ARE 112 – Winter 2017 Consulting – Some On-the-Job Advice from McKinsey February 22nd

The McKinsey Way - Using the Techniques of the World's Top Strategic Consultants to Help You and Your Business Ethan M. Rasiel - McGraw-Hill, 1999 A worldwide consulting company has honed its problem-solving techniques, from how to conduct interviews to how to be sure you are posing the right problem. Now you can apply these methods to your business. Ethan M. Raisel describes the problem-solving process used by McKinsey & Company, a well-known corporate consulting firm. The book offers easily digested tips. The insightful section on conducting interviews and the tips on building teamwork are particularly useful. However, because the author and other McKinsey consultants are prohibited by confidentiality agreements from discussing the specifics of their cases, the book lacks real-world examples of the firm’s problem-solving approaches. In this summary, you will learn  What techniques McKinsey consultants use to solve problems  Why McKinsey prefers to market, rather than sell, its service  Why interviews are an essential source of information for problem solvers Take-Aways:  The McKinsey & Co. consulting firm promotes clarity of thought and expression. Every document uses the MECE rule: mutually exclusive and collectively exhaustive.  When tackling a problem, write an initial hypothesis.  A wonderful business solution is useless if the company lacks the resources to follow the advice.  Eighty percent of the people in a company account for twenty percent of its productivity.  Be consistent and be a team player; hit singles, not home runs.  Managers build team spirit by treating employees with respect, particularly by realizing that employees have lives outside the office.  The first rule of success in a hierarchy is "make your boss look good."  Consultants know that with research, they will find that plenty of background work has already been done for them.  Consultants gather some of their most significant information through interviews.  When conducting an interview, prepare questions in advance, listen more than you talk, and leave the toughest questions until last. Thinking Like a Consultant Companies worldwide hire McKinsey & Company, a well-known corporate consulting firm, for its problem-solving expertise. McKinsey experts credit the firm’s success to the use of its proven guidelines for problem solving. Those guidelines include techniques you can use, including standard ways to think about problems, gather information, and present findings to clients. The first rule of McKinsey’s approach is to embrace facts. Facts are the foundation of McKinsey’s advice, partly because the company’s consultants aren’t experts in any specific industrial field.

Page 1 ARE 112 – Winter 2017 Consulting – Some On-the-Job Advice from McKinsey February 22nd Therefore, they don’t rely on intuition to guide their recommendations. Facts create credibility, a big issue to young consultants who are making presentations to skeptical executives. “You must not fear the facts. Hunt for them, use them, but don’t fear them.” McKinsey’s entry-level consultants typically finish near the top of their college classes, spend a couple years at a large company, and then earn an MBA from a top university. The entry-level consultants are in their twenties, so they’re vulnerable to being easily dismissed when they make presentations to top executives of huge companies. However, they find they can build effective cases when they have a strong command of the facts. McKinsey promotes clear expression by demanding that every piece of communication follows the MECE rule, short for mutually exclusive and collectively exhaustive: “The only way to figure out if the problem you have been given is the real problem is to dig deeper. Get facts. Ask questions. Poke around.”  "Mutually exclusive" means that each component - or issue - which makes up a problem is considered distinctly and separately.  "Collectively exhaustive" means that the list of items covered thoroughly addresses the problem.  Every part of a problem fits within one, and only one, of those issues. Ignoring the MECE rule leads to confused thinking. “Most business problems resemble each other more than they differ. This means that with a small number of problem-solving techniques, you can answer a broad range of questions.” Problem Solving Techniques When McKinsey consultants tackle a new problem, they define an initial hypothesis. In other words, they come up with a solution before researching the problem. This may sound backward, but the initial hypothesis lays out a map for solving the problem. The initial hypothesis isn’t the final answer, merely an educated guess that will be proven true or false during the course of the research. Using this approach, it is critical that you don’t make the facts fit your predetermined conclusion. Be willing to accept that the initial hypothesis isn’t always accurate. McKinsey consultants demonstrate other lessons that are useful in solving business quandaries. Remember, just because a problem is presented to you as the core issue, don’t accept that it’s the real problem. McKinsey consultants once spent several weeks working on a manufacturing company’s proposed expansion before realizing that expansion wasn’t the right answer for the company. Instead, the division in question needed to be closed or sold. “Honesty includes recognizing when you haven’t got a clue. Admitting that is a lot less costly than bluffing.” Many business problems are similar enough that the same thought process can be applied to many different issues. However, that doesn’t mean that the same solution always works. For example, one McKinsey consultant says that in eighty percent of pricing problems, the solution is to raise prices. But in the other twenty percent of cases, the solution is to lower prices. Therefore, when you are solving problems, do your homework and analyze the facts before reaching a recommendation. McKinsey believes in the eighty/twenty rule, which says that eighty percent of the people in a company account for twenty percent of its productivity. For example, eighty percent of a company’s sales will come from twenty percent of its salesmen, while twenty percent of an employee’s job duties will occupy eighty percent of his time.

