Thinking Clearly

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This Blog is inspired by Eli’s speech in 2009 TOCICO Tokyo Conferance and Nassim Taleb’s Black Swan

Let us see how “experts” in business conventionally analyze situations. They go around departments and ask people for problems, do a gap analysis ( with help of some benchmarking data)and then they arrive with solutions, almost one for each problem.

The inter-relationship between the problems is mostly ignored.

However people in organizations mostly verbalize the “pain” that they are experiencing from their point of view, which is mostly local and hence can be called as an “undesirable EFFECT”. It is not the core problem. The core problem is at least 5 layers removed from the problem verbalized by the department manager. Understanding the core problem requires understanding of the interactions of all the undesirable effects.

At the same time there is another problem. Whenever one listens to a problem, there is an immediate temptation to arrive at a solution, more so in cases where the listener has a prior experience. For example on hearing about high logistics cost as a problem, the mind may immediately look at a cost reduction solution or on hearing about too many set ups as a problem, the mind could conclude on increasing batches. Different people would conclude on different solutions based on their prior experience. But the problem may just be symptomatic ( a undesirable EFFECT). The high logistics cost could be because of wrong inventory placement which in turn is leading to partial expediting shipment. The wrong inventory placement could be because of the practice of pushing sales down in supply chain based on a forecast. So the logistics cost cannot be looked in isolation to the entire sales and distribution planning.

The typical way of fast thinking, without a rigorous analysis is thinking by Heuristics, where the mind jumps to conclusions based on fixed mental models of the past experience. This way of thinking does not help us reach at the core problem which is at least 5 layers away from what has been verbalized by the department manager.

Then why do we as managers mostly use such heuristics based thinking? I got the answer to this question from “BLACK SWAN” by Taleb. Our human brain has two systems – system 1( the intuitional mind) and system 2 (cogitative or the thinking one). System 1 is superfast, effortless, emotional, intuitional and draws heavily from past. This is what people call “heuristics and biases”. System 1 is prone to errors.
While system 2, the cogitative part is slow, logical, self aware, classroom oriented and is very less prone to errors. Then why do we have the error driven system 1 at all? System 1 is actually a fast defense mechanism provided for human beings to save themselves from danger. The mind triggers fears almost before the snake is actually seen. If instead of system 1, the system 2 is activated, the person might get into slow analysis of whether the snake will actually attack or not. This slow thinking might actually delay an action the person might get bitten. System 1 has a need – it helps us stay away from danger ASAP.

The problem starts when system 1 is used to analyze scenarios where system 2 level thinking is required. For decision making, we are not facing dangers every time. A bigger problem is people are not even aware that they are using system 1 when system 2 is required. The best example of using system 1 in wrong scenario is in business situations where people immediately jump to conclusions on hearing undesirable effects. Since system 1 is effortless, most of the time, we might end up using it in meetings or discussions. On the top of it people reinforce their thinking with further confirmation biases. They look around for confirmation of their hypothesis to prove their point and rigidly hold their “positions”.

To use system 2 thinking, we need not only a disciplined process ( which will overcome the biases of system 1 thinking) but also lots of practice. We have to go slow and look at the WHY of the problem presented. The 5 WHY method does not provide a a good framework as after 3 WHYs, it becomes difficult, as we diverge to more and more causes. Like a fish bone diagram, the causes become many and many. This is not the right tool for analyzing systems with interactions.

The right tool for system 2 thinking is the thinking processes of the TOC.

To use the thinking processes, we need to practice the use of categories of legitimate reservations, particularly the predicted effect reservation. In a business system where every department is connected to other, a cause does not exist in isolation and always has multiple effects. The rule of predicted effect provides us with the ability to continuously use FALSIFICATION ( try and falsify with a predicted effect) as a way forward to seek truth. More number of effects fail in test of falsification, greater is acceptance of the hypothesis or existence of the cause.

Yes using the logical TOC thinking processes is a slow but it provides a way to do system 2 thinking and avoid the pitfalls of system 1 thinking.

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