7 steps of problem solving
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McKinsey & Company - 7 Steps of Problem Solving - 2014TRANSCRIPT
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
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.
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
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
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
▪ 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