Innovation Benefits Realization for Industrial Research (Part-7)


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Innovation Benefits Realization for Industrial Research (Part-7)

  1. 1. Technology Innovation Management Framework for Industrial Research Part-7 Dr. Iain Sanders January 2005
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  5. 5. WHAT SCIENTIFIC METHOD / APPROACH? Platform 3: (Stages VIII, Part 1) Integrating Technology Innovation with Business Function – Part I: Laying the Foundation
  6. 6. PLATFORM 3: VIII (1) What is our Scientific Method?  The Process and Goal of Science  History: What are the essential elements of Scientific method?  Variables: How can we extract the most information from our data?  Induction and Pattern Recognition: Where is the boundary between correlation and causality?  Deduction: What are some of the more frequent deductive fallacies committed unknowingly by „logical‟ scientists?  Experimental Techniques: What troubleshooting procedures have proven effective in all branches of science?  Objectivity: Obtaining objective knowledge, despite inescapable individual subjectivity. 6
  7. 7. PLATFORM 3: VIII (1) What is our Scientific Method? (Continued)  The Process and Goal of Science (Continued)  Evaluation of Evidence: How much leverage does prevailing theory exert in the evaluation of new ideas?  Insight: What are the major obstacles to scientific insight, and how can we avoid them?  The Scientist‟s World: What issues affect the scientist‟s interactions with fellow scientists and with society?  The Scientist: What are the essential characteristics of successful scientists? 7
  8. 8. PLATFORM 3: VIII (1) Critical Thinking  11 Critical Thinking Questions 1. What are the issue and conclusion? 2. What are the reasons? 3. What words and phrases are ambiguous? 4. What are the value conflicts and assumptions? 5. What are the descriptive assumptions? 6. Are there any fallacies in the reasoning? 7. How good is the evidence? 8. Are there rival causes? 9. Are the statistics deceptive? 10. What significant information is omitted? 11. What reasonable conclusions are possible? 8
  9. 9. PLATFORM 3: VIII (1) Critical Thinking 1. What are the issue and conclusion?  An issue is a question or controversy that is responsible for the conversation or discussion  A conclusion is the message that the speaker or writer wishes you to receive and accept 2. What are the reasons?  Reasons are explanations or rationales for why we should believe a particular conclusion. They are what is offered as a basis for why we should accept the conclusion 3. What words or phrases are ambiguous?  Ambiguity refers to the existence of multiple possible meanings for a word or phrase 9
  10. 10. PLATFORM 3: VIII (1) Critical Thinking 4. What are the value conflicts and assumptions?  An assumption is an unstated belief that supports the explicit (i.e. expressed or shown clearly and openly) reasoning  Values are ideas that people see as worthwhile. They provide standards of conduct by which we measure the quality of human behaviour)  A value assumption is an implicit (i.e. expressed in an indirect way) preference for one value over another in a particular context) 5. What are the descriptive assumptions?  A descriptive assumption is an unstated belief about how the world was, is , or will become 10
  11. 11. PLATFORM 3: VIII (1) Critical Thinking 6. Are there any fallacies in the reasoning?  A fallacy is an idea which many people believe to be true, but which is in fact false because it is based upon incorrect information or faulty reasoning 7. How good is the evidence?  What is your proof?  Where‟s the evidence?  Are you sure that‟s true?  How do you know that‟s true?  Why do you believe that?  Can you prove it? 11
  12. 12. PLATFORM 3: VIII (1) Critical Thinking 8. Are there rival causes?  In comparing causes (i.e. alternative explanations that might fit the available evidence) apply the following criteria: 1. Their logical soundness 2. Their consistency with other knowledge that you have, and 3. Their previous success in explaining or predicting events 9. Are the statistics deceptive? 10. What significant information is omitted? 11. What reasonable conclusions are possible? 12
  13. 13. PLATFORM 3: VIII (1) Critical Thinking An argument consists of a conclusion and the reasons that allegedly support it What are descriptive assumptions? Assumptions are ideas that, if true, enable us to claim that particular reasons provide support for a conclusion Several clues aid in discovering descriptive assumptions:  Keep thinking about the gap between the conclusion and reasons  Look for ideas that support reasons  Identify with the opposition  Recognize the potential existence of other means of attaining the advantage referred to in the reasons  Learn more about the issues 13
  14. 14. PLATFORM 3: VIII (1) Critical Thinking Questions to ask about research findings to decide whether or not they are dependable evidence: 1. What is the quality of the source of the report? 2. Other than the quality of the source, are there other clues included in the communication suggesting the research was well done? E.g. does the report detail any special strengths of the research? 3. Has the study been replicated? Has more than one study reached the same conclusion? 4. How selective has the communicator been in choosing studies? E.g. have relevant studies with contradictory results been omitted? Has the researcher selected only those studies that support his / her point? 5. Is there any evidence of strong-sense critical thinking? Has the speaker or writer shown a critical attitude toward earlier research that was supportive of his / her point of view? Has the communicator demonstrated a willingness to qualify? 14
  15. 15. PLATFORM 3: VIII (1) Critical Thinking Questions to ask about research findings to decide whether or not they are dependable evidence (continued): 6. Is there any reason for someone to have distorted the research? 7. Are conditions in the research artificial and therefore distorted? Always ask, “How similar are the conditions under which the research study was conducted to the situation the researcher is generalizing about?” 8. How far can we generalize , given the research sample? 9. Are there any biases or distortions in the surveys, questionnaires, ratings, or other measurements that the researcher uses? 15
  16. 16. PLATFORM 3: VIII (1) Critical Thinking Ways of detecting deceptive statistics: 1. Try to find out as much as you can about how the statistics were obtained. Ask, “How does the author or speaker know?” 2. Be alert to users of statistics concluding one thing, but proving another. 3. Blind yourselves to the writer‟s or speaker‟s statistics and compare the needed statistical evidence with statistics actually provided 4. Form your own conclusion from the statistics. If it doesn‟t match the author‟s or speaker‟s, then something is probably wrong 5. Determine what information is missing. Be especially alert for misleading numbers and percentages and for missing comparisons 16
