Solving problems is fun, especially when you get paid for doing it. It is even more fun when you get hired by McKinsey, BCG or Bain to do this for the clients.
There are typically two primary ways to approach problem-solving – “top-down” and “bottom-up“. In this post I’ll explain the differences as well as why the top-down approach is preferred by consulting firms during interviews (generally speaking).
Consulting firms take a structured approach to solving problems. This basically means breaking down larger issues into smaller pieces.
In a simple terms, the components of the problem are arranged into an “issue tree” with the most critical and overarching issues at the top.
The branches are then supported by additional, more specific, strategic, tactical and broader levels of supporting details. This is where the fun actually begins.
In this approach, the consultant begins solving the problem from the top, with the most overarching questions put up front. This is also known as the governing thought.
Once the governing thought is identified, the problem is broken down into critical components. At each step the consultant identifies what is critical to the overarching question.
After all the critical elements have been determined, the focus shifts to tactical details. If in the process, something is missed, the process is repeated, adding additional levels down the tree the tree is exhaustive.
Let me take you through an example:
In this approach, let us say that you’re working in a fin-tech company. You are facing an issue where your management believes that their have been certain fraudulent transactions.
You start with an initial belief that fraudulent transactions are a serious problem for your company. This is your hypothesis.
To test your hypothesis, you’ll need some data, so you choose some sample customer profiles and carefully follow their transactions to be certain which are fraudulent and which are not.
After collecting sufficient transactional data and enriching it with third-party data (such as information about the IP locations, time of the year, time of the day, and so on), you can:
- Estimate the cost of fraud among these cohorts and then extrapolate to your entire business.
- Build a model for predicting whether a transaction is fraudulent.
- Deploy the model to flag suspicious transactions for immediate identification.
This is the opposite of the top-down approach and, as the name implies, begins with the strategy and specific details in the first place.
In this case, you start with a laundry list of issues, then organise them into like groups, or “buckets“(consultants love buckets!).
Those buckets can often be grouped further, building levels up the tree, until, finally, the key drivers and governing thought are reached.
Let me give you an example for this:
Your client, a food delivery company, is developing a marketing strategy and gives you all their transactional data for last 1 year.
As a young consultant, you’re excited but nervous as you don’t have a clear plan of what would work for the client in the first place.
In this approach, you start with all of the transactional data and would scratch your head to see if there are any interesting relationships in it.
After sorting through various tables, pivots, charts and statistics, you arrive at your aha moment.
A compelling heat map that suggests there is a spike in customer purchases after 7 p.m. within 10km of the customer’s billing address on days when the local team plays their Indian Premier League cricket matches.
This is information that the food delivery client would find valuable for marketing purposes.
In a nutshell: Top-Down vs. Bottom-Up Approach
The simplest way to summarize the difference is :
Start at the top and you’re looking at the tree. You’re strategic.
Start at the bottom and you’re looking at the roots. You’re tactical.
Consultants are encouraged to be strategic. I will tell you why.
Why consultants love Top-Down Approach
Top down thinking is the go-to approach at McKinsey, BCG and Bain. It is considered to be logical and structured.
Second, it is able to identify overarching issues in the first place, which gives the entire team a common starting point.
It is assumed that when you start at the top, you’re more objective and rational.
It is more intuitive for consultants to think top-down. Unlike majority of people who think other way around.
Why the Bottom-Up Approach Fails
Tendency to get lost in details in the beginning makes it less preferrable among consultants
There are chances that you would miss the sight of big picture and focus too much on something non-trivial.
Due to the lack of experience of working with structured thinking, the main points listed are not effective countermeasures to solve the problem, and may even be wrong countermeasures.
It is a slower approach as one might take 45 minutes and still working with individual issues in case interview. Two people would come up with different ways to be MECE when they work with the roots. Both might be correct but it will take too much time to identify the optimal and best solution.
Well, there are certain situations where working from bottom to the top may be the only or the best option. There is no harm in having a bottom up approach. Interviewers can sometime ask you to work from the bottom, especially in market sizing and guesstimate questions.
I train my students to be comfortable with both bottom-up and top-down approach. The critical idea is to arrive at a comprehensive structure that is MECE and logical. Book a class with STEPVUE today to perfect your case interview and guesstimate skills.