An important element of issue tree creation is the concept of MECE. MECE thinking is universally applied at McKinsey and many other top consulting firms. Essentially, MECE is a way of organizing any list in such a way that it has "no gaps and no overlaps." For example, if we were to lay out "buckets" for an investigation related to a profitability project, we would probably draw the issues as shown in Figure 5-2.
Figure 5-2 Frame: Profitability Issue Tree
An important approach used by McKinsey, other top consulting firms, and business schools involves frameworks. Frameworks are basically issue trees that have been created in the past. Let's face it, your team isn't the first to analyze a profitability issue (or a global expansion, capacity expansion, merger or acquisition, or some other such issue). The first thing a consultant at McKinsey does when assigned a new engagement is to download past reports (which have been cleansed of any confidential information) to see how the problem was framed and investigated in the past. The firm has also developed a set of core issue trees, or thinking on major business issues, that are available to all consultants in written and electronic form. I am not suggesting a "cookie-cutter" approach to problem solving, nor am I implying that the frameworks are actually used as a substitute for analysis. They simply provide a list of topics for consideration, based upon past experiences with similar issues.
One of the by-products of a business school education is the collection of frameworks and methodologies in all the major areas of business problem solving. The professors are subject-matter experts, and one of their jobs is to inform the students of the most important thinking in their area of expertise. This includes providing students with frameworks that summarize key ideas and then teaching them how to use those frameworks. In fact, my research assistants and I have developed a "Killer Slide Deck" of more than 1,000 slides that represents an accumulation of concepts and tools that my students and I have used in the past in all the functional areas of business. The slide deck is helpful for project teams as well as for students preparing for business school case competitions.
Once the MECE issue tree has been constructed, the next step is the prioritization of the issues for investigation. This is a common breakdown point for many teams. The easiest approach is to allocate resources evenly across all the issues in the issue tree (in project management, the resource that is allocated is time and occasionally money). This is a very bad idea. The issue tree should be prioritized for analysis based on the key question and the decision criteria that would contribute to maximizing the impact of the ultimate recommendations for the client. Figure 5-3 shows some examples of typical key issues related to some of the more common business scenarios that consultants face. Remember, however, that the actual importance of the specific issue is dependent upon the particular context of the client, team, and environmental considerations.
Figure 5-3 Frame: Business Issues
RULE 3: FORMULATE HYPOTHESES
The final and most exciting part of the Frame element is the development of hypotheses. Hypotheses are potential answers to the key question. The hypothesis becomes the starting point for the decision tree. If the hypothesis is true, what else needs to be true? Since the origin of this approach is the scientific method, we must remember that the hypothesis must be falsifiable; this means that it must be specific and able to be proved or disproved with data. An example of a poor hypothesis would be, "The company should improve its operations"—this is not specific enough to be proven true or false. A better example is, "The company should double its capacity, increase employee annual bonus programs, and cut its product line by 33 percent." Note that there is likely to be more than one ultimate recommendation for any given project (techniques for communicating those recommendations are the subject of Chapter 9). Also, while the hypotheses ultimately become recommendations by the end of the engagement, they are simply hypotheses in the Frame stage, as they are not yet proven.
Intuition is an important consideration in the scientific method. As defined in The McKinsey Mind, intuition is essentially gut instinct tempered by experience. It comes into play at several points in the model, including up front (Frame), during the Understand stage, and at the end during the Synthesize stage ("smell tests"). What do you do if you are on a team that is working on a project in an area in which you and your teammates have little or no prior experience and therefore limited intuition? There are several options. One is to parlay experience in a similar or analogous situation in which you have worked. Another is to interview other people who have worked on this type of project and to capitalize on their intuition. A final approach to developing intuition is to create a "basic fact pack" that represents the information the team can gather quickly on the company, industry, environment, competition, and other such areas. The data in the fact pack are not intended to be "pretty" or synthesized—they merely provide some background on the company and some context for its situation that will be helpful in developing hypotheses.
How long should teams spend on the Frame process? I have developed a rule of thumb to answer this question: Approximately 5 percent of an engagement's total time should be spent on framing (assuming that the project time frame is three months or less). So, assuming a three-month project with 360 hours of analysis time, the framing should be finished in about 18 hours or 2 days. In terms of deliverables, this means that the key question has been identified, the issue trees have been drawn out, and the hypotheses have been specified. This ratio can hold true for a 24-hour business school case competition as well, which would mean that the team should complete the framing within 1 to 2 hours. Note again that the process is iterative, and we fully expect adjustments to the initial hypotheses.
