Business Judgement

Expertise Trap

Seasoned professionals rely on rigid, outdated mental models and analysis paralysis

System 1 thinking

Fast thinking, low effort, jumping to conclusions

System 2 thinking

Slow, effortful, high effort, logical

Flawed Problem definition

Confusing symptoms with causes, e.g. the music industry defining the MP3 as a piracy problem rather than a distribution shift

Solution Confirmation

Starting with a favourite answer and working backwards from it, e.g. Increasing yogurt production in third world countries despite refrigeration constraints

Wrong Framework

Applying an inapproporiate mental model, analytical tool or theoretical structure to a situation, e.g. Using personality tests to fix turnover when the cause is low pay

Narrow Framing

Relying on superficial analogies, e.g. JC Penney assuming Apples retail strategy would translate to department stores

Miscommunication

Solving the right problem but failing to persuade the stake holders

4S method, what are they?

State: Sharp, actionable question (TOSCA)

Structure: Logical architecture, i.e. Hypothesis Pyramid, Issue Tree and Design Thinking

Solve: Analysis or experimentation needed to find a solution

Sell: Convincing stakeholders to take action (Pyramid Principle)

4S Method, what is it?

A 4 stage framework used to solve complex business and strategic problems

Deductive Reasoning

Logical proces where you start with a general premise or established truth and apply it to reach a specific, certain conclusion - Hypothesis and Issue Driven

Abductive Reasoning

A logical process of making an educated guess to find the simplest and most likely explanation for an incomplete set of observations - Design Thinking

TOSCA

Trouble: Symptoms, e.g. sales down 10%

Owner: Who is accountable, e.g. CEO

Success Criteria: Quantifiable goals and timeline, e.g. 5% growth in year 2

Constraints: Resource limits, e.g. $500k budget

Actors: Stakeholders affected

MECE

Mutually Exclusive Collectively Exhaustive: No overlaps or gaps

Hypothesis Pyramid

A top-down structure used when you have high confidence. You start with a leading hypothesis / problem to solve, then break down into sub-hypotheses / conditions that must be true for the leading hypothesis to hold. Then the elementary hypotheses are statements that are concrete enough to be proven or disproven through facts / data

Issue Tree

Exploration of how and why questions

Confirmation Bias

The tendency to seek only information that supports our existing beliefs

Porter’s 5 Forces

Strategic framework used to analyse an industry’s competitiveness and profitability

4P’s

Foundational elements businesses use to create a winning marketing strategy

Design Thinking

Use design thinking for complex, ill-understood, human-centered problems

5 Phases of Design Thinking

EDIPT - Edith Dislikes Indian People like Taj

Empathise: Understanding the users for who you are designing. A strategic tool to uncover what users actually do vs what they say

Define: A POV statement that idenfies the user, their needs, and unexpected insights gained

Ideate: Divergent mindset that prioritises volume and variety of ideas over immediate quality

Prototype: Experiemented to test specific hypotheses about a solution’s attributes

Test: Let users interact with the prototypes in their natural setting to generate feedback

5 Pitfalls

Flawed Problem Defintion

Solution Confirmation

Wrong Framework

Narrow Problem Framing

Miscommunication

Groupthink

A psychological phenomenon where the desire for harmony or conformity in a group results in irrational or dysfunctional decision-making

Problem statement

A sharp, core question formulated from the perspective of the problem owner

Seven steps to strategy making (what is it?)

Applying creativity to scientific processes to generate new strategies and pinpoint the most likely to succeeed

Seven steps to strategy making (what are they?)

Chris Practices Cricket Before Tennis Trials in Castlemaine

1. Frame a choice - Force problem into two mutually exclusive choices

2. Generate Probabilities (i.e. paths to follow)

3. Specify conditions for success

4. Identify Barriers

5. Design Tests

6. Conduct the tests

7. Make your choice

Self-Interested Bias

Does the team benefit personally

Affect Heuristic

Mental shortcut where people rely on their immediate emotional response rather than making logical decisions

Anchoring Bias

Cogntitive bias that forces us to rely heavily on the first piece of information we learn about a topic, e.g. I want to buy a laptop and see one for $1000 that I want. It’s too expensive but then I see a T-shirt for $100 and buy that, because my mind thinks it’s alot cheaper than the laptop

Sunk Cost Fallacy

Is the team emotionally tied to past investments

Competitor Neglect

Ignoring competitors decisions, or acting as though they don’t exist

Overconfidence bias

A cognitive error where an individual’s subjective confidence in their own abilities, knowledge, or judgments is greater than objective reality

Loss Aversion

Is the team being overly cautious, because they don’t want to fail

Action-oriented bias

Drive us to take an action less thoughtfully than we should - Excessive optimism, overconfidence, competitor neglect

Interest bias

Presence of conflicting incentives (i.e. Monetary or emotional) - Misaligned individual incentives, inappropriate attachments, misaligned perception of corporate goals

Pattern Recognition Bias

Recognising patterns even where there are none - Confimration bias, chmapion bias

Stability Bias

Tendency to reject change in the presence of uncertainty - Loss aversion, status quo bias, sunk cost fallacy

Social Biases

Preference for harmony over conflict - Groupthink, sunflower management (align with views of leaders)

When to use Issue Tree vs Hypothesis Pyramid

Hypothesis Pyramid: When you candidate solution and have expertise, or a simple problem

Issue Tree: When it is a complex issue, and you do not have a good candidate solution

Pyramid Principle

Core Message (Convey the recommendation), Key Line (How and Why), Support (Data)

8 Types of Analysis

Eric Eats at Noodle-Noodle Fridays, As Isaac Eats Junk-food

1. Exisiting data - Statements accepted without any second thought

2. Easy-to-find numbers - Quantitative data

3. Non-Numerical facts - Qualitative data

4. Fact based analyses - Logical processing of factual data

5. Assumption based analysis - Educated guesses when perfect data isn’t available

6. Internal plans and forecasts - Assumptions based on management projections

7. Expert input - Assumptions requiring expertise, e.g. legal opinion

8. Judgement calls - Educated judgement