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HOW TO TELL A BUSINESS STORY USING THE MCKINSEY
SITUATION-COMPLICATION-RESOLUTION (SCR) FRAMEWORK

Posted on November 18, 2017 Written by jdonovan 0 Comments

Story elements

Before we delve into what goes where in the SCR framework, consider the
following story elements:

1. The stable era
2. The discovery of a major problem
3. The identification of the root causes
4. The projected impact should the root causes not be addressed
5. The plan to solve the problem by addressing the root causes
6. The result of the attempt to solve the problem
7. The plan to address remaining issues, if any, from the attempt to solve the
problem

The Situation-Complication-Resolution (SCR) Framework

Now, let’s define each component of SCR:

* Situation
The framing of the important, recent context the audience already knows and
accepts as fact.
* Complication
The reason the situation requires action.
* Resolution
The action required to solve a problem (or capture an opportunity).

Placing Story Elements into the SCR Framework

You might have noticed I avoided using the word “problem” in the definitions of
the situation and complication. The reason is that the problem can appear in
either place.

To understand where the problem goes, ask yourself: “Can I reasonably expect
that the audience is aware of the problem?” If not, then the problem goes in
the complication and the story is as follows:

S = 1 = The stable era
C = 2 + 3 + 4 = The discovery of a major problem, the identification of the root
causes, and the projected impact should the root causes not be addressed.
R = 5 = The plan to solve the problem by addressing the root causes.

Next, assume the audience is aware of the problem but not its root causes, in
which case we have:

S = 1 + 2 = The (brief review of) stable era and the discovery of a major
problem
C = 3 + 4 = The identification of the root causes and the projected impact
should the root causes not be addressed
R = 5 = The plan to solve the problem by addressing the root causes

You know where this is going… next assume the audience is aware of the root
causes, in which case we have:

S = 1 + 2 + 3 = The (extremely brief review of) stable era, (the brief review
of) the discovery of a major problem, and the identification of the root causes
C = 4 = The projected impact should the root causes not be addressed
R = 5 = The plan to solve the problem by addressing the root causes

Last, assume the audience is aware that an attempt has been made to solve the
problem, in which case we have:

S = 1 + 2 + 3 + 4 + 5 [I avoid writing all this out and instead emphasize that
1-4 should be very brief so that the focus is on reminding the audience about 5,
the plan.]
C = 6 = The result of the attempt to solve the problem
R = 7 = The plan to address remaining issues, if any, from the attempt to solve
the problem

Ordering the Situation, Complication, and Resolution

The two main ways to order the framework components are: S-C-R and R-S-C. Use
S-C-R when you want to build up the story, esp. when the audience is unlikely to
immediately accept your resolution. Use R-S-C when the audience will mostly
accept your resolution but still needs to build conviction.

Applying the Framework to an Example

A few years back, McKinsey applied the SCR framework to the United States Postal
Service (here). The story elements are as follows:

1. The stable era
From 2003 to 2006, the USPS reported cumulative profits of nearly $10
billion.
2. The discovery of a major problem
Starting in 2007 through (then) present (mid-2010), the USPS began
experiencing unprecedented losses
3. The identification of the root causes
The recent (2007-2010) losses have been due to (a) volume declines (b)
increased retiree health benefit funding requirements (c) lower than
expected cost savings
4. The projected impact should the root causes not be addressed
If the USPS does not act, the losses will only get worse due to megatrends,
regulations, and competitive forces. Specifically, (a) e-diversion will
accelerate volume decline (b) growing competition will cap price increases
(c) legal and regulatory requirements that require is to fund retiree
benefits and to provide universal delivery service.
5. The plan to solve the problem by addressing the root causes
USPS must do four things: (1) Drive revenue through premium services x, y, z
(2) Increase productivity by a, b, c (3) Pursue legislative reform (4)
Reduce costs by cutting delivery from 6 to 5 days per week.
6. The result of the attempt to solve the problem
Despite billions in cost reductions, losses continue to mount due to (a)
legal restrictions on pricing, (b) necessary service diversification, and
(c) operations required to provide secure, reliable and affordable postal
services to the nation, for example, an increasing number of delivery
points.
7. The plan to address remaining issues, if any, from the attempt to solve the
problem
The USPS will continue to execute the plan as expressed in (5) above.

McKinsey’s actual presentation on the USPS, an audience deeply knowledgeable
about the problem and its root causes, included the following story elements:

S = 1 + 2 + 3
C = 4
R = 5

Additional Points

* Recall, the situation is the framing of the important, recent context the
audience already knows and accepts as fact. The word “important” means the
primary (most senior) decision maker in the room will deem the situation to
have an impact on the way she measures success, aka her “True North.” She
cares about that measure(s) as well as its strategic levers. For most
executives, success is some combination of (i) increasing revenue (ii)
lowering cost (iii) reducing risk (iv) reducing effort. Increasing revenue
generally comes from selling existing products to existing customers
(upsell/cross-sell), selling existing products to new customers (often via
new distribution channels), or bringing new products to market that you sell
to existing (also cross-sell) or new customers.
* Though you may only present one resolution (which may have multiple phases),
strive to discover it by first enumerating than prioritizing a set of
mutually exclusive and collectively exhaustive (MECE) ways of solving the
problem.
* A strong resolution includes (a) what need to be done (b) how it will be done
(c) when it will be done, and (d) by whom it will be done. Moreover, the
resolution should include concrete milestones by which progress & success
will be measured. Finally, the resolution should include side-benefits and
expected consequences (with containment plans were applicable).
* I have not delved into how to express the SCR framework in a presentation.
For that, you’ll need to read Strategic Storytelling by Dave McKinsey.
However, one major principle is that the sections representing each S, C, or
R component should be built traversing an issue tree. For more on that, read
this.

