12.1 Starting with the Governing Question
Every issue tree should begin with a single governing question. This is the main question the client needs answered.
Examples include:
- Profitability: Why has profit declined?
- Market entry: Should the client enter this market?
- Growth: How can the client achieve its revenue target?
Rule: If you cannot state the governing question clearly, you are not ready to build the tree.
12.2 Breaking the Question into Subquestions
The next step is to divide the governing question into smaller questions that collectively help answer it.
For example, “Should we enter this market?” might become:
- Is the market attractive?
- Can the client compete successfully?
- Are the economics attractive?
- What risks could undermine the opportunity?
Good subquestions: Each branch should address a distinct part of the overall decision and be specific enough to investigate.
12.3 Driver Trees
A driver tree shows the variables that determine an outcome. These trees are especially useful when the relationship can be expressed mathematically or operationally.
For example:
Revenue = Number of Customers × Purchases per Customer × Average Price
You can then investigate which driver changed and which offers the greatest improvement opportunity.
Use driver trees: When you want to understand what causes a measurable business outcome.
12.4 Profit Trees
A profit tree begins with:
Profit = Revenue − Costs
Revenue may be broken into price and volume, while costs may be divided into fixed and variable costs or specific categories such as labor, materials, logistics, and overhead.
Best practice: Segment further only when it helps isolate the source of the problem. For example, compare profitability by product, region, or customer segment.
12.5 Revenue Trees
Revenue trees help explain what drives sales.
Common decompositions include:
Revenue = Price × Volume
or:
Revenue = Customers × Purchase Frequency × Average Transaction Value
The best version depends on the business model.
Practical point: Build the tree around how the client actually earns revenue rather than automatically using the same formula in every case.
12.6 Cost Trees
Cost trees break total spending into categories that can be analyzed separately.
You might divide costs into fixed and variable costs, or into labor, materials, facilities, transportation, marketing, technology, and overhead.
Priority: Focus on categories that are large, changing quickly, or unusually high relative to benchmarks.
Do not spend equal time on every expense category.
12.7 Market-Sizing Trees
Market-sizing trees break a large estimate into measurable components.
For example:
Market Size = Target Customers × Annual Purchases per Customer × Average Price
Another approach may start with total population and progressively narrow it by age, income, geography, or usage.
Goal: Create components that can be estimated reasonably and combined without double counting.
12.8 Customer Journey Structures
Some problems are best structured around the stages a customer goes through.
A simple customer journey might include awareness, consideration, purchase, usage, service, and retention.
This can be useful when analyzing customer loss, conversion problems, poor satisfaction, or declining repeat purchases.
Key question: At which stage is performance breaking down?
12.9 Process Structures
Process structures follow the sequence of activities required to produce an outcome.
For an order-fulfillment problem, the structure might include order receipt, processing, picking, packing, shipping, and delivery.
Use process structures: When the problem involves delays, bottlenecks, errors, productivity, or operational performance.
Analyze each step for time, capacity, quality, and handoff problems.
12.10 Value-Chain Structures
A value-chain structure examines the major activities involved in creating and delivering a product or service.
Typical stages might include sourcing, manufacturing, distribution, marketing, sales, and after-sales service.
Useful for: Cost reduction, competitive advantage, supply-chain problems, and operational improvement.
Look for where value is created, where cost accumulates, and where performance differs from competitors.
12.11 Decision Trees
Decision trees organize choices and their possible consequences.
For example, a company considering expansion might choose between building its own facility, acquiring a competitor, forming a partnership, or not entering at all.
Each option can then be evaluated against economics, speed, control, capabilities, and risk.
Purpose: Make alternative paths and trade-offs explicit.
12.12 Qualitative Issue Trees
Not every problem can be reduced to equations. Qualitative trees organize questions involving customers, competition, capabilities, risks, regulation, or organizational issues.
For example, an acquisition case might examine strategic fit, management capability, integration complexity, customer reaction, and regulatory risk.
Discipline: Even qualitative branches should be specific enough to analyze rather than becoming vague categories.
12.13 Testing Whether Your Branches Are Actionable
A useful branch should lead to evidence you can collect or analysis you can perform.
“Understand the market” is too broad. “Determine whether the market is large enough to support the client’s revenue target” is more actionable.
Test: Ask, “What information would I need to answer this branch?” If you cannot identify a reasonable analysis, rewrite the branch.
12.14 Prioritizing the Tree
Once the tree is built, decide where to start. Do not assume every branch deserves equal attention.
Prioritize based on:
- Impact: Which branch could most affect the outcome?
- Likelihood: Which explanation appears most plausible?
- Speed: Which question can be tested quickly?
- Evidence: Where is useful information available?
Strong candidates: Explain not only what they will analyze, but why they will analyze it first.
12.15 Revising Your Tree During the Case
Your initial issue tree is a hypothesis about how the problem should be analyzed. It should change when new evidence changes your understanding.
If data shows that revenue is stable, for example, you may stop investigating revenue and expand the cost side of the tree. If one customer segment drives nearly all of the decline, you may restructure the analysis around that segment.
Final principle: An issue tree is not something you create once and then defend. Build it to guide the analysis, test its branches with evidence, and revise it whenever a better understanding of the problem emerges.
