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Chapter 3
Solving Problems
CHAPTER OVERVIEW
Critical thinking and decision-making are always at the very top of any list of skills for great
management. This chapter presents proven problem-solving models and strategies for
overcoming the most common traps and biases that often hinder effective decisions.
LEARNING OBJECTIVES
KNOWING OBJECTIVES
1. Define and structure a vague problem
2. Articulate key steps in solving problems
3. Recognize judgment traps that hinder the decision making process
4. Identify evidence-based methods for improving decisions
DOING OBJECTIVES
1. Solve problems using the PADIL framework
2. Implement techniques to minimize or avoid decision-making biases
3. Complete a stakeholder analysis
4. Use decision tools to narrow a set of problem alternatives
KEY STUDENT QUESTIONS
1. What are the most effective ways to solve a problem?
2. What are the biggest mistakes people make when problem-solving and how can I avoid
those mistakes?
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Students may be able to answer the second question in general terms based on their own trials
CHAPTER OUTLINE
I. The Challenge of Problem Solving
A. Rational problem solving is difficult for most managers – up to 50% of decisions made in
organizations fail or are suboptimal
B. Problem Solving Myths
1. Taking action is better than standing by: Action can cause even more problems
2. Trust your gut: Intuition can be helpful but is often overrated
3. I know when I’m making a poor decision: Few people know this without training and
practice
4. Dividing an elephant in half produces two small elephants: Complex problems rarely
have simple solutions
II. Why Smart People Make Bad Decisions
A. Intuition
1. Intuition represents a collection of what we’ve learned about the world, without
knowing that we actually learned it
3. Intuition can be influenced by unconscious biases which are problematic in decision-
making
B. Ladder of Inference
1. Inference is a conclusion about what we don’t know based on what we do know
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2. We make inferences all the time, often without knowing we are doing so
3. Starting at the bottom of the ladder of inferences and moving to the top:
a. Person observes data and experiences
b. Person selects which data to observe
c. Person makes assumptions based on meanings they added
d. Person draws conclusions
e. Person adopts beliefs about the world
f. Person takes actions based on their beliefs
g. Biases Affecting the Ladder of Inference
1. Fundamental attribution error – people tend to over attribute behavior to
internal rather than external causes.
2. Self-serving bias – people attribute personal success to internal causes and
personal failures to external causes.
C. Six Ways People Exercise Poor Judgment without Knowing It
1. Availability Bias
a. Things that are readily available are likely to be interpreted as more frequent or
important
2. Representativeness
a. People ignore the “base rate” when making choices, instead focusing on
descriptors they consider to be relevant to a particular problem.
b. Special cases of the representative bias:
from specific cases because they do not realize that their specific example is
not necessarily so in all (or even most) cases
3. Anchoring and Adjustment
a. The tendency to provide estimates based on the initial starting estimate (or
anchor), not on actual data
4. Confirmation Bias
a. The tendency to collect information that supports, rather than negates, initial
intuition
5. Overconfidence
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6. Escalation of Commitment
a. The tendency to continue to invest additional resources in failing courses of
action, even though no foreseeable payoff is evident
D. Overcoming Judgment Biases
1. Confidence estimates
a. Attach an estimate of confidence to beliefs
b. Create a range for the estimate rather than a single-point estimate (e.g., 10-20
rather than 13)
2. Trial and Error Calibration
a. Learn from successes and failures to make better decisions later
1. With every prediction, record the reason why the prediction was established
4. Remember that chance is not self-correcting – a string of failures does not
make you “due” for success
3. Healthy Skepticism
a. Approach all decisions and presented evidence with skepticism
b. Challenge yourself and other experts and seek out negative or disconfirming
evidence
c. Defenses for decision biases:
1. Do not jump to conclusions
5. Do not fall prey to overconfidence – get confidence estimates and ranges
III. Solving Problems Ethically and Effectively
A. Recognize the difference between good decisions and good outcomes
1. A good decision does not guarantee a good outcome.
2. You can control how you will decide (e.g., using a framework/process)
B. There is no such thing as a perfect decision or a perfect decision process
C. Humans are always subject to:
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1. Bounded rationality – thinking and reasoning is constrained by the limitations of the
human mind
2. Satisficing – we tend to select the most acceptable (often the first) solution to the
problem rather than the optimal one
IV. A Problem Solving Framework: PADIL (Problem, Alternatives, Decide, Implement, Learn)
A. Define and Structure the Problem
1. There are a number of ways in which people “solve the wrong problem precisely”
a. Picking the wrong stakeholders.