Page 2 ARE 112 – Winter 2017 Consulting – Some On-the-Job Advice from McKinsey February 22nd “At McKinsey, we found that clients were often no better at diagnosing themselves than a doctor’s patients. Sometimes, problems would come to us in extremely vague formulations.” McKinsey has used the eighty/twenty rule to help firms boost sales. For instance, a brokerage firm found that eighty percent of its sales came from twenty percent of its brokers. The top-producing brokers handled the biggest accounts. By putting more brokers on the big accounts, McKinsey helped to boost total sales from the accounts. Keep in mind that solutions must be realistic. A wonderful solution is useless if a business lacks the resources to follow recommendations. Politics also can pose a roadblock to solutions. Addressing a business problem often means changing the status quo, and those changes usually involve internal politics. If a problem is too intractable to solve, try to redefine it so you can begin by addressing something more easily changed. “If all you have is a hammer, then every problem looks like a nail. Critics of McKinsey (and management consulting in general) say that the Firm bases its solutions on the most current management fad - the favorite tool in its intellectual toolbox.” McKinsey also avoids analyzing too much. Once its consultants collect enough information to support a hypothesis, they stop. This means that to work more efficiently, you should focus on the so-called "key drivers" - the most important factors that affect a business problem. Concentrating on the key drivers will help you to narrow in on the meat of the problem. Solutions must be boiled down to a thirty-second sound bite, a tactic known as the elevator test. If you can thoroughly explain a product or solution in a thirty-second elevator ride, then you understand it clearly enough to sell it to your audience. For instance, the publisher of Field & Stream magazine told his sales force that they must be able to explain the publication to potential advertisers in thirty seconds. Ad sales grew as a result. “Unfortunately, when academic ideals meet business realities, business realities usually win. Businesses are full of real people, with real strengths and weaknesses and limitations.” McKinsey also believes in seizing small victories. If, on the way to a larger solution, you find the chance to make a simple recommendation or small improvement, do it. Such easy targets help build morale and appease clients who might otherwise grow impatient. Keep track of the things you learn during the problem-solving process by making a chart every day. This helps clarify your thinking and record your progress. As a problem solver, try to "hit singles." In baseball terms, this means going for the consistent, effective solution, rather than trying to belt a home run. This approach instills teamwork, acknowledging that you can’t do everything yourself. One cautionary note: hitting a home run can be dangerous if it gives your boss unreachable expectations about your future performance. “When you look at the boxes on an organization chart, you are really looking at people. When you move those boxes around, you change someone’s life.” Another McKinsey rule is, look at the big picture. It’s difficult to keep your perspective when you’re bogged down in the details of a problem, but taking a break to re-evaluate can help you work more efficiently. Be willing to admit that you don’t know something. This honesty will do more for your credibility than bluffing. Market, Don’t Sell McKinsey prides itself on not having to sell its services. Instead of making cold calls, the company prefers to make itself known to potential clients through marketing and being available to those clients when needed. McKinsey boosts its name recognition by encouraging partners to become active in charities and cultural organizations.

Page 3 ARE 112 – Winter 2017 Consulting – Some On-the-Job Advice from McKinsey February 22nd “There’s a lot of data out there relating to your problem, and a lot of analyses you could do. Ignore most of them.” You can increase your profile as they do. Their consultants speak at industry conventions, attend trade shows, socialize with potential clients, and write for trade publications, which often are willing to run guest columns from people in their industries. McKinsey consultants also are careful not to promise too much. They divide problems into manageable chunks. Building Teams McKinsey assigns teams of consultants to client problems. The team approach provides more people to gather and analyze facts. Team-building activities are fine, if kept to a minimum. While a group dinner or ball game might help build morale, most team building happens as people work together. “Be selective; figure out the priorities of what you are doing. Know when you have done enough, then stop.” If you are a team leader, constantly gauge the satisfaction of your team. Offer consistent decision making, because frequent changes in direction are demoralizing and confusing. Make team members feel that their contributions are valuable and treat them respectfully. Be polite, realize employees have lives outside the office, and don’t ask them to do things you wouldn’t do yourself. To help build team spirit, get to know your team members’ interests and hobbies. Navigating Hierarchies The first rule of success in a hierarchy is: make your boss look good. To please your boss, do your job well. Keep your boss informed, but not overloaded with information. Considering yourself the boss’ equal is an aggressive approach to success in a hierarchy. One McKinsey consultant, a new employee, did this by savaging a rough draft of a boss’s book. He had a successful career at the company in spite of the risky tactic. In a meritocratic organization, such an approach can work. In a more hierarchical company, asserting equality is riskier. “It’s OK for Mark McGwire to strike out a lot, as long as he keeps hitting those home runs. In the business world, though, you’re much better off hitting singles.” Doing Research Consultants know that plenty of work already has been done for them, which they can find through efficient research. To learn about a company, they begin with its annual report, and add magazine articles and scholarly papers. With computer research, consultants seek "outliers," facts that are especially good or bad. For instance, they identify the highest and lowest sales numbers for further investigation. Conducting Interviews Interviews are essential for collecting information. Before doing an interview, prepare an interview guide with your questions and a checklist of information you’d like to glean. Start with general, innocuous questions and move toward specific or sensitive questions. This helps build rapport and makes the subject more comfortable. Ask a couple of questions to which you already know the answer, so you can determine the subject’s honesty. “In the face of complexity, many hands don’t just make light work; they make for a better result.” Use these tips:  Take notes and don’t talk very much.  Show attentiveness by nodding or offering verbal encouragement.

