McKinsey & Company - 7 Steps of Problem Solving - 2014

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McKinsey & Company - 7 Steps of Problem Solving - 2014

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  • 7 Steps of Problem Solving

    QP Case Analysis Competition 2014

    25 September 2014

    CONFIDENTIAL AND PROPRIETARY

    Any use of this material without specific permission of McKinsey & Company is strictly prohibited

    ADMINTypewritten textArendt Brinkmeyer Chesterton Chrysostom Dostoyevsky Foucauld Halimkesuma Kasimo Kennedy Newman Origen Soemohardjo Spaemann Tertullian Tolkien Weil

    ADMINTypewritten textAntoine Bernard Chrysologus Clement Dietrich Friedrich Fulton Fyodor Hannah José Leonard Lewis Mikhailovich Robert Simone

  • McKinsey & Company | 1

    Who is McKinsey & Company?

    Global firm with >9,000 management consultants

    105 offices in 62 countries/regions

    Serving the world’s leading institutions for over 87 years

    Expertise in all industries, e.g., energy, pharmaceuticals,

    telecommunications, insurance, banking

    Serves clients across all business topics: strategy,

    sales and marketing, operations, M&A, etc.

    ADMINTypewritten textAntoine Bernard Chrysologus Clement Dietrich Friedrich Fulton Fyodor Hannah José Leonard Lewis Mikhailovich Robert Simone

    ADMINTypewritten textAmantius Athanasius Cantius Gaucherius Evagrius Fulgentius Ignatius Irenaeus Laurentius Nicasius Paschasius Pius Procopius Stephanus Turibius Vergilius

  • McKinsey & Company | 2

    In Greater China region, the Firm has a longstanding and strong presence

    Strong consulting resources

    ▪ Around 350 consultants ▪ Over 100 research

    specialists

    5 offices in Greater China

    ▪ Hong Kong (1985) ▪ Taipei (1991) ▪ Shanghai (1993) ▪ Beijing (1995) ▪ Shenzhen (2013)

    Hong Kong

    Beijing

    Shanghai

    Tokyo

    Melbourne

    Jakarta

    Seoul

    Singapore

    Sydney

    Bangkok

    Manila

    Kuala Lumpur

    Taipei

    Mumbai

    Gurgaon

    McKinsey office location

    Shenzhen

    Hanoi

    Bangalore Chennai

    Perth

    ADMINTypewritten textAmantius Athanasius Cantius Gaucherius Evagrius Fulgentius Ignatius Irenaeus Laurentius Nicasius Paschasius Pius Procopius Stephanus Turibius Vergilius

    ADMINTypewritten textArendt Brinkmeyer Chesterton Chrysostom Dostoyevsky Foucauld Halimkesuma Kasimo Kennedy Newman Origen Soemohardjo Spaemann Tertullian Tolkien Weil

  • McKinsey & Company | 3

    A quick bio

    ▪ Grew up in Hong Kong

    ▪ Went to the UK for high school and then university

    ▪ Joined McKinsey & Company Hong Kong Office straight out of university; currently Engagement

    Manager

    ▪ Have worked in various countries across multiple industries; currently focusing on private equity and

    financial institutions

    ▪ Enjoys sports, good food, and having fun with friends

  • McKinsey & Company | 4

    What is a “problem”?

  • McKinsey & Company | 5

    What is problem solving?

    Source: Wikipedia

    Problem solving is a mental process and is part of the

    larger problem process that includes problem finding and

    problem shaping. Considered the most complex of all

    intellectual functions, problem solving has been defined as

    higher-order cognitive process that requires the modulation

    and control of more routine or fundamental skills.

    “ “

  • McKinsey & Company | 6

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 7

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 8

    Clear

    statement of

    problem to be

    solved

    Characteristics of a good

    problem statement

    Specific, not general

    Measurable

    Action-oriented

    Relevant (to the key

    problem)

    Time-bound

    Problem statement 1

  • McKinsey & Company | 9

    Problem statement example: Beerco, a bottled root beer

    company, is losing market share and revenue

    How would you write the problem statement?

