Problem Solving: How to solve problems like Bain, Mckinsey and BCG
Learn to solve complex problems like the world's largest strategy consultancies: Bain & Company, Mckinsey & Company and Boston Consulting Group (BCG).
Why Problem Solving skill is important?
The World Economic Forum, an important international organization, raised the 10 job skills of tomorrow:
Of the 10 skills raised, 5 refer to the subject of problem solving, or problem solving – clearly the most important.
However, despite its relevance, it is difficult to understand the meaning of problem solving from the 5 skills described by the World Economic Forum:
Analytical thinking and innovation;
Solving complex problems;
Critical thinking and analysis;
Creativity, originality and initiative;
Reasoning, problem solving and ideation.
Our goal today is to try to clarify what problem solving is and how we can apply and exercise in practice this skill that clearly is and will continue to be fundamental for the career of the vast majority of people.
Different ways to solve a problem
Let's say you are faced with the following very simple problem, how to get a glass of hot water. To solve this problem, you can follow two possible alternatives:
Heat all the water in the oceans, rivers and lakes and then fill a glass with water (which will be hot);
Fill a glass with water at room temperature and then heat the glass.
Both solutions achieve the expected result, but the first alternative obviously requires a much greater amount of time and energy than the second, which is much more focused on reaching the final goal.
It may seem exaggerated, but when solving problems, many people end up opting for the 1st alternative - that is - before thinking about how the problem can be solved, they analyze all the information, build several analyzes, dashboards, and only after that, start to think about what are the best initiatives to solve the problem.
Although this method is not necessarily wrong, in the vast majority of cases it is the least efficient alternative for achieving the desired result.
To learn how problems really should be solved, the best place to look is science – which for years has been solving some of humanity's most complex problems through the scientific method.
The scientific method
The scientific method is the process used by the academy to solve the most complex problems of humanity – those that are literally at the forefront of knowledge – as, for example, in the 17th century when Newton tried to answer why objects “fall”, giving light to the theory of gravity.
The scientific method consists of 5 main steps:
Observe and identify the problem/doubt;
Build a solution hypothesis;
Test the hypothesis through experiments and/or analysis;
Analyze results;
Define the conclusion of the study.
Let's take as an example when Albert Einstein formulated the theory of general relativity.
Observe and identify the problem/doubt: After publishing the special theory of relativity, Einstein was looking for how to reconcile his theory with Newton's law of universal gravitation;
Build solution hypothesis: From this problem, Einstein formulated and published his hypothesis that objects with a lot of mass were able to curve space-time;
Testing the hypothesis through experiments and/or analysis: So, the German astronomer Karl Schwarzschild initially showed that, mathematically, the theory formulated by Einstein seemed to make sense. Later, another scientist, Arthur Eddington, designed an experiment in which he would observe light during a solar eclipse;
Analyze results: During the experiment, it was proved that light was deflected, suggesting that the hypothesis that the Sun would cause curvature in space-time and that even light would need to deflect when passing through elements of high mass, such as stars;
Define the conclusion of the study: New experiments were carried out later, proving Einstein's general theory of relativity.
Although it seems abstract, this method, which has been working for science for centuries, can also be widely applied to the corporate world through the rationale that we will show below, as well as the PDCA Cycle.
And if there are professionals who are specialists in using the scientific method in their day-to-day problem solving, they are the consultants of the main strategic consulting companies.
What is a strategy consultancy
In case you didn't know them, strategy consultants are hired by the biggest companies in the world to help them solve their biggest problems. In other words, solving highly complex problems is literally the daily routine of those who work in these consultancies.
The main global strategy consulting firms are the so-called “Premium three”: Bain & Company, McKinsey & Company and Boston Consulting Group (BCG).
These companies often help their customers with problems such as:
How to accelerate business growth;
How to set the price of products sold;
How to improve the customer experience;
How to digitize the company in light of new consumer behaviors;
How to increase company profits.
During a project, these consultancies tend to have a relatively short time, usually a few months, to solve problems of this type, and they tend to work with teams that are also lean (a standard team usually has approximately 5 people).
Due to time and people constraints, these companies have become specialists in how to be efficient when solving big problems, precisely using the scientific method.
Example of how the scientific method is applied by strategy consultancies to solve problems
1) Identify the problem
Initially, the consultancy will agree with the client company on the main problem/doubt to be answered.
Let's say the problem is:
Problem: How RetailCo., an online fashion retailer, is expected to expand sales over the next 3 years.
