Thursday, February 6, 2014

What is a "SMART" Problem Statement at McKinsey?

Aligning on the problem statement is the first step in McKinsey's approach to structured problem solving.  It is considered best practice at the Firm for these problem statements to be "SMART".  In this post I'll explain some of the characteristics of good problem statements...

What is a problem statement?

Put simply, the problem statement clearly defines - in a concise but comprehensive way - the key business problem that needs to be solved.  Even though it's called a problem "statement", it's usually in the form of a question.  The engagement team's goal is to find the most impactful answers to that question.  Problem statements are most often addressed and solved through the use of hypothesis-driven issue trees.

Why is the problem statement important?

If the team and client are not aligned on the key problem that needs to be solved, there will be a lot of wasted time, effort, and resources.  Imagine what would happen if you spend weeks, days, or even hours solving a tough problem only to learn that your client or McKinsey boss was actually expecting you to solve a different problem.

What does it mean for a problem statement to be "SMART"?

As you can see from the first exhibit, SMART is an acronym for Specific, Measurable, Action-oriented, Relevant, and Time-bound.  A good problem statement should be all of those things.  The challenge is to balance being thorough with being concise.

Some examples from problem statements that are not SMART:

  • Not specific:  "better manage the business..." - this is too generic and doesn't suggest where the greatest impact might be, how, or by when to capture it
  • Not measurable:  "reverse our deteriorating performance..." - without specifying what metrics (or KPIs - Key Performance Indicators) best reflect "performance", it's impossible to assess whether or not we've made progress
  • Not action-oriented:  "increase sales and decrease costs..." - while these are both appealing goals for any company, they have to be actionable to create impact
  • Not relevant:  "increase profits by raising prices..." - this sounds good, but not if the client is selling a commodity that sells at market prices.  The problem statement has to be relevant to the client and their key problem(s)
  • Not time-bound:  "eventually increase profits by 10%..." - a specific deadline is needed to motivate people to action, hold them accountable, and know if the project was successful

What else should inform a problem statement?

Even if a problem statement is SMART, it does a client little good if it isn't realistic for them.  So, a good problem statement also takes into account the relevant, critical factors that your client is facing.  While SMART is intended to be a comprehensive list, the factors providing important context can be endless, so it is important to focus on the vital few that are most relevant and have the greatest impact.  Some examples include:
  • Business context - what's going on at the company, in the industry, or with customers?
  • Criteria for success - what are the clients' goals for the project and more broadly?
  • Stakeholders and decision makers - who will approve the project, assess it success, and/or be impacted by it?
  • Constraints - what limitations might prevent your client from achieving a solution?
  • Risks and appetite for risk - what are the downside implications for the client, how likely are they, and how does that make them react?
  • Scope - how much work can your client take on, how far across or deep into the organization can it go, and how long do they have to do it?

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