7's mc kinsey

1. Problem-solving and
decision-making
This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organisation without prior written approval from McKinsey & Company.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
July, 2011
The McKinsey Seven-S Model

2. McKinsey & Company |
The McKinsey Seven-S Model
Strategy
“Structure
follows
strategy”
Structure
Staff
Systems
Shared
Values
Style
Skills
“Get the right people
on the bus.”

3. McKinsey & Company | 1-2
Ethnocentrism Polycentrism
Geocentrism
Definition Based on ethnicity
Based on political
orientation
Based on
geography
Strategic
Orientation/Focu
s
Home Country
Oriented
Host Country
Oriented
Global Oriented
Function Finance Marketing R&D
Product Industrial products Consumer goods -
Geography
Developing
countries
- US and Europe

4. McKinsey & Company | 1-3
The McKinsey 7 S framework or model for strategic
fit was developed over thirty years ago by strategy
consultants McKinsey and in particular Tom Peters
and Robert Waterman, co-authors of the classic book
“In Search of Excellence” to help implement
strategies.
What Is The McKinsey 7 S Framework?
It was originally thought that to implement strategy
you needed to align strategy with structure (and vice-
versa).
This wasn’t enough and McKinsey developed the 7-S
model to show that a softer set of issues also needed
to be considered when implementing strategy.

5. McKinsey & Company | 1-4
The 7 S’s are:
•Strategy – how the business intends to create a competitive advantage
and achieve its overall goals.
•Structure – the hierarchy of responsibility and accountability within the
organisation and how the business is organised functionally,
geographically or by product-market.
•Systems – the way activities and processes get the work of the business
done effectively and efficiently.
•Style – the culture of the business and the way the leaders behave
towards customers, employees and other stakeholders. What’s said is
much less important than what’s done.
•Staff – the personnel within the business and their individual skills,
abilities and attitudes. Different people are right for different
organisations.
•Skills – specialist skills that the business has access to through the
combination of systems and staff – think core competences or distinctive
capabilities.
•Shared values or subordinate goals depending on which version you
read – the core values and beliefs of the business.

6. McKinsey & Company |
transnational company
A commercial enterprise that operates substantial facilities, does business in more
than one country and does not consider any particular country its national home.
One of the significant advantages of a transnational company is that they
are able to maintain a greater degree of responsiveness to the local markets where
they maintain facilities.

7. McKinsey & Company |
A transnational corporation (TNC) differs from a traditional MNC in that it does not identify itself
with one national home. While traditional MNCs are national companies with foreign
subsidiaries,[9] TNCs spread out their operations in many countries sustaining high levels of
local responsiveness.[10] An example of a TNC is Nestlé who employ senior executives from
many countries and try to make decisions from a global perspective rather than from one
centralized headquarters.[11] Another example of a Transnational Corporation is the Royal
Dutch Shell corporation whose headquarters may be in The Hague, Netherlands but its
registered office and main executive body where the decisions are made is headquartered
in London, United Kingdom.

8. McKinsey & Company | 7
Importance of good problem-solving and decision-making
▪ Get to answers faster
▪ Use time and resources more efficiently
▪ Have greater impact on the business
▪ Free up time to do other things

9. McKinsey & Company | 8
Objectives and approach for session
Objectives
▪ Introduce an
approach/tools you
can add to your
toolkit of skills and
use for many types
of problem solving
Approach
▪ Learn key
elements of
approach through
plenary lecture
and discussion

10. McKinsey & Company | 9
McKinsey’s problem solving approach
C R E A T I V E T H I N K I N G
Logical
problem solving
Impact-
driven
Focused Fact-
based
IMPACT

11. McKinsey & Company | 10
Synthesis Analysis
The problem-solving cycle
Problem
definition
Problem
structuring
Prioritisation
Issue
analysis
and work
plan
Problem
?
Recom-
mend-
ations
© McKinsey & Company
Think next iteration:
what are the team’s
next priorities?
Focus for today

12. McKinsey & Company | 11
Step 1: Define the problem
Recom-
menda-
tions
Synthesis
Problem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
? !Problem Impact
Think IMPACT:
What is the question you
are trying to answer?