  17. 17. PLATFORM 3: VIII (1) Critical Thinking  What significant information is omitted?  There are at least five reasons for the prevalence of omitted information: 1. Time and space limitations 2. Limited attention span 3. Inadequacies in human knowledge 4. Deception 5. Different perspectives 17
  18. 18. PLATFORM 3: VIII (1) Critical Thinking  Common Kinds of Significant Omitted Information: 1. Common counter-arguments: a. What reasons would someone who disagrees offer? b. Are there research studies that contradict the studies presented? c. Are there missing examples, testimonials, or analogies that support the other side of the argument? 2. Missing definitions: a. How would the arguments differ if key terms were defined in other ways? 3. Missing value preference or perspectives: a. From what other set of values might one approach this issue? b. What kinds of arguments would be made by someone approaching the issue from a different set of values? 18
  19. 19. PLATFORM 3: VIII (1) Critical Thinking  Common Kinds of Significant Omitted Information: 4. Origins of “facts” alluded to in the argument: a. Where do the „facts‟ come from? b. Are the factual claims supported by well-done research or by reliable sources? 5. Details of procedures used for gathering facts: a. How many people completed the questionnaire? b. How were the survey questions worded? 6. Alternative techniques for gathering or organizing the evidence: a. How might the results from an interview study differ from written questionnaire results? 19
  20. 20. PLATFORM 3: VIII (1) Critical Thinking  Common Kinds of Significant Omitted Information: 7. Missing or incomplete figures, graphs, tables, or data: a. Would the figure look different if it included evidence from earlier or later years? b. Has the author “stretched” the figure to make the differences look larger? 8. Omitted effects, both positive and negative, and both short- and long-term, of what is advocated and what is opposed: a. Has the argument left out important positive or negative consequences of a proposed action? b. Do we need to know the impact of the action on any of the following areas: political, social, economic, biological, spiritual, health, or environmental? 20
  21. 21. PLATFORM 3: VIII (1) Critical Thinking  Common Kinds of Significant Omitted Information: 9. Context of quotes and testimonials: a. Has a quote or testimonial been taken out of context? 10. Benefits accruing to the author from convincing others to follow his/her advice? a. Will the author benefit financially if we adopt his/her proposed policy? 21
  22. 22. PLATFORM 3: VIII (1) Critical Thinking What reasonable conclusions are possible? Very rarely do reasons mean just one thing After evaluating a set of reasons, you still must decide what conclusion is most consistent with the best reasons in the controversy To avoid dichotomous thinking in your search for the strongest conclusion, provide alternative contexts for the conclusions through the use of: when, where, and why questions Qualifications for conclusions will move you away from dichotomous thinking If… clauses provide a technique for expressing these qualifications 22
  23. 23. COMPARE OPPORTUNITIES Platform 3: (Stages VIII, Part 2)Integrating Technology Innovation with Business Function – Part I: Laying the Foundation
  24. 24. PLATFORM 3: VIII (2) How do we Compare Opportunities?  Decision-Making  Apply an effective decision-making process to systematically evaluate options, select the most appropriate course of action, and address problems and risks. 24
  25. 25. PLATFORM 3: VIII (2) Effective Decision-Making  An effective decision-making process will fulfill six criteria: 1. It focuses on what‟s important 2. It is logical and consistent 3. It acknowledges both subjective and objective factors and blends analytical with intuitive thinking 4. It requires only as much information and analysis as is necessary to resolve a particular dilemma 5. It encourages and guides the gathering of relevant information and informed opinion 6. It is straightforward, reliable, easy to use, and flexible 25
  27. 27. PLATFORM 3: VIII (2) (A) Work on the right decision [ PROBLEM ] Define the decision problem in such a way as to solve the right problem Be creative about the problem definition Turn problems into opportunities Define the decision problem:  Ask what triggered this decision. Why am I even considering it? State the trigger as clearly as you can, including: (1) your assumption of what the decision problem is; (2) the triggering occasion; and (3) the connection between the trigger and the problem  Question the constraints in your problem statement  Identify the essential elements of the problem  Understand what other decisions impinge on or hinge on this decision  Establish a sufficient but workable scope for your problem definition  Gain fresh insights by asking others how they see the situation Re-examine your problem definition as you go Maintain your perspective 27
  28. 28. PLATFORM 3: VIII (2) (B) Specify your [ OBJECTIVES ] Clarify what really trying to achieve with the decision Let objectives be your guide:  Objectives help you determine what information to seek  Objectives help you explain your choice to others  Objectives determine a decision‟s importance, and, consequently, how much time and effort it deserves Pitfalls to watch out for and avoid:  Often, decision-makers take too narrow a focus  They concentrate on the tangible and quantitative (cost, availability) over the intangible and subjective (features, ease of use)  They tend to stress the short-term (enjoy life today) over the long-term (have a comfortable retirement) Pitfalls occur for two main reasons: 1. Many people spend too little time and effort on the task of specifying objectives 2. Getting it right isn‟t easy 28
  29. 29. PLATFORM 3: VIII (2) (B) Specify your [ OBJECTIVES ] Master the art of identifying objectives  Write down all the concerns you hope to address through your decision. Flesh out your list by trying some of these techniques: 1. Compose a wish list. Describe as completely as you can everything that you could ever ant from your decision. What would make you really happy? 2. Think about the worst possible outcome. What do you most want to avoid? 3. Consider the decision‟s possible impact on others. What do you wish for them? 4. Ask people who have faced similar situations what they considered when making their decision 5. Consider a great – even if unfeasible – alternative. What‟s so good about it? 6. Consider a terrible alternative. What makes it so bad? 7. Think about how you would explain your decision to someone else. How would you justify it? Your answers may uncover additional concerns. 8. When facing a joint or group decision, one involving colleagues, for instance, first have each person involved follow the above suggestions (1-7) individually. Then combine the lists, using the varied perspectives to expand and refine first-take ideas. 29
