Seven easy steps to Problem solving at Mckinsey

CONFIDENTIAL

7 Easy Steps to Solving Problems at McKinseyMcKinsey

June 2005

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

STA-ZYJ059-20050616-fcowHR1

7-STEP PROBLEM SOLVING PROCESS

Think impact:What does the client need t k ?

Think disaggregation and early hypothesis:What could be the key l t f th bl ?

Think speed:Which issues are most i t t t th bl ?

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to know? elements of the problem? important to the problem?

D fi St t P i iti

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Clientproblem

Think buy-in:

Define problem

Structure problem

Prioritize issues

Develop issueCommunicate

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Think next iteration:

Think buy-in:How should you connect to the client in every step?

issue analysis andwork planC d tS th i

Develop recommenThink next iteration:

What are the client's next priorities?

planConduct analyses

Synthesize findings

recommen-dation

Communicate

Think evidence:What are we trying to prove/disprove?

Think “so what”:What implications do our findings have for the client?

Think potential solution:What should the client do?

Think efficiency:Where and how should the team spend its time?

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DEFINE St t P i iti


Clientproblem

Think buy-in:

DEFINE PROBLEM

Structure problem

Prioritize issues


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Synthesize findings

recommen-dation

Communicate





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GETTING AN ACCURATE UNDERSTANDING OF THE PROBLEM IS THE FIRST PRIORITY

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DEFINING THE PROBLEM – STATING THE PROBLEM CLEARLYW

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Characteristics of good problem statement

• A thought-provoking question or a hypothesis


Clear statement of problem to be solved

• Specific, not general

• Debatable (not a statement of fact or non-disputable assertion) 19:51 PM

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• Actionable

• Focused on what the decision maker needs to move forward• Focused on what the decision maker needs to move forward

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PROBLEM STATEMENT EXAMPLE: OILCO REFINERY

The Oilco refinery is suffering from poor profitability despite a market niche position Statement of fact

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p y p p


Should the Oilco refinery improve its deteriorating position? Not disputable

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Can the Oilco refinery be managed Too generaly gdifferently to increase profitability? Too general

What opportunities exist to improve Oilco’s performance through overhead rationalization, operational improvements or asset/ownership

Specific, actionable

5

p p prestructuring, either as a growth platform or as a low cost local operator?


PROBLEM STATEMENT WORKSHEET

1 Basic question to be resolvedThe basic question brings focus to the analytic work – it should be succinct and ensure that the findings can be acted upon. The more specific the statement the better, provided it is not so narrow that important levers to solve the problem are missed

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important levers to solve the problem are missed

2 Perspective/contextComments on the “situation” and “complication” facing the client e g industry

3 Stakeholders and ProcessesIdentifies primary client decision-makers(e.g., CEO Division Manager) as well as internal ast M

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complication facing the client, e.g., industry trends, relative position in the industry

CEO, Division Manager) as well as internal and external parties who can affect implementation (e.g., shareholders). Also suggests the processes through which these parties exert influence 19:51 P

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these parties exert influence

4 Criteria for successRefers to the basis on which the client will decide whether or not to act on the study

5 Scope of solution spaceIndicates what will not be included in the study e g international markets researchdecide whether or not to act on the study

recommendations, e.g., financial returns, effect on staff, market share growth

study, e.g., international markets, research and development activities

6 Barriers to ImpactDefines the limits to the set of solutions that can be considered. Note: constraints may have to be relaxed as the study proceeds

6

relaxed as the study proceeds


PROBLEM STATEMENT WORKSHEET – OILCO EXAMPLE

1. Basic question to be resolvedWhat opportunities exist for Oilco to improve performance through overhead rationalization, operational improvements or asset/ownership restructuring, either as a growth platform or as a low cost operator?

