7 Steps of Problem Solving
QP Case Analysis Competition 2012
22 September 2012
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Any use of this material without specific permission of McKinsey & Company is strictly prohibited
What is problem solving?
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.
Source: Wikipedia
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McKinseys 7 key steps to problem solving
Fri
Problem-solving
Client
problem
Define
problem
Structure
problem
Communications
Prioritize
issues
Plan
analyses
and work
Develop
recommendation
Synthesize
findings
Conduct
analyses
McKinsey & Company
Defining the problem is a critical first step
Fri
Problem-solving
Client
problem
Think impact:
What does the
client need to
know?
Define
problem
Structure
problem
Communications
Prioritize
issues
Plan
analyses
and work
Develop
recommendation
Synthesize
findings
Conduct
analyses
McKinsey & Company
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.
1
Context
Sets out the situation and complication
facing the client - e.g., industry trends,
relative position in the industry
Criteria for success
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
Constraints within solution space
Defines the limits of the set of solutions that
can be considered - e.g., must involve
organic rather than inorganic growth
Stakeholders
Identifies who makes the decisions and
who else could support (or derail) the study
- e.g., CEO, CFO, Board
6
Scope of Solution Space
Key sources of Insight
Indicates what will and will not be included
in the study - e.g., international markets,
research and development activities,
uncontrolled corporate costs
Identifies where best expertise, knowledge,
and approaches exist
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Problem structuring is an early and critical task
Think disaggregation &
early hypotheses:
What could be key
elements of the problem?
Problem-solving
Client
problem
Define
problem
Structure
problem
Communications
Prioritize
issues
Plan
analyses
and work
Develop
recommendation
Synthesize
findings
Conduct
analyses
McKinsey & Company
What is a logic tree?
A problem solving tool that breaks a problem into discrete chunks
Why use logic trees?
Sub-issue
Issue 1
Sub-issue
To break a problem into
component parts
Sub-issue
Issue 2
To ensure integrity of the
problem solving is maintained
Sub-issue
Sub-issue
Problem
Issue 3
To build a common understanding within the team of
the problem solving
framework
Sub-issue
Issue 4
Sub-issue
Issue 5
To help focus team efforts
Sub-issue
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Quality logic trees are consistent, relevant, and MECE
Second line
of support
Consistent
First line
of support
Problem statement
worksheet
Basic question to
be resolved
3
2
Criteria for
success
Decision makers/
stakeholders
4
Barriers to impact
Relevant
Scope of
solution space
Consistent
1
Perspective/
context
Mutually
Exclusive
Collectively
Exhaustive
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2 main types of logic trees
Issue tree
Hypothesis-driven tree
Issue
(question)
Argument 1
Hypothesis
(potential
answer)
Argument 2
Argument 3
What? or How?
Breaks issue or question into
smaller issues/questions
Addresses the entire solution
space
Used for study starts or new
problems
Why?
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Issue tree example
Food
Clothing
Buy fewer items
Entertainment
How could you
reduce your
shopping
expenses each
month?
Travel
Buy lower-quality items
Pay less for
same quantity
of items
Buy items at discount/on sale
Share costs of items (e.g., split
rent with roommate)
McKinsey & Company
2 main types of logic trees
Issue tree
Hypothesis-driven tree
Argument 1
Hypothesis
(potential
answer)
Issue
(question)
Argument 2
Argument 3
Why?
What? or How?
Asserts a possible solution,
with necessary proofs
Narrows the solution space to
focus problem-solving
Used when you have enough
data to support a hypothesis
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Issue tree example: how to reduce customer churn in telecom?
To competitor
competitive
churn
Customers changing operator
Number portability
New number
% of total postpaid gross churn
% of total prepaid gross churn
To be elaborated
80%
Structural
churn
Outward
churn
85%
55%
Out of market
Canceling
service
Death/closure of company
Moving out of service
area/country
Stop using mobile services
Substitution for fixed line
5%
How to
reduce total
churn?
