Frame Frame

Frame – Begin your

“
strategy journey

Strategy is a Strategy is not about making

“
decision-making
process, involving
human decision-
short-term tactical decisions,
it is about making a few big
commitments that will shape
a company and make it more
profitable.

makers Too often the strategic process

starts as an analytical exercise
and fails to take the human
element into account. And this is
precisely why good framing is so
important.

It puts the focus squarely on

picking the right strategic
challenge, as well as helping to
identify the most important
decisions that need to be made.

The key players are then united

around one main challenge and
can explore the various
possibilities. Which sets the
course for an effective, targeted
strategy. | 1
FRAME
Frame in a nutshell

Key activities Common pitfalls ! When Frame is pivotal

▪ Define the strategic ▪ Focusing on analyses rather ▪ Conflicting expectations

challenge than decisions
▪ Unclear objectives
▪ Define the strategic ▪ Focusing on too many ▪ Preparing for major change
decisions to investigate and decisions rather than the few
agree on which criteria they that matter ▪ Business unit is closely linked
need to fulfill to other business units
▪ Limiting yourself to an
▪ Identify the available insufficient scope
options for each decision,
and check assumptions
▪ Ignoring the human context in
the decision making process
▪ Clearly define the
boundaries and constraints
▪ Get insight into the context
and decision-makers
▪ Involve management
throughout the process

SOURCE: McKinsey Strategy Practice | 2

FRAME
6 Key activities to complete in Frame
Key activities to complete Core issues to solve

What is your strategic starting point and

Define the strategic challenge
challenge?

Define the strategic decisions to What is the set of strategic decisions

investigate and agree on which criteria underlying your challenge and how do
they need to fulfill you make final decisions?

What are your first hypotheses on

Identify the available options for each
solutions and what are your underlying
decision and check assumptions
Frame biases?

Clearly define the boundaries and What are the boundaries of the solution
constraints space?

Get insight into the context and Do you understand key stakeholders and
decision-makers decision-makers?

Choos
e How do you plan the strategy journey to
Involve management throughout the
ensure that you focus on the right areas
process
and build broad conviction along the way?

SOURCE: McKinsey Strategy Practice | 3

FRAME
Issue Tree – Frame – Begin your strategy journey
Key issues and sub-issues

Why are you seeking to revisit your strategy? Internal factors? External factors?

What is your strategic starting point and What specific challenges and opportunities do you need a strategy for?
challenge?
How does the stakeholder group make final decisions about which strategy to pursue and what are the
criteria (financial, feasibility, organizational, risk)?

Initial assessment: What are your “where to compete” decisions (e.g. on geographic options, customer
segments, products, channels, value chain position)?
Initial assessment: What are your “how to compete” decisions (e.g. on value proposition, business
What is the set of strategic decisions model, M&A)?
underlying your challenge and how do
Initial assessment: What are your “when to compete” decisions (e.g. on balance of horizons, staging of
you make final decisions?
moves, exercise of options)?
What other decisions does your strategic challenge give rise to?

For each of the strategic decisions what are the potential sets of solutions?
What are your first hypotheses on
Frame solutions and what are your underlying For each of your potential solutions what are your underlying assumptions?
biases?
Are your underlying assumptions backed by facts or do they need to be confirmed?

Based on context (capital constraints, owners/managers decisions, etc.) what strategic solutions are out
of scope?

What other areas do we consciously push “out of scope”?

What boundaries define the solution?
What constraints should we place on the solution?

What decisions need to be taken as a “given”?

Who are the real stakeholders/decision-makers and what are their internal relations?
Do you understand key
What is important for each stakeholder/decision-maker and what motivates them?
stakeholder/decision-makers?
How do they each want to be involved and what is their availability?

How do you plan the strategy journey Which are the most important parts of your strategy journey and what analytical work will you need to
to ensure that you focus on the right conduct on each part?
areas and build broad conviction along What mix of interactions should you schedule to ensure all stakeholders have the chance to grapple with
the way? and debate insights and decisions along the way?

SOURCE: McKinsey Strategy Practice | 4

FRAME
Issue Tree – Frame – Begin your strategy journey Essential

Key issues, actions and templates

Actions and templates
1 The art of framing – Helpful advice to get you get started

What is your strategic starting point and 2 Frame workshop – Help your clients identify their challenge and Frame their Decisions
challenge?
3 Power Curve – Value creation is far from democratic. See how your client has fared against the top 3000
global non-financial and non-public companies and track their trajectory to ground your discussion

4 The strategy table – Organize your strategic options, make them easy to review at a glance. Refine your table
throughout the strategy journey

What is the set of strategic decisions 5 Decision criteria – Propose and agree on criteria that will support and frame the decision-making process
underlying your challenge and how do you throughout the strategy journey
make final decisions? 6 Decision pyramid – Assess the nature of the decisions that need to be made – and focus on the most
strategic ones

7 Decision cycle – Rank your decisions by frequency of occurrence or required level of commitment

8 Strategy on a page – Develop your first week’s hypotheses to set the scene for debate

9 6 key sources of bias – Check against these biases and errors that we can be unaware of
What are your first hypotheses on
Frame solutions and what are your underlying 10 Bias iceberg – Surface and debate fundamental beliefs
Frame biases?
11 Advanced key assumption check– Being aware of your assumptions is vital to avoiding decision bias. Have
your key stakeholders identify and debate their assumptions

