nullStructured Problem Solving & Hypothesis GenerationStructured Problem Solving & Hypothesis GenerationGoals of this moduleGoals of this moduleLay out a systematic approach to solving business problems –“Structured Problem Solving ”
Establish a common “modus operandus” for Consulting teams
Practice the suggested process on a real-life exampleStrategy is about thriving in a changing world…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.”… which is all about “decision making” … which is all about “decision making” “Strategy is about making decisions”
The best strategy “makers” are able to blend analytic techniques with an understanding of the future uncertainties and simple good luck
Based on often imperfect information they make decisions and then drive implementationThere are two basic approaches to problem solving; but both can workThere are two basic approaches to problem solving; but both can workThe “there's a pony in here somewhere” approachThe structured analytic approachPotential
for rich
powerful
solutionsScurry around analyzing tons of data to see if you can find something usefulGet the dataPotential for
good (and mixed) solutionsDefine
problem
and
hypothesesDefining the issue is the first step in the journey to final recommendationsDefining the issue is the first step in the journey to final recommendationsDevelop Conclusions and Make Recommendations to ImplementFind InsightsAnalyse
DataGather DataForm HypothesesSo what? —aha, new thoughtWhat you should do… and howDefine the IssuesWhat are the questions keeping you awake at night?Factual information gathered to prove or disprove hypothesesAnalyse what the data tells usStatements that provide direction and structure for the analysisHypothesis formation ensures that our analysis is focused on our client’s problemHypothesis formation ensures that our analysis is focused on our client’s problemForm HypothesesDefine the IssuesGather DataAnalyse DataFind InsightsDevelop Conclusions and Make Recommendations to ImplementSo what? —aha, new thoughtWhat you should do… and howWhat are the questions keeping you awake at night?Factual information gathered to prove or disprove hypothesesAnalyse what the data tells usStatements that provide direction and structure for the analysisHypotheses are developed in three stepsHypotheses are developed in three stepsWhat are the real strategic issues?
What is the impact on the organisation?
What are the priorities?We think . . .
It looks like . . .
The right answer may be . . .
The options could be . . . We believe this to be true . . .
A series of statements, not yet backed by data
Based on initial data search or expert opinionsA number of assertions need to be true for a hypothesis to be valid.Is there a market for white label insurance products?
Direct channels are growing
Retailers have a strong channel and brand
There are existing productsChubb Insurance can access new business by using the brand strength of Tesco resulting Is low cost of acquisition and profitable businessDefine the questionReview and Describe Multiple AssertionsForm the hypothesis123A hypothesis should identify not only the issue but also the cause and the impactA hypothesis should identify not only the issue but also the cause and the impactThink through these three stages as you create a hypothesis to help you plan out how you will test it:
What is the issue?
What is the underlying opportunity?
Where is the advantage?
What do you think causes the issue?
What are the key drivers of the process?
What is the impact of the issue?
How can we tell there is an opportunity?
Why do we care?“x is an
opportunity
...”“…due to...”“…resulting
in...”The Structured Problem Solving Process covers the life cycle of a consulting engagement The Structured Problem Solving Process covers the life cycle of a consulting engagement Define the Problem
Structure the Problem
Develop a Hypothesis
Execute the Analysis
Develop a Recommendation
Create the Communication
Deliver Communication
Follow Up with ClientCovered in current moduleCovered later in the weekThe Basics - Problem Solving ApproachThe Basics - Problem Solving ApproachOur problem solving approach produces results through answering a simple series of questionsOur problem solving approach produces results through answering a simple series of questionsIs there a problem or opportunity?
If so where does it lie?
Why does it exist?
What could we do about it?
What should we do about it?DEFINE THE PROBLEMSTRUCTURE THE ANALYSISFIND THE SOLUTIONFine, but IWIK H2 do this...Logical pyramids are basic tools for this approach, helping you to define, structure and solve the client’s problem Logical pyramids are basic tools for this approach, helping you to define, structure and solve the client’s problem 1. Ideas at any level in the pyramid must always be summaries of the ideas grouped below them
2. Ideas in each grouping must always be the same kind of idea, and they must answer the same question implied by their summary
3. Ideas in each grouping must always be in a logical order:Deductively or inductively
Trace course or time order
Divide or structural order (e.g., Sales, Marketing, Manufacturing, etc.)
