The document discusses structured problem solving and hypothesis generation. It lays out a systematic approach for solving business problems that includes defining the issues, gathering and analyzing data, forming hypotheses, finding insights, developing conclusions and recommendations. It emphasizes the importance of defining the problem clearly and structuring it by breaking it into smaller, more manageable components. Developing good hypotheses is key - they should be targeted, accurate, minimal, actionable and timely. Hypotheses help focus the analysis and ensure an efficient, effective approach.

1. Structured Problem Solving & Hypothesis Generation

3. Strategy is about thriving in a changing world… “ The picture’s pretty bleak, gentlemen . . . The world’s climates are changing, the mammals are taking over, and we all have a brain about the size of a walnut.”

5. There are two basic approaches to problem solving; but both can work The “ there's a pony in here somewhere” approach The structured analytic approach Potential for rich powerful solutions Scurry around analyzing tons of data to see if you can find something useful Get the data Potential for good (and mixed) solutions Define problem and hypotheses

6. Defining the issue is the first step in the journey to final recommendations Develop Conclusions and Make Recommendations to Implement Find Insights Analyse Data Gather Data Form Hypotheses So what? —aha, new thought What you should do… and how Define the Issues What are the questions keeping you awake at night? Factual information gathered to prove or disprove hypotheses Analyse what the data tells us Statements that provide direction and structure for the analysis

7. Hypothesis formation ensures that our analysis is focused on our client’s problem Form Hypotheses Define the Issues Gather Data Analyse Data Find Insights Develop Conclusions and Make Recommendations to Implement So what? —aha, new thought What you should do… and how What are the questions keeping you awake at night? Factual information gathered to prove or disprove hypotheses Analyse what the data tells us Statements that provide direction and structure for the analysis

11. The Basics - Problem Solving Approach

15. Define and Structure the Problem

16. Why problem definition matters “ If you don’t know where you are going, any road will take you there.” -Anonymous

17. In structuring a problem, break it into smaller, easier-to-handle components AND start with the right definitions US Car Market Light Trucks Passenger Cars Big 3 Mini Vans Sport Utility Vehicles Ford GM Chrysler But be careful — why does this not work?

18. The most important rule for any structure you impose " M utually E xclusive and C omprehensively E xhaustive"

20. Example 1 — disaggregate the problem into a diagnostic solution tree Head Hurts Physical Mental External Internal Stress, Tension Hypochondria Bumped, Bruised Head Allergies Bad Weather, Sinus Headache, Flu, Cold Brain Tumor Water on the Brain SCooP Source: Barbara Minto, “The Pyramid Principle”.

24. Exercise 1 — define and structure Kmart’s problem: first step is to logically organize the facts Company Competitor Customer Higher GM than WalMart (+) Higher SG&A expenses than WalMart (-) Aging stores Hi / Lo pricing strategy Lower net income than WalMart Eroding same-store sales vs. WalMart Sales / sq. ft. higher than Kmart Aggressive expansion into Kmart territories EDLP pricing strategy Customers perceive WalMart prices better than Kmart

25. Exercise 1 — define and structure Kmart’s problem: second step is to iterate to drive insight creation Although Kmart’s Hi/Lo pricing strategy leads to high GM, high SG&A has led to eroding sales productivity Higher GM than WalMart (+) Higher SG&A expenses than WalMart (-) Aging stores Hi / Lo pricing strategy Lower net income than WalMart Eroding same-store sales vs. WalMart Sales / sq. ft. higher than Kmart Aggressive expansion into Kmart territories EDLP pricing strategy Customers perceive WalMart prices better than Kmart WalMart is aggressively expanding, with highly productive stores and a different pricing strategy than KMart Customers perceive WalMart delivers higher value in some areas How can Kmart improve its sales productivity (sales / sq. ft.)?

26. Exercise 4 — summary performance data for a credit card issuer… what’s the problem? Note: All figures in 1000s. Assume no price inflation and that interest rates have remained constant The 80/20 Rule… 80% of the answer is in 20% of the data Often we miss the goldmine because we are busy trying to value the shack built on top of it This data, taken from a real client (but rebased,) tells the whole sorry story of their strategic problem in one picture

28. Develop a Hypothesis

30. Abduction is a variation on deductive and inductive reasoning and a powerful tool to develop hypotheses Source: Barbara Minto, “The Pyramid Principle”. Rule Case Result If we put the price too high, sales will go down We have put prices too high Therefore, sales will go down Case Result Rule We have put prices up Sales have gone down Sales have gone down because the price is too high Sales have gone down Sales go down when prices are too high Probably we have put prices too high Hypothesis Result Rule Case 1. Rule 2. Case 3. Result Deduction Induction Abduction 1. Case 2. Result 3. Rule 1. Result 2. Rule 3. Case