  30. 30. PLATFORM 3: VIII (2) (B) Specify your [ OBJECTIVES ]  Convert your concerns into succinct objectives  Separate ends from means to establish your fundamental objectives. Asking „why?‟ will lead you to what you really care about – your fundamental objectives, as opposed to your mean objectives. Means objectives represent way stations in the progress toward a fundamental objective, the point at which you can say, “I want this for its own sake. It is a fundamental reason for my interest in this decision”.  Each means objective can serve as a stimulus for generating alternatives and can deepen your understanding of your decision problem  Only fundamental objectives should be used to evaluate and compare alternatives  Clarify what you mean by each objective  Test your objectives to see if they capture your interests 30
  31. 31. PLATFORM 3: VIII (2) (B) Specify your [ OBJECTIVES ]  Practical advice for nailing down your objectives:  Objectives are personal  Different objectives will suit different decision problems  Objectives should not be limited by the availability of or ease of access to data  Unless circumstances change markedly, well thought-out fundamental objectives for similar problems should remain relatively stable over time  If a prospective decision sits uncomfortably in your mind, you may have overlooked an important objective 31
  32. 32. PLATFORM 3: VIII (2) (C) Create imaginative [ ALTERNATIVES ] Make smarter choices by creating better alternatives to choose from Don‟t box yourself in with limited alternatives The keys to generating better alternatives:  Use your objectives – ask “How?” Asking “Why?” took you from mans to ends; asking “How?” will take you from ends back to means  Challenge constraints  Set high aspirations  Do your own thinking first  Learn from experience  Ask others for suggestions  Give your subconscious time to operate (the subconscious needs time and stimulation to do this well)  Create alternatives first, evaluate them later  Never stop looking for alternatives 32
  33. 33. PLATFORM 3: VIII (2) (C) Create imaginative [ ALTERNATIVES ] Taylor your alternatives to your problem:  Process alternatives: e.g. voting, auctions  Win-win alternatives  Information-gathering alternatives  Time-buying alternatives Know when to quit looking for alternatives. You need to balance the effort made against the quality of the alternatives found. To strike the right balance, ask yourself these questions:  Have you thought hard about your alternatives, using the techniques listed above?  Would you b satisfied with one of your existing alternatives as a final decision?  Do you have a range of alternatives? Are some alternatives distinctly different from the others? (If your alternatives all seem too similar, you need to push your creativity)  Do other elements of this decision (such as consequences and tradeoffs) require your time and attention?  Would time spent on other decisions or activities be more productive? If you answer “yes” to each of these questions, stop looking for more alternatives and apply your energies elsewhere 33
  34. 34. PLATFORM 3: VIII (2) (D) Understand the [ CONSEQUENCES ] Describe how well each alternative meets your objectives Describe consequences with appropriate accuracy, completeness, and precision Build a consequence table: 1. Mentally put yourself in the future 2. Create a free-form description of the consequences of each alternative. Write down each consequence using the words and numbers that best capture its key characteristics:  Gather hard information  Use numbers where appropriate  Use graphics – diagrams, photos, symbols – if they are revealing and can be used consistently  Check your description against your list of objectives. Do your descriptions take into account all your objectives? If you‟ve missed any, you will need to fill in the gaps. Does any of your descriptions imply a previously unstated objective? If so, you will want to evaluate its appropriateness and, if it is to be retained, apply it to your other alternatives 34
  35. 35. PLATFORM 3: VIII (2) (D) Understand the [ CONSEQUENCES ]  Build a consequence table (continued): 3. Eliminate any clearly inferior alternatives. Try to knock one alternative out with another: for example:  Take two alternatives. Select one as the tentative „king‟, e.g. the status quo  Use your descriptions to identify the pros (in one list) and the cons (in another) of the king in relation to the second alternative, making sure you cover each objective . If one alternative emerges as clearly superior, eliminate the other an use he survivor as the king for the next comparison. If neither is eliminated, retain the second alternative and continue your comparisons using your original king.  Continue through your lists of alternatives, comparing them in pairs. At the end of the process, one alternative may emerge as the clear selection. If not, continue to the next step 4. Organize descriptions of remaining alternatives into a consequence table 35
  36. 36. PLATFORM 3: VIII (2) (D) Understand the [ CONSEQUENCES ]  Compare alternatives using the consequence table:  Using pencil and paper or a computer spreadsheet, list your objectives down the left side of a page and your alternatives along the top. (This will give you an empty matrix)  In each box of the matrix, write a concise description of the consequence that the given alternative (indicated by the column) will have for the given objective (indicated by the row). You‟ll likely describe some consequences quantitatively, using numbers, while expressing others in qualitative terms, using words. The important thing is to use consistent terminology in describing all the consequences for a given objective – in other words, use consistent terms across each row. Now, compare pairs of alternatives again, and eliminate any that are inferior. If the choice is not obvious, you‟re going to have to make tradeoffs (see the next section) 36
  37. 37. PLATFORM 3: VIII (2) (D) Understand the [ CONSEQUENCES ] Master the art of describing consequences:  Try before you buy: experience the consequences of an alternative before you choose it, whenever this is feasible  Use common scales to describe the consequences (that represent measurable, meaningful categories that capture the essence of your objective). For intangible qualities: 1. Select a meaningful scale that captures the essence of the corresponding objective 2. Construct a subjective scale that directly measures your objective. To construct a scale yourself, you need to define concretely as many levels as are needed to distinguish significant differences in consequences  Don‟t rely on hard data:  Give due recognition to objectives that can‟t be measured by hard data  Choose scales that are relevant, regardless of the availability of hard data  Make the most of available information  Use experts wisely  Choose scales that reflect an appropriate level of precision  Address major uncertainty head on 37
  38. 38. PLATFORM 3: VIII (2) (E) Grapple with your [ TRADEOFFS ] Making tough compromises when you can‟t achieve all your objectives at once Find and eliminate dominated alternatives before having to make tradeoffs Make tradeoffs using even swaps if you still have more than one alternative in contention The even swap method:  If all alternatives are rated equally for a give objective – for example all cost the same – then you can ignore that objective in choosing among those alternatives  As more objectives are eliminated, additional alternatives can be eliminated because of dominance, and the decision becomes easier 38