    Can the Beerco root beer

    company be managed differently

    to increase profitability?

    Too general

    Should Beerco root beer company

    improve its deteriorating position? Not disputable

    Genco root beer is suffering from

    poor profitability despite a strong

    market niche position

    Statement of

    fact

    1

  • McKinsey & Company | 10

    Example of a good problem statement: Beerco

    What opportunities exist for

    Beerco to improve market share

    by 3% and revenue by $40mn per

    year through 2014 through

    enhancements to the channel

    strategy or innovative sales and

    marketing approaches?

    ▪ Specific ▪ Measurable ▪ Action-oriented ▪ Relevant (to the key

    problem)

    ▪ Time-bound

    1

  • McKinsey & Company | 11

    Problem statement worksheet

    Basic question to be resolved

    The basic question brings focus to the analytic work. It should be SMART: specific, measurable, action-oriented, relevant and time-bound. It should not be so narrow that important levers to solve the problem are missed.

    Context Constraints within solution space

    Sets out the “situation” and “complication”

    facing the client - e.g., industry trends,

    relative position in the industry

    Defines the limits of the set of solutions that

    can be considered - e.g., must involve

    organic rather than inorganic growth

    1 4

    Criteria for success Stakeholders

    Defines success for the project. Must be

    shared by client and team and must include

    qualitative and quantitative measures -

    e.g., impact, financial returns, effect on staff

    Identifies who makes the decisions and

    who else could support (or derail) the study

    - e.g., CEO, CFO, Board

    2 5

    Scope of Solution Space

    Indicates what will and will not be included

    in the study - e.g., international markets,

    research and development activities,

    uncontrolled corporate costs

    3 Key sources of Insight

    Identifies where best expertise, knowledge,

    and approaches exist

    6

  • McKinsey & Company | 12

    How could you

    reduce your

    shopping

    expenses each

    month?

    Clothing

    Travel

    Logic tree example

    Entertainment

    Food

    Share costs of items (e.g., split

    rent with roommate)

    Pay less for

    same quantity

    of items

    Buy fewer items

    Buy lower-quality items

    Buy items at discount/on sale

  • McKinsey & Company | 13

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 14

    What is a logic tree?

    A problem solving tool that breaks a problem into discrete chunks

    Why use logic trees?

    ▪ 1) To break a problem into component parts

    ▪ 2) To build a common under-standing within the team of

    the problem solving

    framework

    ▪ 3) To help focus team efforts

    Problem

    Issue 4

    Issue 1 Sub-issue

    Sub-issue

    Issue 2 Sub-issue

    Sub-issue

    Issue 3 Sub-issue

    Sub-issue

    Issue 5 Sub-issue

    Sub-issue

  • McKinsey & Company | 15

    What makes a good logic tree?

    Issue 1

    Issue 2

    Issue 4

    Issue 5

    A problem

    solving tool that

    breaks a problem

    into discrete

    chunks

    Problem Issue 3

    What should a

    good tree look

    like?

    ▪ 1) MECE

    ▪ 2) Each level of the logic tree

    has the same

    aggregation of

    detail

    2

  • McKinsey & Company | 16

    MECE framework is particularly helpful when developing

    issue trees

    E

    M

    C

    E

    Mutually exclusive

    No overlapping

    parts

    Collectively exhaustive

    Taken together, all

    parts are identical with

    problem in total

    When we divide an overarching idea into its parts, the individual

    pieces must be mutually exclusive of one another (no overlaps) and

    collectively exhaustive (no gaps), i.e., combine to form the whole

    2a

  • McKinsey & Company | 17

    Let’s take an example – How did Robert Maxwell die?

    ▪ Robert Maxwell was a very famous and

    controversial publisher

    and business man

    ▪ In 1991 Maxwell is presumed to have fallen

    overboard from his

    luxury yacht

    ▪ The official verdict was accidental drowning,

    though some

    commentators have

    surmised that he may

    have committed suicide,

    and others that he was

    murdered

    2

    http://upload.wikimedia.org/wikipedia/en/9/98/Robert_Maxwell.jpg

  • McKinsey & Company | 18

    Is this MECE?

