better decisions in complex situations

Oliver Grasl

An IntroductIon to BusIness PrototyPIng

Better Decisions In Complex Situations

© 2014 transentis management consulting GmbH & Co. KG 2www.transentis.com

Coping with Complexity The business world is becoming increasingly complex & unpredictable.

What is going on here?Can you guess what this diagram is about?

http://www.transentis.com


The future will be more volatile than we were used to during the last ten years.*

Coping with Complexity

Development of the Dow Jones Industrial Index from 1970-2012**

* Nobert Reithöfer CEO of BMW

Handelsblatt, 21.10.2010

** Source: Wolfram Alpha, 8.12.2013



Standing still is not an option Both internal and external drivers force enterprises to change their structures and pro-cesses—at all levels.

Your EnterpriseExternal Drivers

High Market ExpectationsIntense CompetitionNew Value ChainsDisruptive TechnologiesDemographic ChangesScarcity of resourcesGovernment Regulations

RepositioningBusiness Model InnovationMergers & AcquisitionsExpansion to new markets

Internal Drivers

Internal and external drivers force enterprises to implement frequent and widespread changes to their business models, their organization and the technology supporting their business.



Standing still is not an option Both internal and external drivers force enterprises to change their structures and pro-cesses—at all levels.

Your EnterpriseExternal Drivers

High Market ExpectationsIntense CompetitionNew Value ChainsDisruptive TechnologiesDemographic ChangesScarcity of resourcesGovernment Regulations

RepositioningBusiness Model InnovationMergers & AcquisitionsExpansion to new markets

Internal Drivers

Internal and external drivers force enterprises to implement frequent and widespread changes to their business models, their organization and the technology supporting their business.

What exactly do YOU need to change?Are you worried about „changing a running system“?



Transformation mostly starts with the reali-zation that there is a gap between where you (think you) are now and where you would like to be.

Mind the Gap

Observation,Measurement

DesiredSituation

Gap

CurrentSituation

Are your focusing your observation on the right areas?

What do your obser-vations mean?

Do all stakeholders understand their significance?

Who defines the desi-red situation?

Who is responsible for managing the gap?



Decisions (should) lead to actions To close the gap between where you are and where you want to be, you have to make decisions and act upon them.


Actions

DesiredSituation

GapDecisions

CurrentSituation

Which decisions are the right ones?

Are you making deci-sions fast enough, lea-ving enough time for action?

Are the consequences of decisions clear?

Are the decisions clear to those who perform the actions?



The data you receive through observation is filtered by your brain – your “mental models” (experience, knowledge, emotions) decide which informa-tion is relevant.

Data Reduction Bottleneck

Ear

Eye

Skin Movement

Expression

Speech10² Bit/s

10⁹ Bit/s 10⁷ Bit/s

ActionObservation

Feedback

ExperienceKnowledgeEmotions

Attention

Diagram adapted from Frederic Vester, Die Kunst vernetzt zu denken, 5. Auflage, DVA2000



In order to achieve full control of a system, the variety (“complexity”) of the agent must be higher than that of the system itself.

Ashby’s Law of Requisite VarietyLe

arn

New

Way

s of

Act

ing

& O

bser

ving

Observation

Action

System

Agent

Reduce C

omplexity –

Work on the S

ystem, not in the S

ystem

≥Variety

In order to cope with complex systems, you can either learn new ways of observing and acting, you can reduce the complexi-ty of the system you are managing, or both?

Which is easier for YOU?

The Business Prototyping approach will help you to improve your power of observation and will show you new ways of acting.Business Prototyping can also help you to reduce the complexity of the system you are dealing with.



It is all in the mind Our observations, desires, decisions and actions are shaped by our (collective) experience, knowledge and understanding.


Actions

DesiredSituation

GapDecisions

CurrentSituation

Experience,Knowledge,Emotions

How do you identify which stakeholders you need to involve?

How do you utilize their collective intelligence?

How do you ensure they all have the same understanding and mean the same things?



Learning through observation We learn about our decisions and actions by observing the effect of our decisions and ac-tions.


Actions

DesiredSituation

GapDecisions

CurrentSituation


Is this way of learning appropriate in uncertain, risky situations?

Is it ok for you to rely purely on learning through „live“ experiments with your business?

What if your experiments go wrong?



Instead of per-forming live experiments, build a prototype of your (future) business and experiment there.

A laboratory for business experimentation


Actions

DesiredSituation

GapDecisions

CurrentSituation


BusinessPrototype

Risk-freeExperiments

Business Prototypes are laboratories for ex-perimentation.

Use them to learn, to play business (war-)games and to tell stories about how your business could be.

Useful techniques for building prototypes are visu-al models and simu-lations.



Actions

DesiredSituation

GapDecisions

CurrentSituation


BusinessPrototype

Risk-freeExperiments

Don‘t experiment with reality …it‘s risky and expensive and may be bad for morale.Use Business Prototypes to perform experiments!

Controlled, repeatableexperiments … without risk.

New insightsabout yourbusiness.

Reduce complexity,understand inter-dependenciesand data better.

Understand, which informationis relevant to your businessand how to use it to get better.

Make new businessideas & strategiesconcrete.

Sketches and DiagramsVisual ModelsSimulationsBusiness Games

Make well-founded, transparentdecisions.