d. Failure to find the facts
2. Assess key stakeholders
3. Determining whom to involve
1. Vroom – Yetton Problem Solving Approach
1. Continuum of problem solving involvement includes five key participation
approaches: decide, consult individually, consult group, facilitate group,
and delegate to group
2. Seven factors determine which participation approach to use:
i.) Decision significance
3. The seven factors are evaluated in a flow chart to determine the right
amount of participation to use
4. Framing the problem correctly
1. The way in which a problem is stated determines the quantity and quality of
solutions generated
3. When problems are framed positively, people tend to avoid risk, but when the
same problem is framed negatively, people tend to seek risk.
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5. Thinking systematically
1. System = a whole whose elements continually affect each other over time and
operate toward a common purpose.
3. Systems as Icebergs
1. Iceberg tip = Events
i.) Example: increased turnover and decreased sales
4. Under water deep = Mental models
i.) Mental models = prevailing assumptions, beliefs, and values that
sustain current systems
4. Inquiry skills
1. Allow you to examine mental models to get to the root cause of a problem
2. Possible questions to ask
i.) What leads you to believe that this is the case?
ii.) What conditions exist that allow this to occur?
vi.) What do we assume to be true?
6. Use tools for understanding the problem scope
1. Affinity diagram
1. Write a problem statement on a flip chart or board
2. Using sticky-notes, have people write as many potential causes of the
problem as possible and put them on the chart or board (do not evaluate
quality)
3. Look for similarities in the ideas, and label them by the categories they
represent.
2. Is-Is Not
1. Write down a problem statement on a piece of paper, and draw a line
down the middle of the paper. This will form two columns. Label one
column “IS” and the other “IS NOT”
2. On the left hand side of the paper, write the words “What,” “Who,”
“When,” and “Where”
3. Answer the questions in the grid
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3. Graphic displays
1. Histogram (bar chart) – tracks data categories against standards
2. Behavior Over Time (BOT chart) – plots behaviors for a given time
period, allowing you to see behavioral patterns.
i.) Certain patterns in BOT identify systematic problems, which are not
likely to respond to quick fixes. These include:
d. “boom and bust” cycles (i.e., up and down swings)
B. Generate Creative Alternatives
2. Techniques to improve creativity include:
a. Brainstorming
1. Defer judgment
2. Build on the ideas of others
3. Encourage wild ideas
4. Go for quantity
5. Be visual and auditory
6. Stay focused on the topic
7. One conversation at a time
2. Brainwriting
1. Similar to brainstorming but participants generate ideas on their own first
and share later
2. Generates highest volume of creative ideas because it minimizes problems
related to group dynamics
3. Ideas can be improved by:
1. Diversifying participants
4. Assuming a “perfect world”
b. Benchmarking
1. Organizational representatives trying to solve a problem visit other
organizations that are thought to have solved the problem
2. Benchmarking is particularly effective when managers visit organizations
that specialize in a particular problem area, regardless of the industry
3. Problems with benchmarking
i.) Problem that organization needs to solve may not be the same as the
problem solved by the benchmarking company.
