Transcript
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Sources ofSourSnnovation: Where do good ideas come from?

Solving Business Problems

Professor Ed Barrows

Babson College

April 13th , 2011

For more information:

[email protected]

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Goal for Today

Improve your ability

to solve problems

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“Let’s Work the Problem”

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The fact is every organization faces problems—some more challenging than others. But a cool head and a structured approach will do a lot more for us than simply engaging in guesswork.

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Agenda

• Problem solving versus decision-making

• Discussion questions

• Data on decision-making

• Basic definitions

• Common Biases

• Two critical processes

• Problem solving process – Step 1: Define the problem / Exercise

– Step 2: Identify potential causes / Exercise

– Step 3: Analyze potential causes

– Step 4: Draw conclusion

– Step 5: Implement and revise

4 NOTE: This presentation was developed from Professor Gaurab Bhardwaj’s Presentation, Question-Driven Problem Solving, August, 2009, Babson College.

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Some perspective on decision-making and problem solving

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1. Are decision-making and problem-solving the same things? If not, what’s the difference?

2. Can you make decisions without solving problems and vice versa?

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Discussion Questions

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Some data to provide context

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Economist Intelligence Unit/Business Objects Survey of Executive Decision Making (2007)

• Poor data leads to poor decisions;

• As organizations grow, decision-making becomes more challenging;

• Decision support tools need to be easier to use;

• Decisions today may involve too much art and not enough science.

– 55% of respondents noted that decision processes are largely informal.

– 77% of respondents said decisions made by senior management were either “sometimes” or “frequently” wrong.

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Source: Economist Intelligence Unit, In Search of Clarity-Unraveling the Complexities of Executive Decision-Making, EIU Report, 2007.

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Some more data to provide context

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Bain survey of 760 companies from across all industries with revenues over $1 billion (2008):

• Companies in the sample that were most effective at decision-making and execution generated average total shareholder returns almost six percentage points higher than those of other firms.

• They also found that the average organization they examined had the potential to “more than double its decision effectiveness.”

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Source: Blenko, Mankins, and Rogers, The Decision-Driven Organization, Harvard Business Review, June 2010

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• Problem: Perceived gap between the existing state and a desired state, or a deviation from a norm, standard, or status quo. Although most problems turn out to have several solutions (the means to close the gap or correct the deviation), challenges arise where such means are either not obvious or are not immediately available.

• Decision: Choice made between alternative courses of action in a situation of uncertainty. Although too much uncertainty is undesirable, manageable uncertainty provides the freedom to make creative decisions.

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Basic Definitions

A problem solving process should help us identify the sources of the gap.

A decision-making process should help us choose among alternative

courses of action.

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Source: www.businessdictionary.com

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Common biases limit our ability to solve problems and make decisions

Bias Description

Availability Bias Too much importance is placed on information or data that is recent or available.

Anchoring Bias The scope or extent of the analysis is limited by the starting point.

Commitment Bias Adherence to a previous decision increases despite the knowledge of information contrary to the prior decision

Confirmation Bias The solution has been decided or is known before any data is collected or analysis is completed.

Hindsight Bias The belief that the occurrence of an event or outcome was caused by a previous action that in fact had little to do with the outcome.

Overconfidence Bias The practice of being overly optimistic often time is the face of data to the contrary.

Representative Bias The practice of assessing the likelihood of an event or outcome by drawing parallels to other events or outcomes that are unrelated.

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• Framing: When decisions are presented as gains instead of losses evidence shows people make different decisions.

• Plunging-In: People tend to dive into problem solving (gathering information, reaching conclusions) without determining whether or not they are solving the right problem or following a proper process.

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Other Challenges…

This last point we are concerned with today

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There are two basic processes

Problem-Solving Process Decision-Making Process

Our focus will be the problem solving process

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• Improves the quality of problem solving/decision making by teams and individuals.