    How did Robert

    Maxwell die?

    He was murdered

    He got an accident

    He died of natural

    causes

    He committed suicide

    Poison

    Car accident

    Other health problems

    Other means

    Gunshot wound

    Fallen overboard from his yacht

    Pulmonary edema

    Self-inflicted gunshot wound

    Other means

    Heart attack

    Knife wound

    Threw himself overboard

    Other accidents

    He has taken on a new identity

    He’s living under his old identity, but undetected

    He may not be dead

    Considers

    all options

    2

  • McKinsey & Company | 19

    2 major types of logic trees:

    Why

    Reasons

    What

    How

    Issue tree

    Hypothesis-driven

    tree

    a

    b

    Type of tree

    Starts with the

    definition of the

    problem and

    divides it into

    components

    Hypothesizes a

    solution and

    develops a

    necessary and

    sufficient

    rationale to

    validate or

    disprove it

    Description

    Topics

    criteria,

    questions,

    Reasons

    Actions

    Elements of

    branches

    Suitable for a

    comprehensive

    approach; used

    for a new

    problem when

    relatively little is

    known about it

    Typically used

    when the

    problem area is

    relatively

    familiar and it is

    possible to

    make sound

    assumptions

    Typical

    application

    2

  • McKinsey & Company | 20

    How could you

    reduce your

    shopping

    expenses each

    month?

    Clothing

    Travel

    Issue tree example

    Entertainment

    Food

    Share costs of items (e.g., split

    rent with roommate)

    Price paid for

    same quantity

    of items

    Item quantity

    Buy lower-quality items

    Buy items at discount/on sale

  • McKinsey & Company | 21

    Use the hypothesis-driven tree

    when formal logic is required to

    confirm or refute the hypothesis

    Hypothesis trees are also powerful tools, but require a fairly

    good understanding of the situation

    “I think the

    following

    approach will

    solve the

    problem”

    2b

  • McKinsey & Company | 22

    Hypothesis-driven tree structure

    Hypothesis

    Argument

    Argument

    Argument

    To validate a hypothesis To disprove a hypothesis

    Hypothesis

    Argument

    Argument

    Argument

    As a group, arguments

    are sufficient As a group,

    arguments are

    sufficient

    Every basic argument can either

    be immediately proven, or analysis

    to prove/disprove can be identified

    On its own,

    every

    precondition

    is necessary

    for the

    hypothesis

    2b

  • McKinsey & Company | 23

    To reduce your

    monthly

    expenditure, you

    should spend

    less on

    the items you

    currently buy

    Buy generic versions of

    toiletries, over the counter

    medicines, paper goods

    Substitute cheaper means of

    travel and entertainment (e.g.,

    bus instead of plane, DVD

    instead of movie in theater)