12 Ten Test Walkthrough – This provocative full-day workshop will reshape the way your clients think about their
strategy
What boundaries define the solution?
13 Ten Tests 2-pager – Quick guide to the Ten Tests

14 Strategy interview guide – Conduct interviews with the key stakeholders in order to get insight into the context
Do you understand key and decision-makers
stakeholder/decision makers?
15 Pre-Mortem – Run this quick workshop to uncover subtle obstacles and challenges – and define ways to
overcome them early on
Learn
more? – 16 Engagement principles – 4 principles to help your stakeholder interaction flow from the start
Read the
full manual 17 Strategy Development Walkthrough – This one day workshop takes your client on a journey through the full
“Frame your How do you plan the strategy journey to strategy creation process
decisions” ensure that you focus on the right areas
and build broad conviction along the way? 18 Interaction formats – Set up stakeholder interactions to optimize the participants’ benefits and engagement
in #788839
(10 min)
19 Make my work plan – Set up your strategy work plan quickly with “My Workplan” (workplan generator link to
come)

SOURCE: McKinsey Strategy Practice | 5

FRAME
Actions and templates: Strategic starting point and challenge Essential

Key issues, actions and templates

Actions and templates
1 The art of framing – Helpful advice to get you get started

2 Frame workshop – Help your clients identify their challenge and Frame their Decisions
What is your strategic starting
point and challenge?

3 Power Curve – Value creation is far from democratic. Ground your debate in a fact-based
view, pitching your client’s performance against 3,000 top global companies

What is the set of strategic decisions

underlying your challenge and how do
you make final decisions?
Frame
Frame
What are your first hypotheses on
solutions and what are your underlying
biases?

What boundaries define the solution?

Learn
more? – Do you understand key
stakeholder/decision makers?
Read the
full manual
“Frame your
decisions”
in #788839 How do you plan the strategy journey to
(10 min) ensure that you focus on the right areas
and build broad conviction along the way?

SOURCE: McKinsey Strategy Practice | 6

 FRAME
1 What do we mean by “the art of framing”?
Framing is an art form rather than a box-ticking exercise. It’s a great opportunity for the team to sit back, listen, and
respond openly and creatively
Two-thirds of executives report that they feel rushed to provide solutions during the strategic-planning processes. But
taking some time to frame issues at the outset are so important. When strategists do so, they are better able to identify the
real choices and constraints facing their organizations, and see which building blocks are likely to matter most given the
situation at hand

An example of artful framing for a Financial Institutions Group in Asia-Pacific

▪ The client was investigating a growth opportunity involving the creation of an online business. It would
Situation require significant resource investment, but with high returns. The members of the strategy team could
already see that demonstrating the channel’s potential to the top team would be rather straightforward

▪ Framing insight (1): Early identification of key risks and hurdles to execution
So they – The team saw a serious risk of cannibalization for one of the company’s existing businesses
stepped
– The new venture would also require substantial funding over the next 3 to 5 years
back and
looked
▪ Framing insight (2): Identifying the most important building block
at the – The team recognized that it would be critical to invest a disproportionate amount of time and effort to
big the Commit building block rather than steaming ahead with an analytic effort. So they developed a
picture powerful multimedia concept prototype representing key support functions to capture the imaginations
of the top team and the executives

▪ The prototype convinced leadership – including heads of Finance and IT – that the concept was
compelling for consumers. And that if the company didn’t make a move, a competitor would
▪ The channel launched it in record time, to promising early results in both customer acquisition and levels of
Impact
customer engagement
▪ The team credits the conversations and debates held during this framing period as necessary to identify
and resolve the potential stumbling blocks related to the strategic direction

SOURCE: McKinsey Strategy Practice | 7

 FRAME
2 Frame workshop – Guide your clients to identify their strategic
challenge and frame their decisions

Activities Tools Timing

 Set the context and the boundaries of  – 20’ We are struggling to
the strategy work define and agree on
the major decisions
 Agree on the main strategic decisions  Decision 45’
for our strategy …
and their priority pyramid,
decision cycle
Making a distinction
 Discuss your first thoughts on  Strategy table 45’ between decisions
alternatives for each strategic that were strategic
decision and tactical really
 Group alternatives into coherent sets  Strategy table 30’ helped to focus our
strategy work …
 Discuss what you need to believe to 60’
pursue each of the options. Discuss We now know what
what is important to pursue each one everybody thinks
 Stipulate how you will avoid bias  Pre-mortem 30’ and are in
when assessing options later agreement about
the journey
 Conduct a pre-mortem 30’ ahead …

Please note: This is a kick-off workshop and is not the same as the “Ten Test
Walkthrough” nor the “Strategy Development Walkthrough”

SOURCE: McKinsey Strategy Practice | 8

 FRAME
3 The power curve of economic profit
Average annual economic profit generated from 2007-11; USDm; N=2,2401
Contact beatingtheoddssupport@mckinsey.com for a detailed analysis of your client’s position and trajectory on the
power curve
Quintiles 1 2 3 4 5
9,000
8,000 TOP MIDDLE BOTTOM