13. McKinsey & Company | 12
What is a good problem definition?
▪ What are characteristics of a good problem
definition?
▪ What are “must-have” elements to
– Ensure we get to the best answer?
– Ensure our answer is practical and
implementable?
▪ What are the common pitfalls?
A ‘problem definition’ is a way to frame a problem so that
we are clear up front on what we are trying to solve, and
what success will look like

14. McKinsey & Company | 13
Problem statements help sharpen your thinking about the problem
What are we trying to achieve?
Focuses the work and ensures that findings can be acted on. The more specific the statement the
better, provided that it is not so narrow that the “wrong” problem is addressed.
Background and context
Potential challenges
Comments on the “situation” and “complication”
facing the key decision-maker (e.g., industry
trends, relative position in the industry).
Indicates what will not be included in the project
(e.g., international markets, R&D activities). Also
defines the limits to the set of solutions that can be
considered, including degree of accuracy of
analysis (i.e, 80/20 rule vs. 90/10).
1
4
What is success?
Stakeholders
Refers to the basis on which the key decision-
maker will decide whether to act on the
recommendations (e.g.,financial returns, effect on
staff, market share growth).
Identifies primary decision makers (e.g., CEO,
Division Manager) as well as internal and external
parties who can affect implementation (e.g.,
shareholders)
2
3
Where will we find information and help?
Describes implementation challenges (e.g., labour relations, communication practices, risk aversion)
that must be addressed to change beliefs and behaviors
5

15. McKinsey & Company | 14
One idea of what a good problem definition looks like…
What are we trying to achieve?
The basic question we are trying to solve. It should be SMART: specific, measurable,
action-oriented, relevant and time-bound.
Background and context
Potential challenges
What is the current situation?
What has happened so far?
Why is this problem is being addressed
now?
What are the potential issues or problems
that we can forsee and plan to mitigate?
1
4
What is success?
Stakeholders
What does a good final product look like?
What are we trying to deliver?
Who are the decision makers?
Who needs to be involved?
2
3
Where will we find information and help?
Where does expertise and knowledge, exist (Internal and external)? e.g., work that has
already been done, internal experts who we should draw on, published reports and papers
5

16. McKinsey & Company | 15
Problem statement
Characteristics of good problem statement
• Specific
• Measurable
• Action-oriented
• Relevant (to the key problem)
• Time-bound

17. McKinsey & Company | 16
Example problem statement: Oilco refinery
The Oilco refinery is suffering from
poor profitability despite a strong
market niche position
Should the Oilco refinery improve
its deteriorating position?
Can the Oilco refinery be
managed differently to increase
profitability?
Too general
Not disputable
Statement of fact

18. McKinsey & Company | 17
Good problem solving: Oilco refinery
What opportunities exist for Oilco to improve
profitability by $40 million per year through
overhead rationalisation, operational
improvements, or restructuring non-core
assets?
Specific,
action-oriented
• Specific
• Measurable
• Action-oriented
• Relevant (to the key
problem)
• Time-bound

19. McKinsey & Company | 18
Step 2: Structure the problem
Recom-
menda-
tions
SynthesisProblem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
? !Problem Impact
Think DISAGGREGATION and
HYPOTHESIS:
What could the key elements of
the problem be?

20. McKinsey & Company | 19
Problem solving requires we answer a number of difficult questions
What issues
should we
think about?
…?
How will we
build our
smart cities?
What steps
will we need
to take?

21. McKinsey & Company | 20
What is an issue tree and why is it important?
A problem solving tool that breaks a problem into discrete chunks
Why use logic trees?
▪ To break a problem into
component parts
▪ To ensure integrity of the
problem solving is maintained
▪ To build a common under-
standing within the team of
the problem solving
framework
▪ To help focus team efforts
Problem
Issue 4
Issue 1
Sub-issue
Sub-issue
Issue 2
Sub-issue
Sub-issue
Issue 3
Sub-issue
Sub-issue
Issue 5
Sub-issue
Sub-issue

22. McKinsey & Company | 21
The issue tree is a valuable tool to disaggregate a problem into core sub-
questions that need to be addressed to answer the main question
Description Why use it? When to use it?
▪ Early in the
problem solving
process, when
you know little
about the
problem
▪ Decomposes an
issue into smaller
sub-issues (e.g.,
measures, criteria)
▪ Sub-issues answer
the question
“What?” or “How?”
▪ Helps
disaggregate
problem into
individual pieces
▪ Helps divide the
work among
team members
Issue
tree
Text

23. McKinsey & Company | 22
Basic principle of the issue tree
Goal:
Break a problem
into component
parts and show
concrete solutionsQuestion
Formulation of
the basic
question to be
resolved should
be as specific as
possible
Idea 1
Idea 2
Idea 3
Idea 1.1
Idea 1.2
Idea 2.1
Idea 2.2
Idea 3.1
Idea 3.2
How / What?
Level of detail
Complete but non-
overlapping list of
conceivable solutions
Further levels of detail for ideas,
also complete and non-
overlapping
How / What?