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2 Perspective/context• Major player in an industry undergoing

consolidation

3 Stakeholders and decision makers• CEO, Oilco - Difficult to get approval for other

capital plans until refinery underway ast Modified 7/18/2005 1:1

consolidation • Huge overhead costs – much greater than any

other player in the industry

capital plans until refinery underway • Acquisition decision credibility enhanced by ‘big’

solution• Oilco Board - Political and community pressures

for high employment, prominent refinery role 19:51 PM

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• Own improvement plan underway4 Criteria for success• Very significant improvement in refinery

profitability 5 Scope of solution spacep y• Lower capital expenditure plan• Clear set of actions developed to move forward• Clear definition of refinery strategic orientation

(growth platform or low cost operator)

5 Scope of solution space• No solutions with greater than 18 month

timeframes• No solutions with big capital expenditure

needs

6 Barriers to Impact• Very limited time frame given other plans

needs

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D fi STRUCTURE P i iti


Clientproblem

Think buy-in:

Define problem

STRUCTURE PROBLEM

Prioritize issues


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Synthesize findings

recommen-dation

Communicate





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TO SOLVE THE PROBLEM A LOGICAL APPROACH IS REQUIREDW

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WHAT IS A LOGIC TREE?

Issue 1

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Issue 2


Issue 3Problem

A problem solving tool that breaks a problem into 19:51 P

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Issue 4

problem into discrete chunks

Issue 4

I 5Issue 5

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WHY USE LOGIC TREES?

1 To break a problem into component parts so that:

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1. To break a problem into component parts so that:• Work can be divided into manageable pieces• Priorities can be set• Responsibilities can be allocated ast M

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2. To ensure integrity of the problem solving is maintained:• Solving the parts will really solve the problem• The parts do not overlap and there are no gaps 19:51 P

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• The parts do not overlap and there are no gaps

3. To build a common understanding within the team of the problem solving frameworkp g

4. To help focus use of frameworks and theories

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LOGIC TREE EXAMPLE: OILCO REFINERY

Why has performance deteriorated?Why has current

performance deteriorated? Will

What situation has prevailed in past?

What has led to the decline?

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Is it likely to improve of its own accord?

Are there growth/new

deteriorated? Will trend improve without further action?

Will US market situation help?

What is competitive situation?


Are there growth/new business options?

Could Oilco capture them?

What opportunities exist for the Oilco refinery to improve performance through overhead rational-

Will other growth options improve the refinery's overall performance?

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In overheads?

overhead rationalization, operational improvements or asset/ownership restructuring, either as

th l tf

Are there opportunities to reduce costs or

i t

In corporate centre?

In BUs?

In operations?

a growth platform or as a low cost operator

capex in current businesses? Refinery optimization?

Other businesses?

Are there opportunities to improve performance through asset/ownership

Are parts of the business worth more to others?

Can ownership be

Sale of share to Gonwondians

To others?

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restructuring? Can ownership be restructured?

To others?

To public?


LOGIC TREE EXAMPLE: HOW DID ROBERT MAXWELL DIE?

G h t d

He was murdered

Gunshot wound

Knife wound

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Poison

Other means


He committed suicide

Self-inflicted gunshot wound

Threw himself overboard

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How did Robert Maxwell die? Other means

Heart attack

He died of natural causes

Other health problems

Pulmonary edema

Heart attack

He may not be deadH ’ li i d hi ld id tit

Other health problems

He has taken a new identity, having lost a lot of weight

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He’s living under his old identity, but undetected

Considers all options


TIPS

Tip Why

• Use your whole team, no “lone wolf” approach

• Rough and tumble hypothesis sessions tap everyone’s creativity

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wolf approach sessions tap everyone s creativity, tend to get better answers and are fun


• If stuck, try building the tree backward (from the “twigs” in addition to forward (from the “trunk”)

• It is sometimes easier to think up sub-issues and analyses and then to group them, than to work linearly

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trunk )

• Try multiple trees and constantly update and revise

• Different trees provide new perspectives on the problem

• Don’t invest a week to make “the” issue tree

• Trees change as more facts come to light - keep adjusting

• Make sure there are no overlaps and no gaps

• Ensures that your thinking is robust and that you have thought through all possibilities

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D fi St t PRIORITIZE


Clientproblem

Think buy-in:

Define problem

Structure problem

PRIORITIZE ISSUES


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Synthesize findings

recommen-dation

Communicate





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PRIORITIZE ISSUES BY CUTTING OFF NON-ESSENTIAL BRANCHES

Issue 1Purpose

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• First step in constant, iterative refinement process

