Problem solving approach in Management consulting projects

To understand and improve on results of eBay case competition

April 2010

AGENDA

Problem solving approach overview Practical exercise. Lets improve the eBay LOPs Practical exercise. Lets assess the eBay LOPs Q&A

30 min 30 min 15 min

20 min

PROBLEM SOLVING PROCESS STRUCTURES YOUR WORK

?
Problem

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
2

STEP 1: DEFINE THE PROBLEM

?
Problem

Think IMPACT: What is the question you are trying to answer?

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
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

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

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
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

Specific, actionoriented

STEP 2: STRUCTURE THE PROBLEM

?
Problem

Think DISAGGREGATION and HYPOTHESIS: What could the key elements of the problem be?

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
7

WHAT IS A LOGIC TREE?

Issue 1

Issue 2

A problemsolving tool that breaks a problem into discrete chunks

Problem

Issue 3

Issue 4

Issue 5
8

TWO MAIN TYPES OF LOGIC TREES

Issue 1 Argument 1 Hypothesisdriven tree

Issue tree

Issue 2

Argument 2

Argument 3 Issue 3

ISSUE TREE SAVING MONEY

How?

How?
Can I receive a windfall?

How?
Legally Illegally

How?
Inherit Win lottery

Can I increase income? How can I have more money at the end of the month without incurring a debt?

Can I earn more $ from investments? Can I receive more $ from work? Work more hours Overtime Additional job Higher job level Better paid industry

Make more per hour

Can I pay less for same amount of items? Can I reduce expenses? Can I buy fewer items? Buy lower quality items Shop around for specials

Food Clothing Entertainment Travel Other

10

HYPOTHESIS-DRIVEN TREE SAVING MONEY

Why?

Why?

Why?
Key spending categories have competition in new formats New formats offer same quality at lower price Opportunity cost of additional time taken up by comparison shopping Savings in $ Hypermarkets Price Club Home Depot Auto mall

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

Savings are feasible

Additional investments do not wipe out savings

To compensate for demanding workload, I need to invest in weekly visits to the massage parlor and the opera Changing my lifestyle is not an option 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

Why use it?

When to use it?

Issue 1

Issue tree

Issue 2

Issue 3

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

Argument 1 Hypothesisdriven tree

Argument 2

Argument 3

Postulates a potential solution and identifies what arguments are necessary and sufficient to prove or disprove it Arguments answer the question "Why?"

Focuses early on part of the solution space, which accelerates the problem solving process

When you know enough about the problem to formulate sound hypotheses

12

STEP 3: PRIORITIZE

?
Problem

Think SPEED: Which part of the tree seems most important to the problem?

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
13

CUT OFF BRANCHES

Issue 1

Issue 2 Problem statement Issue 3

Keep tightening focus Prioritize your effort on what is most important Helps to ask "so what" . . . but also ask what you have forgotten Is the key to working efficiently

14

HOW TO PRIORITIZE

Use judgment/intuition

Involve your team

Be practical!
20

Polishing

80 80

Focusing on impact

20

Time and effort Do back-of-theenvelope calculations

Benefit for problem solving Take risks

15

METHODS FOR PRIORITIZING

PRESENTATION

Key ideas

Example methods

Take a reasonably quick, informal approach to get started Remember that sometimes a "back of an envelope" calculation is all thats 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

Percentage of total "X" Estimated potential increase/decrease (sensitivity analysis) Simple ratios Quick industry benchmarks Qualitative input from clients, CDs, etc. Ease of implementation Timing "Quick wins"

Available resources
High/low risk

16

STEP 4: ISSUE ANALYSIS AND WORK PLAN

?
Problem

Think EFFICIENCY: How and on what should the team spend its time?

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
17

ISSUE ANALYSIS WORKSHEET

Issue

Hypothesis

Supporting rationale

Analysis

Source

Key issue or unresolved question that elicits a "yes" or "no" answer and upon which specific action depends
Example Should ABC invest $20 million in new manufacturing technology?

