The Art of Decision Making and Strategic Thinking

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The Art of Decision Making and Strategic Thinking

• Fundamentals of Case Analysis
• UCF MAR 4804

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Based on

• Smart Choices
• by Hammond, Keeney and Raifa
• The Mind of the Strategist
• by Kenichi Ohmae
• Handout
• by Samar Das

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The Mind of the Strategist

• Successful business strategies result from a
• particular state of mind. In what I call the mind
• of the strategist, insight and a consequent drive
• for achievement fuel a thought process which is
• basically creative and intuitive rather than
• rational.
• Strategists do not reject analysis. They
• can hardly do without it. But they use it only to
  
• stimulate the creative process.
• Kenichi Ohmae
• Managing Director
• McKinsey Co., Japan

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The Strategic Thinking Process

• Mechanical Thinking
• Intuitive Thinking
• Creative Strategic Thinking

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Case Analysis
Creative Divergent thinking
Practical Feasible thinking
Analytical Convergent thinking
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Defining the Problem

• if you dont know where you are going, all roads
  will take you there!

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Diagnosing the Problem

• Jane has malaria. Doctors treat her with the most
  powerful and latest drug for pneumonia.
• What happens?
• Jane dies
• Your problem diagnosis determines alternatives,
  criteria and ultimate choice of a solution.

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Problem definition Be creative

• The LAZY wayoften the wrong way.
• What pops up first in your mind
• How it has been viewed in the past
• What is stated as the problem in the
• case
• When symptoms are seen as the
• problem

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Problem Definition Be creative

• There is always a different way of looking at a
  problem
• Dig deep!
• Ask what no one else has asked before
• Look at it from several different angles
• Question what is stated and obvious

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Problem -gt Opportunity

• Problems often can be turned around as big
  opportunities
• Finding the opportunity hidden in the problem can
  open up exciting possibilities and wonderful
  options and alternatives
• How easy is it to do so?

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Steps in creatingsuperior strategies

• Problem definition
• Characterize the situation
• Identify objectives
• Generate alternative solutions
• Evaluate alternative solutions
• Develop action plan

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THE CASE OF TOM STEADY

• First, write down the stated problem
• - Steady Watches is losing market share
• Next, what triggered the need for a decision
• - Steadys sales are dropping
• Implied connection of the trigger to the problem
• - Steadys sales are droppingbecause Precise is
  taking away market share

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Most People Stop Here!

• Decision Outcome
• Let us find a way to compete with Precise
• What could be done?
• 20 million ad campaign
• Price promotions
• Six months later-gt NO JOB

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Is something framing the decision problem?

• Identify what could be constraining your
  thinking
• - Steady and Precise are the two direct
  competitors
• - Sales can only come if I gain share from
  Precise
• Are there other things we should consider?
• Is the market shrinking?
• Are there other new competitors?
• Are there different needs?

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Identify essential elements and connections with
other issues

• Identify the essential elements of the problem
• analysis showed market is shrinking
• consumers are more concerned with the design than
  with the quality of watches
• What other decisions impinge on or hinge on this
  decision?
• Losing market share in watches will erode the
  companys standing in the consumer personal
  products market

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Establish Scope

• Establish a scope for your problem definition
• Should we focus only on the Steady brand?
• Or should we look at the Timing device product
  line?
• Or should we consider the entire companys
  consumer product line strategy?

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Get inputs from others

• How do others view the situation?
• Get insights and fresh perspectives from several
  sources
• Avoid the trap of falling in love with your own
  ideas
• Obtain another expert opinion before making a
  major decision

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Re-examination of the problem

• Re-examine your problem definition as you go
• You may find when you look for the solution, your
  perceptions of the original problem may change
• With more information, you may need to revise
  your problem definition
• Iterative process

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• How would you define the problem of Steady
  watches?

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Final Problem Definition

• Steady watches is losing sales due to three
  important trends
• Consumers are placing more importance on the
  design than on the quality
• Other devices such as cell phones and PDAs are
  becoming more popular
• New competitors carefully target niche markets

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What next Identifying Objectives

• Write down all the concerns you hope to address
  through your decision.
• Long term, medium, immediate or short term
• Dont be restrictive or too orderly in your
  thinking
• Consider hidden concerns
• Make a wish list, dream up best scenarios, worst
  scenarios, outlandish alternatives, infeasible
  alternatives

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Identifying objectives

• Convert your concerns into succinct objectives
  clear, focused, action oriented
• Steady watches
• To expand into new market opportunities in the
  timing business by offering new products and
  designs for different market segments
• To strengthen the position in the watch market
• To increase sales of the Steady watch brand

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Identifying objectives

• Understand the fundamental objective you are
  trying to achieve -gt Develop a set of criteria
  for evaluation
• Long term profits
• Long term viability of the business
• Maintain current profitability and cash flow
• Increase the value of the business

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Generate ALTERNATIVES

• Two laws of alternatives
• You can never choose an alternative you havent
  considered
• No matter how many alternatives you have, your
  chosen alternative can be no better than the best
  of the lot.

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Generate ALTERNATIVES

• As many as you can for each of the objectives
• creative ideas, practical ideas, impractical
  ideas worry about the feasibility later
• Use judgment to narrow down the list to a set of
  most useful alternatives

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Evaluation of Alternatives

• First, cut down the list to the most attractive
  alternatives, judgmentally
• Then, evaluate the consequences of each
  alternative by creating a free form description
  of consequences
• Further eliminate any clearly inferior
  alternatives
• Analyze the remaining on detailed criteria
• Financial, managerial, market, competitive, time

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Consider tradeoffs

• Some alternatives are clearly dominated by other
  better alternatives eliminate them
• Some alternatives can be combined to make a more
  powerful alternative
• Some alternatives can be traded off against other
  alternatives

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Assess risks

• Uncertainty can influence the consequences of
  chosen alternative
• Consider the risk tolerance capability of the
  organization
• Look at the linkage of your chosen alternative to
  other issues that might confront the organization

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Develop actionable plans

• Consider presenting your plans for long term,
  medium term and short term
• Develop the plans with as much detail as possible

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Beware of some psychological traps

• Over-relying on first thoughts The Anchoring
  trap
• Protecting earlier choices The Sunk Cost trap
• Seeing what you want to see The
  Confirming-Evidence trap
• Being too sure of yourself The Over-Confidence
  trap