• Prioritizes your effort on what is ast Modified 7/18/2005 1:1

Problem statement

Issue 2• Prioritizes your effort on what is

most important

• Helps ask “so what” . . . but also 19:51 PM

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Issue 3ask what you’ve forgotten

• Is the key to working efficiently and having a better lifestyleand having a better lifestyle

Eliminating issues is often difficult because team members will have differing opinions on what is “critical” to the study

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Solution – have each team member “dummy” their analysis and involve the entire team in prioritization effort


PRIORITIZATION PARAMETERS

hItem Improvement lever

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…1H

igh

enta

tion

Do nowDo later

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mpl

em

…3

Plan how 19:51 PM

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…5

…4

LowEa

se o Plan how

To do nowWait

5L

HighLow

Financial impact ( ithi 2 )(within 2 years)

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HOW TO PRIORITIZE

Use judgement/intuition Involve your team and client

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Be practical!


80Polishing

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80

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Time and

Focusing on impact

Benefit for e a deffort

e e t oproblem solving

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Do back-of-the-envelope calculations Take risks






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D fi St t P i iti


Clientproblem

Think buy-in:

Define problem

Structure problem

Prioritize issues

DEVELOP ISSUE Communicate

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ANALYSIS AND WORKPLAN

C d tS th iDevelop recommenThink next iteration:


Conduct analyses

Synthesize findings

recommen-dation

Communicate





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A LITTLE DISCIPLINED, EARLY WORKPLANNING CAN GO A LONG WAY IN PROBLEM SOLVING

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ISSUE ANALYSIS SETS THE STAGE FOR ACTION

Logic tree after

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Logic tree after prioritization of issues Analyses

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TO DOs

Mon Tue Wed Thu Fri

2

3

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Issue analysis

1

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ISSUE ANALYSIS WORKSHEET

Supporting Information/

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IssueKey issue or unresolved

ti th t

HypothesisStatement of the likely resolution f th i

Suppo t grationaleArguments that are necessary

d ffi i t t

o at o /AnalysisAnalyses that should be

d t d t

Source/ ProviderLikely location and means of bt i i d t f


question that elicits a “yes” or “no” answer and on which a

of the issue; it includes the reason for answering “yes”

and sufficient to support the hypothesis

conducted to either confirm or refute the hypothesis, and

obtaining data for analyses

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specific action depends

or “no” thus resolve the issue

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WORK PLANNING FOLLOWS FROM THE ISSUE ANALYSES PHASE OF THE STUDY

Issue Hypo-thesis

Support-ing

Informa-tion/anal- Source/

pro ider

Issue analysis worksheet

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thesis grationale ysis provider

Work plan+ ast Modified 7/18/2005 1:1

End productFormat of the completed analysis

ResponsibilityPerson responsible for completing the analysis

TimingDeadline for completon of analysis 19:51 P

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analysis analysis

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ALL WORKPLANS SHOULD CONTAIN THE SAME BASIC INFORMATION

Issue Hypothesis Analysis Source ResponsibilityEnd products Timing+

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Description • Start with end points from logic tree

• The definition of

• The hypothesis is a statement of the likely

• The analysis required in order to prove or disprove the

• The source identifies the likely location or means of

• Responsibility identifies the person who will obtain the

• The end products is a statement of the output

• Timing within which to deliver the analysis end- ast M

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an issue varies from an “important question” to “an unresolved question” it is

yresolution of an issue; it includes the reason for answering yes or no

hypothesis and hence resolve the issue

obtaining data to undertake analysis

data and undertake the analysis

from the analysis

yproduct

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question , it is phrased so that it can be answered with a yes or no, and a specific action depends

or no

on it

Action • Make sure each issue is stated in as detailed a

• List all hypotheses– Team ideas– Own ideas

• Identify analysis that will inform decision

• Identify readily available data

• Decide on methodology

• Decide who will help collect the data and do analysis

• Draw ‘ghost’ exhibits

• Develop

• Decide on timeframe, with milestones

detailed a manner as possible

• Define sub-issues where necessary

Own ideas– Client’s

ideas• Discuss

– Refine hypothesesR dj t

decision making

• Determine extent of analysis required

Si l

methodology do analysisDevelop story line

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– Readjust priorities for analysis

