“That’s not MECE.”
You’ve probably heard some consultant say that before. But what does it actually mean?
It’s a mental tool to help problem-solvers. Being structured in your thoughts and communication is a crucial skill when it comes to business.
In this post, I’ll explain what MECE means, why it’s important, and how you can enhance your thinking and develop better frameworks to solve any type of problems.
MECE Principle
MECE is an acronym for “mutually exclusive (ME) and collectively exhaustive (CE).” It’s a popular idea at McKinsey & Co. and the other big consulting firms.
The main goal of the MECE framework is to organize information ideas, topics, issues, or solutions - let’s call them elements.
Elements must placed in buckets where there are no overlaps between each bucket, where each element belongs to one bucket only, and where buckets include all possible elements relevant to the context.
Exhibit 1: MECE illustration
A simple example of the MECE principle would be the classification of the population of a country into age groups.
In this situation, dividing the population between adults (18+) and non-adults (below 18), would be MECE.
However, breaking down the population into an age group of below 18, and another of people between 5 and 10 would not be MECE.
Makes sense?
Let’s dive deeper into how it’s used by consultants.
Applications of MECE
Strategy consultants use this framework to approach problems for their clients and communicate.
Deconstructing problems into smaller buckets of key issues enables problem-solvers to analyze and generate solutions in a structured way.
Issue Trees
When I started in finance, I used to do financial models to value companies. Without knowing it, I was breaking down the company’s revenues in a MECE-manner.
Issue Trees are a great way to see all the parts of a business and address a problem.
An issue tree is very helpful for solving large and complex problems as it facilitates breaking them down into smaller, solvable problems. They’re also useful to identify the source(s) of a problem.
Let’s take a look.
Say a company’s profits decreased (5%) while the average of competitors saw their profits increase +5%. What could be the reason?
How can we identify the cause of this decline in profit? Let’s break this scenario down.
Exhibit 2: Profit Breakdown
This is the simple way to break down profits:
Profits are a function of (Revenues - Costs)
Revenues are a function of (# of Customers * Avg. Revenue per Customer).
Costs are the combination of (Fixed costs + Variable costs)
Do you see how the MECE principle comes into play here? Collectively, these elements all represent Profit.
Based on this issue tree, you can now proceed to ask various questions to identify where the cause of this decline in profit is coming from.
Has the Avg. revenue per customer changed?
Did we close some of our locations?
Did our suppliers increase their prices?
You get the idea.
What I love about the MECE principle and issue trees is that from a very broad question, you can narrow it down and start getting a better sense of where the root cause of the problem is.
This was a simple Issue Tree. Let’s add a layer of complexity.
Exhibit 3: Growing Profits Breakdown
These are all elements to assess when you want to increase your profits. In our initial situation, as consultants, and ultimately problem-solvers, we would ask more questions and investigate until we find an actionable way to increase profits and get back in line with the market.
Frameworks
We’ve only considered one situation (profit), but business has an infinite possibility of problems.
Here’s a website that lists all the main frameworks you should know.
The main goal for you, as a professional problem-solver, is to be able to create your own frameworks. Most of the time, you can’t use what already exists, as each situation has its own intricacies. No two problems are identical.
Being MECE is a skill you can learn. You must train yourself to think in a structured manner and break down every problem you encounter.
Whether you are a consultant, executive, business owner, you are effectively a decision-maker and problem-solver.
To become a top-tier decision maker, you need mental tools at your disposal, and the MECE principle is the first one you need.