Problem solving approach in Management consulting projects To understand improve on results of e. Bay case competition April 2010
AGENDA ▪ Problem solving approach overview 30 min ▪ Practical exercise. Lets improve the e. Bay LOPs 30 min 15 min ▪ Practical exercise. Lets assess the e. Bay LOPs ▪ Q&A 20 min 1
PROBLEM SOLVING PROCESS STRUCTURES YOUR WORK Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 2
STEP 1: DEFINE THE PROBLEM Think IMPACT: What is the question you are trying to answer? Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 3
PROBLEM STATEMENT Characteristics of good problem statement ▪ Clear statement of problem to be solved Thought-provoking question, not a fact ▪ Specific, not general ▪ Debatable (not a statement of fact or non-disputable assertion) ▪ Able to be acted upon ▪ Focused on what the decision maker needs to move forward 4
PROBLEM STATEMENT EXAMPLE: OILCO REFINERY The Oilco refinery is suffering from poor profitability despite a strong market niche position. Statement of fact Should the Oilco refinery improve its deteriorating position? Not disputable Can the Oilco refinery be managed differently to increase profitability? Too general 5
GOOD PROBLEM SOLVING: OILCO REFINERY What opportunities exist for Oilco to improve performance through overhead rationalization, operational improvements, or asset/ownership restructuring, either as a growth platform or as a low- cost local operator? OR Specific, actionoriented Oilco should shift to a low-cost local operator approach, cut overheads, redesign operations, and restructure noncore assets to improve profitability by $40 million per year 6
STEP 2: STRUCTURE THE PROBLEM Think DISAGGREGATION and HYPOTHESIS: What could the key elements of the problem be? Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 7
WHAT IS A LOGIC TREE? Issue 1 A problemsolving tool that breaks a problem into discrete chunks Issue 2 Problem Issue 3 Issue 4 Issue 5 8
TWO MAIN TYPES OF LOGIC TREES Issue 1 Argument 1 Issue tree Issue 2 Hypothesisdriven tree Argument 2 Argument 3 Issue 3 9
ISSUE TREE – SAVING MONEY How? Can I receive a windfall? How? Can I reduce expenses? Illegally Win lottery Work more hours Overtime Additional job Higher job level Can I earn more $ from investments? Can I receive more $ from work? How can I have more money at the end of the month without incurring a debt? Inherit Make more per hour Can I increase income? Legally Can I pay less for same amount of items? Can I buy fewer items? Buy lower quality items Better paid industry Shop around for specials ▪ ▪ ▪ Food Clothing Entertainment Travel Other 10
HYPOTHESIS-DRIVEN – TREE SAVING MONEY Why? Comparison shopping is an interesting opportunity The best way for me to have more money at the end of the month is to spend less through comparison shopping Why? Savings are feasible Key spending categories have competition in new formats New formats offer same quality at lower price Additional investments do not wipe out savings Changing my lifestyle is not an option Why? Hypermarkets Price Club Home Depot Auto mall Opportunity cost of additional time taken up by comparison shopping Savings in $ To compensate for demanding workload, I need to invest in weekly visits to the massage parlor and the opera My profession does not allow me to wear lower quality clothes To balance the junk food I eat during the week, I need at least one three-course meal on the weekend 11
TWO MAIN TYPES OF LOGIC TREES Description ▪ Issue 1 Issue tree Issue 2 ▪ Issue 3 Argument 1 Hypothesisdriven tree ▪ Argument 2 Argument 3 ▪ Why use it? When to use it? Decomposes an ▪ Addresses the issue into smaller entire solution sub-issues (e. g. , space measures, criteria) Sub-issues answer the question "What? " or "How? " ▪ Early in the problem solving process, when you know little about the problem Postulates a ▪ potential solution and identifies what arguments are necessary and sufficient to prove or disprove it Arguments answer the question "Why? " ▪ When you know enough about the problem to formulate sound hypotheses Focuses early on part of the solution space, which accelerates the problem solving process 12
