Sunday, April 20, 2014

The Microfoundations of Solving Complex Business Problems

Solving problems is a natural part of business development. Every organizational will need to solve particular problems if they hope to overcome market challenges and economic environments. The complexity of today’s global business environment requires better decision making that ensures the best solutions are forthcoming to enhance opportunities. A study by Baer et. al (2013) delves into  a theory of the microfoundations of decisions that help to predict impediments to solution formation when complex and ill-structured problems present themselves.

Problem formation has always been the fundamental stumbling block and main activity of strategic decision making (Quinn, 1980). Without solutions to problems organizations cannot move forward in their development and may be derailed by personalities, vantage points, bounded rationality, and poor decision-making process that take their toll on profitability. 

Complex problems are more likely to be derailed by the microfoundations of decision making due to the inherent self-interest of the decision makers themselves. In complex problems there are simply many more places for them to insert their own needs and interests into the solution thereby creating poor results. A problem is complex when it has lots of varying variables, a high degree of connectivity among the elements, and dynamic actions that change the situation over time (Watson, 1976). 

Teams are naturally limited by their bounded rationality or knowledge and cognitive capacity to understand and solve these complex problems (Simon 1957). Heterogeneous teams allow for greater diversity of thought and the loosening of social structure to incorporate new perspectives and vantage points into the problem. They can help avoid “tunnel vision” or the need to use their limited cognitive capacity on well-worn solutions and selective approaches. 

The authors believe that framing the problem and then formulating the root of the problem is the best approach to handing complex problems. Framing includes the writing down of symptoms of the problem, correlating those symptoms, and then settling on the important ones.  Solutions should not be discussed until all of the symptoms are agreed upon to ensure tunnel vision doesn’t make its way into the process. Once the problem is framed the seeking it is important to see determine the root cause. That root can be used as the catalyst to finding effective solutions.  

Baer, et. al. (2013). Microfoundations of strategic problem formulation Microfoundations of strategic problem formulation. Strategic Management Journal, 34 (2). 

Quinn J. (1980). Strategies for Change: Local Instrumentalism. Irwin: Homewood, IL.

Simon H. (1957). Models of Man: Social and Rational. Wiley: New York.

Watson C. (1976). The problems of problem solving. Business Horizons, 19: 88–94.

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