After that, the consultancy will briefly understand the context of the company (approximately 1 week of work) conducting interviews and analyzes to identify points such as:
What are the main products sold;
Who are the main competitors;
What was the recent growth of the company and the market.
2) Build the solution hypothesis
Based on the problem and the understanding of the context, the consultancy will build a hypothetical answer to the problem.
Let's say the hypothesis is that RetailCo should pursue 3 main initiatives:
Improve product assortment to accelerate footwear sales;
Participate as a seller in online marketplaces (eg Amazon, Mercado Livre, Dafiti);
Start operation in Colombia.
This hypothesis will not be the final solution of the project but will guide all the work along the solution of the problem.
3) Test the hypothesis through experiments and/or analysis
It is at this stage that most of a consultancy's working time is consumed. The objective is to identify which are the statements that would support that the hypothesis for the strategy is correct (or wrong) and to carry out analyzes that prove (or refute) these statements.
Let's use the 1st recommendation of the hypothesis as an example: Improve the assortment of products to accelerate the sale of shoes.
From this recommendation, statements are raised that, if true, confirm that the recommendation is correct:
The online shoe market is attractive;
RetailCo has the ability to expand its market share in footwear;
Customers are unhappy with RetailCo's shoe assortment.
On top of the primary statements, we can also have secondary statements:
The online shoe market is attractive:
The footwear market is over R$10B per year;
The footwear market has an average annual growth higher than the fashion market in general.
RetailCo has the ability to expand its market share in footwear:
RetailCo's market share in footwear is lower than RetailCo's market share in other categories;
RetailCo customers search for shoes on the website;
RetailCo has the capacity to produce more shoes.
Customers are unhappy with RetailCo's shoe assortment:
The main reason customers don't buy shoes from RetailCo is the lack of options;
RetailCo's current assortment prices are higher than equivalent products on the market.
Each secondary claim could still have tertiary claims, etc. The role of a problem solver is to ensure that the constructed assertion structure is MECE:
ME: Mutually Exclusive
EC: Collectively Exhaustive
That is – if the secondary claims are correct, then the primary claim is definitely true. If the primary claims are correct, then the hypothesis is certainly correct.
To prove the accuracy of the statements, analyzes must be carried out. For example, to prove that "RetailCo's market share in footwear is lower than RetailCo's market share in other categories" it is necessary to carry out an analysis that compares RetailCo's market share in each of the categories sold (example below), based on from RetailCo sales data, market size data and competitor data.
The image below shows that RetailCo has a lower market share in the footwear segment than in the apparel and accessory segments (in which it is the market leader).
4) Analyze results
When carrying out the analyses, it is necessary to understand whether the assertions that were actually constructed were correct or not. If any statement were false, it is necessary to understand the implication of this for the solution hypothesis. That is, does the solution hold or should it be reviewed or modified?
For example, if during the analysis it was discovered that the main reason why customers do not buy shoes at RetailCo is not just because of the lack of options, but mainly because the quality of the shoes sold is poor.
In this case, the hypothesis of improving the assortment of shoes remains true, but needs to be improved:
Initial hypothesis: Improve product assortment to accelerate footwear sales.
Improved hypothesis: Improve product assortment to accelerate footwear sales, mainly through third-party branded products.
In this case, RetailCo would start to sell products from other brands specialized in footwear with better quality to address the main pain raised by consumers.
5) Define the conclusion of the study
Finally, in possession of all the analyzes and understanding of which statements were correct or incorrect, we have the final answer to the problem to be solved. Following RetailCo's example:
RetailCo should pursue 3 main initiatives:
Improve the assortment to accelerate footwear sales, mainly through third-party brand products;
Participate as a seller only in specialized fashion marketplaces;
Start operation in Colombia.
Notice how the final solution differs from the initial hypothesis. This is the result of the analytical work of trying to prove whether the hypotheses raised were correct or not.
From that moment on, the great challenge is to communicate the strategy to all the people involved, and to convince them, through the facts and data collected, why this is the best solution.
Once people are convinced, the strategy implementation work begins.
Problem Solving is about asking the right questions
Although it seems simple, applying this method on a daily basis is very different from what the vast majority of people and companies do. Starting with the answer is an extremely counterintuitive practice, but remember that it's not important to have the answers right from the start.
The key is to structure the process in such a way as to know exactly what questions will need to be resolved in order to arrive at a correct conclusion as quickly as possible and with the greatest assurance of confidence.
Similar to what Ray Dalio writes in his best seller “Principles”, when raising ideas, a manager should always ask himself “How can I know if I'm right?”.