How to Solve Complex Problems

imootee /TD/SGL/4382 Solving Complex Problems A TRAINING DOCUMENT The firm’s approach to strategy emphasizes the importance of both strategy formulation and implementation. The best developed strategy will be compromised without support for implementation. In a rapidly changing market, we create actionable strategies to help businesses to succeed in the this economy. As part of the process we need to solve a wide range of complex problems. Solving Complex Problems • Analytical Thinking – The McKinsey Way • System Thinking - The MIT Methodology • Scenario Planning – The Shell Planning Process 1/ The McKinsey Approach The Three Pillars 1. Aggressive Facts Gathering 2. Structure Facts Rigidly - MECE 3. Create and Testing Hypothesis The McKinsey Approach Aggressive Facts Finding Don’t try to boil the ocean…start with small coffee pots. Find facts that are only relevant to the subject. Use the 80/20 rule …it works most of the time. Take steps back from whatever you’re doing and ask yourself some basic questions of what facts you need to get in order to help you to get a total picture. The McKinsey Approach Structure facts rigidly and thinking with maximum clarity to identify core issues – The MECE Approach Starts at the top level of your solution – lists the issues making up the problem needed to be solve Check if each one of them is ‘mutually exclusive’. If so, then your issues are ‘collectively exhaustive’ A good McKinsey list should not have more than five issues. The McKinsey Approach Creating the problem solving roadmap -Generating Initial Hypothesis The first step is to create initial hypothesis which is to figure our the solution to the problem before knowing the real problem. It is counterintuitive. Starting with facts, talking to people, read everything. Find out the key drivers of the business. Go down one level and try to prove or disprove your IH and collect more data if needed. The end product of this exercise is what McKinsey calls the ‘Issue Tree’. This can only be effective if it is produced by a team instead of individual. Test the IH with the group and ask questions like ‘what if?’ The McKinsey Approach An Illustrative Example of an Issue Tree Build Direct Marketing Channel Multi-Channel Strategy Build Channel Capabilities Sell Through Channel Partners Redesign Sales Force Incentives Reduce Customer Service Costs Product Customization Strategy The McKinsey Approach McKinsey Growth Options Framework: The McKinsey Approach Identify Core Business Drivers: The McKinsey Approach Identify the Basis of Competition: The McKinsey Approach Providing solutions: 2/ System Thinking and System Dynamics Beyond Spreadsheets – It’s a discipline for seeing the whole, for seeing interrelationships and patterns rather than snapshots. Illusion of Accuracy - because spreadsheet blindly calculates numbers up to decimals, the psychological impact is that this impressive display of precision lulls decisions-makers into overconfidence Illusion of Reduced Complexity - the abundance of quantitative analysis led to a focus on any of a handful of metrics to reach a decision: IRR,ROE,NPV,ROI etc. Illusion of Reduced Risk - the above two together created the third reduced risks. A management team that has dramatically simplified its representation of a business system and overconfident about it ability to manage uncertainties. System Thinking and System Dynamics Business Modeling approach facilitates a focused problem solving process in conjunction with traditional strategy planning tools to get deep insights into a business system. By using casual loop diagrams, System Dynamics allows us to focus on the structure of the problems, not just numerical outputs and allows us to deal with complex business system in a manageable manner. Events What happened? Patterns What has been happening? Structures Why is this happening and what forces including underlying mental model created this behavior? System Thinking and System Dynamics • • Dynamic Business Modeling can help us assess the value of the defined strategy, alternatives, risk factors and management tradeoffs. Business modeling are critically important to prioritizing goals, gaining executives’ buy-in and managing the learning and experimental journey. It is often possible to break systems down into a collection of subsystems for ease of understanding and control. Important tools and techniques casual loop modeling, system dynamics and simulations. System Thinking and System Dynamics An Illustrative Example of casual-loop diagram • • • • Construction can be used to stimulate thinking and debate. They are an objective representation of the shared ‘mental model’ of the team Their development can often reveals inconsistent assumptions and beliefs held by different team members They can lead to further detailed modeling of business using system dynamics. + More consumer promoted to try the brand Brand more widely available More people see the brand being used + + More consumers make repeat purchase + More shops want to shop the brand + 3/ Scenarios Planning – The Shell Way The Art of the Long View • Shell had experimented with four, three and two scenarios for strategic planning. It had found: Four scenarios encourage divergent thinking and are useful for creating vision Three scenarios lead to the expectation that one is ‘the’ forecast Two scenarios allowed two very distinct to be developed. • • Scenarios Planning – The Shell Way A Process for Developing Scenarios Prioritize Drivers Construct Conceptual Scenarios Finalize Scenarios Develop Vision Strategic Options • Identify the significant variables that might bring about different futures, look at the potential impact of the industry and the degree of uncertainty and identify research to illuminate the selected drivers. • Review research findings, debate conventional wisdom for 5 or 10 years out, imagine futures in which a few driver from the conventional wisdom. • Review analytical work, complete scenarios with complimentary assumptions about other drivers and debate strategies likely to bring success in the different scenarios. • Describe the future that the team wants for the business; contrast with current reality; identify the few important high leverage initiatives that will start the process of change necessary to realize the vision. • Develop plans to deal with different strategic options as a results of different scenarios. Facilitate continuous dialogue on strategic options and choices. Post Scenarios Planning – The Shell Way Scenario Planning – Where to start? • • • • • • • • Identify focal issues Understand the key forces in the local environment Map our the driving forces Rank by importance and uncertainty Selecting the scenario logic Fleshing out the scenarios Map our the implications Selecting the leading indicators Scenarios Planning – The Shell Way An Illustrative Example :Scenarios Outcomes with implied changes in global competitive structure Blurred Boundaries •Tariff become distance independent •New players Opportunities Global Giants •Three tier tariff •Build local loop •Large scale outsourcing Wireless World •Viable competition for local loop access •Tariffs are partially restructured •Personalized numbering plan challenge regulations Do-it-Yourself •Commodity markets at all levels •Open standard prevails •Re-intermediation (new niche players) Scenarios Planning – The Shell Way Linking Strategy to Scenario Planning Input Identify Critical Success Factors Scenarios Market Attractiveness/ Capabilities Assessment of How Business will Fare Under Each Scenario Assessment of: • Market Attractiveness 5 Years • Risks due to external factors • Consideration of strategic options Part 1 : Introduction to Methodologies Follow by Practice Workgroup Part 2 : Business Modeling Follow by Practice Workshop Part 3 : Customer Value Analysis Framework Follow by Practice Workshop