My last thoughts on framing are warnings. First, be very careful when communicating hypotheses to clients or others outside the team. I have learned the hard way that if a client believes that you think you can solve a complex business problem in 5 percent of the project time, that client will get nervous. The term hypothesis is not generally understood across the board, and it can be interpreted as your proposed answer. It is better to communicate the ideas as potential areas to explore, about which to get the client's input, and ultimately to test with data. One other warning is to remember that this process takes time and you are not expected to nail the solution so quickly. It is helpful to have a direction for testing, but remember to keep an open mind, to seek dis-confirming evidence, and not to become personally attached to a hypothesis that you proposed!
OPERATING TACTICS
The Operating Tactics for the Frame element of the TEAM FOCUS model are:
Tactic 21: Identify the key question that drives the project, which should be based upon specific discussions with the client.
Tactic 22: Document this question, the scope of the project, and the high-level plan of attack in an engagement letter.
Tactic 23: Specifically identify the temporal (years under study), geographical, and functional areas for the project.
Tactic 24: Avoid the common problem of "scope creep," where additional work is added that is beyond the original parameters of the engagement or is only tangentially relevant to them. Refer back to the base problem, parameters, and engagement letter to mitigate scope creep.
Tactic 25: Develop a general hypothesis that is a potential answer to the problem at hand.
Tactic 26: Develop supporting hypotheses that must be true to support the general hypothesis (for testing).
Tactic 27: Revisit and revise the hypotheses during the project as data are gathered (prove or disprove the hypotheses and if necessary develop new ones).
STORIES FROM THE FIELD
STORY FROM THE FIELD—1
Topic: Framing and prioritizing lead to project efficiency, and a project is finished in less than half of its allotted time. Our first Story from the Field highlights the importance of the Frame element and the potential efficiency gains in terms of cutting down the number of hours necessary to complete a project. Duncan Orr shares
his story from the land down under, based upon his experience with McKinsey in Australia.
Framing is by far the most important step of the engagement process, in my mind—if this is done right from the outset, the rest of the engagement is usually smooth sailing. Framing avoids unnecessary or irrelevant work (i.e., "boiling the ocean") and ensures that the team is focused solely on the core issues. This means that the client's problem is solved efficiently (something that is particularly important to clients paying McKinsey-size fees!). It also provides team members with a sense of direction and purpose; there is nothing more discouraging for team members than not having a clearly articulated description of the issues they are resolving or, worse, realizing halfway into the engagement that they have been focusing on the wrong set of issues!
This step is not an easy one to perfect. In fact, it can be particularly challenging because the clients themselves often aren't fully aware of the core set of issues. However, having regular client, team, and expert input from the outset will help.
This technique was applied most successfully in a strategy engagement I was involved in where McKinsey was engaged at the last minute to craft a strategy for the client in response to corporate takeover activity it was experiencing. The engagement manager did a great job of defining the set of issues (with help from McKinsey industry experts) and prioritizing only the most relevant "branches" for us to work on (in conjunction with the client). This ultimately led to completing what would normally be a ten-week engagement in four weeks (with a lot of late nights!). It also led to a standing ovation from the client at the conclusion of our final presentation.
STORY FROM THE FIELD—2
Topic: Several weeks into a project, the project team helps client management define its real key question. Sisto Merolla, an ex-McKinsey consultant from Italy, describes a common scenario in which a client fails to frame a problem properly, especially in terms of identifying the key question.
In my experience, framing is the most important part of a project. One of my clients was an electric utility that asked McKinsey to evaluate potential acquisition targets. Some weeks into the engagement, after several interviews with the top managers, we discovered that the real question the company was struggling with was, "Is our generation plants portfolio in line with the future evolution of electricity market prices?"
Once we understood this, we were able to engage the CEO in a very fruitful discussion about what seemed the most likely evolution of the electricity market and what actions could be taken. We came to the joint conclusion that the company did not need to acquire other players immediately, and that the first urgent move was to stop the construction of two new plants. These two additional plants would have imbalanced the generation portfolio, tilting it to an excess of gas-fired plants, which was very dangerous and was not aligned with the corporate strategy.
Sometimes the value that McKinsey adds is helping clients' top managers to take a higher view and understand the "real" issue instead of rushing into the first solution that comes to mind.
