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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Page 1: The Art of Decision Making and Strategic Thinking

The Art of Decision Making and Strategic Thinking

Fundamentals of Case Analysis

UCF MAR 4804

Page 2: The Art of Decision Making and Strategic Thinking

Based on:

“Smart Choices”by Hammond, Keeney and Raifa

“The Mind of the Strategist” by Kenichi Ohmae

Handout by Samar Das

Page 3: The Art of Decision Making and Strategic Thinking

The Mind of the StrategistSuccessful business strategies result from aparticular state of mind. In what I call the mindof the strategist, insight and a consequent drivefor achievement fuel a thought process which isbasically creative and intuitive rather thanrational. Strategists do not reject analysis. Theycan hardly do without it. But they use it only to stimulate the creative process.

Kenichi OhmaeManaging DirectorMcKinsey & Co., Japan

Page 4: The Art of Decision Making and Strategic Thinking

The Strategic Thinking Process

Mechanical Thinking

Intuitive Thinking

Creative Strategic Thinking

Page 5: The Art of Decision Making and Strategic Thinking

Case Analysis

Analytical

Convergent

thinking

Creative

Divergent

thinking

Practical

Feasible

thinking

Page 6: The Art of Decision Making and Strategic Thinking

Defining the Problem

“if you don’t know where you are going, all roads will take you there!”

Page 7: The Art of Decision Making and Strategic Thinking

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.

Page 8: The Art of Decision Making and Strategic Thinking

Problem definition: Be creative

The LAZY way…often 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

Page 9: The Art of Decision Making and Strategic Thinking

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

Page 10: The Art of Decision Making and Strategic Thinking

Problem: -> 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?

Page 11: The Art of Decision Making and Strategic Thinking

Steps in creatingsuperior strategies

1. Problem definition2. Characterize the situation3. Identify objectives4. Generate alternative solutions5. Evaluate alternative solutions6. Develop action plan

Page 12: The Art of Decision Making and Strategic Thinking

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- Steady’s sales are dropping

Implied connection of the trigger to the problem- Steady’s sales are dropping…because Precise is taking away market share

Page 13: The Art of Decision Making and Strategic Thinking

Most People Stop Here!

Decision Outcome:Let us find a way to compete with Precise

What could be done?$20 million ad campaignPrice promotionsSix months later-> NO JOB

Page 14: The Art of Decision Making and Strategic Thinking

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?

Page 15: The Art of Decision Making and Strategic Thinking

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 company’s standing in the consumer personal products market

Page 16: The Art of Decision Making and Strategic Thinking

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

company’s consumer product line strategy?

Page 17: The Art of Decision Making and Strategic Thinking

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

Page 18: The Art of Decision Making and Strategic Thinking

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

Page 19: The Art of Decision Making and Strategic Thinking

How would you define the problem of Steady watches?

Page 20: The Art of Decision Making and Strategic Thinking

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

Page 21: The Art of Decision Making and Strategic Thinking

What next: Identifying Objectives Write down all the concerns you hope to

address through your decision. Long term, medium, immediate or short

term Don’t 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

Page 22: The Art of Decision Making and Strategic Thinking

Identifying objectives Convert your concerns into succinct

objectives – clear, focused, action orientedSteady 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

Page 23: The Art of Decision Making and Strategic Thinking

Identifying objectives

Understand the fundamental objective you are trying to achieve -> 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

Page 24: The Art of Decision Making and Strategic Thinking

Generate ALTERNATIVES

Two laws of alternatives

You can never choose an alternative you haven’t considered

No matter how many alternatives you have, your chosen alternative can be no better than the best of the lot.

Page 25: The Art of Decision Making and Strategic Thinking

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

Page 26: The Art of Decision Making and Strategic Thinking

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

Page 27: The Art of Decision Making and Strategic Thinking

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

Page 28: The Art of Decision Making and Strategic Thinking

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

Page 29: The Art of Decision Making and Strategic Thinking

Develop actionable plans

Consider presenting your plans for long term, medium term and short term

Develop the plans with as much detail as possible

Page 30: The Art of Decision Making and Strategic Thinking

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