  39. 39. PLATFORM 3: VIII (2) (E) Grapple with your [ TRADEOFFS ] The even swap method (continued):  The even swap method provides a way to adjust the consequences of different alternatives in order to render them equivalent in terms of a given objective  Thus the objective becomes irrelevant for making a decision because no consequence is dominant:  E.g. AA charges $100 more than UA for a flight. You might swap a $100 reduction in AA charges for 2,000 less AA frequent flyer miles. I.e. you‟d „pay‟ 2,000 frequent flyer miles for the fare cut. As its name implies, an even swap increases the value of an alternative in terms of one objective while decreasing its value by an equivalent amount in terms of another objective  In essence, the even swap method is a form of bartering – it forces you to think about the value of one objective in terms of another 39
  40. 40. PLATFORM 3: VIII (2) (E) Grapple with your [ TRADEOFFS ] Steps for the even swap method: 1. Determine the change necessary to cancel out an objective 2. Assess what change in an other objective would compensate for the needed change 3. Make the even swap 4. Cancel out the now-irrelevant objective 5. Eliminate the dominated alternative Practical advice for making even swaps:  Make the easiest / easier swaps first  Concentrate on the amount of the swap, not on the perceived importance of the objective  Value an incremental change based on what you start with. It‟s not enough to look just at the size of the slice; you also need to look at the size of the pie  Make consistent swaps  Seek out information to make informed swaps  Practice makes perfect 40
  41. 41. PLATFORM 3: VIII (2) (F) Clarify your [ UNCERTAINTIES ]  Think about and act on uncertainties affecting your decision  Distinguish smart choices from good consequences: e.g.  A smart choice, a bad consequence  A poor choice, a good consequence  Use risk profiles to simplify decisions involving uncertainty. To make sense of uncertainty, you need to fund a way to simplify it – to isolate its elements and evaluate them one by one. You can do this by using risk profiles 41
  42. 42. PLATFORM 3: VIII (2) (F) Clarify your [ UNCERTAINTIES ]  A risk profile captures the essential information about the way uncertainty affects an alternative. It answers four key questions: 1. What are the key uncertainties? 2. What are the possible outcomes of these uncertainties? 3. What are the chances of occurrence of each possible outcome? 4. What are the consequences of each outcome? 42
  43. 43. PLATFORM 3: VIII (2) (F) Clarify your [ UNCERTAINTIES ] How to construct a risk profile A. Identify the Key Uncertainties: 1. List all the uncertainties that might significantly influence the consequences of any alternatives 2. Consider these uncertainties one at a time and determine whether and to what degree their various possible outcomes might influence the decision. When there are many possible uncertainties, winnow them down to the few that are likely to matter most B. Define Outcomes: 1. How many possible outcomes need to be defined to express the extent of each uncertainty? 2. How can ach outcome best be defined? C. Assign Chances: 1. Use your judgement 2. Consult existing information 3. Collect new data 4. Ask experts 5. Break uncertainties into their components 43
  44. 44. PLATFORM 3: VIII (2) (F) Clarify your [ UNCERTAINTIES ] How to construct a risk profile (continued) D. Clarify the Consequences: depending upon the complexity of the decision, lay out the con- sequences in one of three ways: 1. A written decision (least precise) 2. A qualitative description by objective 3. A quantitative description by objective (most precise) Picture risk profiles with decision trees  Example of a Decision Tree: Should we develop a new product or consolidate? 44
  45. 45. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ]  Account for your appetite for risk  Understand your willingness to take risks  The more likely the outcomes with better consequences and less likely the outcomes with poor consequences, the more desirable the risk profile to you  Incorporate your risk tolerance into your decisions: taking the following three steps: 1. Think hard about the relative desirability of the consequences of the alternatives you‟re considering 2. Balance the desirability of the consequences with their chances of occurring 3. Choose the most attractive alternative 45
  46. 46. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] Quantify risk tolerance with desirability scoring. This is a 4- step process: 1. Assign desirability scores to all consequences. Begin by comparing the consequences and ranking them from best to worst. Assign the score of 100 to the best and 0 to the worst consequence. Assign a score to each of the remaining consequences that reflects its relative desirability 2. Calculate each consequence‟s contribution to the overall desirability of the alternative. Account for each outcome‟s chance of occurring – its probability. Multiply its associated outcome‟s probability by its desirability score assigned in the first step 3. Calculate each alternative‟s overall desirability score. Add the individual consequence contributions (step 2) to arrive at an overall desirability score for each alternative. (The overall desirability score of an alternative is the average of the desirability scores of its consequences, weighted by the chances of their associated outcomes) 4. Compare the overall desirability scores associated with the alternatives and choose 46
  47. 47. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] The desirability curve: when you have many possible consequences, the assignment of desirability scores can become difficult and time consuming. Fortunately, there is a shortcut: the desirability curve. After plotting the desirability scores of a few representative consequences – you connect them on a graph to form a curve. You can then use this curve to determine the desirability scores of all other possible consequences There‟s one important limitation to the use of desirability curves: you can use them only when each of the consequences can be expressed using a single, numerical variable, such as dollars, acres, years, or lives saved etc. Desirability curves can be so useful , however, that it will often be worthwhile to use the Even Swap Method to convert consequences described by multiple variables into a single, numerical term 47
  48. 48. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] The desirability curve can deal with variable subjective risk tolerance. What you do is: 1. Construct a desirability curve (often referred to in the literature as a utility curve) that assigns a desirability score to each payoff that reflects the subjective desirability of (e.g. a financial investment‟s return to you) see figure below: 100 MORE RISK AVERSE Desirability RISK AVERSE NEUTRAL RISK RISK SEEKING Score MORE RISK SEEKING 0 Worst Consequence Best 48
