Notes from The McKinsey Way Building the Solution Like all things McKinsey, the firm’s problem

solving process has three major attributes. Their solution will be 1. 2. 3. Fact Based Rigidly Structured Hypothesis driven

Fact Based Problem solving begins with facts. On the first day of an engagement the team combs through stacks of articles and documents to gather enough facts to illuminate their piece of the problem. When you strip away a lot of the high-minded language with which McKinsey dresses up its problem solving process, it comes down to very careful, high quality analysis of the components of the problem combined with an aggressive attitude toward fact gathering. Why are facts so important to the way McKinsey does business? There are two reason. First, facts compensate for lack of gut instinct. Most McKinsey-ites are generalists. They know a little about a lot of things. Therefore they will know less about, say, inventory management practices for perishable foodstuffs than the folks who have been running the distribution operations of Stop and Shop for the last 10 years. Gut instinct might tell those folks the solution to an inventory management problem in 10 seconds. Second, facts bridge the credibility gap. Credentials do not matter as much if the consultant is armed with facts. Many business people fear facts. Perhaps they are afraid that if they look too closely at the facts, they – or someone above them – might not like what they see. Maybe they think that if they don’t look, the nasty facts will go away – but they won’t. Hiding from the facts is a prescription for failure – eventually, the truth will come out. Don’t fear facts, but rather use them.

Rigidly Structured - MECE – Mutually Exclusive, Collectively Exhaustive MECE structures your thinking with maximum clarity (hence minimum confusion) and maximum completeness. When you think you have determined the issues, take a hard look at them. Is each one a separate and distinct issue? If so, then your issue list is mutually exclusive. Does every aspect of the problem come under one (and only one) of these issues – that is, have you thought of everything? If so, they your issues are collectively exhaustive. I you come up wit some interesting ideas that don’t come under the three main items, you can have a category of “other issues”. Of course, do everything you can to get everything under a main issue and three is best.

80/20 The 80/20 rule is one of the great truths of management consulting and. That’s the easy part. For your next step.Solve the problem at the first meeting – the initial hypothesis. The board of directors wanted McKinsey to show them how to improve the profitability of their institutional equity brokerage business – the selling of stocks to large pension funds and mutual funds like Fidelity and T. even to people who have been in their particular business for . If a given recommendation is correct. what issues does it raise? Consider the likely answers to each issue. by extension. Why? Most of us are poor critics of our own thinking. In my first ever McKinsey study. The initial hypothesis (IH) is the third pillar of the McKinsey problem solving process. It has three parts. Then you have to dig deep to prove your hypothesis. what analyses would you need to make to prove or disprove your hypothesis? When you’ve completed your issue tree. you have your problem solving map. The IH emerges from the combination of facts and structure. His produced by teams are much stronger than those produced by individuals. you must start with the facts. A team of three or four bright individuals is an excellent vehicle for that. of business. when I was between years at business school. Rowe Price. I saw the 80/20 rule at work all the time at McKinsey and I’ve always been impressed by its power as a problem-solving rule of thumb. Then make an actionable recommendation regarding each driver. you will come up with ways to improve it. It doesn’t always work (sometimes the bread falls butter-side up). We need others to pick apart our ideas. ***************************************************** 80/20 and Other Rules to Live By 1. Therefore. To structure your IH. You will see it wherever you look: 80 percent of your sales will come from 20 percent of your sales force: 20 percent of a secretary’s job will take up 80 percent of her time: 20 percent of the population controls 80 percent of the wealth. For each issue. as the first step in generating an IH. When generating an initial hypothesis. you must take each top line recommendation and break it down to the level of issues. begin by breaking the problem into its components – the key drivers. but if you keep your eyes peeled for examples of 80/20 in your business.Hypothesis driven . When a client asks the question “How do I boost my Profits?” the first thing McKinsey does is take a step back and ask the question “Where do your profits come from?” The answer to this in not always obvious. I joined a team working with a large New York brokerage house. you don’t have to have all the facts. Then go down another level.