24. McKinsey & Company | 23
Question
Together, statements
answer the question or
fully describe the idea
on the level immediately
above
ME
CE
Collectively
Exhaustive
Mutually
Exclusive
Idea 1
Idea 2
Idea 3
Mutually Exclusive Collectively Exhaustive
Content of
Statements
does not
overlap
Benefit for impact
Efficient
Time and
effort to
structure
problem
Trying to be perfect
100%
80%
100%20%
80/20 rule
Good issue trees meet MECE and 80/20 rule requirements

25. McKinsey & Company | 24
Let’s try out an example
Create an issue tree to address the
following:
How can you reduce monthly shopping
expenses?

26. McKinsey & Company | 25
Example Issue tree solution
How could you
reduce your
expenditure
each month?
Buy fewer items
Food
Clothing
Travel
Entertainment
Share costs of items (e.g., split
rent with roommate, car pool)
Pay less for
same quantity of
items
Buy lower-quality items
Buy items at discount/on sale

27. McKinsey & Company | 26
Good logic trees help prioritise issues and allocate responsibilities to
team members
Recom-
menda-
tions
SynthesisProblem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
? !Problem Impact
Think SPEED:
Which part of the tree seems most
important to the problem?

28. McKinsey & Company | 27
Purpose of prioritisation
Bundle of possible actions developed
But:
▪ Limited resources
▪ Time constraints
▪ Prioritisation
required

29. McKinsey & Company | 28
How to prioritise
Use judgement/intuition
Do back-of-the-
envelope calculations
Involve your team
Take risks
20
80
80
20
Time and
effort
Focusing
on impact
Polishing
Benefit for
problem
solving
Be practical!

30. McKinsey & Company | 29
Methods for prioritising
Key ideas
• Take a reasonably quick, informal
approach to get started
• Remember that sometimes a ”back
of an envelope” calculation is all
that’s needed
• If new information emerges, you can
always reprioritise and switch your
efforts to another part of the tree
• Use likely impact to decide where to
go first
• Use readily available data whenever
possible; avoid major data requests
• Do not create massive spreadsheets
or other computer models if you can
move forward with less complete
information
Example methods
• Percentage of total “X”
• Estimated potential
increase/decrease (sensitivity
analysis)
• Simple ratios
• Quick industry benchmarks
• Qualitative input from interviews
• Ease of implementation
• Timing
• “Quick wins”
• Available resources
• High/low risk

31. McKinsey & Company | 30
Step 4: Issue analysis and work plan
Recom-
menda-
tions
SynthesisProblem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
? !Problem Impact
Think EFFICIENCY:
How and on what should
the team spend its time?

32. McKinsey & Company | 31
Step 5: Analysis
Recom-
menda-
tions
SynthesisProblem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
Think EVIDENCE:
What am I trying to
prove/disprove?
Problem Impact
? !

33. McKinsey & Company | 32
Step 6: Synthesise findings
Recom-
menda-
tions
SynthesisProblem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
Think SO WHAT:
What are the implications
of our findings?
Problem Impact
? !

34. McKinsey & Company | 33
Summary versus synthesis: what’s the difference?
FACTS
▪ I have misplaced my keys
▪ My passport isn't where
I thought it was
▪ I'm 2 months behind
on my tax return
SUMMARY
?
SYNTHESIS
?

35. McKinsey & Company | 34
SYNTHESIS
Summary versus synthesis: extracting a higher level of meaning
SUMMARY
I’ve lost my keys
and passport and
I'm behind on my
tax return
FACTS
▪ I have misplaced my keys
▪ My passport isn't where
I thought it was
▪ I'm 2 months behind
on my tax return
SYNTHESIS
I’ve been sloppy

36. McKinsey & Company | 35
Synthesis helps develop a powerful and effective main message
What is the one thing I
want my audience to
think or do as a result of
this communication?
Main message must be:
▪Targeted
▪Overarching
▪Powerful
▪Supportable

37. McKinsey & Company | 36
Step 7: Develop recommendations
Recom-
menda-
tions
SynthesisProblem
definition
Struc-
turing
Priori-
tising
Issue
analysis
Analysis
C O M M U N I C A T I O N
Think POTENTIAL
SOLUTION:
What should be
done?
Problem Impact
? !

38. McKinsey & Company | 37
Last chance for any questions…

39. McKinsey & Company | 3838
Thank you – Enjoy the rest of your day