The McKinsey Mind

Understanding and Implementing the Problem-Solving

Tools and Management Techniques of the World's Top
Strategic Consulting Firm

Recommendation
Throughout the 1990s, consultants were the kings of business and one firm, McKinsey &
Co., reigned above all others. In The McKinsey Mind, Ethan M. Raisel and Paul N. Friga,
former McKinsey & Co. consultants, describe the methods that the famed firm uses in
improving the performance of its consultants. These techniques, which relate to
problem solving, management and communications, combine to produce the equivalent
of a basic MBA textbook. But unlike much of your grad-school reading, this one is right
on target to address your real-life business executive. As such, getAbstract recommends
this book not just for its McKinsey cachet, but for its applicable approaches to business.

Take-Aways
 McKinsey & Co. relies on a fact-based method of problem solving and management.
 McKinsey’s model for problem solving includes identification of a business need, problem
analysis and presentation of a solution.
 The critical first step is framing the business problem so it can be subjected to rigorous, fact-
based analysis.
 The mutually exclusive, collectively exhaustive (MECE) approach separates problems into
distinct, non-overlapping issues.
 After distilling the essential parts of the problem, form a hypothesis for the solution.
 Determine what types of analysis you need to prove or disprove your hypothesis.
 In your analysis, look for outliers in the annual report and consider best practices.
 The 80/20 rule says that 80% of the effect you are studying results from 20% of the examples
you analyze.
 If the facts don’t confirm your hypothesis, don’t change the facts, change your hypothesis.
 When presenting your solutions, keep it clear, organized and simple.

Summary
Making Decisions the McKinsey Way

McKinsey & Co., founded in 1923, has become one of the world’s most successful
strategic consulting firms.

It has 84 offices around the world and employs 7,000 professionals from 89 countries.
It has consulted with over 1,000 clients, including 100 of the 150 largest companies in
the world, and many state and federal agencies in the United States.

Many of is former consultants have become well known, including Tom Peters, author of
In Search of Excellence, and less happily today, Jeffrey Skilling, former CEO of Enron.

McKinsey & Co. relies on a well-defined, fact-based method of problem solving and
management. All new consultants go through a rigorous training program to learn the
firm’s techniques. When a McKinsey team enters into an assignment, known internally
as an engagement, it looks for the key drivers affecting the problem.

“The ability to frame business problems to make them susceptible to rigorous fact-based
analysis is one of the core skills of a McKinsey consultant.”
The process is based on a six-step model, which includes these elements, which you can
apply in your own company:

1. Identifying the Need. Isolate the core problem facing the client. Generally, business
problems are based on competitive, organizational, financial or operational needs.
2. Analyzing. Once an organization has identified a need, the problem-solving process used
is fact-based and hypothesis-driven. It begins with framing the problem in a way that
defines its boundaries, breaks it down into its component elements, and suggests an
initial hypothesis for a solution. The next step is designing the analysis, whereby the
team determines what analysis is needed to prove the hypothesis. In step three, the team
gathers the data. With the data in place, the team is ready to determine if the
information at hand proves or disproves the hypothesis, after which the team develops a
course of action for the client.
3. Presenting. The team communicates the solution to the client and gains the client’s
acceptance. The presentation must be clear and concise in order to generate buy-in for
the solution.
4. Managing. Assembling a problem-solving team and keeping them motivat, is the key to
success. Individual team members must be able to balance their lives and careers so they
can meet the client’s expectations without burning out. This is critical if the team is to
keep the client informed, involved and inspired.
5. Implementation. Once a solution has been identified, the team must dedicate sufficient
resources to the organization, and the organization must respond in a timely way to any
obstacles to implementation. All tasks related to implementation must be completed in a
timely manner, and the organization must develop an iteration process that leads to
continual improvement. To this end, the team must reassess the effectiveness of its
implementation and make additional changes as necessary.
6. Leadership. This model requires strong leadership from the head the organization. This
leader must express a strategic vision and inspire those in the organization who will
implement the solution. He or she also must make the right choices on how to delegate
authority to make the implementation happen.
 “Forget about absolute precision. Business, for the most part, is not an exact discipline like
physics or math.”
When you apply this model, you’ll often find a tension between your intuition and the
data. Generally, it’s impossible to have all of the relevant facts before you reach a
decision, so like most executives, you need to make your business decisions based
partially on facts and intuition. A good decision requires being able to balance both.

Framing the Problem

The first step in the McKinsey process is framing any business problem so that it can be
subjected to a rigorous, fact-based analysis. To do so, use a structured framework that
will generate fact-based hypotheses. Once you’ve arrived at your hypothesis, gather data
and analyze the results to prove or disprove it. Your hypothesis will speed your research,
since it provides you with a road map to guide your analysis and presentation of the
solution.

In framing the problem, used a structured method that identifies its boundaries and
breaks it down into its components. MECE - mutually exclusive, collectively exhaustive -
will help you separate your problem into distinct, non-overlapping issues, and will
prevent you from overlooking any issues relevant to your problem.

“The most common tool McKinsey-ites use to break problems apart is the logic tree, a
hierarchical listing of all the components of a problem, starting at the ’20,000-foot view’ and
moving progressively downward.”
When attempting to break down a problem, McKinsey often uses logic trees, which
create a hierarchical listing of all of the problem’s components. When forming a logic
tree, start with a broad, 20,000-foot view, and move downward to get closer to the
problem. You might start with an overview of a company’s products, move down to
revenues and expenses broadly, narrow that perspective to particular sources of
revenue, such as sales, leasing, and service, and then look more closely at one of these
areas, such as dividing sales into the separate regions of sales activity.

“Let your hypothesis determine your analysis.”

Once you have determined the essential components of a problem by using the
appropriate frameworks, you can form a hypothesis or series of hypotheses about a
likely solution.

