Better Decisions In Complex Situations
An Introduction To Business Prototyping
Oliver Grasl
Coping with Complexity The business world is becoming
increasingly complex & unpredictable.

Can you guess what
this diagr...
Coping with Complexity The future will be more volatile
than we were used to during the last ten years.*

Development of t...
Standing still is not an option Both internal and external
drivers force enterprises to change their structures and proces...
Standing still is not an option Both internal and external
drivers force enterprises to change their structures and proces...
Mind the Gap Transformation mostly starts with the realization that there is a gap between where you (think you) are
now a...
Decisions (should) lead to actions To close the gap between
where you are and where you want to be, you have to make
decis...
The data you receive through
Data Reduction Bottleneck
observation is filtered by your brain – your “mental models”
(exper...
Ashby’s Law of Requisite Variety In order to achieve full
control of a system, the variety (“complexity”) of the agent
mus...
Our observations, desires, decisions
It is all in the mind
and actions are shaped by our (collective) experience,
knowledg...
Learning through observation We learn about our decisions
and actions by observing the effect of our decisions and actions...
A laboratory for business experimentation Instead of performing live experiments, build a prototype of your (future)
busin...
Business Prototyping in a Nutshell
Better Decisions in
Complex Situations

Don‘t experiment with reality …
it‘s risky and ...
Never change a running system… unless you know what
you are doing. Experimenting with reality can have undesirable side ef...
Business prototyping is the
What is Business Prototyping?
act of experimenting with new business concepts and processes in...
Use Models and Simulations to Build Business Prototypes
A model is an external and explicit representation of a part of re...
Viewed from the
Simple Example: Customer Acquisition
outside, the customer acquisition process is simple...the objective i...
Simple Example: Customer Acquisition The performance of
the process is measured by the customer acquisition rate.

Potenti...
Viewed from an
Simple Example: Customer Acquisition
abstract level, your customer acquisition rate only depends
on a few k...
Simple Example: Customer Acquisition Even in this simple
model, the outcome varies greatly, depending on the
assumptions y...
Why business prototypes are useful
pes
siness prototy
Bu
their entirety

s in

tion
complex situa
capture

Business pro
to...
Three Points to Remember
Intense competition, disrupBusiness prototyping helps you
tive technologies, demographic
deal wit...
Transformation for success
We help companies to transform and thus accelerate their success.
Our focus is on developing, v...
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Better Decisions in Complex Situations

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Use business prototyping to experiment with new business ideas and strategies in a risk free environment.

The business prototyping approach enables you to experiment with innovative business ideas and new business strategies.

You can test differing assumptions, quantify soft factors and gut feelings and sharpen your intuition.

Use sketches and diagrams, interactive business games and business simulations and all available and relevant data.

Clarify interdependencies, let facts and figures speak and awaken your strategy to life – before you put it into practice.

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Better Decisions in Complex Situations

