Back in 2017, with YayPay's Executive team, we had a coaching session led by Don Schiavone.
Don was talking about this principle - Mutually Exclusive, Collectively Exhaustive (MECE). That's when I first learned the name of this.
What I also realized in the middle of the session is that I was very much surprised by two facts
This describes and explains exactly how I have thought since I was a kid, which was a pleasant surprise for me
It appears that this kind of thinking is not what everyone does by default, which I thought was the case
The basic idea of this principle is following:
When you are analyzing and categorizing something in your mind, you need to make sure that this final list of categories is exactly MECE. Mutually exclusive means that these categories do not overlap, and Collectively Exhaustive means that this categorization describes the whole picture, a complete set of possibilities.
Mutually exclusive forces you to pick the criteria under which you are making this categorization (e.g., color, size), and Collectively Exhaustive - it makes sure you don't leave the gaps in the category description.
This principle is best applied to any situation where you need to build a tree-view structure of categories of something.
For example, when you categorize apples, you can say that the apples can be red and yellow. This will be mutually exclusive but not collectively exhaustive - because there are more colors. To make it MECE in this example, we just need to add "Other" to the list of options.
McKinsey invented MECE, and is actively using it for their business consulting, mainly to analyze complex problems in a company.
So let's take one of the more business-related examples. Say you want to understand what expense categories you have for all the different things you spend your money on. You could create a list like this:
Office Costs
Salaries
Rent
Bonuses
Utilities
Office Supplies
Events
Marketing
Google Ads
SMM
Looks fare. But it is not following a MECE principle because:
Office Costs should include things like Rent and Utilities and maybe even office Supplies - Not Mutually Exclusive
Events might overlap with Marketing (in case those are marketing events) - Not Mutually Exclusive
SMM and Google Ads are parts of Marketing - Not Mutually Exclusive
Clearly, this is not the full list of possible kinds of expenses - Not Collectively Exhaustive
To fix that (make it MECE-valid), we need to create second-level categories (e.g., SMM should go under Marketing together with Google Ads), and make sure we cover all the possible expense types by adding new categories and having "Other" there as well. Depending on the application, it might also make sense to collapse second-level categories into the first-level list. Here's how it might look:
Office Costs - Rent
Office Costs - Utilities
Office Costs - Supplies
Office Costs - Other
Salaries
Bonuses
Events
Marketing - Google Ads
Marketing - Events
Marketing - SMM
Marketing - Other
Other
If you do it this way, you will have no doubts about where to put an expense next time, and your financial analytics will actually make sense.
I bet that if you remember MECE principle every time you try to categorize anything - the world will make much more sense to you.