Since you don’t have many facts at this point, use your instinct or intuition to help you
generate these hypotheses. Just take what you already know about the problem,
combine that with your gut feelings, and imagine what the most likely answers will be.
These answers may not be correct, but they are a great place to start.
Designing the Analysis

To start the analysis, find the key drivers by drilling down to the core of the problem,
instead of looking at everything separately. Look at how solving this problem fits into
the big picture and don’t waste time trying to analyze every aspect of a problem.
Determine what analyses you need to prove or disprove your hypothesis. In some cases,
you may not be able to come up with a hypothesis initially because the problem seems
too confusing. In that case, use your analysis of the facts to guide you to a solution.

Generally, though, your hypothesis will determine how you conduct your analysis. Get
your analytical priorities straight by deciding what not to do, so you can concentrate on
the most important facts to analyze. For instance, decide which analyses are quick wins,
since they are easy to complete and can make a major contribution to proving or
disproving a hypothesis. Don’t worry about absolute precision - you can’t be perfect at
this stage. Triangulate around the toughest problems by analyzing other issues that will
determine the limits of these sticky issues.

Gathering the Data

Now is the time to look for the facts. Don’t let people you interview tell you, "I have no
idea," which is an answer that communicates a lack of time, insecurity or just plain
laziness. Instead, probe with a few sharp questions.

“The 80/20 rule is one of the great truths in business. It is a rule of thumb that says that 80%
of an effect under study will be generated by 20% of the examples analyzed.”
McKinsey-ites use three high-impact techniques in data collection. They start with the
annual report. Next, they use computers to identify outliers, the key subjects for later
investigation. Generally, these outliers are uncovered by comparing ratios or key
measures like high and low performers. Finally, they seek relevant best practices to
glean insights from a competitor or top-performing organization.

“Having reduced the problem to its essential components through the use of appropriate
frameworks, you are ready to embark on the next step in the process of framing it: forming a
hypothesis as to its likely solution.”
Before you interview anyone for information, prepare a written interview guide. Once
the interview commences, use active listening and guide the interviewee to stay on track.
Some other tips for successful interviewing are to interview in pairs, use the indirect
approach in asking questions, and don’t ask for too much. Avoid sensitive subjects at the
beginning of the interview and recognize where the interviewee may have a conflicting
agenda like a job that is threatened by cost-cutting measures.
Interpreting the Results

Once you have your data, you must understand what it says and decide what steps you
should take based on your results. Assemble these findings into an externally directed
end product that provides a course of direction for your organization or client to follow.

A chart that identifies the three most important things you learn each day will help to
focus and direct your thinking. Be receptive to facts that prove you wrong. If the facts
don’t fit your hypothesis, be ready to change it. Don’t try to change the facts to fit what
you think is the likely solution.

“When it comes time to prove your initial hypothesis, efficient analysis design will help you hit
the ground running. You and your team will know what you have to do, where to get the
information to do it, and when to get it done.”
Remember the 80/20 Rule: 80% of the effect you are studying will result from 20
percent of the examples you analyze. This rule was originally propounded by the
economist Vilfredo Pareto, who found that a small fraction of the elements in any study
usually account for a large fraction of the effect.

“Interviewing is part of every McKinsey engagement, as it not only generates primary data
but can also identify great sources of secondary data.”
In creating the end product, tailor your solutions to fit the needs of your client. Look at
the results through the client’s eyes and ask how your recommended solution will add
value. Respect the limits of your client’s abilities to ensure that your solutions are
realistically actionable based on the client’s current skills, systems, structures, staff and
budget.

Presenting Your Ideas

You must present your solutions in a way that your client understands and can accept.
To do so, make your presentation clear and convincing. Use a structure that your
audience can easily understand and follow.

McKinsey recommends keeping it organized and simple. Use a structured series of steps
that present your idea clearly. Use the elevator test, which means you should be able to
explain your solution clearly and precisely during a 30-second elevator ride.

Keep any charts simple - communicate a maximum of one message per chart. Think of
your charts as the basis for getting your message across, not an art project.

“Send the interview guide (or a version of it) to the interviewee well ahead of the interview.
Post-interview follow-up also adds to the interview process. It gives you a chance to confirm
what you heard and to ensure you understood what was said.”
This presentation, however, is only a tool, not an end in itself. Think of your
presentation as selling your solution. The greatest presentation is worth nothing if the
organization rejects your recommendations or fails to implement them.

Your only goal in making a presentation should be getting a buy-in to your

recommendations. To this end, pre-wire everything by walking the relevant decision
makers through your findings in advance, so there are no surprises.

Managing Your Team, Your Client, and Yourself

Management of the problem-solving process entails managing your team members,

managing the client and managing yourself.

“When interpreting your analyses, you have two parallel goals: you want to be quick and you
want to be right.”
Successful team management starts with good team members with the right mix of
skills. Establish good communication, which is critical to effective team functioning.
Keep the information flowing by making your messages and meetings brief and focused.

In managing your client, the three areas to consider are obtaining, maintaining and
retaining your clients. Use an indirect approach based on building relationships to get
new clients, and only promise what you can really accomplish. To maintain clients, keep
them involved in the process and get their buy-in. To retain them, meet and exceed
client expectations.

Finally, for successful self-management, delegate around your limitations, make the
most of your network and respect your own time limitations to avoid burn out.

About the Authors

Ethan M. Rasiel was a consultant in McKinsey & Co.’s New York office. Among his clients
were major companies in finance, telecommunications, computing and consumer
goods. Paul N. Friga worked for McKinsey in the Pittsburgh office. His projects related to
international expansion, acquisition and strategic planning, education, water, and other
industries. He is Acting Director at the North Carolina Knowledge Management Center at the
University of North Carolina.