There if a fundamental difference between optimising a system and designing a system. The first is what we often call ‘operations’, the second is the foundation of strategy work. But the tools we commonly use for the second are mostly built for the first.
Strategy work requires much more than rational, linear, quantifiable analysis. It requires looking into the future and inventing something new. It’s as much a creative process as it is analytical, and starts with a deep empathy for the customer, their world, and how it is changing – in all its messy, qualitative, emotional, inconsistent and human form.
The Moment of Clarity – Christian Madsbjerg and Mikkel Rasmussen is a great book all round, but especially in its articulation of this point.
Most of these strategies, created with a linear mode of problem solving, aim at getting the maximum growth and profit out of the business through rational and logical analysis. The ideal is to turn strategy work into a rigorous discipline with the use of deductive logic, a well-structured hypothesis, and a thorough collection of evidence and data. Such problem solving has dominated most research and teaching in business schools over the last decades and has formed the guiding principles of many global management consultancies. Slowly but steadily, this mind-set has gained dominance in business culture over the last thirty years. Today it is the unspoken default tool for solving all problems.
This linear mind-set borrows its ideals from the hard sciences like physics and math: learn from past examples to create a hypothesis you can test with numbers. As it uses inductive reasoning for its foundation, it is enormously successful at analyzing information extrapolated from a known set of data from the past. Default thinking helps us create efficiencies, optimize resources, balance product portfolios, increase productivity, invest in markets with the shortest and biggest payback, cut operational complexity, and generally get more bang for the buck. In short, it works extraordinarily well when the business challenge demands an increase in the productivity of a system.
How default thinking works
The default problem-solving model has its roots in what can be called instrumental rationalism. At the heart of the model is the belief that business problems can be solved through objective and scientific analysis and that evidence and facts should prevail over opinions and preferences. To get to the right answer, so the thinking goes, you should adhere to the following principles of problem solving:
- All business uncertainties are defined as problems. Something in the past caused the problem, and the facts should be analyzed to clarify what the problem is and how to solve it.
- Problems are deconstructed into quantifiable and formal problem statements (issues). For example, “Why is our profitability falling?”
- Each problem is atomized into the smallest possible bits that can be analyzed separately—for example, breaking down the causes of profitability into logical issues. This analysis would include “issue trees” for all the hundreds of potential levers for either decreasing costs or growing revenue (customer segments, markets, market share, price, sales channels, operations, new business development, etc.)
- A list of hypotheses to explain the cause of the problem is generated. For example, “We can increase profitability by lowering the cost of our operations.”
- Data is gathered and processed to test each hypothesis—all possible stones are turned and no data source is left untouched.
- Induction and deduction are used to test hypotheses, clarify the problem, and find the areas of intervention with the highest impact, or what is commonly called “bang for the buck.”
- A well-organized structure of the analysis is deployed to build a logical and fact-based argument of what should be done. The structure is built like a pyramid that develops the supporting facts, some subconclusions, and an overall conclusion and then ends with a prioritized list of interventions to which the company should adhere.
- All proposed actions are described as manageable work streams or must-win battles for which a responsible committee, or person, is assigned.
- Performance metrics and a proposed time frame with follow-up monitoring are put in place for each committee to complete the task.
- When all work streams have been completed, the problem is solved