Download - McKinsey & Company - 7 Steps of Problem Solving - 2014

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

ADMIN

Typewritten text

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

ADMIN

Typewritten text

Antoine 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.

ADMIN

Typewritten text

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

ADMIN

Typewritten text

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


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

ADMIN

Typewritten text

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

ADMIN

Typewritten text

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


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


What is a “problem”?


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.

“ “


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


Fri


Problem-solving

Communications

Client problem

Plan

analyses

and work

Structure

problem

Define

problem

Prioritize

issues

Conduct

analyses

Synthesize

findings

Develop

recommendation


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


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


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


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


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


Fri


Problem-solving

Communications

Client problem

Plan

analyses

and work

Structure

problem

Define

problem

Prioritize

issues

Conduct

analyses

Synthesize

findings

Develop

recommendation


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


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


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


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


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


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


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


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


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


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


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


Fri


Problem-solving

Communications

Client problem

Plan

analyses

and work

Structure

problem

Define

problem

Prioritize

issues

Conduct

analyses

Synthesize

findings

Develop

recommendation


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


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


Fri


Problem-solving

Communications

Client problem

Plan

analyses

and work

Structure

problem

Define

problem

Prioritize

issues

Conduct

analyses

Synthesize

findings

Develop

recommendation


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


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


… 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


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


Fri


Problem-solving

Communications

Client problem

Plan

analyses

and work

Structure

problem

Define

problem

Prioritize

issues

Conduct

analyses

Synthesize

findings

Develop

recommendation


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


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


APPENDIX


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


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


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


Fri


Problem-solving

Communications

Client problem

Plan

analyses

and work

Structure

problem

Define

problem

Prioritize

issues

Conduct

analyses

Synthesize

findings

Develop

recommendation


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