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McKinsey Issue Tree Example

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McKinsey Issue Tree Example. Also some tips on the McKinsey problem solving approach.

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McKinsey Issue Tree Example

  1. 1. Problem-solving and decision-making 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 organisation 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. July, 2011
  2. 2. McKinsey & Company | Importance of good problem-solving and decision-making ▪ Get to answers faster ▪ Use time and resources more efficiently ▪ Have greater impact on the business ▪ Free up time to do other things
  3. 3. McKinsey & Company | Objectives and approach for session Objectives ▪ Introduce an approach/tools you can add to your toolkit of skills and use for many types of problem solving Approach ▪ Learn key elements of approach through plenary lecture and discussion
  4. 4. McKinsey & Company | McKinsey’s problem solving approach C R E A T I V E T H I N K I N G Logical problem solving Impact- driven Focused Fact- based IMPACT
  5. 5. McKinsey & Company | Synthesis Analysis The problem-solving cycle Problem definition Problem structuring Prioritisation Issue analysis and work plan Problem ? Recom- mend- ations © McKinsey & Company Think next iteration: what are the team’s next priorities? Focus for today
  6. 6. McKinsey & Company | Step 1: Define the problem Recom- menda- tions Synthesis Problem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N? !Problem Impact Think IMPACT: What is the question you are trying to answer?
  7. 7. McKinsey & Company | What is a good problem definition? ▪ What are characteristics of a good problem definition? ▪ What are “must-have” elements to – Ensure we get to the best answer? – Ensure our answer is practical and implementable? ▪ What are the common pitfalls? A ‘problem definition’ is a way to frame a problem so that we are clear up front on what we are trying to solve, and what success will look like A ‘problem definition’ is a way to frame a problem so that we are clear up front on what we are trying to solve, and what success will look like
  8. 8. McKinsey & Company | Problem statements help sharpen your thinking about the problem What are we trying to achieve? Focuses the work and ensures that findings can be acted on. The more specific the statement the better, provided that it is not so narrow that the “wrong” problem is addressed. Background and context Potential challenges Comments on the “situation” and “complication” facing the key decision-maker (e.g., industry trends, relative position in the industry). Indicates what will not be included in the project (e.g., international markets, R&D activities). Also defines the limits to the set of solutions that can be considered, including degree of accuracy of analysis (i.e, 80/20 rule vs. 90/10). 1 4 What is success? Stakeholders Refers to the basis on which the key decision- maker will decide whether to act on the recommendations (e.g.,financial returns, effect on staff, market share growth). Identifies primary decision makers (e.g., CEO, Division Manager) as well as internal and external parties who can affect implementation (e.g., shareholders) 2 3 Where will we find information and help? Describes implementation challenges (e.g., labour relations, communication practices, risk aversion) that must be addressed to change beliefs and behaviors 5
  9. 9. McKinsey & Company | One idea of what a good problem definition looks like… What are we trying to achieve? The basic question we are trying to solve. It should be SMART: specific, measurable, action-oriented, relevant and time-bound. Background and context Potential challenges What is the current situation? What has happened so far? Why is this problem is being addressed now? What are the potential issues or problems that we can forsee and plan to mitigate? 1 4 What is success? Stakeholders What does a good final product look like? What are we trying to deliver? Who are the decision makers? Who needs to be involved? 2 3 Where will we find information and help? Where does expertise and knowledge, exist (Internal and external)? e.g., work that has already been done, internal experts who we should draw on, published reports and papers 5
  10. 10. McKinsey & Company | Problem statement Characteristics of good problem statement • Specific • Measurable • Action-oriented • Relevant (to the key problem) • Time-bound
  11. 11. McKinsey & Company | Example problem statement: Oilco refinery The Oilco refinery is suffering from poor profitability despite a strong market niche position Should the Oilco refinery improve its deteriorating position? Can the Oilco refinery be managed differently to increase profitability? Too general Not disputable Statement of fact
  12. 12. McKinsey & Company | Good problem solving: Oilco refinery What opportunities exist for Oilco to improve profitability by $40 million per year through overhead rationalisation, operational improvements, or restructuring non-core assets? Specific, action-oriented • Specific • Measurable • Action-oriented • Relevant (to the key problem) • Time-bound
  13. 13. McKinsey & Company | Step 2: Structure the problem Recom- menda- tions SynthesisProblem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N? !Problem Impact Think DISAGGREGATION and HYPOTHESIS: What could the key elements of the problem be?
  14. 14. McKinsey & Company | Problem solving requires we answer a number of difficult questions What issues should we think about? …? How will we build our smart cities? What steps will we need to take?