Concrete Examples

1. USPS (source)

* S: USPS is experiencing unprecedented losses due to (a) volume declines (b)
increased retiree health benefit funding requirements (c) lower than expected
cost savings
* C: If we do not do anything, the losses will only get worse due to
megatrends, regulations, and competitive forces. Specifically, (a)
e-diversion will accelerate volume decline (b) growing competition will cap
price increases (c) legal and regulatory requirements that require is to fund
retiree benefits and to provide universal delivery service.
* R: USPS must do four things: (1) Drive revenue through premium services x, y,
z (2) Increase productivity by a, b, c (3) Pursue legislative reform (4)
Reduce costs by cutting delivery from 6 to 5 days per week

2. Global steel industry (source)

* S: The global steel industry is not financially sustainable as evidenced by
(a) negative cash flows (b) increasing debt leverage (c) deteriorating EBITDA
* C: The outlook remains challenging since the EBITDA margin range will remain
lower than in the past.
* R: Significant restructuring is required, esp. through (a) capacity reduction
(b) increased product differentiation

3. Addressing the global affordable housing challenge (source)

* S: There is a housing affordability gap, esp. in low income countries.
* C: Four levers can narrow the gap: (a) land (b) development (c) operations
and maintenance (d) financing
* R: The easiest lever to pull is financing via x, y, and z.

4. Commercial Payments in Asia-Pacific (source)

* S: Asia-Pacific commercial payments are growing at a fast rate due to [root
causes] of (a) account growth (b) electronic payment transaction growth. At
least in theory, there is a lot of room to grow.
* C: However, there are
* 5 roadblocks (1) lack of common standards for e-billing (2) fragmented b2b
automation value chain (3) unclear new revenue streams for incumbents (4)
large informal SME economy (5) insufficient focus from leading players
* 8 paradigm shifts (1) improving customer willingness to go digital (2)
growth of Asia-linked trade (3) technology convergence, standards, and 3rd
party platforms (4) … [see source slide 16]
* R: Government & financial services firms, and commercial players must combine
forces to enable the development of platforms to sustain growth.

5. China Retail Banking (source)

* S: The retail bank market in China is profitable at 15% EBIT and is rapidly
growing at a 12% CAGR.
* C: However, Pioneer Bank is poorly positioned to share in this growing profit
pool.
* R: Pioneer needs to acquire Shanghai Bank and invest $60 million in building
capabilities to establish a winning position.

6. Smart phones (source)

* S: Technology advancements has enabled touch screens, mobile internet, high
resolution etc.
* C: Consumers need cellphones with more capabilities.
* R: Introduce smartphone that enables the consumer to have one device for all
purposes.

7. Sustaining growth (source)

* S: The company is growing its business at a healthy rate.
* C: But we are having trouble keeping up in recruiting good candidates and are
we in danger of ‘dumbing down’ by hiring who’s available rather than who’s
best
* R: I think we need to make greater use of consultants and agency staff whilst
we sustain hiring standards and develop our ability to hire great staff.

8. Inventory (source)

* S: For the last 6 months, our inventory has been above the minimum threshold.
* C: However, this month we dipped below the threshold due to (a) unexpectedly
strong demand that is expected to continue (b) production problems that will
intensify given the age of our factory.
* R: We will fix the inventory problem in two phases. First, we will solve the
problem in the short-term by increasing production with our contract
manufacturing partner. Second, we will accelerate our plan to build a new,
larger factory.

Sources & References

https://www.slideshare.net/interviewcoach/the-mckinsey-approach-to-problem-solving-pdf?

http://elc-columbia.weebly.com/uploads/3/9/7/2/39724566/how_to_do_consulting_presentations__elc_.pdf

http://www.richardhare.com/2007/09/03/the-minto-pyramid-principle-scqa/

http://changingminds.org/techniques/speaking/preparing_presentation/scqa.htm

http://www.sollerthoughts.com/2009/11/21/using-the-minto-pyramid-principle-scqa-technique-for-effective-storytelling-presentation/

https://about.usps.com/future-postal-service/mckinsey-usps-future-bus-model2.pdf

http://www.oecd.org/sti/ind/Laying%20the%20foundations%20for%20a%20financially%20sound%20industry%20-%20OECD.pdf

http://pubdocs.worldbank.org/en/773591464879251915/housing-finance-conference2016-session-1-presentations.pdf

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