America and 10% in ROW. . The client has 2 types of products - Standard (almost a commodity) and Engineered (designed specifically for the client). . The standard products are getting commoditized, hence have significant price pressure.
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Return on Invested Capital (ROIC) is an acronym for Return on Invested Capital. This can be accomplished through increasing the firm's profitability and/or lowering the invested capital.
There are companies in the business with ROICs of 20-30%. As a result, the client's goal appears to be attainable.
Competitive Environment
With 20,000 rivals, this is a highly fragmented sector.
Step-by-step explanation
Customers
Customers make up 30% of the client's business in Europe, 10% in Asia, 50% in North America, and 10% in the ROW.
Standard (nearly a commodity) and Engineered items are available from the client (designed specifically for the client).
Standard products are becoming commoditized, putting significant downward price pressure on them.
Engineered products have high profits in the first year, but subsequently decline during the next three to four years.
The client's product portfolio contains 30,000 SKUs.