“Ethan. No one will be able to absorb fore that you have here. There’s a lot of data out there relating to your problems. we actually increased total sales from these accounts. our team went through every account of every broker and every trader by customer. Once we started digging. and asked how my work was going. leafed through it. I told him it was going well. like boiling the ocean to get a handful of salt. and by dedicating one senior and one junior broker to each of the three largest customers. 2. Rather than divide up the pie more fairly. Ignore most of them. 80 percent of the trading profit came from 20 percent of the traders These results pointed to some serious problems in the way the client allocated its staff resources. 80/20 is all about data. 80/20 gives us a jump start in solving the client’s problem. Find the opportunities and make the most of them. and then stop. and we focused on those like a laser. but I thought I could pull together a few more charts. figure out the priorities of what you are doing. Call it a day. walked into my office. We spent several weeks analyzing this mountain of data from every conceivable angle. By sharing these big accounts out among more brokers. but they also mean opportunities. McKinsey gathers enough facts to probe or disprove a hypothesis or support or refute an analysis – and only enough facts. Otherwise.” “Don’t boil the ocean” means don’t try to analyze everything.years. This is the flip side of fact-based analysis in a business situation. We discovered that our client’s three top brokers handled the 10 biggest accounts. What are your sales figures by product? What is your margin by product? How does each member of your sales team perform in terms of sales? In terms of profits? What is the success rate of your research teams? What is the geographical distribution for your customers? Sort it in various ways. but when we ran the numbers there are some of the first things we saw: 80 percent of the sales came from 20 percent of the brokers. You will begin to see patterns. My manger. and said. 3. briefcase and coat in hand. They may mean problems (a big problem if 80 percent of your profits come from 20 percent of your product lines). Don’t boil the ocean. Find the Key Drivers . He picked up my draft. not harder. we found that the situation was more complex than simply “80 percent of the staff is lazy or incompetent”. Vik. Thus. you will spend a lot of time and effort for very little return. it’s eleven o’clock. I had this lesson brought home to me late one night while I was drafting a “fact pack” on a client’s competitor. and a lot of analyses you could do. I had gathered a mountain of data and was trying to wring out a few new insights from it. 80 percent of the orders came from 20 percent of the customers. Those patterns will highlight aspects of your business that you probably did not realize. To answer this question for our client. Don’t Boil the Ocean Work smarter. Know when you have done enough. Play with the numbers. we increased the size of the pie. Anything more is a waste of time and effort when both are precious commodities. Be selective. The client will love this. clumps that stand out.

We have a crisis and I have to go meet with our lawyers. In that time. then you understand what you’re doing well enough to sell your solution. rather than picking the whole problem apart piece by piece. if. The CEO strides into the room and says. “Sorry. Engineers learn something called the Square Law of Computation. Imagine it’s time for that big. The senior executives of your Fortune 50 client. making sure that every I has been dotted and every t has been crossed. Then I trained my entire sales force on the elevator test. When analyzing planetary motion. Focus on the most important ones – the key drivers. and Z. Many companies use the elevator test because it’s an excellent way of making sure that their executives’ time gets used efficiently. A Hollywood producer will tell a screen writer to “give me that bullet” on anew script. can you sell him your solution? That’s the elevator test. ‘key drivers’ is a very powerful concept. Jason Klein instituted the elevator test when he took over as president of Field & Stream: “My sales force could not explain the magazine to customers. layer by layer. I challenged them to explain the magazine to me in . there may be 100 different factors affecting the sales of our widgets – weather. raw material prices – but the three most important ones are X. It states t hat for every component of a system – for every additional equation in a problem – the amount of computation required to solve the system increases at least as fast as the square of the number of equations. you can apply thorough. I think these are the key drivers of this issue. if the complexity of your problem doubles. It saves you time. Our advertisement space was shrinking. the writer will get a chance to talk further. In other words. Y. We’ll ignore the rest.” as in “Vik. Then. 4.Many factors affect your business. It keeps you from boiling the ocean. consumer confidence. after 30 seconds. anxious to hear McKinsey’s world of wisdom. are taking their places around the boardroom table on the top floor of the corporate skyscraper. putting together your report. You’re all wearing your best suits and trying to look on the ball. The Elevator Test Know your solution (or your product of business) so thoroughly that you can explain it clearly and precisely to your client (or customer or investor) in 30 seconds.” In other words. end of engagement presentation. For example. Focusing on the key drivers means drilling down to the core of the problem. I can’t stay. Syntactical foibles aside. someone will use the inelegant phrase “key drivers. Procter & Gamble tells its managers to write one page memos. fact based analysis where it will do the most good and avoid going down blind alleys. and maybe make a sale. astronomers start by ignoring most of these objects.” Then he turns to you and says< “Why don’t you ride down in the elevator with me and tell me what you’ve found out?” The ride will take about 30 seconds. the producers likes what he’s heard. the time it takes to solve it quadruples – unless you make some simplifications.m. In any McKinsey team meeting where problem solving is on the agenda. If you can do that. our solar system contains millions of objects. It saves you effort. all having gravitational effects on one another. folks. You and your team have been up until 2 A.