  15. 15. McKinsey & Company | What is an issue tree and why is it important? A problem solving tool that breaks a problem into discrete chunks Why use logic trees? ▪ To break a problem into component parts ▪ To ensure integrity of the problem solving is maintained ▪ To build a common under- standing within the team of the problem solving framework ▪ 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
  16. 16. McKinsey & Company | The issue tree is a valuable tool to disaggregate a problem into core sub- questions that need to be addressed to answer the main question Description Why use it? When to use it? ▪ Early in the problem solving process, when you know little about the problem ▪ Decomposes an issue into smaller sub-issues (e.g., measures, criteria) ▪ Sub-issues answer the question “What?” or “How?” ▪ Helps disaggregate problem into individual pieces ▪ Helps divide the work among team members Issue tree Text
  17. 17. McKinsey & Company | Basic principle of the issue tree Goal: Break a problem into component parts and show concrete solutionsQuestion Formulation of the basic question to be resolved should be as specific as possible Idea 1 Idea 2 Idea 3 Idea 1.1 Idea 1.2 Idea 2.1 Idea 2.2 Idea 3.1 Idea 3.2 How / What? Level of detail Complete but non- overlapping list of conceivable solutions Further levels of detail for ideas, also complete and non- overlapping How / What?
  18. 18. McKinsey & Company | Question Together, statements answer the question or fully describe the idea on the level immediately above ME CE Collectively Exhaustive Mutually Exclusive Idea 1 Idea 2 Idea 3 Mutually Exclusive Collectively Exhaustive Content of Statements does not overlap Benefit for impact Efficient Time and effort to structure problem NOT EFFICIENT Trying to be perfect 100% 80% 100%20% 80/20 rule Good issue trees meet MECE and 80/20 rule requirements
  19. 19. McKinsey & Company | Let’s try out an example Create an issue tree to address the following: How can you reduce monthly shopping expenses?
  20. 20. McKinsey & Company | Example Issue tree solution How could you reduce your expenditure each month? Buy fewer items Food Clothing Travel Entertainment Share costs of items (e.g., split rent with roommate, car pool) Pay less for same quantity of items Buy lower-quality items Buy items at discount/on sale
  21. 21. McKinsey & Company | Good logic trees help prioritise issues and allocate responsibilities to team members Recom- menda- tions SynthesisProblem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N? !Problem Impact Think SPEED: Which part of the tree seems most important to the problem?
  22. 22. McKinsey & Company | Purpose of prioritisation Bundle of possible actions developed But: ▪ Limited resources ▪ Time constraints ▪ Prioritisation required
  23. 23. McKinsey & Company | How to prioritise Use judgement/intuition Do back-of-the- envelope calculations Involve your team Take risks 20 80 80 20 Time and effort Focusing on impact Polishing Benefit for problem solving Be practical!
  24. 24. McKinsey & Company | Methods for prioritising Key ideas • Take a reasonably quick, informal approach to get started • Remember that sometimes a ”back of an envelope” calculation is all that’s needed • If new information emerges, you can always reprioritise and switch your efforts to another part of the tree • Use likely impact to decide where to go first • Use readily available data whenever possible; avoid major data requests • Do not create massive spreadsheets or other computer models if you can move forward with less complete information Example methods • Percentage of total “X” • Estimated potential increase/decrease (sensitivity analysis) • Simple ratios • Quick industry benchmarks • Qualitative input from interviews • Ease of implementation • Timing • “Quick wins” • Available resources • High/low risk
  25. 25. McKinsey & Company | Step 4: Issue analysis and work plan Recom- menda- tions SynthesisProblem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N? !Problem Impact Think EFFICIENCY: How and on what should the team spend its time?
  26. 26. McKinsey & Company | Step 5: Analysis Recom- menda- tions SynthesisProblem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N Think EVIDENCE: What am I trying to prove/disprove? Problem Impact ? !
  27. 27. McKinsey & Company | Step 6: Synthesise findings Recom- menda- tions SynthesisProblem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N Think SO WHAT: What are the implications of our findings? Problem Impact ? !
  28. 28. McKinsey & Company | Summary versus synthesis: what’s the difference? FACTS ▪ I have misplaced my keys ▪ My passport isn't where I thought it was ▪ I'm 2 months behind on my tax return SUMMARY ? SYNTHESIS ?
  29. 29. McKinsey & Company | SYNTHESIS Summary versus synthesis: extracting a higher level of meaning SUMMARY I’ve lost my keys and passport and I'm behind on my tax return FACTS ▪ I have misplaced my keys ▪ My passport isn't where I thought it was ▪ I'm 2 months behind on my tax return SYNTHESIS I’ve been sloppy
  30. 30. McKinsey & Company | Synthesis helps develop a powerful and effective main message What is the one thing I want my audience to think or do as a result of this communication? Main message must be: ▪Targeted ▪Overarching ▪Powerful ▪Supportable
  31. 31. McKinsey & Company | Step 7: Develop recommendations Recom- menda- tions SynthesisProblem definition Struc- turing Priori- tising Issue analysis Analysis C O M M U N I C A T I O N Think POTENTIAL SOLUTION: What should be done? Problem Impact ? !
  32. 32. McKinsey & Company | Last chance for any questions…
  33. 33. McKinsey & Company | 33 Thank you – Enjoy the rest of your day

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