Transcript Hi, welcome. This week's presentation's about strategic problem formulation. We've analyzed and researched over 25 papers on the subject, and I hope you get tremendous value from implementing what we are presenting to you here today in businesses end up solving the wrong problem, so let's dive straight in. Businesses pursue opportunities and attempt to achieve their own goals by solving problems or delivering solutions. But how does a business decipher what strategic problems to solve? At the beginning of the year, most businesses will decide on a strategic outcome or goal, and then at the end of the year, they will review that against actual performance. The actual results would usually throw a gap between the aspiration and the actual achievement. That is the problem that must be solved. Strategic problems in fact, have been understood the same way. They are defined as deviation from acceptable conditions resulting in symptoms that need to be addressed. (01:04) Academics have a way of complicating things in simpler words. The problem is the gap between aspiration and performance. The gap is usually discovered in three ways, performance below aspiration. That is we have a goal and the actual performance is below that goal, historical perspective that is in comparison with past performance within the business or industry, or a social comparison that is in comparison with peers. As a competitors, the identified problem then leads to strategic decisions of focus areas or goals that determine the strategic direction of a business company or even its entire ecosystem. Once the problem is identified and decisions are taken, the business then deploys their resources, their capability. This could be financial or human or technological, and their entire systems and processes of governance and management to solve the problem and achieve the desired outcome, which in this case is to fill the gap that was identified between aspiration and actual performance. (02:09) This process of problem identification and decision-making is adopted by almost every person in business and is supposed to lead to value addition. That is value addition for the entity solving the problem, as well as for its stakeholders or customers or whoever else associated with it. The process of deciding when the problem of taking decisions itself in companies tends to be normally a group decision-making process in smaller entities or entrepreneurial organizations, this may well be individualistic, that is then subjected or put onto a group for adherence. The group decision-making process has inbuilt politics, payoffs and precedents. Now, what does this mean? This means that it is subject to different equations or relationships between different people and teams. Each person then attempts to minimize their own resistance or maximize their own payoff within a group setting. And each leader tries that decision is taken, that suits them and takes precedence over the ones that are being debated as a result. (03:14) Three things. Zaka groups tend to negotiate outcomes that avoid risks for themselves. They tend to become exploitative in order to be able to maximize their own performance. And this process leads to a search of solutions that is local or known or within our own knowledge framework or comfort zones. It's quite logical or else how will we be able to implement that anyway? As science tells us that this process of arriving at consensus is limited by something that is known as bounded rationality. Now, what is bounded rationality? It's quite interesting. Bounded rationality is the idea that rationality or logic is limited when individuals actually make decisions. And under these limitations, logical or rational or intelligent individuals will actually select a decision that is satisfactory rather than optimal, acceptable rather than right. Decisions can be bounded by information, they can be bounded by ability or even by time. (04:14) Now, at the end of this process of problem identification and formulation, people would naturally form problems generate solutions. Then through the year they would implement the solution and generate the output. The output may again present a gap between aspiration and actual results, which is usually analyzed for wrongful implementation and therefore set up the process all over again for problem solving or decision making. While this may serve as an efficient review process, and it does in many organizations, there are two critical flaws in this process. Number one, businesses tend to set goals that are very internal focused, obviously because they are arriving at the goals from an internal discovery of aspiration versus goal achievement. And number two, which is very critical, businesses probably don't identify real problems to be solved that may actually inspire innovation and lead to value creation. The process often leads to short-term tactical fixes and not long-term strategic direction. (05:18) This also leads to what research calls the error of the third kind that is precisely solving the wrong problem. So what needs to change alongside the goal gap review process? Businesses need to ask three pertinent questions. Number one, what real world gap in our fulfillment of customers needs caused us to miss our goals? Now, this is an external viewpoint. It's much different from looking internally as to what was the gap and looking at it from an exploitative point of view. So rather than looking at it from an exploitative point of view, it's looking at it from a corrective point of view as to what we missed. Number two, what is missing in our own offer of fulfillment of it that we are unable to hit our goal and which capability, if added to our current capabilities, maximizes our chances of being the industry leader? Now, some businesses may well feel that they seek answers to these questions within the goal gap analysis, and I'm known one to judge, they might be doing it. (06:21) However, even if so, it is observed that seeking these answers within the goal gap lens leads to answers that are limited by bounded rationality. The reason is that the group is mostly concerned with gap filling and not problem solving. Therefore, they will settle for fixes rather than strategic decisions, and you can check it out in your organization. This probably does happen that when we are debating with a certain lens, solutions tend to fix into those lens and are not really encouraged for exploration outside of that lens. The solution is that the problem itself needs to be reframed. That is when we discuss a problem, let's say what real world gap in our fulfillment of customers needs cost us to miss our goals versus let's say we discussing the problem, what was the gap between target and sales and why the likely difference in responses could be as follows. (07:13) So when we are discussing a real world gap in our fulfillment, so when we are applying the lens of a different problem, it probably forces people to empathize and think critically versus when we are discussing a problem gap analysis that is a gap between target and sales. It probably forces people to empathize with self or with the internal reality of the business and kind of thing defensively as to what went wrong. The lens defines the entire direction of the solution. So in summary, what does this mean? That the problem identification, as understood by businesses as an element of problem myopia, that is an inability to perceive a strategic problem independent of the goal gap framing. The solution then is to additionally incorporate strategic elements by changing the lens from goal gap in outcome or results to goal gap in the strategy itself. And that leads us to the three questions. (08:12) What real world gap in our fulfillment of customer needs caused us to miss our goals? What is missing in our offer? A fulfillment of it that we are unable to hit our goal and which capability, if added to our current capabilities, maximizes the chances of being the industry leader or hitting our goals. Now these questions are critical and I would urge you that in your settings or in your meetings to ponder over these and to be really able to arrive at a different or a unique problem, formulating the right strategy and taking the right decisions can rarely be the difference between surviving and thriving. I hope you enjoyed the presentation today and got an insight. I would urge you to implement the three questions in your business and let us know how it went for you. I will see you again next week with another insight from another academic standpoint and literature.