stick to the three most important – the ones with the biggest payoffs. by resisting the temptation to hoard our information until some big end of study presentation. trading. After the meeting. They hit this group of very experienced Wall Street executives like a hammer. First. and ourselves happier. our jobs easier. you can talk about that when you have more time. opportunities arise to get an easy win. it convinced those executives who had not been particularly keen on McKinsey’s presence in the first place that they had a problem and we could help solve it. At my stockbroker client. By plucking the low hanging fruit. we wanted to communicate our findings to the senior managers of the institutional equities department. I got to present our findings. their opinion of me rose quite sharply and my job became a lot easier. Seize those opportunities! They create little victories for you and your team. We can talk about the details later.” How do you encapsulate six months’ work in 20 seconds? Start with the issues that you team addressed. “We think you can boost sales of widgets by 50 percent in three years if you reorganize your sales forced by buyer category. I was some smart—ass MBA poking around their business. The client wants to know the recommendations for each issue and the payoff. buyer interviews. by buyer type. your analysis shows that a manufacturing client can’t sell enough widgets because its sales force is organized by territory when it should be organized by buyer category. Since I had taken the lead in the actual analysis of the data. and our ad base has grown every year. We set up a meeting with the department head and the heads of all the business units in the division: sales. because I had presented the findings. Don’t worry about the supporting data. just tell the CEO. Good luck with the lawyers” 5. Clients can get very impatient for a result during the six months that a big McKinsey engagement can last. If you have a lot of recommendations. field visits to retail and wholesale outlets. after we had derived a number of insights (thanks to 80/20) from our analysis of sales and trading data.30 seconds. and so on. even before the overall problem has been solved. and so forth. They boost morale and give you added credibility by showing anybody who may be watching that you’re on the ball and mean business. Giving the client something practical before the end helps reduce the pressure on the team. . I was someone who was working for them to solve their problems. For example. research. The client had no idea just how inefficient its operation was. we made our client more enthusiastic. Before the meeting. You have lots of data illustrating this: analyses of salespeople. When possible. When you’re on that elevator ride. Pick the Low Hanging Fruit Sometimes in the middle of the problem solving process. to make immediate improvements. It became a valuable tool for them. McKinsey consultants put this doctrine into practice. Second. The presentation had two important effects.

or it could be a client for your services. the New York office held a retreat at a resort upstate. Make a Chart Every Da During the problem solving process. Just don’t let anybody think you’ve given up on a complete solution. Get your job done – don’t try to do the work of the whole team. you won’t forget it.. a factory tour at 11. One day we associates had to interrupt our strenuous regimen of golf. and then a quick trip down to Wharton to participate in a recruiting seminar. You might follow this with more client interviews.This rule is really about satisfying your customer in a long-term relationship. and a McKinsey alumnus himself. it pays to keep him happy and let him know that he is your top priority. It is. important points could get lost. In the midst of all this. paintball. this little tip can be taken too far. just write them down as bullet points. His main message was “Don’t try to knock the ball out of the park. so don’t try. Hit Singles You can’t do everything. a client of the Firm. Put your results someplace where they wont get lost – don’t just toss them into your in-tray. Hit singles. and wine tasting to hear a lecture. “What are the three most important thins I learned today?” Put them down in a chart or tow – nothing fancy. Shortly after I joined McKinsey. Even if you take good notes at your interviews and have the minutes of your team meetings. Neatness doesn’t count. you could start with a quick brainstorming session at 9 a. Your can avoid this by sitting down for half an hour at the end of the day and asking yourself. If you are on. Making a chart every day may strike you as somewhat anal-retentive. while working out of the New York office. a software design project with a three month lead time and you’ve put together a usable program that solves part of the problem in two weeks. Later. Just do what you’re supposed to do and get it right. Your customer could be the purchaser of your products. 6. when you are trying to craft facts into solutions. If the facts don’t lend themselves to charting (although McKinsey-ites try to put everything in charts). It’s much better to get to first base consistently than to try to hit a home run – and strike out 9 times out of 10.m. Then again. In the course of a typical day at McKinsey. It will help you push your thinking. One EM from Germany. You may use it. you learn something new every day. show it to your boss. that is not so bad. move on to a client interview at 10. Of course. Whoever it is. Don’t wait! Solving only part of a problem can still mean increased profits. it is very east for the facts to blend into one another like pools of different colored inks on a sheet of blotting paper. 7. Put it down on paper. or it could be your boss. you can come back to your charts and notes and think about what they mean and were they fin in terms of your solution. would write a whole presentation every night. say.” . when you are in analysis mode. The speaker was the CEO of a major electronics company. and then a sandwich lunch with your director. but once you have crystallized it on the page. an end of day team meeting. Those little wins help you and your customers. or you may not.