    Hypothesis tree example

    Buying fewer items is not an

    option, since you need

    everything you currently buy

    Buy dry groceries, packaged

    goods in bulk at discounters

    Stock up on clothes, books,

    etc during sales

    Buying important items at a

    discount/on sale will ensure

    quality at lower price

    Split rent with roommate Sharing costs of some items

    can be done without

    sacrificing quality completely Carpool to work rather than

    driving alone

    Buying lower-quality

    versions of items will save

    money

  • McKinsey & Company | 24

    Hypothesis tree example –levers to improve EBIT and volume growth

    Revenue

    Cost

    Both

    Variable cost

    Day-definite Increase rates

    Increase volume

    Improve customer mix

    Direct cost

    Indirect cost

    Optimize network

    Optimize additional fees

    Fixed cost

    Reduce overhead cost

    Optimize hubs / T1 points

    Lever

    Capture willingness to pay more

    Improve service quality

    Open new retail outlets

    Increase sales productivity in existing retail outlets

    Reduce priority of KA development or reduce discount

    Improve procurement in fuel and maintenance/parts

    Outsource maintenance and component / parts

    Unblock T1 bottlenecks for growth

    Reduce reliance on part-time staff

    Other levers

    Streamline region layer

    Consolidate shared services

    Reduce executive compensation

    Cut down on recurring cost

    YH+PTA

    AL+YH+EK

    YH

    YH

    Less-than-

    truckload (LTL) Optimize rates Right-price to maximize volume YH+PTA

    YH

    AL

    AL

    AL

    AL

    AL

    AL+YH+EK

    Client HR

    Client HR

    YH

    Client IT

    In-charge

    Auxiliary revenue Optimize charges for door-to-door, insurance and COD YH

    Improve procurement in linehaul

    Increase linehaul reallocation flexibility AL

    Launch more point-to-point for DD AL

    Own ultra-large trucks AL

  • McKinsey & Company | 25

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 26

    Prioritize with the 80:20 rule

    Keys to success

    ▪ Focus on key issues ▪ Be MECE ▪ Don’t "boil the ocean“ ▪ Do back-of-the-envelope

    calculations

    ▪ Use judgment/intuition ▪ Involve your client (and

    team)

    ▪ Take risks

    Additional benefit

    for problem-solving

    100%

    80%

    20% 100% Effort to structure

    problem

    Try to

    be

    MECE

    Try to be perfect

    2

  • McKinsey & Company | 27

    Eliminate non-essential issues

    ▪ Elimination of non-essential issues is key to limiting

    unnecessary work

    Purpose

    ▪ First step in constant, iterative refinement process

    – Balance between hypotheses/theories and

    data

    – Use 80/20 thinking ▪ Concentrate your effort on what

    is most important

    ▪ Always ask “so what”, but also ask what you have forgotten

    Issue 1

    Issue 2

    Issue 3

    Problem

    statement

    2a

  • McKinsey & Company | 28

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 29

    While synthesis is constructed bottom-up, communication

    is preferably carried out top-down

    4

    Top down comm-

    unication has

    distinct advantages

    ▪ Facilitates a question-and-

    answer dialogue

    with the

    audience

    ▪ Significance of points is easy to

    understand

    ▪ Relevant sections are

    easy to find

    ▪ Key points are easy to

    remember

    ▪ Argument content is easy

    to check

    Governing thought

    Overview of synthesis and communication

  • McKinsey & Company | 30

    You can develop a storyline from the top down …

    Begin the question-answer flow from the top

    Governing

    thought

    What is the question you are trying to

    answer with your data?

    The answer to that question is your

    governing thought

    First

    point

    Develop a key line to answer the next

    level of question (why, how, in what

    way?)

    Second

    point

    Third

    point

    Su

    pp

    ort

    Su

    pp

    ort

    Su

    pp

    ort

    Structure the further supporting points

    Asking new questions at each level

    (why, how, in what way?) Su

    pp

    ort

    Su

    pp

    ort

    Su

    pp

    ort

    Su

    pp

    ort

    Su

    pp

    ort

    5

  • McKinsey & Company | 31

    … or from the bottom up 5

    c

    b a b

    a c

    a b c

    x y Lay out your findings

    Use dynamic message titles rather than

    static labels such as topic headings

    a a a

    b b b

    c c c Look for patterns that lead you to group

    your ideas (effects, observations, cases,

    examples, reasons, steps, changes, trends,

    benefits, etc.)

    First

    point

    a a a

    Second

    point

    b b b

    Third

    point

    c c c

    Write a statement that synthesizes each

    group to create your key line

    Review the syntheses. Are they at the same

    level of abstraction? Are they of similar

    type?

    Governing thought

    Provide a synthesis, your governing

    thought First

    point

    Second

    point

    Third

    point

  • McKinsey & Company | 32

    Synthesis handout – it is helpful to make groupings support

    a single governing thought

    Governing

    thought

    Action or

    reason

    Action or

    reason

    Action or

    reason

    Fact/

    analysis

    Fact/

    analysis

    Fact/

    analysis

    Fact/

    analysis

    Fact/

    analysis

    Fact/

    analysis

    What? Why? or How?

    How do you know that?

    4

  • McKinsey & Company | 33

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 34

    But how do I go from a pyramid to a storylined presentation?