ii.) People may resist ideas not developed in their own company
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3. Good alternatives have the following characteristics:
a. Postponed evaluation – the alternative was offered without any evaluative
component
b. Stakeholder involvement – the right mix of people have had opportunities to
develop alternatives
c. Organizational focus – the alternative is consistent with the goals of the
organization
d. Time implications – the alternative is not a quick fix
e. Effective – the alternative addresses the actual problem
C. Decide on a Solution
1. Managers have to decide if alternatives are feasible and effective
2. Most managers use one of two approaches for deciding on a solution
3. Managers rarely feel like they have enough information, but having more information
is not always beneficial
4. Tools for Narrowing Alternatives:
a. Alternatives Table
1. Explicitly states decision consequences
2. List most important decision criteria on the left side, and alternatives across
the top
3. List information about each alternative in the appropriate box
b. Weighted Ranking
1. List criteria down the left side of the first column of a table
2. Compare each criterion to the next, and make a tick mark next to the criterion
5. Rate every alternative on each criterion
6. Multiply your rank ordering by your rating of each alternative
5. Paralyzed by Choices
a. Equifinality = When different initial conditions lead to similar effects
1. Sometimes, making any choice is more important than making the perfect
choice
b. Devil’s advocate = A method in which someone is assigned the role of looking
for problems with favored alternatives
c. Final checks:
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1. State the problem
2. State the assumed reason or cause
3. State the proposed solution
4. Describe what the solution will do and for whom
6. Make the Decision
a. Inherent in all decisions is the issue of risk and perceptions of fairness
b. Attempt to calculate risk objectively, but realize others might have different
perceptions of risk
D. Implement
1. Implementation should involve others (i.e., stakeholders)
2. Implementation does not have to happen all at once – try for “small wins” to break
down the plan and gain momentum
E. Learn and Seek Feedback
1. Determine whether or not the decision was successful
2. Do not be defensive of failures
3. Productive failures = using failures as an opportunity to learn
CASES
Two Contemporary Companies’ Use of Crowdsourcing: Threadless and ChallengePost
Suggested Answers to Threadless Case Questions
1. Threadless is successful in large part because of the crowdsourcing concept they have
implemented. The non-traditional approach is attractive and gets the attention of consumers who
with merchandise that no one wants to buy.
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2. The logic of crowdsourcing is that there is wisdom in crowds. If we can tap into the
knowledge, beliefs, and desires of the public, we can create and learn more than what we would
3. Despite its many advantages, crowdsourcing could potentially lead to problems. Some
individuals may wish to intentionally damage or take advantage of the community by, for
example, voting for the worst designs at Threadless rather than the best. Or, some members of
4. Answers will vary. Crowdsourcing efforts might be used for a variety of reasons. Some
Suggested Answers to ChallengePost Case Questions
1. Although money may be one of the motivating forces behind why people compete to solve the
challenges, it is certainly not the only force. Certainly, many of the individuals who solve the
problems could get guaranteed money for their time through paid employment, so the monetary
incentive alone is not sufficient to explain why people solve the problems on ChallengePost.
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With regard to the competition aspect of ChallengePost, some participants might thrive as much
on the notion of “winning” as they do of winning money. Winning a challenge is an honor and
many people value not only feeling that they have performed well but also the recognition from
others for their work.
Another source of motivation is possibly the desire to solve real-world problems that can help
it for them personally.
2. Crowdsourcing is likely to be more effective than individual efforts at problem-solving in
many cases. With crowdsourcing, a variety of perspectives, knowledge, and skills come together
3. Despite many advantages, there are some potential limitations to ChallengePost. One
limitation is that ChallengePost cannot control whether individuals chose to participate or not. If
4. Answers will vary. It is likely that some students will be excited by the ChallengePost concept
while other will be skeptical. Some students might suggest that there answer would depend on
5. Answers will vary. There seem to be no shortage of problems facing the world, so possible
“MANAGE WHAT” SCENARIOS
1. Defining and Structuring a Vague Problem
Debrief is in the text at the end of the chapter.
2. Avoiding Common Decision Errors
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Debrief is in the text at the end of the chapter.
3. Excelling In a Case Interview
The key to this question is not the answers themselves that are most critical but the decision
recommendations you propose. Ideally, the answers should take into consideration the product
being manufactured, the Chinese market, and similar products that have successfully (or
unsuccessfully) entered the Chinese market.
4. Learning From Past Decisions
Debrief is in the text at the end of the chapter.
MANAGEMENT LIVE
3.1 The “First Instinct Fallacy”
This Management Live discusses the common fallacy among test takers to stick with their first
instinct on an exam. It is unclear when and how this fallacy came to exist, but many students