7,000
6,000
5,000
4,000
3,000 Average top
2,000 quintile $1,246 Average middle
class $1m
1,000
Ø 102 0
-1,000
-2,000 Average bottom
quintile $(678)1
-3,000
-4,000
-5,000
Avg. EP 1246 113 1 (87) (678)
Total EP 555,529 50,514 605 (38,942) (303,655)
1 Top 3000 companies by revenues in 2011, less firms with insufficient data to calculate an accurate average economic profit for 2007-11 and 1997-01
* Companies with EP > $US 10bn excluded: Microsoft, Exxon Mobil, China Mobile, Gazprom, Apple, BHP Billiton (averages and cut-offs maintained)
* Companies with EP < $US 5bn excluded: Sprint Nextel, Kepco, EDF, Surgutneftegaz, Tepco

SOURCE: McKinsey Strategy Practice, McKinsey Corporate Performance Analytical Tool | 9

 FRAME
3 Where you play matters: Industries have an EP power curve too
Average annual economic profit generated per company from 2007-11; USDm; N=2,2401
Contact beatingtheoddssupport@mckinsey.com for a detailed analysis of your client’s position and trajectory
on the power curve
x Number of companies
Average economic profit2
$US millions
2,500

2,000

1,500

1,000

500

0
36 28 122 49 126 80 106 109 112 65
61
-500 31
Diver- Metals & Specialty Machi- Food Chemicals Auto
sified Mining retail nery products Trading 84
Wireless compon-
-1,000 telecom telecom comp-
ents Airlines
services services anies &
distri-
Pharma- Oil, Gas, Electric
butors
ceuticals and utilities
consum-
able
fuels

1 Top 3000 companies by revenues in 2011, less firms with insufficient data to calculate an accurate average economic profit for 2007-11 and 1997-01
2 Economic profit divided by number of companies; industry granularity of 60 industries

SOURCE: McKinsey Strategy Practice, McKinsey Corporate Performance Analytical Tool | 10

 FRAME
3 Good strategy should be about growing economic profit
Average annual economic profit generated from 2007-11; USD million; N=2,240
Contact beatingtheoddssupport@mckinsey.com to map your client’s trajectory on the power curve

Quintiles 1 2 3 4 5
9,000
8,000 TOP MIDDLE BOTTOM

7,000
6,000
5,000
4,000
3,000
2,000
1,000
Ø 102 0 ? ? ? ?
-1,000
-2,000
-3,000
-4,000
-5,000

Avg. EP 1246 113 1 (87) (678)

Total EP 555,529 50,514 605 (38,942) (303,655)

SOURCE: McKinsey Strategy Practice, McKinsey Corporate Performance Analytical Tool | 11

FRAME
Actions and templates: Identifying strategic decisions Essential

Key issues, actions and templates

Actions and templates

What is your strategic starting point and

challenge?

4 The strategy table – Organize your strategic options, make them easy to review at a
glance. Refine your table throughout the strategy journey

5 Decision criteria – Propose and agree on criteria that will support and frame the decision-
What is the set of strategic making process throughout the strategy journey
decisions underlying your
challenge and how do you make 6 Decision pyramid – Assess the nature of the decisions that need to be made – and focus
final decisions? on the most
strategic ones

7 Decision cycle – Rank your decisions by frequency of occurrence or required level of

Frame commitment
Frame
What are your first hypotheses on
solutions and what are your underlying
biases?

What boundaries define the solution?

Learn Do you understand key

more? – stakeholder/decision makers?
Read the
full manual
“Frame your
decisions”
How do you plan the strategy journey to
in #788839 ensure that you focus on the right areas
(10 min) and build broad conviction along the
way?

SOURCE: McKinsey Strategy Practice | 12

 FRAME
EXAMPLE FOOD RETAILER
4 The strategy table – Begin to map out alternative
choices against your biggest strategic decisions
Strategic
decisions Alternatives
Define
Price Lowest Soft
Mainstream Premium strategic
position possible discount decisions
and
Range 1,200 SKUs 12,500 SKUs 40,000 SKUs alternatives
for your
client to build
Brands >90% Private ~50% Private Brand led a structured
overview of
the solution
Loyalty None Loyalty Cards space.
Revisit and
refine the
Network Smaller, cheaper Smaller, prime Larger table
throughout
the strategy
Service level Bare bones Moderate High touch
engagement
to reflect
your latest
Category mix Core + one-offs Focus on food Extended range
thinking

SOURCE: McKinsey Strategy Practice | 13

 FRAME
4 Revisit and refine the strategy table as you go through the
strategy journey
Strategic
decisions Alternatives
Price Lowest Soft
Mainstream Premium
position possible discount

Range 1,200 SKUs 12,500 SKUs 40,000 SKUs

Do not
decide on the
Brands >90% Private ~50% Private Brand led alternatives
now – but be
prepared to
Loyalty None Loyalty Cards fill this in the
“Choose”
and
Network Smaller, cheaper Smaller, prime Larger “Commit”
building
blocks
Service level Bare bones Moderate High touch