STORY FROM THE FIELD—3
Topic: A client's discomfort with the key question ultimately dissolves the entire engagement. Our final Story from the Field comes from ex-McKinsey consultant Dr. Florian Pfeffel, who learned how finally getting to the "real" question of an engagement can have a dramatic effect on the ultimate outcome.
Framing is about identifying the key questions of the engagement and ensuring that the approach has the backing of the client's top management. In some cases, the requirement of getting top management buy-in can be a challenging part of the process, especially in public-sector engagements.
I recall an engagement that we conducted that involved a regional cluster development initiative. The mayor of the leading city in this area asked us to support him. Publicly announcing initiatives to support regional businesses is always popular with politicians, and similar activities had had a strong impact in other regions and resulted in a positive media response. However, as in any engagement, acting strategically also implies making unpopular decisions. Politicians often like to focus on the positive results of their initiatives and ignore the negative implications, and this is a problem that we encountered in this engagement.
At the very beginning of the engagement, we recognized that the mayor had started to dilute or postpone required communication activities. Taking a strong stance based upon the implications of the team's finding was not something that the mayor felt comfortable doing. As the purpose of a cluster initiative is to focus on certain relevant industries and, following logically, devote extra attention and subsidies to those industries, there will also be losers who are not part of the focus. The key question of this engagement turned out to be whether the mayor really was willing to lead (i.e., willing to represent, communicate, and act on the probable consequences of the cluster initiative). In this case, he wasn't. We finished the first phase of the engagement and stopped supporting that initiative.
STORY FROM THE FIELD—BUSINESS SCHOOL EXAMPLE
Topic: A lack of information from the client delays the Frame process and decreases project efficiency. Our special Story from the Field comes to us from a student at the Darden School of Business at the University of Virginia. Mike Lewis recalls experiencing a less-than-ideal framing portion of an engagement during his summer internship at BCG. In this case, it was difficult to get the specific framing up front, as the client did not articulate the issues with the needed specificity.
I was working on a case for a major energy company, and the primary objective of the case was to develop a market size for new products that the company was going to introduce. It sounded clear, but the problem was that there was very poor definition of exactly what the products were going to be. Not knowing precisely how the products were going to be designed made it difficult to look into the consumer research aspect (a task assigned to me). For example, it was hard to know how to do estimates of market share when we had only general ideas—we did not know how the company was specifically going to design, introduce, and market the product. The situation was ambiguous because there was a key component that was not well defined. When input is poorly defined, the output cannot possibly be well defined.
The basic research was related to crude oil, so the first step was to get names and numbers of producers of crude oil by country and by company. I exerted a huge amount of effort in accomplishing this task, which was not particularly well targeted. I compiled all this information in a database and segmented those producers by size, by geography, and by ownership (many big companies are actually government owned, specifically in Russia, Saudi Arabia, and China). Thus, we were able to get some large-scale, overall market characteristics, but when it came down to what the product was going to be, we were not moving forward very quickly.
We finally learned that product information four weeks into a three-month project, but if the client had been more focused, we could have cut down our time drastically! It is very helpful to have a hypothesis to drive your analysis so that you are moving in a particular direction—even though there is usually a course correction and a shift in focus at some point. In our case, we weren't moving in a specific direction for quite a while.
CASE STUDY
Welcome back. We found that the analytical aspects of the project are just as important as the interpersonal ones. Oh yeah, one other thing—it is tough to get the framing done the first time.
WHAT WE DID
We struggled to identify the key question in this project, drafting revisions on an almost-weekly basis. While this was well past the 5 percent guideline posited by Dr. Friga (we probably landed a decent structure by 10 percent of the project's time). This was due to two factors: first, application of the MECE framework proved troublesome, and, second, the team was uncertain of what exactly the community's objectives were.
We hoped to come up with five different MECE areas so that each of us could own one category; however, identifying appropriate MECE buckets was
definitely the most challenging and time-consuming aspect of the Frame component. For example, two of our buckets were legal issues and financial issues, which we thought would be relatively independent of each other. However, after we started researching, we realized that they were tied together in many ways. For example, the legal form of incorporation affects financing as well as the negotiating stances of the parties who would be partially responsible for determining the financing. Because of this type of redundancy, we continually revisited our bucket issues and produced many iterations—the categories we ultimately ended up with were very different from those we initially devised.
A lot of our difficulty with bucketing was related to scope creep: the more we thought and researched, the more difficult it became for us to define our parameters. For example, the seemingly straightforward category of "services" ended up requiring a specific definition, complete with a list of what does and what does not fall under its umbrella.
The McKinsey Engagement Page 9