STEP 3: PRIORITIZE Think SPEED: Which part of the tree seems most important to the problem? Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 13
CUT OFF BRANCHES Issue 1 ▪ Prioritize your effort on what is most important Helps to ask "so what". . . but also ask what you have forgotten ▪ Problem statement ▪ ▪ Issue 2 Keep tightening focus Is the key to working efficiently Issue 3 Issu e 4 14
HOW TO PRIORITIZE Use judgment/intuition Involve your team Be practical! Polishing Focusing on impact Time and effort Do back-of-theenvelope calculations Benefit for problem solving Take risks 15
METHODS FOR PRIORITIZING PRESENTATION Key ideas Example methods ▪ ▪ ▪ Percentage of total "X" ▪ ▪ ▪ Simple ratios ▪ ▪ ▪ Ease of implementation ▪ ▪ ▪ 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 reprioritize 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 Estimated potential increase/decrease (sensitivity analysis) Quick industry benchmarks Qualitative input from clients, CDs, etc. Timing "Quick wins" Available resources High/low risk 16
STEP 4: ISSUE ANALYSIS AND WORK PLAN Think EFFICIENCY: How and on what should the team spend its time? Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 17
ISSUE ANALYSIS WORKSHEET Issue Key issue or unresolved question that elicits a "yes" or "no" answer and upon which specific action depends Hypothesis Supporting rationale Analysis Source Statement of the likely resolution of the issue. It includes the reason for answering yes or no. Elements you have to believe for the hypothesis to be true Detailed supporting rationales make the transition to analysis easier. Models that should be explored in order to confirm or refute the hypothesis Likely location or means of obtaining data to carry out analysis Yes– ABC costs will become uncompetitive without new investment Competitors’ manufacturing costs declining Industry leaders are investing in new technology Pay off is very short Comparison of manufacturing costs Review of competitive investment Cashflow: NPV Specialist magazines/ reports Manufacturing and customer interviews Accounting Department Example Should ABC invest $20 million in new manufacturing technology? 18
EXTEND THE ISSUE ANALYSIS WORKSHEET TO CREATE A WORK PLAN Issue analysis work sheet Issue Hypothesis Supporting rationale Analysis Source Work plan End product States the analysis’s output Responsibility Identifies the team member who will under-take the analysis Timing Sets the time (in work days) necessary to answer the key issue Example Breakdown of competitive costs and reasons for differences Fuentes, P. F. 10 Competitors’ Shaw, B. R. investment trends and areas of focus 5 Value of investments 7 Lun, C. A. 19
STEP 6: SYNTHESIZE FINDINGS AND DEVELOP RECOMMENDATIONS Think POTENTIAL SOLUTION: What should be done? Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 20
SYNTHESIS ADDS AN INSIGHT THAT ADVANCES YOUR THINKING Summary Synthesis I have lost my keys and passport and am behind on my tax return I have been sloppy Facts ▪ ▪ ▪ I have mislaid my keys My passport is not where I thought it was I am 2 months behind on my tax return 21
SYNTHESIS PYRAMIDS HELP YOU ORGANIZE YOUR DATA AND DEVELOP AN INSIGHTS Sy nth es ize "So what? " Data 22
PROBLEM SOLVING IS AN ITERATIVE PROCESS Problem definition Structuring Prioritizing Issue analysis Analysis Synthesis & recommendations COMMUNICATION 23
STRATEGIC PROBLEM-SOLVING LOOP ? Problem definition Problem structuring Prioritization Issue analysis and work plan Synthesis and recommendations Analysis Think next iteration: what are the team’s next priorities? 24
AGENDA ▪ Problem solving approach overview 30 min ▪ Practical exercise. Lets improve the e. Bay LOPs 30 min ▪ Practical exercise. Lets assess the e. Bay LOPs 15 min ▪ Q&A 20 min 25