Category mix Core + one-offs Focus on food Extended range

SOURCE: McKinsey Strategy Practice | 14

 FRAME
5 Decision criteria – Propose and agree on criteria that will support and
frame the decision-making process throughout the strategy journey
Examples

Criteria for decision-makers Example of metrics

▪ Bang for the buck ▪ Capital Efficiency Ratio (CER), i.e.
Return NPV/Capex
on capital ▪ Investment Return Rate (IRR)
▪ Return on Capital Employed (ROCE)

▪ Value of growth options ▪ ∆NPV vs. a “business as usual” case

(vs. business as usual)
Growth ▪ Value for the next phase of ▪ Option value created for the future over a
growth (vs. opportunity cost) “business as usual” case

▪ Risk exposure of the option ▪ Sensitivity to uncertainties

▪ Government and regulatory risk exposure
Risks ▪ Risk ratings for operational/
execution risks
Geographical/Market ▪ Geographical uncertainties exposure
diversification
▪ Social impact of options ▪ Number of jobs created
▪ Impact on local employees’ education
Other factors ▪ Environmental impact of ▪ Carbon footprint
options

SOURCE: McKinsey Strategy Practice | 15

 FRAME
6 Decision pyramid – Assess the nature of decisions –
and focus on the real strategic ones
Specific decisions
Description examples
Overarching ▪ Investment metrics
decisions or policies ▪ Available capital budget
which cannot be ▪ Country risk protocol
Policy/
changed
Given
decisions

Core
Key decisions which ▪ Demo plant
strategic
Strategic impact scope, ▪ Development concept
decisions
decisions direction, value of ▪ Facility sizing
opportunity ▪ Project timing/phasing

Later decisions ▪ Detailed design

which influence ▪ Drilling rig selection
Tactical strategy execution ▪ Construction schedule
decisions

SOURCE: McKinsey Strategy Practice | 16

 FRAME
7 Decision cycle – Rank your decisions by frequency or commitment
Starbucks example

Tactical decisions Strategic decisions

Increased commitment

Prom- Adver- Value Product Service Brand

Format Network
otions tising offer offer model proposition

Weekly 6 months 7 years 20 years

SOURCE: McKinsey Strategy Practice | 17

FRAME
Actions and templates: Developing hypotheses and addressing bias Essential

Key issues, actions and templates

Actions and templates

What is your strategic starting point and

challenge?

What is the set of strategic decisions

underlying your challenge and how do
you make final decisions?

8 Strategy on a page – Develop your first week’s hypotheses to set the scene for debate

9 6 key sources of bias – Check against these biases and errors that we can be unaware of
What are your first hypotheses on
solutions and what are your
underlying biases? 10 Bias iceberg – Surface and debate fundamental beliefs
Frame
Frame
11 Advanced key assumption check– Being aware of your assumptions is vital to avoiding
decision bias. Have your key stakeholders identify and debate their assumptions

What boundaries define the solution?

Do you understand key

Learn stakeholder/decision makers?
more? –
Read the
full manual
“Frame
your How do you plan the strategy journey to
decisions” ensure that you focus on the right areas
and build broad conviction along the
in #788839 way?
(10 min)

SOURCE: McKinsey Strategy Practice | 18

 FRAME
8 Strategy on a page – Build your hypotheses as a basis for debate and
analysis

What is the challenge at hand? What have we

Why?
… decided NOT
to do?
What is your ultimate goal? …
What? …

Which customers, channels, geographic

Where
options, product categories, step in the value Use the
?
chain? “Strategy on a
…
What is the value proposition, delivery model page” template
How? and capabilities? to push for
answers and
…
have your
How will the strategy unfold over time? Which elevator pitch
When? forks in the road can we anticipate? ready
… throughout the
What is the economic model? engagement
$
…

SOURCE: McKinsey Strategy Practice | 19

 FRAME
9 6 core sources of bias – Have you checked these biases and errors
that we can be unaware of?
Loss
Overconfidence Anchoring
aversion/attachment

Herding and
Confirmation bias Attribution errors
groupthink

SOURCE: McKinsey & Company | 20

 FRAME
10 Bias iceberg – Surface and debate fundamental beliefs to establish a
robust view of your client’s situation

Aspiration
How we
talk about
strategy Initiatives The most important part
of setting strategic
aspirations is to surface
and debate the
Choices fundamental beliefs
about how about how your industry
What to create will evolve and why you
strategy value make money
really is

Hamel and Prahalad’s thought experiment

about monkeys’ learnedFundamental
behavior illustrates
beliefs
their point that past experiences can create
mindsets that limit current performance

SOURCE: McKinsey Strategy Practice | 21

 FRAME
11 Advanced key assumption check – Being aware of your assumptions
is vital to avoid decision bias

