Solving Complex Problems

A TRAINING DOCUMENT
imootee /TD/SGL/4382
The firms approach to strategy emphasizes the importance of both strategy formulation
and implementation. The best developed strategy will be compromi sed 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
Dont try to boil the oceanstart 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 youre 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 Channel
Capabilities
Build Direct
Marketing
Channel
Sell Through
Channel Partners
Reduce Customer
Service Costs
Multi-Channel
Strategy
Redesign
Sales Force
Incentives
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 Its 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
Patterns
Structures
What happened?
What has been happening?
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
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.
An Illustrative Example of casual-loop diagram
Brand more widely
available
More consumer promoted to
try the brand
More consumers
make repeat purchase
More shops want to
shop the brand
More people see the
brand being used
+
+
+
+
+
3/ Scenarios Planning The Shell Way
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.
The Art of the Long View
Scenarios Planning The Shell Way
Prioritize
Drivers
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.
Construct
Conceptual
Scenarios
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.
Finalize
Scenarios
Post
Develop
Vision
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.
Strategic
Options
Develop plans to
deal with different
strategic options
as a results of
different
scenarios.
Facilitate
continuous
dialogue on
strategic options
and choices.
A Process for Developing Scenarios
Scenarios Planning The Shell Way
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
Scenario Planning Where to start?
Scenarios Planning The Shell Way
An Illustrative Example :Scenarios Outcomes with implied changes in global
competitive structure
Global Giants
Three tier tariff
Build local loop
Large scale outsourcing
Blurred Boundaries
Tariff become distance
independent
New players Opportunities
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
Scenarios
Assessment of How Business will Fare Under
Each Scenario
Market
Attractiveness/
Capabilities
Identify Critical
Success Factors
Assessment of:
Market Attractiveness 5 Years
Risks due to external factors
Consideration of strategic options
Input
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