THE RULES OF THE GAME. HOW TO SET UP THE PROBLEM DEFENITION Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 26
PROBLEM DEFINIOIN. Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION Problem definition Какая стратегия Ebay будет наиболее успешна для выхода на российский рынок в настоящее время? 27
ISSUE TREE STRUCTURING Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION WHEN? Нужно ли выходить сейчас или можно подождать? Каковы перспективы роста в России по сравнению с другими рынками, еще не охваченными e. BAy? Есть ли приоритетные географические регионы? Есть ли приоритетные продуты и сервисы к развитию? Какая стратегия Ebay будет наиболее успешна для выхода на российский рынок в настоящее время? HOW? Есть ли необходимость в партнерстве с российскими игроками на каждом этапе value chain? WHAT TO DO? Каковы ключевые проблемы в value chain? (Customer base acquisition, sales platform, payment, goods delivery, client service and repeat purchase) Кто является ключевым игроком на каждом этапе value chain? Каковы возможности по партнерству с данными игроками? Какие возможности имеет EBay в построении собственной компетенции на каждом этапе value chain? Какие из проблем являются ключевыми (решающими)? Как можно преодолеть ключевые проблемы в value chain? В какие сроки? Какие инвестиции? Как преодолевались такие проблемы в прошлом? 28
PRIORITIZING. THE RULES WERE SET Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 29
PRIORITIZING. THE RESULT Prioritization based on the task (see previous page) 1. 2. 3. Why is it important to work now Demonstrate the market knowledge Interest the client at showing first results WHEN? Нужно ли выходить сейчас или можно подождать? Какая стратегия Ebay будет наиболее успешна для выхода на российский рынок в настоящее время? HOW? Есть ли необходимость в партнерстве с российскими игроками на каждом этапе value chain? WHAT TO DO? Каковы ключевые проблемы в value chain? (Customer base acquisition, sales platform, payment, goods delivery, client service and repeat purchase) Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 1 Каковы перспективы роста в России по сравнению с другими рынками, еще не охваченными e. BAy? Есть ли приоритетные географические регионы? Есть ли приоритетные продуты и сервисы к 3 развитию? 2 Кто является ключевым игроком на каждом 4 этапе value chain? Каковы возможности по партнерству с данными игроками? Какие возможности имеет EBay в построении 5 собственной компетенции на каждом этапе value chain? 6 Какие из проблем являются ключевыми (решающими)? 7 Как можно преодолеть ключевые проблемы в value chain? В какие сроки? Какие инвестиции? 8 Как преодолевались такие проблемы в прошлом? 30
ISSUE ANALYSIS BEST EXAMPLES Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 1 Каковы перспективы роста в России по сравнению с другими рынками, еще не охваченными e. BAy? 2 Есть ли приоритетные географические регионы? Team QUANTS answer 31
ISSUE ANALYSIS BEST EXAMPLES Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 1 Каковы перспективы роста в России по сравнению с другими рынками, еще не охваченными e. BAy? 2 Есть ли приоритетные географические регионы? 3 Есть ли приоритетные продуты и сервисы к развитию? Team USA answer 32
ISSUE ANALYSIS BEST EXAMPLES Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 4 Кто является ключевым игроком на каждом этапе value chain? Каковы возможности по партнерству с данными игроками? Team QUANTS answer The only team explicitly talked about value chain partnership 33
ISSUE ANALYSIS BEST EXAMPLES Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 6 Какие из проблем являются ключевыми (решающими)? Team Dr. Pepper Consulting answer. The team set up the full list of problems, but did not prioritize them 34
ISSUE ANALYSIS BEST EXAMPLES Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 6 Какие из проблем являются ключевыми (решающими)? Team Economics Engeeniring answer. The team set up the full list of problems, but did provide any details and prioritization 35