“ “ “
A landline phone company An animal feed manufacturer A bank
▪ A landline phone company ▪ The client’s experience said ▪ This client asked us how to increase total
was trying to mitigate the the plant’s utilization and consumer balances, which it had been
loss of leased handsets location near farmers were pursuing by promoting high-rate time
when subscribers moved. the keys to success deposits (CDs)
They asked us for help in ▪ Although it was outside the ▪ Having ascertained that the client also had
“improving the handset initial scope of the high customer turnover and low
retrieval process” engagement, the team profitability, the team realized that it was
▪ The team overturned a key tested the assumption. And unclear how the types of larger balances
client assumption: That the showed that these two affected profitability. If some products are
phones were worth factors were actually no much more profitable than others, overall
collecting longer the drivers of profit for balance sizes may not be an
▪ The team discovered that it the client appropriate goal
would be much more ▪ Instead, the team found that ▪ To test the assumption about balances,
efficient to stop the handset product mix explained the team gathered data and determined
retrieval programs, suffer a virtually all of the profit the profitability of each product. They
small amount of handset differentials between plants discovered that some products were much
loss, and save the entire – in particular, the proportion more profitable for the bank than others
cost of physical collection of a new, low-volume and that CD customers in particular were
product that could be unprofitable, failed to generate cross-sell,
economically transported and often defected to competitors
over longer distances. This ▪ The team radically changed the bank’s
led to entirely new priorities strategy by proving that overall balances
with regard to product and were not important and that the only way
location for the client to boost profitability and
reduce the loss of customers was to
These are examples of how incorrect increase checking account balances
beliefs and assumptions can block
success

SOURCE: McKinsey Strategy Practice | 22

 FRAME
11 Key assumption check - have key stakeholders identify and debate
their assumptions in three simple steps

Basically solid or can we

Three simple steps Assumption make the counter case?
1 Gather the team and look for any “outsiders” who Assumption 1 XXX
can join the discussion and bring a fresh,
independent perspective. Quickly remind all Assumption 2 XXX
participants what a key assumption is: any premise,
statement, or fact that is believed to be true and
Assumption 3 XXX
from which a conclusion can be drawn i.e. an
underlying hypothesis that is taken for granted

2 Write all of the assumptions that underlie your To test the assumption ask
thinking about a problem on a white board. Writing ▪ How do you know each to be true?
them down is key to forcing yourself to carefully ▪ Can you think of any plausible
articulate the assumption and test it – if you try to scenario under which any of these
do this in your head you are losing most of the assumptions is not true?
value of the exercise ▪ Could any of these have been true
in the past but no longer be true?
3 For each assumption ask if it is basically solid or if ▪ What would happen to the overall
you can make a counter-case. Dig deeper to hypothesis if any assumption is
explore weak assumptions and you might find an overturned?
answer that overturns the client’s set beliefs – a real
breakthrough when it comes to problem solving

SOURCE: MCAPS | 23
FRAME
Actions and templates: Defining the boundaries Essential

Key issues, actions and templates

Actions and templates

What is your strategic starting point and

challenge?

What is the set of strategic decisions

underlying your challenge and how do
you make final decisions?

What are your first hypotheses on

solutions and what are your underlying
biases?
Frame
Frame

12 Ten Test Walkthrough – This provocative full-day workshop will reshape the way your
What boundaries define the clients think about their strategy
solution?
13 Ten Tests 2-pager – Quick guide to the Ten Tests

Do you understand key

Learn stakeholder/decision makers?
more? –
Read the
full manual
“Frame
your How do you plan the strategy journey to
ensure that you focus on the right areas
decisions” and build broad conviction along the
in #788839 way?
(10 min)

SOURCE: McKinsey Strategy Practice | 24

 FRAME
12 “Ten Test Walkthrough” – a provocative off-the-shelf workshop to
spark your client’s journey
Imagine a full-day strategy workshop with your The test most executives find tough to pass – McKinsey’s Ten
team after which you will have… Tests of strategy
▪ A common understanding of what a good 1 Will your strategy “beat the market”? or are you just playing along?

strategy is Does your strategy tap the true source …or is it based on a misplaced diagnosis of why you earn
2
▪ Pinpointed the biggest issues facing your of advantage?

Is your strategy granular about where to

returns?

…or are markets defined generically, failing to allocate

3
business compete? resources to match opportunities?

▪ Distinguished 3-5 specific areas to improve 4

Does it put the enterprise ahead of trends and
discontinuities?
…or does it assume continuation of the status quo, not
reacting to change until it’s too late?

▪ Experienced a fresh way to think and talk 5

Does the strategy embed privileged insight and
foresight?
…or does it rely on common analysis of common data to
yield common wisdom?
about strategy thanks to McKinsey experts Is uncertainty properly defined and accounted Few companies
…or is uncertainty either pass
being ignored more than
or inducing
6 three tests1
for? paralysis?
All 10
Does it balance commitment-rich choices with …or is there too much planning and
7 to 9 too little focus on
7 None
Simple but powerful exercises get you to apply flexibility and learning? choices that can unfold over time? 1
10 14
Have alternatives been evaluated without bias or …or does the strategy fall victim to biases and faulty logic in
the Ten Tests concepts to your strategy 8
false inference? the way decisions are4 made?
to 6 25
…or are the old beliefs behind the new strategy left
9 Is there true conviction to act?
unchanged? 50
1 to 3
Is your strategy translated into clear actions and …or is it a vague statement of intent that doesn’t connect to
10
reallocation of resources? new actions?