figure out what I’m trying to achieve. several years can go by before investors trust it enough to pile back in. even by as little as a cent. After that. you’re much better off hitting singles. “I Don’t Know” The Firm pounds the concept of professional integrity into its associates from their first day on the job. To gear down upon joining would strike most of them as strange. Honesty includes recognizing when you haven’t got a clue. Remember. its momentum reverses. In the business world. you can easily lose sight of your goal amid the million and one demands on your time. as long as he keeps hitting those home runs. ‘Does this really matter?’” 9. It’s like you are hip deep n a bog. following a muddy channel that you can’t see. take a metaphorical step back and figure out what it is you’re trying to achieve. A high flying company that posts 20 percent profit increases every year sees its stock price soar. Once you fail to meet expectations. etc. One important aspect of professional integrity is honesty – with your clients. It’s OK for Mark McGwire to strike out a lot. you raise unrealistic expectations from those around you. McKinsey associates have spent their whole lives “knocking it out of the part. Just Say. 8. the baseball with the greatest number of homeruns also have the greatest number of strikeouts.His speech took me by surprise. When it misses one quarter. and then look at whatever I’m doing and ask myself. even when the company gets back on the growth track. Wall Street drops the stock like a hot potato and its share price plummets. though. The same thing happens in the stock market. and yourself. and rightly so. etc. Look at the Big Picture Every now and then. Do this by looking at the “big picture”: the set of issues that make up your operating hypothesis. There are three reasons he was right: It’s impossible to de everything yourself all the time. Ask yourself some basic questions: How does what you’re doing solve the problem? How does it advance your thinking? Is it the most important thing you could be doing right now? If it’s not helping.” They all have first class academic backgrounds combined with records of achievement in other fields. When you’re feeling overwhelmed by it all. If you manage it once. Analysis B follows analysis A and seems in turn to be followed seamless by analysis C – etc. One former McKinsey manager noted “Perhaps the most valuable thing I learned during my time at the Firm was to think about the big picture – to take a step back. They had to impress a group of sharp-eyed and skeptical McKinsey consultants just o make it past the first job interview at the Firm. It took several years of gaining perspective before I understood the wisdom of the CEO’s words. if not distasteful. How does what you’re doing fit into the big picture. take a mental step back from whatever you’re doing. Admitting that is a lot less costly than bluffing. Leadership . it is very difficult to regain credibility. why are you doing it? When you are trying to solve a difficult problem for your client or company. your team members.

2.g. then why should a firm like McKinsey believe you would do so in the management-consulting world? Also. Your time at UMBS represents an amazing opportunity to practice and prove your teamwork and leadership skills. improve. not coursework that often differentiates their candidacy. but rather it is about inspiring others to drive significant change and make a real difference in an organization. consider the riskier road of leading a team that needs help rather than focusing too much on grades. school consulting projects (e. lead a diverse or cross-functional team over which you have no direct authority. therefore make the best use of these opportunities. Drive projects to completion despite obstacles thereby achieving results. Leadership examples can come from work experience. Students can distinguish themselves in the following ways:: 1.. Author’s notes: It is a student’s experience. Believe it or not recruiters can sometimes worry that students do not take enough advantage of such leadership opportunities. If you have not displayed leadership skills in such an opportunity-rich environment. Michigan students sometimes overlook the value in establishing strong examples of business school leadership skills. In a quest to keep up with grades. What did you change. Leadership is not about accumulating titles. 3. drive & aspiration. MAP) and extra-curricular activities. Leadership is not driven by title. or revolutionize? Put in the effort and commitment that your position of responsibility . but by impact in your position of responsibility. your leadership experiences at Michigan will help provide good examples of how you meet McKinsey’s two other areas of distinction: personal impact. Lead an effort you are passionate about and persuade others to implement changes that have significant impact. Take on challenging assignments that require entrepreneurial leadership and innovative approaches to problem-solving. Become involved in activities that you really enjoy because you are more likely to be inspired to make a real difference. Make a sustainable difference in an organization or the community.McKinsey looks for candidates who have led teams in overcoming challenges and generating sustainable impact. While at Michigan. For instance.

and implement successfully. . Craft a strategy. energize your team.demands.

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