– Simple case

– Complex justification


USE A GANTT CHART TO MAP WORKPLAN TO PROJECT MILESTONES

Analysis (main study steps)

1 Complete overview of the Assessment of

Key end products 1 2 3 4 5 6 7 8 9 10 11 12

Timetable (weeks)

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1. Complete overview of the market and industry• Gather market and industry

data• Conduct trade interviews• Analyse data and formulate

i iti l i f i d t

Assessment of attractiveness of the foreign market and industry


The final workplan should correspond to

initial view of industry

2. Carry out an assessment of ABG’s competitive position• Complete analysis of trends

in market share, pricing and

Critical review of ABG’s strengths and weaknesses compared to 19:51 P

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pthe project timing and scope agreed with the Client

, p gdistribution

• Complete comparative cost analysis

• Interview sample of buyers• Interview McKinsey contacts

in the retail industry

pcompetitors

in the retail industry

3. Estimate potential for ABG’s future performance• Define alternative scenarios• Establish most likely case

Financial evaluation of ABG’s milling and baking interests

scenario• Conduct sensitivity analysis• Assess maximum

improvement potential

Progress reviews with XYZ management

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g g


KEY DESIGN PRINCIPLES OF WORKPLANNINGW

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• Clarity – clearly defined objectives and end products

• Accountability – decide who is responsible for getting it done ast M

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done

• Actionability – identify the immediate next step

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• Specific – is very specific on analysis and source

M k th ti li t h th i t f th b d j tMake sure the timeline matches the requirements for the broader project

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TIPS FOR WORKPLANNING

Early • Do not wait for data, critical mass or anything else

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Often • Revise, update and improve your hypotheses as you work through the data ast M

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Specific • Be very specific on analysis and source

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Syndicate • Test with GMs, Managers, Team members

Milestones • Be disciplined - deliver on time using 80/20

Meaningful • Push detailed workplans out only 2 to 4 weeks ahead. g p yDon’t write an encyclopedia

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Structure problem

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issue analysis andwork planCONDUCTS th i



planCONDUCT ANALYSES

Synthesize findings

recommen-dation

Communicate





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BE PREPARED TO REVISE YOUR HYPOTHESIS AS EVIDENCE ACCUMULATES

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PORPOISE FREQUENTLY BETWEEN HYPOTHESIS AND DATAW

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Revenue can be enhanced by 3% by . . .

Adoption of incentives for salespeople will significantly . . .

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X2 + Y2 = Z2

!!# 24,763 *42, 56 34 3437634.34376

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USE 80/20 THINKINGW


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. . . beware of polishing dirt

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. . . WHERE POSSIBLE AVOID INDIRECT OR INFERENTIAL METHODSW


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SHARE GOOD IDEAS WITH THE TEAMW

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That looks like a good idea! ast M

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a good idea!

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ANTICIPATE OBSTACLESW


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. . . don’t do a Titanic

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USE EXPERTS AS DATA SOURCESW


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BE CREATIVEW

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gthrough all 9 dots without lifting the pen

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. . . AND TAP THE CREATIVITY AROUND YOU

Step ChangeBusiness as Usual

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• Right Brain• Linear thinking g t a

• Postponing judgment

ea t g

• Incremental change

• Intuition

• Taking risks

• Repetition

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g


BRAINSTORMING BEST PRACTICES

During the session After the session

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1. ______

2. ______

3. ______

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Record all ideas from

Record all ideas on flip

Vote on ideas at the end of

Assign high-potential

Follow up on all ideas

Do it again

flip charts for idea consolidation

charts (as stated)

the session to determine high-potential ideas

ideas to team members to ‘scope out’ savings and

and give feedback to all participants

ideas savings and costs

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IDEA KILLERS

• Yes, but . . .

• It’s not our problem . . .

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• We tried that before . . .

• It’ll never fly . . . ast Modified 7/18/2005 1:1

• The only problem is . . .

