Book of the Week: The McKinsey Mind

The_McKinsey_Mind“The McKinsey Mind” Understanding and Implementing the Problem-Solving Tools and Management Techniques of the World’s Top Strategic Consulting Firm, by Ethan M. Rasiel and Paul N. Friga, 2001 McGraw-Hill. 218 pages

Take-Aways

  • McKinsey & Co. relies on a fact-based method of problem solving and management
  • McKinsey’s model for problem solving includes identifi cation of a business need, problem analysis and presentation of a solution
  • The critical fi rst 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 components 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, start with the annual report, look for outliers 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 confi rm your hypothesis, don’t change the facts, change your hypothesis
  • When presenting your solutions, keep it clear, organized and simple

Relevance – What You Will Learn

  1. The problem-solving and management techniques employed by the consultants at McKinsey & Co.
  2. Tips for improving communications and presentation skills
  3. How to adopt these methods to improve performance within your own organization

Recommendation
Throughout the 1990s, consultants were the kings of business and one fi rm, 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 fi rm 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 executive concerns. As such, getAbstract.com recommends this book not just for its McKinsey cachet, but for its applicable approaches to business.

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 process is based on a six-step model, which includes these elements, which you can apply in your own company:

  • Identifying the Need. Isolate the core problem facing the client. Generally, business problems are based on competitive, organizational, financial or operational needs.
  • 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.
  • 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.
  • Managing. Assembling a problem-solving team and keeping them motivated 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.
  • Implementation. Once a solution has been identifi ed, 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.
  • 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. When you apply this model, you’ll often fi nd 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. 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. 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. 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. 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 fi ndings 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. 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. 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. To do so, 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. 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. 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 fl owing 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 Author
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.

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