Hypothesis Driven Approach to Strategy Consulting

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Hypothesis Driven Approach to Strategy Consulting

An hypothesis is a testable statement about the relationship between two or more variables or a proposed explanation for some observed phenomenon. It can include the initial assumptions, or it may be a theory which is yet to be tested.

A regular decision-making process involves linear thinking where a problem is defined and there are various alternative solutions proposed and the best possible solution is selected. Whereas in a hypothesis-driven approach, a hypothetical solution is selected early in the process and is later confirmed or refused.

Hypothesis based approach can be applied to a consulting project. The following steps must be followed when applying the hypothesis-driven approach to strategy consulting:

1. Defining the strategic question: You must define what are the problems to which you need solutions. Try to look at the big picture rather than listing many separate problems. You may specify one or two questions that might have sub-questions but as of now, you must clarify the major questions at hand.
   The strategic question is all about closing the gap between the client's wants and what the client currently has. So, we need to focus on recommending actions to the client which will eventually bridge the gap.
   For example, let's assume a client is facing low growth on some of the products.
   
2. Generating the hypothesis: In this step, you generate the hypothesis. You can generate many hypotheses as there can be various reasons which could have caused the problem. One you have generated enough hypotheses; you would want to select only the promising ones for the next step.
   For example, lack of marketing capabilities for the product, targeting a wrong segment, choosing a wrong geographical area for the product launch
   
3. Testing the hypothesis: Here we select the most promising hypothesis for testing. Once you have selected the hypothesis, we must identify which analyses are needed to be performed and how will you collect the data for the design study. Once you have collected the data, you need to test the hypothesis using that data and decide whether the data supports the hypothesis or rejects it.
   For example, perform a market analysis by surveying people in various segments of various geographies.
   You can use the data from the survey to accept or reject the hypothesis. You can find additional data to reject the discrepancies in the hypothesis or you can move to a different hypothesis for testing and follow similar steps.
   
4. Presenting the Findings: Once you have done with hypothesis testing, you must present the findings supported by facts and available data and recommend the course of action to the client.

Problems that are strategic in nature need a different approach. Usually, problems lacking a specific definition and a solution, and where multiple possibilities exist are referred to as "Wicked Problems". A linear approach does not suffice for these problems and hence this hypothesis-driven approach can be used.

Sources: Jeanne M. Liedtka, "Using Hypothesis-Driven thinking in Strategy Consulting", Darden Business Publishing, 2006

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		1 Sathya Devarakonda Project Manager, India
	Examples of Hypothesis Driven Thinking in Making Strategy Decisions Can somebody give some examples of Hypothesis driven thinking in taking making strategy decisions. We have Agile concepts used in business strategy I want to know how does Hypothesis Driven thinking help in taking Strategy Decisions. I did not understand much from the example presented in the article. Thank you!

		1 Aniket Deolikar Consultant, India
	Another Example of Hypothesis Based Strategy Formation @D.K.Satyanarayana: I would like to mention the following example from the same source, I hope it helps you understand this better. Example: The problem at hand: A bank's profitability is below target levels. First we gather the preliminary data about the problem which will help us to formulate the initial hypothesis. We find out what we already know about the profitability of the bank. One of them might be that, profitability might vary dramatically across various competitors. Now we develop some hypothesis, such as there might be lack of some strategic capabilities so we might need to develop some. Or we might have selected less profitable target markets and we might have to select new ones. Once we have formulated the hypotheses, we need to select the best possible and best suited hypothesis for the current situation.Supoose here it is the wrong target markets. Now we have to decide which analysis we are going to perform to test the hypothesis. Here we can do a market segmentation analysis which will give us estimates of profitability. This can be done by interviewing n number of people who represent the whole sample. Thus after collecting the data and performing the analysis, check if there is enough data to support the hypothesis, if yes then you can move ahead with the plan to select new target market. If the data is insufficient and rejects the hypothesis, then you must move to an alternative hypothesis. This is how hypothesis driven thinking is used in strategy decisions. I hope it helps.

		4 Jaap de Jonge Editor, Netherlands
	Dialectical Strategy Approach Really for truly wicked, strategic problems we should consider not only a hypothesis based strategy approach, but a full dialectical approach, focusing on strategic paradoxes and complexity: Hypothesis ⇨ Thesis ⇨ Antithesis ⇨ Synthesis. This is known as dialectics or a dialectical inquiry. Have a look...

		1 John Henry Project Manager, United States
	Before Arriving at the Hypothesis We must have analysis, and we must find the root cause, not symptoms... A bank not being profitable, is not a cause, it is an effect... So to resolve the issue, we must find the cause. How do you find a solution, if the cause is lack of profitability? Lean Six Sigma would start with, is the cause product flaw, or is it process flaw? Then the discovery of the root of the issue would begin, do we charge too little for our loans? Do we pay too much for our deposits? Are we too restrictive on our customers, too lenient? Are our fees able to cover our expenses? Until we have narrowed down the cause of the failure, we can not just start throwing things up and see what works maybe... Root Cause Analysis, is required for problem resolution... Without knowing what is broken, how can it be repaired or replaced?

		0 Ger de Waard Management Consultant, Netherlands
	Hypothesis A hypothesis is an idea or theory, often based on limited data, which is typically the beginning of a thread of further investigation to prove, disprove or improve the hypothesis through facts and emp...

		1 Jeff Washburn Strategy Consultant, United States
	Back to First Principles Strategy by nature deals with complex circumstances. If this is not true in some situation, then tactics will resolve the issue, because causes and effects are known. Experts cannot help in complex ci...

		0 John Henry Project Manager, United States
	It is Possible to Kill a Tiger with a Tennisball But only if you know the tigers weak spots. Without a thorough understanding of what the obstacles are... and their strategic placement and relative importance... it is very difficult for a blind man ...

		0 Paramathmuni srinivas Kumar India
	An Example of Hypothesis Based Strategy Formulation Adaptability and quickness in responding to the situation at hand is key in hypothesis based strategy formulation... For example, a doctor, on examination of a urine sample report, concludes that the...