• They’ll never buy it . . .

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• We don’t have the resources . . .

• It’s a good idea, but . . .

• If it ain’t broke, don’t fix it . . .

• It’s not in the budget . . .

• It’s not the way we do things . . .

• Can’t teach an old dog new tricks . . .

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issue analysis andwork planC d tSYNTHESIZE

Develop Think next iteration:What are the client's next priorities?


SYNTHESIZE FINDINGS

recommen-dation

Communicate





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THERE IS HUGE VALUE IN SYNTHESIZING YOUR ANALYSIS INTO A CONCISE STORY

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PYRAMID STRUCTURE

Governing

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Key message 1 Key message 2

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SupportingSupporting SupportingSupportingSupporting data

Supporting data

Supporting data

Supporting data

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ARGUMENT STORY: PUBLIC LIBRARY

• Despite the library’s good standing in the community, it has been receiving increasing complaints from the public regarding their ability to Situation

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g g p p g g yaccess necessary information


• The library’s new building is dramatically different from its previous building

• Its shelving is all permanent and cannot be moved around like the shelving in the old building

Complication

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shelving in the old building• Additionally, because of the funds spent on the new building, there are

no capital funds available for alteration for 2 years

• The library should–Move high-use collections (e.g. travel books, mysteries) to the front

f th lib

Resolutionof the library

–Embark on a widespread education program to inform members of the layout of the new library building

–Transfer money from new book acquisition for the next 6 months to

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Transfer money from new book acquisition for the next 6 months to fund the institution of signs and maps for users


STORY PYRAMID: PUBLIC LIBRARY

Despite the library’s good standing in the community, it has been receiving increasing complaints from the public regarding their ability to access necessary information

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Despite its good historical relations in the community, the library has been receiving a number of complaints

The library needs to take immediate action but is hampered by its budgetary constraints

There are three major actions that should reduce complaints

19:51 PM

PrintedComplaints

are 4 times Complaints are

Most complaints

There are no funds in the

Move high-use collection

Embark on a widespread

Transfer money from

Complaints centre

the historical volume

increasing and beginning to get media attention

relate to changes caused by new building

capital budget for the next 2 years

to the front of the library

education program for members on the layout of the new

new book acquisition funds to cover costs

around difficulty in accessing travel books and attention the new

facilityand mysteries

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DEVELOP RECOMMThink next iteration:



Synthesize findings

RECOMM-ENDATIONS

Communicate





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TELL THE STORY

Prepare a storyboard: Sketch out the overall structure of your argument by linking the exhibit leads into a logical, persuasive story

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The public library enjoys good standing in the community

COMMUNITY’S OPINION OF THE PUBLIC LIBRARY

In fact, the number of complaints since the move is four times the typical volume

AVERAGE COMPLAINTS PER MONTH, 1985 90

But since the library moved into its new building it has been receiving increasing complaints about access to information

COMPLAINTS PER MONTH 1990


PUBLIC LIBRARYPercent

Negative 6 5 6 7 6 4

23

1985–90Number of complaints

COMPLAINTS PER MONTH, 1990Number of complaints

3 5 3 4

1521 17

25 24 26 27 29

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Positive1985 1986 1987 1988 1989 Pre-

move1990

Post-move1990

3 3

Jan

Feb Mar Apr May Jun Jul

Aug Sep OctNov Dec

Further, since May 1990, over 30 articles in local newspapers reported complaints about the public library

MEDIA ATTENTION, MAY–DEC 1990Number of articles

Complaints centre on difficulty in accessing travel books and mysteries

ACCESSIBILITY TO BOOKS BY SUBJECTDegree of difficulty

To reduce these complaints, we recommend these actions

RECOMMENDED ACTIONS

9

7

4

Number of articles

Weekly

Gazette

Chronicle 13

55Mysteries

Travel books

Biography

Sports

1. Move high-use collections to the front of the library

2. Initiate programs to teach library members the new layout

3. Create maps of the new layout and install

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14Times 1Cookbooks

Spo ts p ysigns

Education

Seven easy steps to Problem solving at Mckinsey