  49. 49. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] 2. Use the desirability scores of the possible payoffs and their chances to calculate an overall desirability score for each alternative 3. Choose by comparing the overall desirability scores of the alternatives For a given risk profile, the risk adjustment is an indicator of your risk aversion. The larger the risk adjustment for any given risk profile, the more risk averse you are and vice versa 100 MORE RISK AVERSE Desirability RISK AVERSE NEUTRAL RISK RISK SEEKING Score MORE RISK SEEKING 0 Worst Consequence Best 49
  50. 50. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] In fact, the shape of your desirability curve is a very good indicator of your overall risk tolerance. An upwardly bowed curve indicates a risk- averse attitude with a greater risk aversion indicated by greater curvature. A straight line represents a risk-neutral attitude, and a downwardly bowed curve connotes a risk-seeking attitude Pitfalls to watch out for:  Don‟t over focus on the negative. In many cases the upside potential will far outweigh the downside risk. Consider the full range of consequences, not just the bad ones  Don‟t fudge the probabilities to account for risk. Judge chances on their own merits, without regard for your risk tolerance. Account for your risk tolerance separately  Don‟t ignore significant uncertainty. Don‟t eliminate complexity by ignoring uncertainty. When uncertainty is significant, develop a risk profile for each alternative which captures the essence of the uncertainty 50
  51. 51. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] Pitfalls to watch out for (continued):  Avoid foolish optimism. Think hard and realistically about what can go wrong as well as what can go right  Don‟t avoid making risky decisions because they are complex. Don‟t despair; you can deal sensibly with complexity and reach a smart choice  Make sure your subordinates reflect our organization‟s risk tolerance in their decisions. An organization‟s leaders should take three simple steps to guide subordinates in dealing successfully with risk 1. Sketch desirability curves that reflect the risk-taking attitude of our organization 2. Communicate the appropriate risk tolerance by issuing guidelines that include examples of how typical risky decisions should be handled 3. Examine the organization‟s incentives to ensure that they are consistent with the desired risk-taking behaviour 51
  52. 52. PLATFORM 3: VIII (2) (G) Think hard about your [ RISK TOLERANCE ] Open up new opportunities by managing risk. When facing a risk that exceeds your comfort level, there may be ways to manage this risk to make it acceptable to you: 1. Share the risk. When a good opportunity feels to risky, share the risk with others 2. Seek risk-reducing information. Try to temper risk by seeking information that can reduce uncertainty 3. Diversify the risk. Avoid placing all your eggs in just a few baskets. Look for ways to diversify 4. Hedge the risk. When fluctuations in market prices or rates (e.g. interest rates, exchange rates etc.) expose you to discomforting risk, look for ways to hedge: e..g buying contracts on the commodities exchange that put a floor on future prices, sign annual fixed-price contracts etc. 5. Insure against risk. Whenever a risk consists of a significant but rare downside, with no upside, try to insure against it. But don‟t over-insure 52
  53. 53. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Plan ahead by effectively coordinating current and future decisions  Make smart linked decisions by planning ahead. Making smart choices about linked decisions requires understanding the relationships among them  The decisions linked to a basic decision can take two forms: 1. Information decisions – are pursued before making the basic decision. They are linked because the information you obtain helps you make a smarter choice in the basic decision 2. Future decisions – are made after the consequences of a basic decision become known. They are linked because the alternatives that will be available in the future depend on the choice made now  By plotting out these relationships as a decide-learn sequence, you are able to clarify the sequence of decisions and see how each one will influence the others 53
  55. 55. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  The essence of making smart linked decisions is planning ahead  Makers of effective linked decisions, like successful chess players, plan a few decisions ahead before making their current decision  Follow six steps to analyze linked decisions. The trick to making such decisions, is to size up the situation and then focus your attention on those aspects that matter most 55
  56. 56. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  First step to analyzing linked decisions  Understand the basic decision problem. Begin with the first three core elements of our general approach: define the problem, specify objectives, and generate alternatives.  Then identify the uncertainties that influence the consequences of the alternatives.  The uncertainties are the crux of linked decisions. Without them, there would be no reason to link decisions in decide-learn sequences, because there would be nothing to learn between decisions  Draw up a list of the uncertainties. Then narrow the list down, selecting the few uncertainties, maybe just one or two, that most influence consequences.  These uncertainties are candidates for developing risk profiles, if necessary, in future steps  For less significant uncertainties, make a reasonable assumption of how they will turn out. There is no need to do a full analysis of every uncertainty confronting you 56
  57. 57. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Second step to analyzing linked decisions  Identify ways to reduce critical uncertainties  Getting information before deciding means becoming proactive about the learning portion of the decide-learn sequence.  You consciously defer making a basic decision in order to seek information that can reduce or resolve future uncertainties and thus improve your basic decision  To create information-gathering strategies, you need to decide what information is important and how to gather it:  For each critical uncertainty, list the kinds of information that could reduce your uncertainty, and then determine how your view of the decision might change in the face of the new information  Think about ways to obtain the important information. To collect information, use different methods to determine what to get and how to get it 57
  58. 58. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Third step to analyzing linked decisions  Identify future decisions linked to the basic decision  To identify relevant future decisions, you need to ask what decisions would naturally follow each alternative in your basic decision  For your linked decisions, list all the future decisions you can think of, then winnow the list to the few that seem most significant  How far should you look when considering potential future decisions? Not too far. Look for a natural time horizon – where future decisions are only weakly linked to the consequences of your basic decision  In most cases, include your basic decision and, at most, two future decisions. Keep it simple 58