• Makes business problems—which often seem intractable—tractable by applying structured, logical thinking.

• While there is not always ‘one right answer’, there are often several bad answers. Using a process helps eliminate the latter.

• Helps improve communication, teamwork and team processes.

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Why Bother to Use A Process?

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• This is the most important step in the process because it drives the analysis.

• Deal with facts, what is known to be true about the problem you are dealing with. Challenge assumptions.

• Separate symptoms from the actual problem(s).

• Develop a main question. Questions are the most useful way to structure problems.

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Step 1: Define the Problem

Define Problem

1

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SITUATION

• Where are you now vs. where you want to be?

• What makes the situation unsatisfactory? Why is there a need for

change?

COMPLICATION

• What is stopping you from getting to where you want to be?

• Consider the hurdles, constraints, and trade-offs

QUESTION

• What is the one main question you need to answer?

o The question should be analytical and action-oriented

o It should be a problem, not a symptom o It should be more important and urgent than other questions

o Frame the question such that it is answerable with a ‘yes’ or ‘no’

Defining the Problem with the SCQ Framework

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Not… But…

What level of inventory do I need? What should I do about my loan to Co. A?

• Questions should be phrased clearly and precisely

• Use full but succinct sentences

• Do not use compound questions; avoid the word “and” in

a question

• If possible, phrase questions so that they have a “yes” or

a “no” answer…

Are my inventories too high? Should I continue lending to Co. A?

Framing Questions

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• It forces you to analyze both possibilities rather than making an

implicit “yes” choice by framing a question as “how”

• Yes/no questions tend to be more specific, forcing a boundary

around the question, making the problem more tractable

• They prevent prior hypothesis or confirmation bias;

• Yes/No questions are balanced and thus help prevent decision-

making biases due to framing.

Why Use Yes/No Questions?

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Blank SCQ Framework

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Problem Name:

Situation (current): • • • •

• Complication (barriers): • • •

• • • •

Main Question: •

Situation (desired): • • • •

Conclusions/Recommendations •

• •

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“Failure is Not an Option”

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Having a clear definition of the problem will help us ensure that failure isn’t one of our options.

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• We want to take our main question and identify more specific questions.

• Each of these questions can be further broken down into more granular questions. These questions can then be analyzed.

• A mutually exclusive, collectively exhaustive (MECE) approach should be used for completeness purposes.

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Step 2: Identify Potential Causes

Identify Potential Causes

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• An issue tree is a hierarchy of questions and sub-questions that

helps identify the data and analyses necessary to answer the main

question. The questions are inter-connected logically.

• Starting with the main question identified using SCQ, every

question is decomposed into a set of sub-questions, ideally with a

yes/no answer.

• Continue decomposing questions into sub-questions until the final

set of sub-questions can be answered with data.

Analyzing the Problem with an Issue Tree

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Should we pursue the 1st time buyer

market in PCs?

Matches our target segments?

Differentiates us in the marketplace?

Costs to serve?

Revenue potential?

Brings us to parity with competitors?

Aligned with brand image?

Keeps us competitive?

Total market size?

Our likely market share?

Incremental sales and marketing costs?

Incremental operating costs?

Is a 1st time buyer strategy aligned with our corporate strategy?

Will 1st time buyers be profitable?

Issue Issue Tree Example

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Issue Trees Can Be Rather Comprehensive

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Source: www.deloitte.com

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To develop sub-issues from an issue, you could think in terms of: 1. what ‘whole’ does the issue represent and so what would be its

‘parts’ or sub-issues? 2. an effect (issue) and its causes (sub-issues) 3. an action (issue) and its benefits and risks (sub-issues) 4. frameworks and formulas that can be used to analyze the issue 5. factors that drive the issue you are analyzing

Because an issue can be decomposed in many ways, try a few before settling on the one that best meets your needs

Issues and Sub-Issues

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1. All sub-questions grouped together at the same level contribute

answers to the broader question one level above

2. A set of sub-questions [emanating from a single question] should

have the same level of abstraction [e.g., revenue and cost, but not

profit and cost, not revenue and volume] or be of the same type [e.g.,

actions, causes, 5-Forces]

3. A set of sub-questions must be mutually exclusive and collectively

exhaustive (MECE). (e.g. cutting a cake into smaller pieces

Three Rules for Building and Issues Tree

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Why are new product sales poor?

