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Complex systems, by their nature, generate a tangled web of connecting causes and effects. So it’s surprising how often solutions aimed at fixing root-cause issues come down to a binary choice: do ‘X’, or don’t do ‘X’. Both can seem necessary—the classic dilemma. So what’s the way out?
[Listen to audio version, read by David Hodes]
This is Part 4 of our series on the Logical Thinking Process: Part 1 | Part 2 | Part 3 | Part 4 | Part 5
Of all the tools of the Logical Thinking Process, the one I find myself using the most is the Evaporating Cloud, or more prosaically the conflict resolution diagram. Legend has it that Eli Goldratt, who invented the tool, was inspired by Richard Bach and his 1977 book Illusions, in which the main characters remove storm clouds from the sky by thinking them away:
‘If you really want to remove a cloud from your life, you do not make a big production out of it, you just relax and remove it from your thinking. That’s all there is to it.’
The Evaporating Cloud tool intends to similarly ‘vapourise’ difficult problems by resolving an underlying conflict. If you share a goal with the person, people or organisation with whom you’re in conflict, Goldratt teaches that there is not really a conflict. Rather, one or more assumptions made about the situation is false, and once you unearth it or them, you have a pathway to a win-win solution without the usual compromises.
We always construct the evaporating cloud the same way. The entity at A is the goal or the objective. Entities B and C are two requirements (necessary conditions) which both must be met if you are to achieve your goal. D and D’ (pronounced D prime) are where the conflict resides—the pre-requisites to the earlier requirements.
The evaporating cloud uses necessary condition logic, and therefore it is read: In order to [entity at the tip of the arrow] I must [entity at the base of the arrow]. I usually begin with the goal statement, which should come from the building of the goal tree. I then put in place the two prerequisites at D and D’, representing the horns of the dilemma. While B and C must coexist to deliver on the goal, D and D’ are assumed not to be able to coexist simultaneously and are thus the subject of the dilemma. Using Visio, or similar software tools, I usually slap down the first draft of these five essential elements pretty quickly. It is easy enough to do the editing of the entities once you have cleared your mind of the burden of holding all of these conflicting thoughts at the same time.
One of the great benefits of developing the evaporating cloud is that it allows you to see the whole structure of the argument. I have found that every time I think I know the answer to a dilemma and want to go with my fast-thinking problem-solver mind, I force myself to slow down and construct the argument. I invariably find a deeper level of insight that, in turn, helps produce a more imaginative and better-argued solution. If I have developed the cloud by myself, it acts as a powerful means of communicating what’s on my mind. If it is built collaboratively, it provides a real focusing tool for the team to have the requisite conversations which lead to a lasting solution.
Once the five building blocks are in place, it’s time to do the tour around the cloud to ‘surface’ the assumptions which hold it together. Based on the typical example below, we read In order to [entity at the tip of the arrow] I must [entity at the base of the arrow] because [assumptions]. For the novice users of the cloud, there is usually a trap in this step. A practised logical thinker will raise as many assumptions as their mind will provide them. It is a skill to be able to think of assumptions which are contrary to your prejudices and cognitive biases.
However, when the novice listens in, they usually think that when you call out an assumption you are advocating the position articulated by that assumption and get ready with their defensive routines. Remind them, indeed remind yourself, that it is vital that you give free expression to every view. It’s the way we come to discern what’s true and valuable and what we can discard. Its power lies in removing the person from the argument and liberating any and all to speak their truth without fear of retribution or shame. If we are intentionally asking people to surface all assumptions, there can be none which we would consider superfluous or too stupid to be mentioned. This is the spirit in which we conduct the analysis of the cloud.
Let’s have a look now at an example. We start with the goal at A: ‘grow competitive returns for our shareholders now and in the future’. If we were dealing with a specific organisation, we’d have to be more precise than that, asking the question of at least how much, by no later than when. But, for this exercise, that will suffice. In our hypothetical case, this business has hit a bump. Their budgeted profits are under attack, and they are under pressure to cut back on investment in new capabilities.
On the one hand, at D, they have to perform against the cost and revenue budget. On the other hand, they have to invest in new capabilities. Once I have the goal and the dilemma, I ask the question: ‘why do I need to have D (perform against our cost and revenue budget) if I need to achieve my goal at A (grow competitive returns for our shareholders now and in the future)? Well, I figure it’s because of what I have placed in B—I must safeguard today’s results.