  59. 59. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Fourth step to analyzing linked decisions  Understand relationships in linked decisions. You can draw a decision tree to represent the links between choices and learned information in sequence. The tree should include the basic decision and any important information decisions and future decisions linked to it  Here are a few suggestions for drawing a decision tree: 1. Get the timing right. What happens when? What comes before what? When will key information become available? When can decisions be made? Organize your answers into a table, a timeline, or a figure (like the one shown previously) to help you understand the flow of information, events, and decisions. Anticipating the timing of and the order in which decisions should be made and information gathered is fundamental to making effective linked decisions 2. Sketch the essence of the decision problem. Use your notes to construct a decision tree. Start on the left with information choices (if any) and outcomes, then fill in the middle by defining your basic decision, and finally complete the right side of the tree with future decisions and uncertainties associated with them 59
  60. 60. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Fourth step to analyzing linked decisions (continued)  Here are a few suggestions for drawing a decision tree (continued): 3. Describe the consequences at the end points. The end points on the tree represent the consequences of having followed a particular sequence of alternatives and outcomes. Use the ideas listed under (D) Consequences and (F) Uncertainties to describe the consequences of each sequence in terms of your fundamental objectives, keeping in mind what can happen in the future and what has already happened along the way 60
  61. 61. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Fifth step to analyzing linked decisions  Decide what to do in the basic decision  To “solve” your basic decision problem, you want to think ahead and then work backward in the time. The decision tree will help you  Start at the end of the tree (the right side) and work backward. At each decision point, think hard and decide what choice you would like when and if you ever reach that point  Lop off the branches representing the alternatives not taken  Continue working backward until you reach the individual alternatives for the basic decision  You will now have a plan for each alternative so you will be able to evaluate it more clearly 61
  62. 62. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Sixth step to analyzing linked decisions  Treat later decisions as new decision problems  However well you‟ve prepared earlier, when you actually reach subsequent decision points, you should rethink the situation  Your circumstances and perspective may have changed, and, due to the passage of time, you can now see further ahead from this point than you could before  Take advantage of new knowledge to enhance your understanding of your new decision problem and improve your plan  What was once a future decision is now a nw basic decision 62
  63. 63. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Keep your options open with flexible plans  Sometimes uncertainty is so great and the present environment so changeable that it is difficult to plan future decisions with confidence  Flexible plans keep your options open. They can take a number of forms 63
  64. 64. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Examples of Flexible Plans:  All-weather plans. They represent a compromise strategy. In highly volatile situations, where the risk of outright failure is great, an all purpose plan is often the safest plan  Short-cycle plans. With this strategy, you make the best possible choice at the outset, then reassess that choice often  Option wideners. Sometimes the best plan is to act in a way that expands your set of future alternatives  Be “prepared” plans. These backup plans stress preparedness – having a reasonable response available for most contingencies. As the old expression has it, “Success is what happens when preparation meets opportunity” 64
  65. 65. PLATFORM 3: VIII (2) (H) Consider [ LINKED DECISIONS ]  Maintain your perspective. Your comfort level with your choices may not be as high on linked decisions as on simpler ones, but your accomplishments may be much greater  Over time, making smart choices on linked decisions will affect your life and career more positively and profoundly than making perfect choices on all your simpler decisions put together 65
  66. 66. PLATFORM 3: VIII (2) (I) Consider PSYCHOLOGICAL TRAPS  Avoid some of the tricks your mind can play on you when you‟re deciding  The eight most common and most serious errors in decision-making: 1. Working on the wrong problem 2. Failing to identify your key objectives 3. Failing to develop a range of good, creative alternatives 4. Overlooking crucial consequences of your alternatives 5. Giving inadequate thought to tradeoffs 6. Disregarding uncertainty 7. Failing to account for your risk tolerance 8. Failing to plan ahead when decisions are linked over time 66
  67. 67. PLATFORM 3: VIII (2) (I) Consider PSYCHOLOGICAL TRAPS  There are also an entirely different category of errors known as “psychological traps”  The best protection against these traps is awareness: I. Over-relying on first thoughts: The Anchoring Trap II. Keeping on keeping on: The Status Quo Trap III. Protecting earlier choices: The Sunk-Cost Trap IV. Seeing what you want to see: The Confirming-Evidence Trap V. Posing the wrong question: The Framing Trap VI. Being too sure of yourself: The Over-Confidence Trap VII. Focusing on dramatic events: The Recallability Trap VIII. Neglecting relevant information: The Base-Rate Trap IX. Slanting probabilities and estimates: The Prudence Trap X. Seeing patterns where none exist: The Outguessing Randomness Trap XI. Going mystical about coincidences: The Surprised-By-Surprises Trap 67
  68. 68. PLATFORM 3: VIII (2) (J) Be a WISE DECISION-MAKER  Make smart choices a way of life  The art of good decision making lies in systematic thinking. A systematic approach helps you to: 1. Address the right decision problem 2. Clarify your real objectives 3. Develop a range of creative alternatives 4. Understand the consequences of your decision 5. Make appropriate trade-offs among conflicting objectives 6. Deal sensibly with uncertainties 7. Take account of your risk-taking attitude 8. Plan ahead for decisions linked over time  Procrastination is the bane of good decision making – so get started. And once you get started, don‟t let yourself get bogged down. For a simple or routine decision, imagine that you have only a few minutes to make it; for a more important complex decision, imagine that you have only a few hours 68
  69. 69. PLATFORM 3: VIII (2) (J) Be a WISE DECISION-MAKER  The core practices of the successful decision maker: I. Get started II. Concentrate on what‟s important III. Develop a plan of attack IV. Chip away at complexity V. Get unstuck VI. Know when to quit VII. Use your advisors wisely VIII. Establish basic decision making principles IX. Tune up your decision making style X. Take charge of your decision making 69