Discover new options,set explicit targets (KPI target settings, milestones, …).

Involve all stakeholdersand get their buy-in.


Better Decisions in Complex SituationsUse business prototyping to experiment with new business ideas and strategies in a risk free environment.

The business prototyping ap-proach enables you to experi-ment with innovative business ideas and new business strate-gies.

You can test differing assump-tions, quantify soft factors and gut feelings and sharpen your intuition.

Use sketches and diagrams, in-teractive business games and business simulations and all available and relevant data.

Clarify interdependencies, let facts and figures speak and awaken your strategy to life—before you put it into practice.

Business Prototyping in a Nutshell


Explore the situation andbuild a businessprototype

Realize the design usingprototypes asguidance

Real world

World of business prototypes

Don‘t experiment here: it is expensive, dangerous and can be bad for morale...

Experiment with newdesigns and policies here

Situation Improved Situation

Alternative DesignsBusiness Prototype


Never change a running system… unless you know what you are doing. Experimenting with reality can have undesir-able side effects.

At transentis, we use business proto-typing to help our clients to manage the complexity of business transforma-tion.


1. 2.

1. 2.

Wiktionary

Wiktionary

Prototype

An original object or form which is a basis for other objects,forms, or for its models and generalizations.

An early sample or model built to test a concept or process.


What is Business Prototyping? Business prototyping is the act of experimenting with new business concepts and pro-cesses in a risk-free environment.

The objective of business prototyping is to explore the consequences of new busi-ness ideas, strategies and designs before realizing them in practice.

Useful prototyping techniques are game-playing, storytelling, spreadsheets, visual models and simulations.


A model is an external and explicit rep-resentation of a part of reality as seen by the people who wish to use that mod-el to understand, to change, to manage and to control that part of reality.

A simulation model is an “executable model” that shows how a system be-haves over time.

You can use a simulation to explore scenarios using risk-free, repeatable experiments and thus answer “What happens if …” questions.


Use Models and Simulations to Build Business Prototypes


Let‘s take a birds-eye perspective and not worry about the internal details of the customer ac-quisition process for now …


Viewed from the outside, the customer acquisition process is simple...the ob-jective is to convert potential customers into customers.

Simple Example: Customer Acquisition

Customer acquisition

PotentialCustomers Customers


What does the customer acquisition rate depend on?


The performance of the process is measured by the customer acquisition rate.Simple Example: Customer Acquisition

Customer acquisition rate

CustomersPotentialCustomers


But these key factors have an enormous impact on your results…


Viewed from an abstract level, your customer acquisition rate only depends on a few key factors.


Advertisingsuccess rate%

MarketSaturation%

Word of mouthsuccess%

Customer acquisition rate

CustomersPotentialCustomers


Depending on the concrete settings you assume, the same model produces very different outcomes.

In this case, an informal sketch simply is not enough …you need to be specific and quantitative about your as-sumptions.

Business prototyping makes sure you do this in a systematic way.

Learn more about this model and experiment with it online on our blog:www.business-prototy-ping.com


Even in this simple model, the outcome varies greatly, depending on the assumptions you make.


10 20 30 40 50 60 Months

6 M

5 M

4 M

3 M

2 M

1 M

0

Customers

High Word-of-Mouth Contact Rate

Low Word-of-Mouth Contact RateNo Word-of-Mouth Contact, Advertising only

http://www.business-prototyping.com/ograsl/2013/11/19/exploring-the-dynamics-of-customer-acquisition/

http://www.business-prototyping.com/ograsl/2013/11/19/exploring-the-dynamics-of-customer-acquisition/



Why business prototypes are useful

Business prototypes capture complex situations in

their entirety Business prototypes help you to manage risk and un-certainty

Business prototypes provide a laboratory for experi-

mentation

■ Involve all relevant stakeholders.

■ Capture their knowledge about your company, your value net-work and the markets you operate in.

■ Make their assumptions about your company’s structure and behavior explicit.

■ Model your company at various levels of detail, both qualitative-ly and quantitatively.

■ Perform controlled, repeatable “What if…” experiments.

■ Challenge your thinking.

■ Reflect and communicate.

■ Shape and test alternative scenarios and strategies.

■ Explore the consequences of decisions and plans before taking action.

■ Quantify all assumptions.



Three Points to Remember

1 2 3 1 2 3

1 2 3

If you remember only three points

from this presentation,

remember these

Useful prototyping techniques are gameplaying, storytelling, spread-sheets, visual models and simulations.

Business prototyping helps you deal with complexity and make

better decisions – experiment with new business ideas,

policies and designs in a risk-free environment.

Intense competition, disrup-tive technologies, demographic changes and the scarcity of resources are forcing com-panies to make difficult decisions at an ever in-creasing rate.

Learn more about these on our blog www.business-prototyping.com


http://www.business-prototyping.com

Transformation for success

We help companies to transform and thus accelerate their success.

Our focus is on developing, validating and implementing new business models and services.

Business prototyping is the approach we use to manage the complexity of the transformation and make better decisions.

We get you there. Since 1997.

transentis management consulting GmbH & Co. KG Potsdamer Platz 11 D-10785 Berlin www.transentis.com Tel.: +49 (0)30 2589 4005