We follow the same process when I ask the question between D’: ‘why would I invest in new capabilities’ if I need to achieve my goal (grow competitive returns for our shareholders now and in the future’?) Again, the answer comes back: because I must ‘live into a bold vision’. So there is a natural and creative tension between B and C. But they both must be true if the goal is to be achieved, locked as it is into providing growth now and in the future.
If we are happy with the underlying construct, we can move onto surfacing the assumptions. I won’t cover them all, but invite you to do your scrutiny and see what you might want to add. Let’s take one from each branch of the cloud.
A-B: In order to [grow competitive returns for our shareholders now and in the future], we must [safeguard today’s results] because [safeguarding today’s results gives us the credibility we need for our shareholders to continue investing in our business]. Under what circumstances would this not be true? What if your shareholders understand the difficult times the organisation finds itself in and knows that by cleaving to today’s results, they will be sacrificing a much larger value over the life of the business? What case could you make to the shareholders that would persuade them that you predicated today’s results on an idea of what you thought the market was looking like six months ago, but now, all that has changed?
B-D: In order to [safeguard today’s results] we must [perform against our cost and revenue budget] because [performing against our cost and revenue budget is the key indicator of our ability to safeguard our results]. What if the market had moved in such a way that, for a marginal increase in investment, you could fundamentally change the cost and revenue mix? Of what use would the budget be then? What if the price of a strategic material input has increased as a result of a global shortage of it? And, what if the competitive nature of the market for your product and service will not allow you to pass on any price increase without materially affecting your market share?
A-C: In order to [grow competitive returns for our shareholders now and in the future], we must [live into a bold vision] because [you cannot get superior returns doing the same thing, year in and year out]. It would usually be the case that as your competitors continue to innovate, if you stand still, they will overtake you. But maybe you have a monopoly, by way of a patent for example, so perhaps you can maintain a lead for an extended period.
C-D’: In order to [live into a bold vision] we must [invest in new capabilities] because [our existing capabilities in terms of people, process and technology are not sufficient for us to live into our bold vision]. Perhaps the bold vision included a significant program to digitalise the business, with a backbone of a new core platform. Such a program would imply that to transform with the latest technologies, the legacy systems would be retired; you would need to develop new processes around that technology and people would need training in both the new processes and technology. So, it’s a valid assumption.
D-D’: We must also pay heed to the assumption that sits between the horns of the dilemma. Here we state that [we cannot perform against our cost and revenue budget and invest in new capabilities]. Well, is this a false dichotomy? What is the specific circumstance of the business that would make this true? A cash crunch? A major disruption in the market? Loss of a significant customer? A strategic change in the supply chain brought on by regulatory requirements? Coronavirus?
Once you have surfaced and scrutinised all of the links and assumptions, it’s time to make a decision. Sometimes it is obvious, as one of the links between any two of the entities proves to be held together by invalid assumptions. On some rare occasions, the whole argument seems to be held together as tight as the bolts on a high speed turbine. On these occasions, it is necessary to think of an injection which doesn’t exist in the current reality, but could be introduced to make a high-leverage difference.
As productivity is the tide to lift all ships, it could be that the introduction of some fresh thinking about how work is planned and performed could both safeguard today’s results and allow progress on the bold vision. Perhaps the injection is to think about what the risk-adjusted discounted cash flow is for several different plausible and relevant scenarios, then choose one that has the best chance of securing the desired outcome. After all, Amazon, the world’s most valuable company, did just that—foregoing today’s profits for an indomitable position in its market over the long haul. Perhaps it’s also no coincidence that Goldratt’s The Goal is one of three books that Jeff Bezos recommends to all his executive team.
This is Part 4 of our series on the Logical Thinking Process.
Part 1: Intro to the Logical Thinking Process
Part 2: Setting your goal
Part 3: Mapping your current reality
Part 4: Deciding with the evaporating cloud
Part 5: Realising the future
The change from standard thinking to Theory of Constraints (TOC) is both profound and exhilarating. To make it both fun and memorable, we use a business simulation we call The Right Stuff Workshop.
We’d love to run it with you. To learn more:
[Background image: Bulls fighting, Richard Lee on Unsplash]
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