  70. 70. PLATFORM 3: VIII (2) (J) I. Get Started  Ten diagnostic questions: 1. What‟s my decision problem? What, broadly, do I have to decide? What specific decisions do I have to make as a part of the broad decision? 2. What are my fundamental objectives? Have I asked “why” enough times to get to my bedrock wants and needs? 3. What are my alternatives? Can I think of more good ones? 4. What are the consequences of each alternative in terms of the achievement of each of my objectives? Can my alternatives be safely eliminated? 5. What are the tradeoffs among my more important objectives? Where do conflicting objectives concern me the most? 6. Do any uncertainties pose serious problems? If so, which ones? How do they impact the consequences? 7. How much risk am I willing to take? How good and how bad are the various possible consequences? What are ways of reducing my risk? 8. Have I thought ahead, planning out into the future? Can I reduce my uncertainties by gathering information? What are the potential gains and the costs in time, money, and effort? 9. Is the decision obvious or pretty clear at this point? What reservations do I have about deciding now? In what ways could the decision be improved by a modest amount of added time and effort? 10. What should I be working on? If the decision isn‟t obvious, what do the critical issues appear to be? What facts and opinions would make my job easier? 70
  71. 71. PLATFORM 3: VIII (2) (J) I. Get Started  Quickly run through all the decision elements: problem, objectives, alternatives, consequences, t radeoffs, uncertainties, risk tolerance, and linkage  Analyze each quickly. Don‟t worry about doing things just right  Try for an overview of your decision problem. See how the pieces fit together 71
  72. 72. PLATFORM 3: VIII (2) (J) II. Concentrate on What‟s Important  For most decisions, it will be whatever is bothering you about the decision  If what‟s important isn‟t obvious, ask yourself “What‟s blocking me from making this decision? Why can‟t I just decide now?”  The answer will indicate where you need to focus your attention 72
  73. 73. PLATFORM 3: VIII (2) (J) III. Develop a Plan of Attack Once you‟ve scoped out the decision and focused your sights, you‟ll next want to plan an orderly approach to find a resolution to your decision problem. Do you need information? Clearer objectives? Better alternatives? Proceed systematically to fill in the gaps, and then review your understanding of your decision problem as a whole Remember, however, that the problem definition may change as you dig in, so be flexible. Ask these kinds of questions:  Is my decision obvious now?  If not, is it worth more effort, or should I just pick the best contender?  What have I learned? How has my perception of the problem changed?  What should I work on next? Revise your plan and continue. Repeat this process as necessary until your decision is made. Always be willing to stop, reassess, and reformulate your plan. Keep asking, “What‟s bothering me? What‟s blocking me? Why can‟t I just decide now?” 73
  74. 74. PLATFORM 3: VIII (2) (J) IV. Chip Away at Complexity  The following techniques will help you cope with some seemingly impossible situations  Make decisions in layers: with a series of interrelated decisions, start with the broadest one first, work down to the next level, then further down to the more detailed level: e.g. 1. What job to take in a new city  2. What neighbourhood to live in  3. What apartment to rent At each level, make sure you have a sense of the most promising alternatives in the next level down, as they might influence your current, higher-level choice. E.g. make strategic decisions first, tactical decisions second, and operational decisions last 74
  75. 75. PLATFORM 3: VIII (2) (J) IV. Chip Away at Complexity  The following techniques will help you cope with some seemingly impossible situations (cont.)  Zoom out and zoom in: zooming out corresponds to looking at the big picture (the higher-level, strategic decision); zooming in corresponds to examining the details (the lower-level, tactical and operational decisions). With zooming, however, you don‟t make decisions at any level until you‟ve considered decisions at each level several times. You start zoomed out and tentatively make the high-level decision, then you zoom in and consider how you would make several lower-level decisions that depend on the higher-level decision. Having done that, you zoom back out and reconsider the higher-level decision, armed with the perspective of having seen its implications at the lower level. You may zoom in and out several times before settling on the higher- level decision. Considering the impact on lower-level decisions serves as a reality check on the higher-level one before you make it 75
  76. 76. PLATFORM 3: VIII (2) (J) IV. Chip Away at Complexity  The following techniques will help you cope with some seemingly impossible situations (cont.)  Compare consistent decision bundles: certain choices naturally go together – they constitute consistent bundles. E.g. job offer with neighbourhood to live in and part-time graduate studies to pursue nearby  Pick the appropriate level of detail: match the level of detail in your analysis to the breadth of your problem definition; the broader the definition, the less detailed the analysis needs to be. Time after time, we see people greatly expand the breadth of a problem definition, maintain a high level of detail, and then complain about complexity. (The art of being wise is knowing what to overlook). You must find , by trial and error, advice, or experience, the level of detail that works for the decision problem at hand 76
  77. 77. PLATFORM 3: VIII (2) (J) V. Get Unstuck  Many times in a decision making process you may find yourself stuck, unable to make any forward progress. Sometimes you can‟t get started  Find someone to talk to about your decision problem – let your mouth start your mind. Once you get talking, you‟ll see connections you never saw before. All the better if you prepare for the session by jotting down notes beforehand  A good way to get unstuck is to imagine that you have to advise someone else who has the a problem identical to yours. “If you had to give advice to someone else in exactly this same situation, what would you say?”  Another way out: if you face an obstacle to making a decision, consider what you would do if the obstacle disappeared. If money is the problem, for example, imagine that you have all you‟ll ever need 77
  78. 78. PLATFORM 3: VIII (2) (J) VI. Know When to Quit Balance deliberation with speed. How do you know when enough is enough? You balance the cost of putting in the extra effort against the benefit of possibly coming up with a better choice. These questions will help you decide:  Do you feel you have a reasonable grasp of your decision problem?  Have you already thoughtfully covered each element in the decision making process relevant to your decision?  Would you be satisfied if you chose one of the existing alternatives?  Could the best alternatives disappear if you wait much longer?  Is it unlikely that could devise a new, better alternative with additional time for thought?  Would a perfect solution be only slightly better than your current best alternative?  Will taking more time for this decision seriously detract from your other important activities and decisions? Clearly, if all or almost all your answers to these questions are “yes” you should quit analyzing and decide. Sometimes you have to consciously protect yourself against overdoing it. “Analysis paralysis”. Seldom does a perfect solution exist 78