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 Ask your question and then let the subject talk. If the subject rambles, redirect the conversation. To encourage someone to talk, stay silent - an awkward silence encourages people to talk.  Take an interview partner to help if you’re too busy taking notes to ask follow-up questions, or if you miss verbal or physical cues.  Ask open-ended questions, rather than queries that require only a simple "yes" or "no."  Paraphrase the subject’s answer to make sure you understood the response.  Don’t be openly hostile or make the interview seem like an interrogation. “If you make your boss look good, your boss will make you look good. That’s the quid pro quo of hierarchy.” Try the tactic favored by TV detective Columbo: after the interview, just before you leave, ask an important question. The subject will be more relaxed and more likely to offer helpful information. Ask if there’s anything you forgot to ask or anything the subject would like to add. Remember that an interview can be traumatic. If the subject is nervous, don’t push too hard. If a subject is hostile, inaccurate, or uncooperative, you can appeal to the person’s boss or challenge that behavior. However, if the person is a "sandbagger," someone who rambles nonstop without regard to the interviewer’s mission, almost no strategy will help. Finally, write a thank you note to the subject of the interview. It will help smooth the way for future interviews. Presenting Ideas For a consultant, as for most managers, making a presentation is often the culmination of months of work. A good presentation is clear and logical. Fight the urge to keep working on your presentation until the last minute; perfectionism adds unnecessary stress. To avoid counterproductive objections during a presentation, tell the key players what your presentation will say in advance. This helps defuse loud protests from the audience. Finally, tell your story with simple, attractive, easy-to-understand charts. Computer graphics have made fancy, complex charts possible, but such charts are often overkill. About the Author Ethan M. Raisel worked for McKinsey & Company from 1989 to 1992. His clients at McKinsey included major financial, telecommunications, technology, and consumer goods companies. He has a bachelor’s degree from Princeton and a master’s of business administration from Wharton. He lives in Chapel Hill, North Carolina. A Summary 1. “You must not fear the facts. Hunt for them, use them, but don’t fear them.” 2. “The only way to figure out if the problem you have been given is the real problem is to dig deeper. Get facts. Ask questions. Poke around.” 3. “Most business problems resemble each other more than they differ. This means that with a small number of problem-solving techniques, you can answer a broad range of questions.” 4. “Honesty includes recognizing when you haven’t got a clue. Admitting that is a lot less costly than bluffing.”

Page 5 ARE 112 – Winter 2017 Consulting – Some On-the-Job Advice from McKinsey February 22nd 5. “At McKinsey, we found that clients were often no better at diagnosing themselves than a doctor’s patients. Sometimes, problems would come to us in extremely vague formulations.” 6. “If all you have is a hammer, then every problem looks like a nail. Critics of McKinsey (and management consulting in general) say that the Firm bases its solutions on the most current management fad - the favorite tool in its intellectual toolbox.” 7. “Unfortunately, when academic ideals meet business realities, business realities usually win. Businesses are full of real people, with real strengths and weaknesses and limitations.” 8. “When you look at the boxes on an organization chart, you are really looking at people. When you move those boxes around, you change someone’s life.” 9. “There’s a lot of data out there relating to your problem, and a lot of analyses you could do. Ignore most of them.” 10. “Be selective; figure out the priorities of what you are doing. Know when you have done enough, then stop.” 11. “It’s OK for Mark McGwire to strike out a lot, as long as he keeps hitting those home runs. In the business world, though, you’re much better off hitting singles.” 12. “In the face of complexity, many hands don’t just make light work; they make for a better result.” 13. “If you make your boss look good, your boss will make you look good. That’s the quid pro quo of hierarchy.”

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