How to select the perfect logic tree framework

In Part I of this series, we discussed what a logic tree is and explored some of the frameworks that serve as a systematic guide to building a comprehensive tree. To recap, we listed four frameworks – qualitative, process, segmentation, and conceptual – that can improve the effectiveness of logic trees.  

The next question is: how do you identify the framework that works best for you? This depends on factors such as the nature of the problem, the data available, and the desired outcomes.  

The obvious answer, of course, is to choose the framework that most closely matches the nature of the problem or goal at hand. For example, if the goal is to improve Return on Equity (ROE), a logical starting point is to structure a comprehensive logic tree around the ROE formula: ROE = Profit Margin x Asset Turnover x Financial Leverage.  

Although frameworks are valuable tools, it is important not to blindly assume that the chosen framework is correct. Using different frameworks for the same question can lead to different conclusions. Therefore, a thoughtful and analytical approach is needed to validate and cross-reference findings from different frameworks.  

Effective problem solving in business requires flexibility in the choice of appropriate frameworks. When faced with unproductive results from one framework, consider switching to a different approach to gain a fresh perspective. For example, when analysing a company with stagnating profits, switching from a profitability framework to a conceptual framework, such as the 3Cs (Customers, Company, Competition) can provide a broader perspective on potential factors of stagnation.  

Maintaining this flexibility extends to the ability to switch frameworks midway through the logic tree itself. For example, starting with the 3Cs framework and then branching out to segmentation at a later stage allows you to explore different facets of the problem in more detail. This dynamic approach ensures that decision-makers can adapt their strategy as they gain new insights.  

No suitable framework? Create your own  

When problems resist fitting into generic frameworks, it is like trying to force a square peg into a round hole. Instead, consider customising a framework – tailored from a generic one – to build a logic tree that truly addresses your unique challenges. 

To build a logic tree, start by outlining the main problems to address – this will be the trunk of the tree. Next, identify the smaller issues that contribute to this main problem. These will form the first set of branches. These branches can be organised by stakeholders, segments, processes, or numerical data.  

For each of these branches, look closely to identify factors that influence them, which can be further divided into similar categories, creating more branches for in-depth analysis. Once the tree has been constructed, review it to ensure that it accurately captures the whole problem. The tree should be MECE (Mutually Exclusive, Collectively Exhaustive). This means that the branches should not overlap and together, they should cover every aspect of the problem.