Classify or degree order (e.g., most important, 2nd most important, etc.)Source: Barbara Minto, “The Pyramid Principle”.Always ask:
“Are they Mutually Exclusive and Comprehensively Exhaustive (MECE)?”Main
AssertionKey LineLogical pyramids increase the effectiveness of problem solving, results delivery and communication…Logical pyramids increase the effectiveness of problem solving, results delivery and communication…Vertical structure
Horizontal structure
Key line / narrative…but help ensure thorough
analysis……while decreasing
complexity……and increasing the power
of presentations Logical pyramids have simple rules…The effectiveness of our work depends heavily on how compellingly we can argue that the solution we put forward serves the client bestThe reasoning we have to apply to come to our solution is complex and difficult to summarize for brief client interactionsTo build succinct and compelling presentations of our work, we use logical pyramids as the preferred communication style:
Pyramids make information more memorable and meaningful
They lead to a clearer definition of the problems we solve
They structure our solutions to these problems and make them more compellingSource: Barbara Minto, “The Pyramid Principle”.…which will make your work/life much easier to handleDefine and Structure the ProblemDefine and Structure the ProblemWhy problem definition mattersWhy problem definition matters“If you don’t know where
you are going,
any road will take you there.”
-AnonymousIn structuring a problem, break it into smaller, easier-to-handle components AND start with the right definitionsIn structuring a problem, break it into smaller, easier-to-handle components AND start with the right definitionsUS Car MarketLight TrucksPassenger CarsBig 3Mini VansSport Utility
VehiclesFordGMChryslerBut be careful — why does this not work?The most important rule for any structure you imposeThe most important rule for any structure you impose"Mutually Exclusive and Comprehensively Exhaustive"There are three ways to structure a business problemThere are three ways to structure a business problemDivideClarifyDiagnostic FrameworkCause Effect FrameworkStructural FrameworkProblem StructureTo help you solve a problem, your structure must:
Disaggregate the problem into smaller and easier to solve components
Be a “MECE” description of the problem and its possible solutionsTrace CauseSource: Barbara Minto, “The Pyramid Principle”.Example 1 — disaggregate the problem into a diagnostic solution treeExample 1 — disaggregate the problem into a diagnostic solution treeHead
HurtsPhysicalMentalExternalInternalStress, TensionHypochondriaBumped, Bruised HeadAllergiesBad Weather, Sinus Headache, Flu, ColdBrain TumorWater on the BrainSCooPSource: Barbara Minto, “The Pyramid Principle”.Example 2 (trace cause) — disaggregate the problem into a cause-effect frameworkExample 2 (trace cause) — disaggregate the problem into a cause-effect frameworkHow can TESCO improve its sales productivity (sales/sq.ft.)?Store is within
shopping radiusdo not know about the storeknow about the storenever visit the storeenter the storedo not buymake a purchasedo not come backmake repeat purchasesLocationAdvertisingSignage, CIConversionCustomer ValueRoot CauseExample 3 — disaggregate the problem into an intrinsic structure Example 3 — disaggregate the problem into an intrinsic structure Why does Wimpy’s not show the anticipated financial performance?Account
typePack sizeREPURCHASE
Target market persuaded to repurchase?DISTRIBUTION
Brand made
available?TRIAL
Target market induced to try?AWARENESS
Target market
aware?Product
rejectionPrice/value
rejectionFrequency
of useOccasion
of useConsumer
profilePackDisplayPromotion
typePromotion
tuningSell-in
effectivenessFeedbackIf all lines of inquiry fail to reveal a problem source, go back to consider whether target market and consumer benefit have been accurately defined.Attribute
awarenessAdvertising
recallAdvertising
spending rateMedia
mixRegional
weightAdvertising
communicationTarget
marketConsumer
benefitRegionSales force
coverageSales force
directionTrade
termsChannelSource: Barbara Minto, “The Pyramid Principle”.Product
spec.Selling
priceBrand
namePackagingPOSITIONING
Brand properly positioned for the market?Exercise 1 — Kmart vs. Wal*Mart: define and structure Kmart’s business problemExercise 1 — Kmart vs. Wal*Mart: define and structure Kmart’s business problemSituation
Kmart and Wal*Mart operate similar chains of Full line Discount stores
Different pricing strategies: Kmart follows a promotional pricing strategy of weekly sales, offering discounts on selected items, Wal*Mart follows an EDLP strategy (EDLP = Every Day Low Prices); Kmart's regular prices are higher than Wal*Mart’s, its sales prices are lower
Wal*Mart has a better price perception than Kmart
Kmart has a higher GM than Wal*Mart (23% vs. 21%)
Kmart has significantly higher SG&A as percent of sales, which eliminate Kmart's Gross Margin advantage over Wal*Mart
Wal*Mart’s scale advantage is not driven by the number of stores, but by its sales per store (better sales per square foot)
Kmart has significantly lower sales per square foot sales than Wal*Mart ($170 vs $250). With Wal*Mart’s sales productivity, Kmart would be about as profitable as Wal*Mart