“
This is the best workshop I have ever attended…
– Client CEO
…The best day We loved the Ten Tests workshop and want to
you can spend integrate it into our mid-term review process…
with your team – Client Head of Strategy
talking about We discovered we could generate ~US$2-3b
your strategy additional revenue… – Client CEO

Contact Business_Strategy@mckinsey.com to get more information on the Ten Test Walkthrough or the
invitation email, presentation and workbook
1 No. of tests passed; % of respondents, n=2,135

SOURCE: McKinsey Strategy Practice | 25

 FRAME
13 The Ten Tests – These tests define elements of a business strategy
that will beat the market
1 Will your strategy beat the market? …or are you just playing along?

Does the strategy tap the true source …or is it based on a misplaced diagnosis of why
2
of advantage? you earn returns?

Is the strategy granular about where to …or are markets defined generically, failing to
3
compete? allocate resources to match opportunities?

Does it put the enterprise ahead of …or does it assume continuation of the status
4
trends and discontinuities? quo, not reacting to change until it’s too late?

Does the strategy embed privileged …or does it rely on common analysis of common
5
insight and foresight? data to yield common wisdom?

Is uncertainty properly defined and …or is uncertainty either being ignored or inducing
6
accounted for? paralysis?

Does it balance commitment-rich choices …or is there too much planning and too little focus
7
with flexibility and learning? on choices that can unfold over time?

Have alternatives been evaluated without …or does the strategy fall victim to biases and
8
bias or false inference? faulty logic in the way decisions are made?

…or are the old beliefs behind the new strategy

9 Is there true conviction to act?
left unchanged?

Is the strategy translated into clear …or is it a vague statement of intent that doesn’t
10
actions and reallocation of resources? connect to new actions?

SOURCE: McKinsey Strategy Practice | 26

 FRAME
13 The Ten Tests survey will help pinpoint areas of vulnerability
Responses of survey participants; Percent1 Example Output – tailor to your client needs
Less likely More likely
to pass to pass Client Average all responses1
the Test the Test
Just playing along Beating the market Just playing along Beating the market

Does your strategy tap the true source

2 of advantage? 26 40 28 6 19 37 31 13

Is your strategy granular about where to

3 compete? 32 46 19 3 37 39 20 4

Does it put the enterprise ahead of trends

29 51 17 3 26 46 24 4
4 and discontinuities?

Does your strategy embed privileged insight

34 42 21 3 28 46 22 4
5 and foresight?

Is uncertainty properly defined and

30 54 13 3 27 53 17 3
6 accounted for?

Does it balance commitment-rich choices

22 60 17 1 22 49 24 5
7 with flexibility and learning?

Have alternatives been evaluated without

30 51 19 0 28 51 19 2
8 bias or false inference?

Is there true conviction to act? 21 40 29 10 17 37 35 12

9
Is your strategy translated into clear actions 24 43 26Contact
7 18 36 33 for
12help
Ten_tests_survey@mckinsey.com
10 and reallocation of resources?
or set up the survey on the Strategy Platform

1 Sum of responses under each rating for all questions under each test divided by the total number of responses for all questions under each test

SOURCE: Ten Tests Survey results | 27

FRAME
Actions and templates: Understanding stakeholders Essential

Key issues, actions and templates

Actions and templates

What is your strategic starting point and

challenge?

What is the set of strategic decisions

underlying your challenge and how do
you make final decisions?

What are your first hypotheses on

solutions and what are your underlying
biases?

Frame
Frame What boundaries define the solution?

14 Strategy interview guide – Conduct interviews with the key stakeholders in order to get
insight into the context and decision-makers
Do you understand key
stakeholder/decision makers?
15 Pre-Mortem – Run this quick workshop to uncover subtle obstacles and challenges – and
define ways to overcome them early on
Learn
more? –
Read the
full manual
“Frame How do you plan the strategy journey to
your ensure that you focus on the right areas
decisions” and build broad conviction along the
in #788839 way?
(10 min)

SOURCE: McKinsey Strategy Practice | 28

 FRAME
14 Strategy interview guide – Conduct interviews with
your key stakeholders
▪ Do you think you have a leg up on the competition? Why?
Understanding
exactly how you
▪ Who do you think is the industry leader? What are they doing differently?
make money ▪ What is it that determines your ability to generate profit? Does this allow you to beat required
investor rates of return? If not, what would make it possible?
Dealing with ▪ What are the biggest assumptions in your business model? How certain are you of them?
risks and ▪ Which trends and uncertainties will most impact your business in the next 5–10 years? Do you
uncertainties expect to benefit from them or be hurt by them? What could you do to benefit from them?
▪ What are the decisions you and your team wrestle with the most?
▪ Are these “new decisions” or has the company been grappling with them for a while? If so, why
Defining the
have they not been made in the past?
“big decisions”
▪ Would the board/other executives agree with this list? And where do they stand with regard to
answering them?
▪ What has your strategy process looked like in the past? How has this been effective? Where
and why has decision-making bottlenecked previously?
Understanding ▪ How much capital do you/can you re-allocate annually? Do you find it difficult to
the strategic execute reallocations?
process ▪ Do you explicitly de-bias decision processes?
▪ Are you comfortable with the roles your people are playing in the process?
▪ In what ways would you like this process to be different?
▪ How granular is your perspective on your market/competition/your own business? What is your
matrix?
Pinpointing ▪ Which part of your business is growing the fastest/has the most potential?
areas of
opportunity
▪ Where are your best people? How much time do you spend on each business?
▪ Where do you spend most capex and opex and how does this align with your
biggest opportunities?

