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3. MECE Part 1
When structuring your presentation, the issues you address should be MECE (mutually exclusive, collectively exhaustive). In this lesson, I'll explain this important concept with some concrete examples
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Lesson Goal (00:00)
The goal of this lesson is to apply the MECE principle to business problems.
Understanding the MECE Principle (00:06)
The issues included in a presentation should be mutually exclusive and collectively exhaustive, or MECE for short. Mutually exclusive means that the issues should not overlap, while collectively exhaustive means that the issues should include everything that is relevant.
Creating a MECE issue tree can be difficult. For example, if a business wants to increase profits, they can increase their revenue or reduce their costs. However there are many methods of increasing revenue, and some of these methods overlap. For example, changing the price of the product may require changes to the product to maintain profit margins.
In reality, business problems can rarely be solved with simple frameworks like revenue and cost, and you will need extensive domain knowledge to identify the correct MECE framework for a particular problem.
When structuring the set of issues at the heart of the problem you're trying to answer, you should aim to create a set that are mutually exclusive and collectively exhaustive, or MECE for short. This means that the set of issues should not have any overlap, and that the set should not omit any major issue. This may sound relatively straight forward, but creating a MECE issue tree can be very difficult. Particularly when answering complex problems. Let's illustrate this challenge with a very simple example. OfficeCo sells office furniture and appliances to local businesses. Our hypothesis is that OfficeCo can grow profits 20% in the next three years. Let's now break down this statement into a MECE structure. To create the initial layer of issues, let's start with defining how profits are created. Its revenues minus costs. This in itself is a very high level MECE structure, but not a very insightful one. So let's go a bit deeper. If I want to increase revenues, what are my options? Well I could change the price, change the product, change the marketing message, or change the sales channel.
At a glance, this structure still appears to be MECE. But if you look more closely, you'll see some problems. If I lower the price for example, I may have to change the product to ensure that I maintain an adequate margin. If I change the marketing channel, perhaps that will cost me more money in variable costs. So as you can see, creating a MECE issue tree can be quite difficult. As it should be. Business problems can rarely be solved with simple frameworks like revenues minus costs. Instead, solutions will often be heavily reliant on your domain knowledge to create the correct MECE framework for the problem in question. To give you an example of a tree that I consider almost entirely MECE, consider a company attempting to acquire its competitor. What are the issues that should be discussed? Well first of all, we want to consider the sale price of the target. Next, we want to consider the intrinsic value of the target that we've put on the company. After this, we want to consider the synergies or the additional value created by combining the target with our company. And then last of all, we want to consider the ease of implementation. For example, any regulatory hurdles or cultural problems that may exist. Even though this structure is still at a high level, an analyst using this structure could create a compelling case as to why this acquisition should or should not proceed by exploring four neatly defined, non-overlapping issues.