BEE Solving Problems Web

Sources Solving Business Problems do good
ofSourSnnovation: Where
ideas come from?
Professor Ed Barrows
Babson College

April 13th , 2011
For more information:
ebarrows@babson.edu

2011, Babson Executive Education - All Rights Reserved

Goal for Today

Improve your ability
to solve problems


“Let’s Work the Problem”

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.


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

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

Some perspective on decision-making
and problem solving

5

Discussion Questions

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?

6

Some data to provide context

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.

Source: Economist Intelligence Unit, In Search of Clarity-Unraveling the Complexities of Executive Decision-Making, EIU Report, 2007.
7

Some more data to provide context

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.”

Source: Blenko, Mankins, and Rogers, The Decision-Driven Organization, Harvard Business Review, June 2010
8

Basic Definitions

• 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.

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.
Source: www.businessdictionary.com
9

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.
10

Other Challenges…

• 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.

This last point we are concerned with today

11

There are two basic processes

Problem-Solving Process Decision-Making Process

Our focus will be the problem solving process

12

Why Bother to Use A Process?

• 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.

13

Step 1: Define the Problem

• 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
1 with. Challenge assumptions.
Define Problem
• Separate symptoms from the actual
problem(s).
• Develop a main question. Questions
are the most useful way to structure
problems.

14

Defining the Problem with the SCQ
Framework
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’
2011, Babson Executive Education - All Rights Reserved 15

Framing Questions

• 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…

Not… But…

What level of inventory do I need? Are my inventories too high?

What should I do about my loan to Co. A? Should I continue lending to Co. A?


Why Use Yes/No Questions?

• 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.


Blank SCQ Framework

Problem Name:
Situation (current): Situation (desired):
• •
• •
• •
• •
• •
Complication (barriers):
•
•
•
•
•
•
•
Main Question: Conclusions/Recommendations
• •
•
•

18

“Failure is Not an Option”

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


Step 2: Identify Potential Causes

• We want to take our main question
and identify more specific questions.
• Each of these questions can be further
broken down into more granular
Identify
2 questions. These questions can then
Potential Causes be analyzed.
• A mutually exclusive, collectively
exhaustive (MECE) approach should be
used for completeness purposes.

20

Analyzing the Problem with an Issue
Tree

• 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.
21

Issue Issue Tree Example
Revenue Total market size?
potential?
Will 1st
time buyers Our likely market share?
be
profitable?
Incremental sales and
marketing costs?
Costs to serve?
Should we pursue
the 1st time buyer
market in PCs? Incremental operating
costs?

Aligned with brand
image? Differentiates us in
Is a 1st time the marketplace?
buyer
strategy
Keeps us
aligned
competitive?
with our
corporate Brings us to parity with
strategy? competitors?
Matches our target
segments? 22

Issue Trees Can Be Rather
Comprehensive

Source: www.deloitte.com

4/17/2011 2010, Babson Executive Education - All Rights Reserved 23

Issues and Sub-Issues

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

24

Three Rules for Building and Issues
Tree

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
25

Can This Issue Tree Be Improved?
Low quality?
Poor
product Not trendy enough?
design?
Not sleek enough?

Lack of advertising
dollars?
Why are new Inadequate
promotion? Benchmark best
product sales
poor? practices?

No buy-in by head
Small sales of marketing?
force?

Product came
out late?
Ineffective
placement?
Couldn’t find
right channels?
26

MECE Example

Permanent members of
the UN Security Council ?

27

MECE Example

USA

UK

Permanent members of
the UN Security Council Russia

France

China

28

Thoughts on Applying MECE

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.

29

Blank Issue Tree

Sub Question

Sub Question
Sub Question

Sub Question

Main Question Sub Question

Sub Question

Sub Question

Sub Question

Sub Question

30

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
3
be used to research your question.
Analyze
Potential Causes • 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.

31

Data Analysis Format

Question
Analysis Required Data Sources

• Price of current products • Internal pricing summary
Sub Question
Can Prices Be • Prices of key competitors • Competitor pricing summary
Increased?
• Price increase history within • Industry pricing trends report
industry

• Assessment of buyer’s • Review of key customer
willingness to accept price accounts
increases

32

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.
4 • Team members need to develop a common
Draw
Conclusions
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.

33

Drawing Conclusions Example

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

34

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
Make
5 address the question there has been an
Recommendations 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.

35

Make Recommendations Example

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…

36

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

4/17/2011 2011, Babson Executive Education - All Rights Reserved 37

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