A young managing director sits in the business class lounge staring out at the tarmac. His laptop is open to his office’s most recent financial report. He’s worked hard to improve the performance of his company, and in his first year helped achieved record profits. He expected even greater success now, in his second year. Looking at the report, it’s clear that hasn’t happened. He’s stunned.
He hadn’t had time to watch the numbers as closely this year; he’d been out of the office for much of the first six months. He knew his team was working well, and he felt the CEO, who had supported him in the past, would maintain the processes he had implemented. Still, the financials show a steady erosion of profitability with expenses rising across all accounts.
How could this have happened?
The Logic Tree
The young managing director would benefit to know that, at times like these, a logic tree can prove useful. The logic tree is a graphic representation of the systematic splitting of an issue into components. Beginning with broad categories and working to increasingly narrower ones, it eliminates all possibilities until a specific factor (or factors) is isolated.
With practice, using a logic tree is less time consuming than not using one, but it’s not an oracle. It is a simple tool that assists the user to follow a thorough, step-by-step process. Put simply, it only tells you what you ask it to tell you. The questions you ask determine the answers you get.
Let’s ask, “How can I accumulate more wealth?” One person might first split the question into “reduce expenses and/or increase income.” Perhaps, another person will write “increase working hours or hourly wages.”
In both cases, the first split of the tree reflects how the user defines the problem—one person thinks of expenses and income, while the other thinks of hours and pay. Neither is wrong. In both cases, the person should be aware of the assumptions that are built into their logic tree. Should be aware is the key phrase here because often the person is not.
Back to the question above. Why not make the first category split “legally” and “illegally”? Selling a kidney or robbing a bank will certainly allow you to increase your wealth—at least initially. In fact, we could add that stealing food and gasoline will reduce your expenses. The point here is not that you should consider illegal activities to increase your wealth (don’t do anything illegal—it’s never a good long-term strategy). The point is that you should be aware of how you’ve limited the range of your question.
Techniques that help
• Decide what it is you want to know.
Ask a question, and create a logic tree that answers the question. Then step back and broaden your choices by adding a split in the tree that would occur before the first split you made. If your first logic tree begins with “How can I lose weight?” broaden that to “How can I live a healthier life?” Now “losing weight” is a later branch.
• Rephrase the question.
“How can I accumulate more wealth?” can be changed to “How can I save more money?” or “How can I earn more?” These redefine the problem and the structure of your logic tree and, of course, what it will tell you.
• Ask for help.
Perhaps the most useful thing you can do is have your work reviewed by a colleague, a consultant, or anyone that gives you a fresh view.
Now, let’s return to our young managing director.
He takes his seat on the airplane and pulls a yellow legal pad from his briefcase. He makes a list of the key factors under the question, “What is causing the erosion of profit?” His first attempt doesn’t feel right. He tries another: “What is causing the steady increase in costs?”
Finally, he circles variable expenses, but lacking key information, he will have to ask the CEO. He shakes his head. How could the other managers be so irresponsible? What are these costs? He makes a note to arrange for a meeting. For now, he has more pressing matters. He sighs and closes his eyes…
Over the next several months, he continues to travel. He never has a full formal meeting with the CEO, who reschedules repeatedly. Finally, exasperated, he decides to leave the company for another position.
Sometime later, he encounters one of his former team members and asks how the business is going. The colleague shakes his head and looks away. The CEO and two executives had to resign abruptly—there was suspicion that they had been using expenses to siphon money from the company. The young managing director is shocked. He had been looking directly at the problem…but he hadn’t seen it.
Looking back, we cannot say that defining the problem in broader terms would have led the young managing director to its source. The past provides clarity that the present almost never allows. We can say, however, that defining the problem narrowly did not help at all.
(The discussion of the logic tree was inspired by the work of Matthew Juniper, Cambridge University.)