10. Useful Concept Charts

 
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Overview

Concepts or business frameworks such as Porter's 5 forces can help you structure difficult problems and organise your presentation. In this course, I'll introduce you to a few of my favourites.

Summary

Useful concept charts

- Management consultants often use concepts to structure difficult problems
- These concepts have limitations but are helpful in certain circumstances
- Here are a few frameworks I find the most helpful

Porters 5 forces

- Simple but powerful tool to understand the 5 forces that shape every industry
- Examines a company's exposure to:
--- Suppliers
--- Customers
--- Competitors
--- New entrants
--- Substitutes

4 Strategic Postures

- Helps a company identify the role they want to play in a market:
--- Adapt the fastest
--- Shape the market
--- Reserve right to play
--- Exit

Portfolio of initiatives

- Enables a company to decide where to focus its efforts
- Evaluates opportunities based on size, risk and timing
- Ideally, a company will have a balanced portfolio of initiatives

7 degrees of freedom

- Outlines the strategic dimensions in which a company can be managed
- Excellent MECE tool for when a company is contemplating a strategy change

Levels of uncertainty

- All businesses deal with uncertainty but not necessarily the same level
- This framework categorises uncertainty into 4 different levels:
--- A clear future - least amount of uncertainty
--- Alternative futures - a number of possible distinct outcomes
--- A range of futures - multiple sources of uncertainty that can contain a range of outcomes
--- True ambiguity - almost impossible to predict what will happen

Transcript

If you’ve spent time working as a management consultant or with a company that has hired a management consultancy, you'll know that they’re very fond of frameworks and concepts.

While frameworks have their limits and need to be applied carefully in each scenario, they can be hugely helpful when trying to convey how you're thinking about a problem or structuring your issue tree.

In this lesson, I’m going to take a break from the former case study and share with youa few frameworks or concepts that I consider to be very beneficial for analysts.

The first framework I'm going to show you is Porter’s 5 Forces.

The Porter’s 5 Forces is a simple but powerful tool for understanding where power lies in a business situation.

And this is useful because it helps you understand both the strength of your current competitive position and the strength of a position you're considering moving into.

With a clear understanding of where your power lies, you can take advantage of a situation of strength, improve a situation of weakness, and avoid taking the wrong steps.

However, it can also be very helpful when used to understand the balance of power in other situations.

Next up are the four strategic postures which categorize the four roles that a company can play in a market.

This framework is often used when an industry is facing a seismic change and a company needs to decide on how it wishes to play in this new market.

Let’s go through each of these options.

In the top left-hand corner, we have the most aggressive posture where a company decides to become a leader in creating change within an industry.

A good example of this would be Google.

Next up is the adapt the fastest posture, which relies on responding quickly to changes in an industry, but not instigating these changes.

In the bottom left-hand corner is reserve the right to play.

This posture means the company is dedicated enough to stay in the market, but will not play an aggressive or leadership role.

And lastly, we have the exit when a company decides to leave a market.

Although this framework seems relatively straightforward, you would be surprised at how many companies do not know their strategic posture in the various markets they play in.

The third concept I’d like to share with you is the portfolio of initiatives.

This framework is very helpful when a company is trying to decide where to focus its energy in the short to long term.

The framework places each initiative available to the company on a two-by-two grid with risk on the y-axis and timing on the x-axis.

The size of the circle indicates the size of the opportunity.

Ideally, the company would have a balanced portfolio of initiatives with varying degrees of risk spread across various timelines.

Typically, the higher the risk, the longer the timeline for an initiative.

The next framework I’d like to show you are the seven degrees of freedom.

This framework outlines the strategic dimensions in which a company can be managed.

If a company is looking to change its current business, this framework is an excellent MECE tool for exploring the different strategic options available to the company, from entering new geographies, to innovating on the product, or even trying to change the delivery structure.

I've used this numerous times in the past when creating a MECE structure for a company deciding on its next move.

The last framework I’d like to share with you are the levels of uncertainty.

All businesses deal with uncertainty, but the level or type of uncertainty that a business faces is often not agreed within the company or well understood.

This framework breaks down uncertainty into four distinct types.

The first type, a clear future, has the least amount of uncertainty, and management are in a position to develop a strategically relevant forecast.

The second, alternative futures, is where a number of distinct identifiable outcomes are possible.

An example of this would be a change of regulation.

The third level of uncertainty is a range of futures.

In this environment, there are multiple sources of uncertainty that can lead to a range of different outcomes.

And the last level of uncertainty is true ambiguity where it’s almost impossible to predict what will happen.

An example of this would’ve been the early days of the internet.

By identifying the correct level of uncertainty that your business faces, you could help structure your presentation and analysis in a much more effective way.

To use these and other frameworks effectively, it’s best to consult the framework before you build your pyramid as an aid to solving difficult problems.

Ultimately, the framework may fit directly into your presentation as a MECE structure, or they may appear on one slide, say related to evaluating market uncertainty.

Either way, adding frameworks to your knowledge base will improve your ability to solve difficult problems and articulate your views coherently in a business presentation.