Strategy Byte - Week 31 Strategy & Problem Solving

A Small Deviation

This week we take a small deviation from our usual topic of macro-economic variables. We discuss some random thoughts on a core principle in life- Problem Solving & see how it is linked to Strategy.

Problem or Situation?

Most of us get better at solving problems, either personal or professional through experience as we move forward in life. We fnd our way either above it, below it or through it one way or the other. But it is critical to understand that there will always be problems which either

1. Have a solution or
2. Does not have a solution

Seth Godin has a wonderful differentiator between the two. Below is an extract from his blog on working with problems (Source : here)

1. Problems are everywhere we look
2. For the ones that won't go away - ask if is it a problem or a situation?
3. Problems, by definition have solutions, irrespective of cost or trade offs
4. Situations, on the other hand, don't have any solutions. We have to live with them.

Once we realize that a problem isn't a problem at all, but actually a situation, it's easier to do our best to move on & thrive.

So, first identifying whether we are facing a problem or a situation goes a long way in helping us move forward.

Mental Models

Everyone has a method of solving problems in their own way using something called a mental model. What is a mental model?

A mental model is an explanation of how something works. The phrase "mental model" is an overarching term for any sort of concept, framework, or worldview that you carry around in your mind. (Source : here)

It is more like a tool or framework used to solve problems using certain mental maps created from our experience or knowledge of how things work. Now, in a new problem scenario, our mental model may be limited as we may not be aware of all the variables involved to solve the new problem due to inexperience.

There are myriad books & literature on mental models - we won't deep dive into it but as examples to understand the concept - Supply & Demand is a mental model that helps us understand how the economy works, Incentives provides a mental model to understand what motivates or encourages someone to do something.

Another way of looking at mental models is that they help us see the relationships between variables affecting the outcome of a problem. This can be done through Systems Thinking. Let us take this in two phases :

Phase 1 - Systems thinking

Phase 2 - Understanding Variables

Systems Thinking

We discussed systems thinking briefly in week 10 (Source mentioned therein) & defined it as

Systems thinking is a vantage point from where you see a whole, a web of relationships, rather than only focusing on the detail of any particular piece. Events are seen in the larger context of a pattern that is unfolding over time.

Systems thinking is also the practice of examining & improving our mental models.

This type of thinking helps us to identify how & where our actions have an impact & based on feedback, how do we iterate & improve our actions?

If we analyze & consider the whole picture with it's variables & interconnectedness, it will improve our understanding of how a situation works so that we can define the solution & implement it accordingly.

If our understanding is wrong, we correct our actions & our mental model gets "updated" with this new information.

A critical factor in systems thinking is identifying variables. What are variables ?

Variables

Variables in math are symbols, often letters, that represent different values in various situations. They help us solve problems with changing values. (Source : here)

The last sentence above in bold is very important to note. Let us park it now to understand how a variable works.

Let us see a simple maths problem as below:

5x = 20 - 15x

How do we solve it?

We keep the constants (numbers) on one side & the variables (those with letters) on the other

5x + 15x = 20

20x = 20

x = 20/20 = 1

x = 1

In another equation, x can be something else. It keeps on changing depending on the equation that it is in. There can be multiple variables like y or z, for e.g.,

5x + 10y = 120 -12z

Ok, so by now you must be thinking, why am I discussing a subject which most of us used to avoid in schools? Remember those black boards filled with lots of formulas?

Variables in the context of strategy can be many things & they keep changing making it a challenge to keep track of. Our actions also need to change in line with the changed values :

1. Relevant macro economic variables - GDP, interest rates, inflation etc
2. Industry dynamics - industry segment, profitability, competition, barriers to entry etc
3. Customer dynamics - customer profile, segment etc
4. Supply chain dynamics - import or local etc
5. Internal / Corporate dynamics - Corporate Structure, investments, Funding, stakeholders etc

Most of the above above variables need to be considered when driving strategy. Michael Porter's Five forces is a excellent resource on understanding the variables which impacts a company's strategy which we will deep dive in the next couple of weeks. Visualizing the same:

Strategy & Problem Solving

What has strategy to do with problem solving?

Roger L Martin in his book "Playing to Win" & his blogs has mentioned some key points as below:

1. Strategy should be a problem solving technique & that is where it's value lies
2. Strategy is first & foremost a problem solving tool
3. A strategy process will be largely worthless without an identified problem it is designed to solve

Richard P Rumelt in his book "Good Strategy / Bad Strategy" says :

1. Strategy embodies an approach to overcoming a difficulty
2. Identifying the difficulties & obstacles will give you a clearer picture of the pattern of existing & possible strategies

I believe that Strategy is a problem solver's wet dream. Why? Because there are so many variables involved with lots of uncertainty thrown in that

1. it is a constant ongoing exercise of identifying the variables impacted &
2. their first / second order effects.

So, how do we link problem solving with strategy?

1. Identify the problem - Have a problem statement. This can be a friction in customer interaction or something entirely new which can make a customer's life easier or an objective (like increase market share)
2. Develop a hypothesis - What is required to make it your strategy successful? Or as Roger L Martin put it - "What would have to be True?"
3. Test the hypothesis using data - Talk to customers directly or through surveys to understand what the customer truly values & is the strategy delivering the same
4. Accept / Reject - Based on the results, accept or reject the hypothesis

I believe strategy requires a continuous & iterative problem solving mindset through constant review of environmental variables.

We will explore these concepts again in depth at various stages over the next couple of weeks. Buckle up!! We are ready to fly....