  1. 1. Better Decisions In Complex Situations An Introduction To Business Prototyping Oliver Grasl
  2. 2. Coping with Complexity The business world is becoming increasingly complex & unpredictable. Can you guess what this diagram is about? © 2014 transentis management consulting GmbH & Co. KG What is going on here? www.transentis.com 2
  3. 3. Coping with Complexity The future will be more volatile than we were used to during the last ten years.* Development of the Dow Jones Industrial Index from 1970-2012** ** Source: Wolfram Alpha, 8.12.2013 * Nobert Reithöfer CEO of BMW Handelsblatt, 21.10.2010 © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 3
  4. 4. Standing still is not an option Both internal and external drivers force enterprises to change their structures and processes—at all levels. External Drivers High Market Expectations Intense Competition New Value Chains Disruptive T echnologies Demographic Changes Scarcity of resources Government Regulations Your Enterprise Internal Drivers Repositioning Business Model Innovation Mergers & Acquisitions Expansion to new markets Internal and external drivers force enterprises to implement frequent and widespread changes to their business models, their organization and the technology supporting their business. © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 4
  5. 5. Standing still is not an option Both internal and external drivers force enterprises to change their structures and processes—at all levels. External Drivers High Market Expectations Intense Competition New Value Chains Disruptive T echnologies Demographic Changes Scarcity of resources Government Regulations Your Enterprise Internal Drivers Repositioning Business Model Innovation Mergers & Acquisitions Expansion to new markets Internal and external drivers force enterprises to implement frequent and widespread changes to their business models, their organization and the technology supporting their business. What exactly do YOU need to change? Are you worried about „changing a running system“? © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 5
  6. 6. Mind the Gap Transformation mostly starts with the realization that there is a gap between where you (think you) are now and where you would like to be. Are your focusing your observation on the right areas? Current Situation What do your observations mean? Observation, Measurement Gap Who defines the desired situation? Desired Situation © 2014 transentis management consulting GmbH & Co. KG Do all stakeholders understand their significance? Who is responsible for managing the gap? www.transentis.com 6
  7. 7. Decisions (should) lead to actions To close the gap between where you are and where you want to be, you have to make decisions and act upon them. Which decisions are the right ones? Actions Current Situation Are you making decisions fast enough, leaving enough time for action? Observation, Measurement Decisions Gap Are the consequences of decisions clear? Are the decisions clear to those who perform the actions? Desired Situation © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 7
  8. 8. The data you receive through Data Reduction Bottleneck observation is filtered by your brain – your “mental models” (experience, knowledge, emotions) decide which information is relevant. 10⁹ Bit/s Ear Observation 10⁷ Bit/s 10² Bit/s Expression Eye Skin Speech Attention Action Movement Experience Knowledge Emotions Feedback © 2014 transentis management consulting GmbH & Co. KG Diagram adapted from Frederic Vester, Die Kunst vernetzt zu denken, 5. Auflage, DVA2000 www.transentis.com 8
  9. 9. Ashby’s Law of Requisite Variety In order to achieve full control of a system, the variety (“complexity”) of the agent must be higher than that of the system itself. Learn New Ways of Acting & Observing ≥ Variety System Agent Observation © 2014 transentis management consulting GmbH & Co. KG Reduce Complexity – Work on the System, not in the System Action In order to cope with complex systems, you can either learn new ways of observing and acting, you can reduce the complexity of the system you are managing, or both? Which is easier for YOU? The Business Prototyping approach will help you to improve your power of observation and will show you new ways of acting. Business Prototyping can also help you to reduce the complexity of the system you are dealing with. www.transentis.com 9
  10. 10. Our observations, desires, decisions It is all in the mind and actions are shaped by our (collective) experience, knowledge and understanding. How do you identify which stakeholders you need to involve? Current Situation Actions Observation, Measurement Decisions How do you utilize their collective intelligence? Gap Desired Situation Experience, Knowledge, Emotions © 2014 transentis management consulting GmbH & Co. KG How do you ensure they all have the same understanding and mean the same things? www.transentis.com 10
  11. 11. Learning through observation We learn about our decisions and actions by observing the effect of our decisions and actions. Is this way of learning appropriate in uncertain, risky situations? Current Situation Actions Observation, Measurement Decisions Gap Desired Situation Experience, Knowledge, Emotions © 2014 transentis management consulting GmbH & Co. KG Is it ok for you to rely purely on learning through „live“ experiments with your business? What if your experiments go wrong? www.transentis.com 11
  12. 12. A laboratory for business experimentation Instead of performing live experiments, build a prototype of your (future) business and experiment there. Business Prototypes are laboratories for experimentation. Current Situation Actions Use them to learn, to play business (war-)games and to tell stories about how your business could be. Observation, Measurement Decisions Gap Desired Situation Business Prototype Experience, Knowledge, Emotions Risk-free Experiments © 2014 transentis management consulting GmbH & Co. KG Useful techniques for building prototypes are visual models and simulations. www.transentis.com 12