Rotational
churn
100%
~0%
100%
28%
Customers that churn
and reapply with the
same operator
Specially relevant for
prepaid users
Involuntary
churn
Fraud
Migration
15%
Customers switching
products internally (e.g.,
migration from postpaid
to prepaid and vice versa)
Involuntary churners that stop
using their mobile phone
Nonpayment
Bankruptcy
Theft
Fraudulent actions that end up
increasing churn (e.g., fake
acquisitions by fraudulent
distributors)
17%
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Issue tree example: why does competitor churn occur?
Causes
Price
Handset
Sub-causes (Illustrative)
Corrective lever (illustrative)
Self-/right planning actions
Improve clients price perception
Dissatisfaction with renewal programs
Too infrequent
Too expensive
Program is not transparent
Cant renew handset (prepaid)
Dissatisfaction with current handset
Ease of use
Battery life
Size/weight
Design/style
Functionality
Revamp handset renewal
programs
Send handset renewal opportunity
alerts by SMS
Select better quality of handsets
Better match handset offer with
consumer segmentation
Dropped calls
Bad reception at home/work
Improve coverage perception
Deploy more base stations
Optimize service quality at key
contact points (customer care
hotline, proprietary stores, etc.)
Reasons for
competitor
churn
Network
coverage
Service
quality
NOT EXHAUSTIVE
Too expensive, inadequate plan
Too expensive, adequate plan
Too many calls to other networks
Improve perception of % on-net calls
Other
Subscription
Handset reparation
Subscription to services
Problem resolution
Billing
Other
McKinsey & Company
Hypothesis tree example
Buying lower-quality
versions of items will save
money
To reduce your
monthly
expenditure, you
should spend
less on
the items you
currently buy
Buying important items at a
discount/on sale will ensure
quality at lower price
Sharing costs of some items
can be done without
sacrificing quality completely
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)
Buy dry groceries, packaged
goods in bulk at discounters
Stock up on clothes, books,
etc during sales
Split rent with roommate
Carpool to work rather than
driving alone
Buying fewer items is not an
option, since you need
everything you currently buy
McKinsey & Company
Hypothesis tree example levers to improve EBIT and volume growth
Lever
Day-definite
Less-thantruckload (LTL)
Revenue
In-charge
Capture willingness to pay more
YH+PTA
Improve service quality
AL+YH+EK
Right-price to maximize volume
YH+PTA
Open new retail outlets
YH
Increase sales productivity in existing retail outlets
YH
Improve customer mix
Reduce priority of KA development or reduce discount
YH
Optimize additional fees
Optimize charges for door-to-door, insurance and COD
YH
Improve procurement in linehaul
AL
Increase linehaul reallocation flexibility
AL
Improve procurement in fuel and maintenance/parts
AL
Outsource maintenance and component / parts
AL
Reduce reliance on part-time staff
AL
Unblock T1 bottlenecks for growth
AL
Other levers
AL+YH+EK
Own ultra-large trucks
AL
Launch more point-to-point for DD
AL
Reduce executive compensation
Client HR
Streamline region layer
Client HR
Consolidate shared services
YH
Cut down on recurring cost
Client IT
Increase rates
Optimize rates
Increase volume
Both
Auxiliary revenue
Direct cost
Variable cost
Indirect cost
Cost
Optimize hubs / T1 points
Fixed cost
Optimize network
Reduce overhead cost
McKinsey & Company
7-step problem-solving process
Think speed:
Which issues are
most important?
Problem-solving
Client
problem
Define
problem
Structure
problem
Communications
Prioritize
issues
Plan
analyses
and work
Develop
recommendation
Synthesize
findings
Conduct
analyses
McKinsey & Company
As you gather information, you can start pruning your issue tree
Issue 1
Problem
statement
Issue 2
Issue 3
Keep focusing in to work
efficiently
Prioritize your effort on
what is most important
Drive toward hypothesis
as early as possible
Dont boil the ocean
McKinsey & Company
McKinseys 7 key steps to problem solving
Problem-solving
Client
problem
Define
problem
Structure
problem
Prioritize
issues
Plan
analyses
and work
Communications
Develop
recommendation
Synthesize
findings
Conduct
analyses
McKinsey & Company
7 Steps of Problem Solving
QP Case Analysis Competition 2012
22 September 2012
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