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

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 Responsibility Timing

States the analysiss output

Identifies the team member who will under-take the analysis

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 Value of investments Lun, C.A.

7 19

STEP 6: SYNTHESIZE FINDINGS AND DEVELOP RECOMMENDATIONS

?
Problem

Think POTENTIAL SOLUTION: What should be done?

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
20

SYNTHESIS ADDS AN INSIGHT THAT ADVANCES YOUR THINKING

Summary I have lost my keys and passport and am behind on my tax return

Synthesis 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

"So what?"

Data

22

PROBLEM SOLVING IS AN ITERATIVE PROCESS

?
Problem

Problem definition

Structuring

Prioritizing

Issue analysis

Analysis

Synthesis & recommendations

COMMUNICATION

!
Impact Impact
23

STRATEGIC PROBLEM-SOLVING LOOP

Problem

Problem definition

Problem structuring

Prioritization

Issue analysis and work plan

Synthesis and recommendations Analysis

Think next iteration: what are the teams next priorities?

24

AGENDA

Problem solving approach overview Practical exercise. Lets improve the eBay LOPs

30 min 30 min

Practical exercise. Lets assess the eBay 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 Ebay ?

27

ISSUE TREE STRUCTURING

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

WHEN? ?

, eBAy?
? ?

Ebay ?

HOW?

value chain?

value chain? ? EBay value chain? ()? value chain? ? ? ? 28

WHAT TO DO? value chain? (Customer base acquisition, sales platform, payment, goods delivery, client service and repeat purchase)

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

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

WHEN? ?

1 , eBAy? ? 3 ? 2 4 value chain? ? EBay 5 value chain? 6 ()? 7 8 value chain? ? ?

Ebay ?

HOW? value chain?

WHAT TO DO? value chain? (Customer base acquisition, sales platform, payment, goods delivery, client service and repeat purchase)

30

ISSUE ANALYSIS BEST EXAMPLES

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

1 , eBAy?

2 ?

Team QUANTS answer

31

ISSUE ANALYSIS BEST EXAMPLES

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

1 , eBAy? 2 ? 3 ?

Team USA answer

32

ISSUE ANALYSIS BEST EXAMPLES

Problem definition

Structuring

Prioritizing

Issue analysis

Synthesis & recommendations

COMMUNICATION

4 value chain? ?

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 ()?

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 ()?

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 value chain?
?

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? , . EBay HOW?
Problem definition Structuring Prioritizing Issue analysis Synthesis & recommendations

COMMUNICATION

1 (#3 CAGR , #8 ) 2 (50% ) B2B, B2C, C2C. 3 ( revenues) (Molotok ), 4 (Yandex money) EBay 5 , . EBay 6 , 7 value chain? ? ? 8 ? , 37

Ebay ?

acquiring users. . ( ). customer service WHAT TO DO?

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 Practical exercise. Lets improve the eBay LOPs Practical exercise. Lets assess the eBay LOPs Q&A

30 min 30 min

15 min

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*
Content Structure

Dr. Pepper Consulants

Economics and Engineering

IKNOW

Quants

USA

Logics

Lack of priority But can you keep the promise 100% McK

Lack of facts, only statements Great ideas, no time?

Content and headers not connected Out of blue aggressive

The strongest Too theoretical, can you keep the promise Overloaded slides

Creativeness and depth of recommendations

Communication Slides quality

Language Consistency
Lighter to the end

Headers are not statements

English

Depth decreased

Consistently shallow

Extremely promising ending

Lighter to the end

Orientation to the client Problem understanding

Knowledge of client situation * Example. Actual assessment criteria might differ significantly

Consistently shallow

Omitted Pay Pall discussion

42

AGENDA

Problem solving approach overview Practical exercise. Lets improve the eBay LOPs Practical exercise. Lets assess the eBay LOPs Q&A

30 min 30 min

15 min

20 min

43

44