SOURCE: Director interviews | 29

 FRAME
14 Top tips for a strategy interview

▪ Find out what the CEO would most like focus on during the meeting by
Plan the dialogue giving them some options. Very often, people fail to set up a productive
carefully discussion in interviews

▪ E.g. “Where do you see uncertainties/opportunities?”

Stay away from
general questions

Ask questions that ▪ E.g. Say something more specific like: “Do you think you are beating
get a constructive the market?” This naturally leads to a conversation on Economic Profit
dialogue going and key advantages

Ask questions where ▪ E.g. “How granular is your perspective on your market/competition/your
we can immediately own business”; “What are your decisions along the strategy table”; “Do
add value you explicitly de-bias decision processes”

Ask questions where ▪ E.g. “Do you find it difficult re-allocate resources?”; “What are the
emotions will be decisions you and your team wrestle with the most?”; “Are you
triggered comfortable with the roles your people are playing in the process?”

Remember: Framing is an art form rather than a box-

ticking exercise. It’s a great opportunity for the team to
sit back, listen, and respond openly and creatively

SOURCE: Director interviews | 30

 FRAME
15 Pre-Mortem – A valuable group exercise to uncover
hidden obstacles and challenges …

“▪
What?

▪ Imagine that 5 years down the line

your strategy has failed completely
Reflect on what happened and why it
“ Why?

▪ Gets you to recognize common

pitfalls and think about what you can
do to prevent them
failed?

“▪
Who?

▪ Team responsible for designing the

strategy
Leadership team responsible for
“
▪
How?

▪ Get each person to write one idea

per post-it for 5 minutes
Collect the post-it notes and group
implementing the strategy them by theme
▪ Get people to discuss the themes
and mitigation actions

SOURCE: McKinsey Strategy Practice | 31

 FRAME
15 … and define mitigation actions early on
Example Output

Obstacles/risks Ways to overcome obstacles/mitigating actions

▪ Clarity of scope – volume, cost trade-offs
Initiative
overload ▪ Clearly manage interactions with existing initiatives and the reprioritizing of the overall
initiative portfolio

▪ Commitment across the business from all leaders (operations and support functions) starting
Lack of with CEO
leadership
▪ Clear and productive SteerCo to manage interface at all times

▪ Ideas linked to business plans, metrics and KPIs

Lack of
sustainability
▪ Strong focus on capability building
▪ Maintain focus on existing business/day-to-day work

▪ Clear and comprehensive communication from the project teams to the business and within
Lack of comm- the project teams themselves
unication and
coordination
▪ GMs responsible for selling the project to the business, supervisors outline the program to the
crew

▪ Go on-site to develop the answer with the people who do the work every day
Failure to link to
operations
▪ Understand what the data is and where to get it
▪ Ensure we have the right focus on execution (including impact of enablers)

▪ Get the right people involved – include different departments (e.g. IT, Finance, HR)
Failure to
involve the right
▪ Ensure appropriate representation in meetings and within teams
people ▪ Ensure we have the right mix of people and capabilities

SOURCE: McKinsey Strategy Practice | 32

FRAME
Actions and templates: Planning the strategy journey Essential

Key issues, actions and templates

Actions and templates

What is your strategic starting point and

challenge?

What is the set of strategic decisions

underlying your challenge and how do
you make final decisions?

What are your first hypotheses on

solutions and what are your underlying
biases?

Frame
What boundaries define the solution?
Frame

Do you understand key

stakeholder/decision makers?

16 Engagement principles – 4 principles to help your stakeholder interaction flow from the
start
Learn
more? – How do you plan the strategy 17 Strategy Development Walkthrough – This one day workshop takes your client on a
Read the journey to ensure that you focus journey through the full strategy creation process
full manual on the right areas and build broad
“Frame conviction along the way? 18 Interaction formats – Set up stakeholder interactions to optimize the participants’ benefits
your
decisions”
and engagement
in #788839
(10 min) 19 Make my work plan – Set up your strategy work plan quickly with “My Workplan”
(workplan generator link to come)

SOURCE: McKinsey Strategy Practice | 33

 FRAME
16 Engagement principles – 4 principles to help your stakeholder
interaction flow well from the start

Remember that the human context is key in decision-making processes

▪ A good strategy process engages clients in the journey from the start,
Start as you mean to rather than working out the answer and then “syndicating” it.
finish ▪ Kick off with clarity on which questions matter and who needs to
be involved
The “social process” ▪ Typically, our workplans focus on what work we’ll do and what end
needs as much products we’ll deliver … clients tend to look at the engagement as
thought as the “When will I see you and what will we talk about?”
“problem solving ▪ This needs explicit design and an assessment of whether, for the
process” in the toughest things clients need to digest, you have enough time and the
workplan right kind of interactions in place for them to be able to digest it
Trade-offs between ▪ Our default is to sacrifice the social process for scope and
scope, burden of proof analysis – but it can lead to false victories. Make these trade-offs
and the social process explicit with the clients
must be explicit
▪ The great privilege and responsibility of working on strategy is to seek
Don’t confuse
the truth. Shifts in strategy are often confronting and threaten existing
engagement with
interests, or simply counter-intuitive and take time to be accepted. The
compromise or
purpose of an effective social process is to engage clients on the
consensus
journey, but not to have them agree every step of the way

SOURCE: McKinsey Strategy Practice | 34

 FRAME
17 Strategy Development Walkthrough – A one day workshop taking your
client on a journey through the full strategy creation process

Frame Evolve
Diagnose Forecast Search Choose Commit

“ What is the Why do we

right set of make
questions? money?
What
futures do
we need to
plan for?