  79. 79. PLATFORM 3: VIII (2) (J) VII. Use Your Advisors Wisely  To make a decision beyond your sphere of expertise, you‟ll often need to seek advice from others. But if you ask your experts to decide for you, rather than help you to decide, your choices are unlikely to fully reflect your objectives, tradeoffs, and risk tolerance  If you want advice on what to decide, make sure you communicate your objectives, tradeoffs, and risk tolerance along with your perception of the problem. Better yet, decide for yourself after soliciting and incorporating their input on problem definition, alternatives, consequences, and uncertainties  Use advisors for what they‟re good at – providing information about what is or what might be. Use your own judgement about what you know much better than they can – namely, your values and objectives. Then combine it all yourself and decide. After all, its your choice 79
  80. 80. PLATFORM 3: VIII (2) (J) VIII. Establish Basic Decision- Making Principles  Minor, routine decisions rarely warrant a full-blown analysis. But although they may be relatively inconsequential as individual decisions, the sum of all of them can be very consequential  You will gain by making thoughtful decisions about the principle on which you make everyday choices. That way, when you decide routinely – almost on automatic pilot – your autopilot will have some policies built in that reflect your long- range values. In addition, your routine choices will b easier to make and require less effort if they are guided by these principles 80
  81. 81. PLATFORM 3: VIII (2) (J) IX. Tune Up Your Decision Making Style  Overtime you develop a decision making style: a set of habits that governs your decision making. Periodically review your performance on several of your recent decisions.  To facilitate the review and the resulting learning, write down the basis and logic for each of your important decisions at the time you make them. Use these notes in your evaluation. Look for patterns  What does your behaviour tell you about your style? For instance:  Are your alternatives imaginative (creative) enough?  Do you spend too much time on less important issues?  Do you tend to gravitate toward choices that, after the fact, seem too conservative?  Do you feel that you are in control of your decision making, or do decisions just happen to you? 81
  82. 82. PLATFORM 3: VIII (2) (J) IX. Tune Up Your Decision Making Style  Having done a review, are you happy with your style? Does it help or hinder you in achieving what you want? What, if anything would you change? What would you work on?  You can do the reviews by yourself, but using a partner can often provide greater insight  The benefits to each of you will be manifold: in addition to gaining an outside perspective on your decision making techniques, you will benefit from seeing another‟s approach and from doing some coaching  Be careful not to judge your partner or your partner‟s decision making solely by the desirability of the consequences. It‟s following a sound process that matters; smart choices are more likely to lead to good consequences, but you‟ll get some bad ones, too 82
  83. 83. PLATFORM 3: VIII (2) (J) IX. Tune Up Your Decision Making Style  It‟s fair to ask, however, whether you fully anticipated the possible consequences of your decisions. Did outcomes occur that you never even thought of when you made your decision? You can‟t think of everything, but if you find too many situations where you‟ve completely missed something important, you aren‟t being sufficiently thorough in defining your problem and in anticipating consequences  How can you improve? Practice. All skills require practice 83
  84. 84. PLATFORM 3: VIII (2) (J) X. Take Charge of Your Decision Making  Decision problems are often dropped onto your shoulders by others (competitors, bosses, family) or by circumstances (mother nature, accidents, financial markets). Life would obviously be better if many such problems disappeared  To the extent possible, therefore, it is better to proactively create your own decision problems. Decision problems created by you are decision opportunities, not problems. (We all have a fundamental interest in being healthy, for example). This is also the key to achieving systematic innovation on a continuous basis  The spark for identifying decision opportunities is clarifying something that you want. There is a way to be systematic about this. It‟s called value-focused thinking because it begins with your values, what you hold to be of worth, useful, and desirable 84
  85. 85. PLATFORM 3: VIII (2) (J) X. Take Charge of Your Decision Making  Begin by sitting down and defining a high-level set of objectives – your values – specifying what you want from life or from some aspect of it, such as your career, marriage, family, hobbies, or whatever. For at-work decision making, define values for our organization or your part of it  Then use these values to seek out and create decision opportunities  One particularly good way to take charge is to view your life as a sequential decision problem – to think ahead  Living is a balanced act between errors of two kinds: (a) being so worried about the future not to enjoy the present; and, (b) to be so involved in the present not to accumulate skills and intellectual capital for the future. You should proactively guide yourself to your own best balance 85
  86. 86. PLATFORM 3: VIII (2) Summary  This decision making approach offers you a more systematically way to do what you do naturally every day  Most tough decision problems have one, or maybe two, difficult elements  Many of your tough decisions aren‟t so hard as they look. By being systematic and focusing on the hard parts, you can resolve them comfortably  Describing the problem, clarifying objectives, and coming up with good alternatives form the foundation of good decisions. In well over half of all decisions, a good job on these three elements will lead quickly to a good decision  Identifying and eliminating poor alternatives almost always provides a big benefit, especially when they weren‟t obviously inferior at the outset. This discipline keeps you from making a foolish choice, ensures a good choice when differences among the remaining alternatives are small, and often greatly simplifies the decision 86
  87. 87. PLATFORM 3: VIII (2) Summary (Continued)  When there is uncertainty, you can‟t guarantee that good consequences will result when you‟ve made a smart choice. But over time, luck favours people who follow good decision making procedures  Most important, always remember: the only ay to exert control over your life is through your decision making. The rest just happens to you. Be proactive, take charge of your decision making, strive to make good decisions and to develop good decision making habits – YOU‟LL BE REWARDED WITH A FULLER, MORE SATISFYING LIFE! 87