ISSUE ANALYSIS BEST EXAMPLES Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION 7 Как можно преодолеть ключевые проблемы в value chain? В какие сроки? Какие инвестиции? Team USA answer. The team clearly identified the 2 major issues and addressed solutions for both (the example shows the second set of issues) – further analysis path is clear 36
SYNTHESIS AND RECOMMENDATIONS. STORYLINE Prioritization based on the task 1. 2. 3. Why is it important to work now Demonstrate the market knowledge Interest the client at showing first results WHEN? Выходить надо сейчас, фокусируясь на Москве и центральном регионе. EBay должен стать площадкой для малого и среднего бизнеса HOW? Какая стратегия Ebay будет наиболее успешна для выхода на российский рынок в настоящее время? Возможно сотрудничество для acquiring users. Нет партнеров для площадки и оплат. Необходимость плотного сотрудничества по логистике (в начале). Нет партнеров в customer service Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION Российский рынок интернета растет и будет 1 расти (#3 CAGR в мире, #8 по числу пользователей) Высокая концентрация в Москве и других 2 миллионниках (50% пользователей в Центральном регионе) Рассмотреть B 2 B, B 2 C, C 2 C. Определить 3 фокус (на revenues) Крупных игроков на всех этапах кроме логистики практически нет (Molotok мал), либо 4 бизнес еще слишком молод в России (Yandex money) Собственный опыт EBay значителен на всех 5 этапах, кроме логистики. Доставка товаров EBay всегда осуществлялась партнерами WHAT TO DO? 6 Разбивка проблем на внутренние и внешние, выделение ключевых проблем План развития бизнеса в России с описанием возможных следующих шагов в анализе Как можно преодолеть ключевые проблемы в 7 value chain? В какие сроки? Какие инвестиции? – выдвинуть гипотезы 8 Как преодолевались такие проблемы в прошлом? – интервью, анализ рынка 37
SYNTHESIS AND RECOMMENDATIONS. BEST EXAMPLE Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION Team QUANTS answer The team clearly answered the major question as well as showed the road map to success The team clearly demonstrated its knowledge and a promise for further insights down the consulting project 38
SYNTHESIS AND RECOMMENDATIONS. BEST EXAMPLE Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations COMMUNICATION Team Dr. Pepper Consulting answer The team outlined the possible strategies and outcomes as well the major problems to be solved on the way to success 39
AGENDA ▪ Problem solving approach overview 30 min ▪ Practical exercise. Lets improve the e. Bay LOPs 30 min ▪ Practical exercise. Lets assess the e. Bay LOPs 15 min ▪ Q&A 20 min 40
WHAT ARE THE ASSESSMENT CRITERIA? Assessment criteria* Content ▪ Structure ▪ Logics ▪ Creativeness and depth of recommendations Communication ▪ Slides quality ▪ Language ▪ Consistency Orientation to the client ▪ Problem understanding ▪ Knowledge of client situation * Example. Actual assessment criteria might differ significantly 41
HOW THE TEAMS PERFORMED ACCORDING TO THE CRITERIA LIST? Assessment criteria* Dr. Pepper Consulants Economics and Engineering IKNOW Quants USA Content ▪ Structure ▪ Logics ▪ Creativeness and depth of recommendations Communication ▪ Slides quality ▪ Consistency Lack of facts, only statements Content and headers not connected But can you keep the promise Great ideas, no time? Out of blue aggressive The strongest Too theoretical, can you keep the promise Overloaded slides 100% Mc. K Language ▪ Lack of priority Headers are not statements Lighter to the end Depth decreased English Consistently shallow Extremely promising ending Consistently shallow Omitted Pay Pall discussion Lighter to the end Orientation to the client ▪ Problem understanding ▪ Knowledge of client situation * Example. Actual assessment criteria might differ significantly 42
AGENDA ▪ Problem solving approach overview 30 min ▪ Practical exercise. Lets improve the e. Bay LOPs 30 min ▪ Practical exercise. Lets assess the e. Bay LOPs 15 min ▪ Q&A 20 min 43
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