  13. 13. Business Prototyping in a Nutshell Better Decisions in Complex Situations Don‘t experiment with reality … it‘s risky and expensive and may be bad for morale. Use Business Prototypes to perform experiments! Actions Use business prototyping to experiment with new business ideas and strategies in a risk free environment. Current Situation Understand, which information is relevant to your business and how to use it to get better. Discover new options, set explicit targets (KPI target settings, milestones, …). Make well-founded, transparent decisions. Decisions Observation, Measurement Reduce complexity, understand inter-dependencies and data better. Gap Involve all stakeholders and get their buy-in. Experience, Knowledge, Emotions Desired Situation New insights about your business. Make new business ideas & strategies concrete. Risk-free Experiments © 2014 transentis management consulting GmbH & Co. KG Business Prototype Sketches and Diagrams Visual Models Simulations Business Games Controlled, repeatable experiments … without risk. The business prototyping approach enables you to experiment with innovative business ideas and new business strategies. You can test differing assumptions, quantify soft factors and gut feelings and sharpen your intuition. Use sketches and diagrams, interactive business games and business simulations and all available and relevant data. Clarify interdependencies, let facts and figures speak and awaken your strategy to life— before you put it into practice. www.transentis.com 13
  14. 14. Never change a running system… unless you know what you are doing. Experimenting with reality can have undesirable side effects. Don‘t experiment here: it is expensive, dangerous and can be bad for morale... Situation Real world Improved Situation Explore the situation and build a business prototype Business Prototype Experiment with new designs and policies here At transentis, we use business prototyping to help our clients to manage the complexity of business transformation. Realize the design using prototypes as guidance Alternative Designs World of business prototypes © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 14
  15. 15. Business prototyping is the What is Business Prototyping? act of experimenting with new business concepts and processes in a risk-free environment. Prototype 1. 2. 1. 2. An original object or form which is a basis for other objects, forms, or for its models and generalizations. Wiktionary An early sample or model built to test a concept or process. Wiktionary The objective of business prototyping is to explore the consequences of new business ideas, strategies and designs before realizing them in practice. Useful prototyping techniques are game-playing, storytelling, spreadsheets, visual models and simulations. © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 15
  16. 16. Use Models and Simulations to Build Business Prototypes A model is an external and explicit representation of a part of reality as seen by the people who wish to use that model to understand, to change, to manage and to control that part of reality. A simulation model is an “executable model” that shows how a system behaves over time. You can use a simulation to explore scenarios using risk-free, repeatable experiments and thus answer “What happens if …” questions. © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 16
  17. 17. Viewed from the Simple Example: Customer Acquisition outside, the customer acquisition process is simple...the objective is to convert potential customers into customers. Potential Customers Customer acquisition Customers Let‘s take a birds-eye perspective and not worry about the internal details of the customer acquisition process for now … © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 17
  18. 18. Simple Example: Customer Acquisition The performance of the process is measured by the customer acquisition rate. Potential Customers Customers Customer acquisition rate What does the customer acquisition rate depend on? © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 18
  19. 19. Viewed from an Simple Example: Customer Acquisition abstract level, your customer acquisition rate only depends on a few key factors. Potential Customers Customers Customer acquisition rate Advertising success rate% Market Saturation% Word of mouth success% But these key factors have an enormous impact on your results… © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 19
  20. 20. Simple Example: Customer Acquisition Even in this simple model, the outcome varies greatly, depending on the assumptions you make. Depending on the concrete settings you assume, the same model produces very different outcomes. Customers 6M 5M In this case, an informal sketch simply is not enough …you need to be specific and quantitative about your assumptions. 4M High Word-of-Mouth Contact Rate Low Word-of-Mouth Contact Rate 3M No Word-of-Mouth Contact, Advertising only Business prototyping makes sure you do this in a systematic way. Learn more about this model and experiment with it online on our blog: 2M 1M www.business-prototyping.com 0 10 © 2014 transentis management consulting GmbH & Co. KG 20 30 40 50 60 Months www.transentis.com 20
  21. 21. Why business prototypes are useful pes siness prototy Bu their entirety s in tion complex situa capture Business pro totypes help you to mana ge risk and u ncertainty ■■ Involve all relevant stakeholders. ■■ Capture their knowledge about your company, your value network and the markets you operate in. ■■ Make their assumptions about your company’s structure and behavior explicit. ■■ Shape and test alternative scenarios and strategies. ■■ Model your company at various levels of detail, both qualitatively and quantitatively. ■■ Explore the consequences of decisions and plans before taking action. ■■ Quantify all assumptions. laboratory for Business prototypes provide a mentation experi- ■■ Perform controlled, repeatable “What if…” experiments. ■■ Challenge your thinking. ■■ Reflect and communicate. © 2014 transentis management consulting GmbH & Co. KG www.transentis.com 21
  22. 22. Three Points to Remember Intense competition, disrupBusiness prototyping helps you tive technologies, demographic deal with complexity and make changes and the scarcity of better decisions – experiment resources are forcing comwith new business ideas, If you remember policies and designs in a panies to make difficult only three points decisions at an ever inrisk-free environment. from this creasing rate. presentation, 23 1 3 remember these 1 2 Useful prototyping techniques are gameplaying, storytelling, spreadsheets, visual models and simulations. Learn more about these on our blog www.business-prototyp ing.com © 2014 transentis management consulting GmbH & Co. KG 12 3 www.transentis.com 22
  23. 23. Transformation for success We help companies to transform and thus accelerate their success. Our focus is on developing, validating and implementing new business models and services. Business prototyping is the approach we use to manage the complexity of the transformation and make better decisions. We get you there. Since 1997. transentis management consulting GmbH & Co. KG Potsdamer Platz 11 D-10785 Berlin www.transentis.com Tel.: +49 (0)30 2589 4005
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