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Logic trees: Your precision tool for business crises

January 8, 2024 | Business Transformation

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This article is part of a two-part series on using logic trees and applying the appropriate framework when trying to make sense of a pressing or critical issue. Part I of this series discusses the logic tree; and explores frameworks that can help provide a systematic guide to building a comprehensive tree.

At a Glance

  • In business crises, executives can use logic trees to provide clarity by structuring complex problems.
  • Logic trees, which consist of problem (hypothesis) trees for root cause analysis and solution (decision) trees for strategy development, break down complex issues into manageable components.
  • The use of frameworks such as qualitative, process, segmentation, and conceptual frameworks can improve the effectiveness of logic trees, by providing a systematic approach to decision making in different scenarios.

A crisis can overwhelm even the most seasoned executive. Every decision can seem fraught with uncertainty, with potential to plunge the company into unforeseen pitfalls. This is where clarity is important.

With today’s business world awash with data and information, coupled with global market volatility, leaders can seize the opportunity to critically synthesise information to make better decisions. This is where logic trees come in.

Logic trees are versatile decision and risk analysis tools that allow you to make sense of pressing or critical issues by outlining their elements, root causes, and possible solutions. By laying out potential solutions and systematically analysing the consequences, you can illuminate the optimal path forward, transforming risk into calculated action.

Understanding a logic tree

A logic tree is a detailed, graphical map of a problem that breaks down large, complex questions into smaller and more manageable components for further investigation. Think of it not just as a map, but as a meticulously detailed and structured guide.

A logic tree is an invaluable tool for breaking down complicated and large questions. Using this approach can greatly improve the efficiency of your analysis, definition, and development processes.

There are two main types of logic trees, problem (hypothesis) trees and solution (decision) trees. Your choice of logic tree will depend on whether you are trying to solve a “how” question or a “why” question. It should be noted that one logic tree cannot be used to answer both aspects. A comprehensive analysis involves the use of both types of tree – a problem tree to explore the origins of a problem and a solution tree to develop strategies to solve it.

A problem, or hypothesis, logic tree is used for root cause analysis, helping you to identify all the possible causes of a problem. Problem logic trees are excellent for narrowing your focus, so you know what to investigate. For each root cause you discover, you can formulate a hypothesis to test. You can then identify the information you need to test the hypothesis – so you can use it to create study plans. Finally, you can analyse the results and confirm the root cause.

A solution, or decision, logic tree answers “how” questions that can bridge the gap to achieving a desired outcome. Creating a solution tree helps you find possible remedies to fix the problem. Once you have a list of possible solutions, you can prioritise them and develop an action plan for implementation. 

How to use a logic tree effectively

Creating a logic tree can be daunting for first-time users, who are often unsure of how to structure the branches and boxes. This is where frameworks can help by providing a systematic guide to building a comprehensive tree.

Frameworks act as specialised toolboxes for structuring decision scenarios. Just as a craftsman selects the appropriate toolbox for different tasks, you can use different frameworks depending on the nature of the decision at hand.

Mastering multiple frameworks is like having a diverse set of tools to tackle different challenges. This flexibility allows you to choose the most appropriate approach for each decision, as there is no single framework that fits every problem. Although there is no one-size-fits-all toolbox for every problem, familiarity with different frameworks will allow you to build customised toolboxes for different decision contexts.

Let’s explore some of the frameworks that can support your decision-making:

1. Qualitative (or mathematical or arithmetic) frameworks

These are the simpler ones. An example is the profitability framework, which is used to interrogate profitability issues by splitting them into two sub-components, revenues and costs.

2. Process frameworks

These are used to dissect a problem by looking at the chronological sequence of events. They are good for identifying and solving problems that may be hidden within complex systems. Each step in the process becomes a branch of the top-level problem. 

3. Segmentation frameworks

Segmentation frameworks break down problems into logical segments, such as geographic, demographic, distribution channel, or time horizon. They can be used to analyse consumer behaviour, market trends, or any other issue that benefits from categorical exploration. 

4. Conceptual frameworks

If none of the above work, a conceptual framework may be the answer. An example is Porter’s 5 Forces framework, which can help you develop a broad business strategy that looks beyond direct competitors by examining competitive rivalry, supplier power, buyer power, threat of substitution, or threat of new entry.

Another common conceptual framework is the 3 Cs framework. It is a quick way to examine the factors that need to be optimised to create a competitive advantage. The 3 Cs are customers, company, and competition. From each of these, you can branch off for deeper exploration. 

How do you identify the framework that works best for you? Find out in Part II of this series on logic trees for strategic business solutions.

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