Complication
Kmart is operating at break-even, and Wal*Mart’s aggressive expansion puts more and more of Kmart's stores into direct competition with Wal*Mart, decreasing their store contribution and Kmart's overall profitability
Question
?????Structure Kmart's problem to help its management devise a solution, including identifying the key question that our study must answerExercise 1 —
define and structure Kmart’s problem: first step is to logically organize the factsExercise 1 —
define and structure Kmart’s problem: first step is to logically organize the factsCompanyCompetitorCustomerHigher GM than WalMart (+)Higher SG&A expenses than WalMart (-)Aging storesHi / Lo pricing strategyLower net income than WalMartEroding same-store sales vs. WalMartSales / sq. ft. higher than KmartAggressive expansion into Kmart territoriesEDLP pricing strategyCustomers perceive WalMart prices better than KmartExercise 1 —
define and structure Kmart’s problem: second step is to iterate to drive insight creationExercise 1 —
define and structure Kmart’s problem: second step is to iterate to drive insight creationAlthough Kmart’s Hi/Lo pricing strategy leads to high GM, high SG&A has led to eroding sales productivityHigher GM than WalMart (+)Higher SG&A expenses than WalMart (-)Aging storesHi / Lo pricing strategyLower net income than WalMartEroding same-store sales vs. WalMartSales / sq. ft. higher than KmartAggressive expansion into Kmart territoriesEDLP pricing strategyCustomers perceive WalMart prices better than KmartWalMart is aggressively expanding, with highly productive stores and a different pricing strategy than KMartCustomers perceive WalMart delivers higher value in some areasHow can Kmart improve its sales productivity (sales / sq. ft.)?Exercise 4 — summary performance data for a credit card issuer… what’s the problem?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 constantThe 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 Exercise 5 —
using a “quick and dirty” approach can produce surprisingly accurate resultsExercise 5 —
using a “quick and dirty” approach can produce surprisingly accurate results30 million?
300 million?
3 billion?
30 billion?
300 billion?How Many (Retail) Litres of Petrol Are Sold in France Per Year?Data: French Population ~ 60 million. 1 Gallon = 3.8 Litres Develop a HypothesisDevelop a HypothesisWhy hypotheses matterWhy hypotheses matterThey keep your effortExplicitly ties your analysis to your problem definitionHelps define the level of accuracy that mattersEnsures you analyze no more than is needed to disprove hypotheses within a reasonable doubtAllows quick check before massive data collection and crunching:
“If we confirm our belief in the hypothesis, will we be able to act on it?”Keeps you efficientAbduction is a variation on deductive and inductive reasoning and a powerful tool to develop hypothesesAbduction is a variation on deductive and inductive reasoning and a powerful tool to develop hypothesesSource: Barbara Minto, “The Pyramid Principle”.Rule
Case
ResultIf we put the price too high, sales will go down
We have put prices too high
Therefore, sales will go downCase
Result
RuleWe have put prices up
Sales have gone down
Sales have gone down because the price is too highSales have gone down
Sales go down when prices are too high
Probably we have put prices too high
HypothesisResult
Rule
CaseWhat differentiates a good hypothesis from a bad one?What differentiates a good hypothesis from a bad one?DEVELOP A HYPOTHESIS On target:
Answers the core question on the clients’ mind
Accurate:
Embraces the entire range of competitive or profit drivers
Minimal:
“Occam’s razor”
Actionable:
Can be quantified and tested
On timeGood Hypotheses AreCannot be refuted
Cannot possibly be quantified
Require you to “Boil the Ocean”
Are so obvious that nobody can intelligently disagree with it
Or look like an abstract model of a process consisting of boxes, arrows and cloudsBad HypothesesHow to find a good hypothesisHow to find a good hypothesisThere are proven processes to generate hypotheses:
Talk to lots of people about the core problem
Have a brainstorming case team meeting
Taguchi method — ask “5 Why’s”
Start with general validity checks for your hypotheses:
Assume perfect rationality — how ought the business system to behave?
Look for analogies (other industries or problems)
Imagine that you had perfect information — what would the ideal analysis look like?
Try Lateral Thinking:
Think about the problem from a different angleDEVELOP A HYPOTHESIS What if your hypothesis is proven wrong?What if your hypothesis is proven wrong?You Win!
Hypothesis-driven thinking requires frequent reviews of the prevailing and current hypotheses:
Do we still think they are right?
Are we making progress towards disproving them?
Are they at the right level of generality/predictiveness?
Having proven a hypothesis wrong means you have made a big step towards answering your question!DEVELOP A HYPOTHESIS “A wise man sometimes changes his mind, but a fool never.”
-Arabic ProverbSummarySummaryTo be developed – thank you!!
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