Significant problems are like watermelons.
Kind of hard to eat whole.
So you have to slice and dice them before you can solve them, slicing the problem up from different angles until you have chunks that are small enough to digest.
The tool the top consultancies use to structure million$ problems is called an “issue tree”.
You will need patience to master it. You have structured problems intuitively so far in your career. Using an issue tree is like jumping to a new technology S-curve. It will waste your time the first few times and won’t start outperforming your old intuitive way until you have used it 5-6 times.
After this though, you will not go back – you will be equipped to tackle any ill-defined fuzzy problem you encounter.
The concept is very simple. You start with your question and break it down into sub-questions. The critical logic that makes the issue tree work is that the sub-questions must be Independent and Complete.
Complete means that there are no holes – the answer to the higher question must be in the sub-questions.
Independent means that the solutions in one branch are independent of the solutions in the other branch.
You start off by stating your question. “How can we………….?” usually works best.
How can we increase profits?
Break this down to independent and complete sub-questions:
1) How can we increase revenues?
2) How can we reduce costs?
Then we check: Are these branches independent and complete? Apply the check in your head:
First check Complete – are there any other possible ways to increase profit?
- Launch a new product? This is covered by increasing revenues.
- Accounting tricks? The tricks have to either inflate revenues or remove costs.
- Acquisitions? Any acquisition that increases profit will also increase revenues.
- Reduce taxes? Tax is a cost too.
Second check Independent –
Well…..in general most ideas are about either increasing revenues or reducing cost. Costs will usually increase if revenues increase (there are always some variable costs), so solutions up here will not overlap with solutions in the bottom branch.
If our idea is about reducing cost, there is not reason why revenues will increase too (although they may decrease if we are cutting unprofitable product lines)
Theoretically, there may be ideas which BOTH cut costs AND increase revenues. However, it is easy to fit these into the branch that has the most important profit impact.
Independent and Complete vs “MECE”
Consulting companies often talk about “MECE” (Mutually Exclusive Collectively Exhaustive). This means almost the same as “Independent and Complete”……but is not quite as useful.
What? I hear the noise of management consultants gearing for intellectual battle…..let me explain before you wade in.
“Complete” has the same meaning as “Collectively Exhaustive”. It is just shorter and easier on non-English speakers.
“Mutually Exclusive” means that you can’t do both at the same time. If you are in a lift, Going Down, Up or Standing still are mutually exclusive. It is very clean logic.
However, in real life business is messier. The classic issue tree example introduced at the top with is not strictly MECE. You can increase profits by increasing revenues in one area and reducing costs in another area at the same time. It often happens on business projects that you need a combination of solutions to reach your goal.