    Governing thought

    A B C

    1 3 5 2 4 7 6

    a b

    Governing thought

    ▪ Chapter A – Section 1 – Section 2

    ▫ Subsection a ▫ Subsection b

    ▪ Chapter B – Section 3 – Section 4

    ▪ Chapter C – Section 5 – Section 6 – Section 7

    4

  • McKinsey & Company | 35

    Each structure has pros and cons 5

    Deductive reasoning

    Governing

    thought

    Statement

    about

    situation

    Comment

    on the

    statement

    Implication

    ▪ Demonstrates no other solution works

    ▪ Generally effective with resistant or uninformed audiences

    ▪ If audience disagrees with any idea, argument will fail

    ▪ Requires audience to remember a lot before the governing thought is fully

    supported

    Pros

    Inductive reasoning

    Governing

    thought

    Reason or

    action No.

    1

    Reason or

    action No.

    2

    Reason or

    action No.

    3

    ▪ Major points easy to remember

    ▪ If one point is rejected, others may still persuade

    ▪ Generally effective for action-oriented, receptive audiences

    ▪ Could be too direct or forceful for some audiences Cons

  • McKinsey & Company | 36

    APPENDIX

  • McKinsey & Company | 37

    Major frustrations in problem solving

    Partner says … Team realizes …

    Imperfect or non-

    existent data

    “I’d love to see a breakdown of

    desktop computers by brand

    sold through retail stores in

    Germany”

    ▪ Exact data does not exist ▪ Closest match still falls short

    Unreachable

    resources

    “Call Marty in sales and the

    practice expert, Edward. They=

    should be able to help us with

    this.”

    ▪ Marty is not responding to email

    ▪ Edward is on vacation

    Timely or costly

    data

    “Can you pull together some

    analysis on the major drivers of

    purchasing criteria for luxury

    automobiles?”

    ▪ Gartner report will cost $15,000 and only answer

    some of the questions

    ▪ Custom primary research takes 2 months and over

    $75,000

  • McKinsey & Company | 38

    How to overcome with innovation and creativity

    Team realizes …

    Imperfect or non-

    existent data

    What is the real problem

    I am trying to solve?

    Try re-routing the problem

    solving from a different angle

    Timely or costly

    data

    Quick and cheap will do Bargain shop or sample

    ▪ Call research firms and ask for a free sample or

    trial offering of their

    information

    ▪ Do polls, mini-focus groups or samples to get a

    directional set of data

    Unreachable

    resources

    Attack on multiple

    fronts Call Email

    Visit

  • McKinsey & Company | 39

    There are at least four capabilities that are critical to

    distinctive problem-solving

    2 3

    4 1

    Identifying

    relationships

    2 Finding the

    essence

    3 Stay ahead/step

    back

    4 Constructing multi-

    ple perspectives 1

    ▪ The ability to see a problem and its

    aspects from many

    angles

    ▪ The ability to discern

    connections/

    linkages between

    elements inside

    and outside the

    problem

    ▪ The ability to cut through complexity

    to reveal the heart

    of the matter

    ▪ The ability to think ahead of the team

    and simultaneously

    step back from the

    problem

  • McKinsey & Company | 40

    Fri

    McKinsey’s 7 key steps to problem solving

    Problem-solving

    Communications

    Client problem

    Plan

    analyses

    and work

    Structure

    problem

    Define

    problem

    Prioritize

    issues

    Conduct

    analyses

    Synthesize

    findings

    Develop

    recommendation

  • McKinsey & Company | 41

    Summary – hopefully you will be able to apply these in your work!

    ▪ The overall 7 step problem solving process

    ▪ Define problem – problem statement

    ▪ Structure problem – logic trees, MECE

    ▪ Prioritize issues – 80/20

    ▪ Synthesizing problems – insights, so what

    ▪ Develop recommendation – inductive vs deductive

  • 7 Steps of Problem Solving

    QP Case Analysis Competition 2014

    25 September 2014

    CONFIDENTIAL AND PROPRIETARY

    Any use of this material without specific permission of McKinsey & Company is strictly prohibited