Low quality?

Not trendy enough?

Not sleek enough?

Inadequate promotion?

Poor product design?

Ineffective placement?

Small sales force?

Lack of advertising dollars?

Benchmark best practices?

No buy-in by head of marketing?

Product came out late?

Couldn’t find right channels?

Can This Issue Tree Be Improved?

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Permanent members of the UN Security Council ?

MECE Example

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Permanent members of the UN Security Council

USA

UK

Russia

France

China

MECE Example

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Applying MECE does not mean that you put everything

conceivable to ensure that the branches are collectively

exhaustive. Some of the issues may be irrelevant or tangential.

Think using the idea of CE and then drop those issues

that are of little use. Or, lump them under an ‘other’ category.

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Thoughts on Applying MECE

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Main Question

Sub Question

Sub Question

Sub Question

Sub Question

Sub Question

Sub Question

Blank Issue Tree

Sub Question

Sub Question

Sub Question

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Step 3: Analyze Potential Causes

• Once the questions are formulated, pick one (or more) of the subordinate questions to address.

• Identify a list of data sources that can be used to research your question.

• Seek secondary (i.e. published) data first. Time and cost permitting, seek primary data.

• Develop a work plan and assign the questions to different members of your team where possible.

Analyze Potential Causes

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Sub Question

Can Prices Be Increased?

Question Analysis Required Data Sources

• Price of current products • Prices of key competitors • Price increase history within industry • Assessment of buyer’s willingness to accept price increases

• Internal pricing summary • Competitor pricing summary • Industry pricing trends report

• Review of key customer accounts

Data Analysis Format

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Step 4: Draw Conclusions

• After all of the primary and secondary data is collected it must be synthesized.

• Raw data typically comes in various forms (e.g. qualitative narratives and quantitative analytics) and must be interpreted.

• Team members need to develop a common point of view regarding their research findings so they should work together to synthesize the findings.

• A summary of the pertinent data (one document) should be developed that incorporates all of the research especially conflicting viewpoints.

Draw Conclusions

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Industry Pricing Report

Customer Account Reviews

Competitor Summary

Pricing Analysis Findings

Over the past 10 years industry prices have increased a total of 12.3%. Increases were most aggressive in the 2002-2004 time period . Prices actually declined in briefly in 2006. Review of our accounts show that price increases failed to keep pace with the industry. Over the same time horizon, industry our prices increase 9.8% following the identical trend of the industry. Competitors pricing power was mixed…

Drawing Conclusions Example

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Step 5: Make Recommendations

• The data summary should be paired with the question.

• The main question should be addressed using the findings from step three. NOTE: if the findings are not able to address the question there has been an error in the data collection and collection may need to be expanded.)

• Where gaps exist, make assumptions but be sure to document them as such.

• Be sure that your answer to the question can be substantiated using the data.

Make Recommendations

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Pricing Analysis Findings

Over the past 10 years industry prices have increased a total of 12.3%. Increases were most aggressive in the 2002-2004 time period . Prices actually declined in briefly in 2006. Review of our accounts show that price increases failed to keep pace with the industry. Over the same time horizon, industry our prices increase 9.8% following the identical trend of the industry. Competitors pricing power was mixed…

Make Recommendations Example

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Next Steps

• Refine your SCQ template and your issues tree (make different ones)

• Develop a work plan for data collection and analysis

• Schedule time to work on this (which includes developing recommendations)

• Recognize this is challenging work

• Email me if you need help

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