SOURCE: McKinsey Strategy Practice

What are
the
potential
pathways?
What is
our
integrated
strategy?
How do we How do we
drive adapt and
changes? learn?

| 35
 FRAME
17 The Strategy Development Walkthrough in a nutshell
Contact Business_Strategy@mckinsey.com
for more material

What are they? Why attend? Who attends?

▪ A half-day, senior ▪ Get clients up to speed on ▪ Single-client workshop
executive, multi-client McKinsey’s latest thinking Typically broader audience
academy or single-client on strategy development likely including working
strategy workshop team
▪ Generate a “1-day
▪ Anchored on the Strategy answer” together with ▪ For your information –
Method, clients take an your clients to spark the this can also be run as a
end-to-end journey through strategy dialogue multi-client academy
the strategy decision (Strategy Development
▪ Bring together McKinsey
making process Academy)
Partners and senior client
▪ Explores the principles that team members under an
should be kept in mind to inclusive approach
ensure that the strategy
▪ Develop common
journey embodies the
vocabulary and point of
spirit of debate and
view with your client
engagement and fosters
inspiration
▪ Mix of presentation with
facilitated discussions

SOURCE: McKinsey Strategy Practice | 36

 FRAME
18 Interaction formats – Set-up stakeholder interactions to
optimize benefits and engagement impact
Engagement What do participants get
format from it? How is it executed? When is it most impactful?
Knowledge Deep understanding of a 1–2 hours led by knowledge expert ▪ Team members have an insufficient level of
immersion specific knowledge topic – teaches content to participants understanding of specific content to draw
session insights from analysis and make decisions
Agreement on insights 1–2 hours working meeting led by ▪ Team members and senior stakeholders
and implications drawn working team facilitator – working have deeply entrenched views that may
Think tank from analysis team and senior stakeholders need validation, and like to understand and
discusses set of analysis to jointly own data to align on insights
draw insights
Agreement on insights 4–6 hours led by working team ▪ Large team wanting, or required, to
and implications drawn facilitator – broad working group contribute to solving the problem
Workshop
from open discussion discusses and aligns on relevant ▪ Time for alignment across multiple
issues stakeholders on one or more topics
Decisions and agreement 1–2 hours led by working team ▪ Specific recommendations need decisions
on recommendations and facilitator – presentation of from senior stakeholders in order to
Steering
subsequent next steps recommendations to senior progress
Committee
stakeholders (timing varies ▪ Guiding or directional inputs are required
depending on number of decisions) from senior stakeholders
Insights, knowledge and 2–3 days led by McKinsey – visit to ▪ Team is struggling with developing
Knowledge inspiration from the way companies working in other regions inspirational ideas
tour other companies work or related industries for senior ▪ Team has limited exposure or experience
stakeholders or working team outside of their company and/or industry
Perspectives on select 1–3 hour informal session (over ▪ Working team has had limited interactions
“Brown bag”
issues lunch or dinner) – for working team, outside of the immediate working group
lunches/
senior stakeholders or broader ▪ Large number of stakeholders have interest
informal
stakeholder group to discuss in the specific work
discussions
perspectives on a relevant topic

SOURCE: McKinsey Strategy Practice | 37

 FRAME
19 Make my work plan – Set up your strategy work plan quickly
with “My Workplan”
Example
Full McKinsey team
Weeks
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Frame
Frame
workshop
Diagnose
Diagnose
workshop
Work- Forecast
plan and Diagnose
manage- “Think Tanks” Search
Search
ment workshop
interac- Choose
tions Choose
workshop
Progress Commit
Commit
update workshop

Evolve

Diagnose Choose Commit Evolve

▪ Assess how the business has been ▪ Assess implication of the ▪ Develop and agree on ▪ Monthly “pulse
capturing value and why strategic options overall roadmap with checks” to
– Perform ROIC driver tree analysis ▪ Pull together, and agree on – Proximate goals monitor
– Deep dive into specific issues/trends the integrated strategy and – Resourcing plan progress of
– Initiative sequencing strategy
▪ Outline key strategic choices and what you portfolio of initiatives
Activities need to know to answer them planned to deliver it ▪ Update KPIs and targets

Frame Forecast and Search

▪ Agree on scope ▪ Agree on the strategic choices to focus on
▪ Design interaction process ▪ Create set of strategic options
▪ Send out initial data requests ▪ Agree on existing forecast analysis to
support strategic options

SOURCE: McKinsey Strategy Practice | 38