Breaking through limiting assumptions

Adapted by Ben Teehankee from various sources

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A Breakthrough Generation Tool: Conflict Resolution Diagram

• Developed by Eliyahu Goldratt who called it the
Evaporating Cloud • Designed to identify innovative, win-win solutions to complex organizational conflicts which prevent the solution of common goals. • Employs clear description of desired outcomes/situations, conflicting desires, surfacing of assumptions, invalidating wrong assumptions and generating solutions to bypass wrong assumptions.

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Steps
1. 2. 3. 4. 5.
Articulate the conflict in terms of what opposing sides want which poses a “forced choice” dilemma (competing PREREQUISITES) Identify the immediate need each side is trying to fulfill in defending its position (REQUIREMENTS which are not conflicting) Identify the common OBJECTIVE or goal which justifies the requirements Expose the ASSUMPTIONS linking #1-#3 and identify invalid ones Invent solutions (called injections) to replace one or both competing prerequisites

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Connecting the Circles
REQUIREMENT: We need to ... OBJECTIVE: We all want... PREREQUISITE: Which requires...

B. Connect the outer circles

D. Use only 4 lines

A. Connect all the circles
REQUIREMENT: We need to ...

C. Connect the inner circle

D’. Use more than 4 lines
PREREQUISITE: Which requires...
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Examining Assumptions

A. Connect all the circles

B. Connect the outer circles C. Connect the inner circle You must stay inside Go outside the “box” the “box”

D. Use only 4 lines D’. Use more than 4 lines You only have 4 lines
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Product Price Case
• You are assigned to a Team to adjust the sales
price of company products. At first you feel out of place. Isn’t this just a matter of the Production people saying how much it costs and Finance just adding on their profit? • The Team has Production, Finance, Marketing, Sales and you. • Early on, its clear there is a conflict. • Everyone wants to increase the profit to the firm, but they all have different ways of doing it.

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Product Price Dilemma
• On the one hand, Sales demands lower prices
so they can sell more volume. • Finance insists on raising the sales price so they can increase their margins. • Marketing says they can’t create sales without offering more value; either more and better products or dramatically reduced prices. • You are identifying the business issues and trying to understand the conflicts.

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Continuing with Product Cost
• “We are a volume based business!
We must lower the price to get the volumes up!” • “We can’t afford to lower price when our profit margins are so low!”

• Looks like a clear conflict.

Can you write it down in an Evaporating Cloud?

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The Product Price Dilemma

We need to ... We all want... A. To make more money B. Increase the Profit Margin We need to ... C. Increase Sales Volume

We must ... D. Increase the Sales Price We must ... D’. Decrease the Sales Price

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You Review the Finance Issues
• You have a good conflict, but are not sure how
to solve it. You need a better understanding of the needed parts “Higher Margin” and “Higher Volumes.” You ask, “What is Margin?” • Everyone else thinks you are stupid!  Margin = Sales Prices - Cost to Produce! • Then you ask, “What is the Cost to Produce?” • Again, they answer:  Cost to Produce = Portion of Fixed Costs + Variable Costs
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Inquisitive You
• Not to labor the point, but there is still lots of
confusion here. You ask again, “What are Fixed Costs? And What are Variable Costs?” • Finance finally realizes what you are asking and says, • “Fixed costs are costs not directly associated with a product like your salary, electricity, depreciation, property expenses, and so on. Our fixed costs wouldn’t go down much if we produced less.” • “Variable costs are generally material costs and any other cost we can attach to each product.”
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You Try to Summarize
• “To make more profit, we need higher margins.
To get higher margins we need to raise the price. But why can’t we also change the margin just by changing the way we account for our cost?” • “To make more profit, we need higher volumes. To get higher volumes we need to lower the price. But, is it also possible that we might lower the price but not get enough volume to make a positive difference?” • Everyone suddenly appreciates your ability to cut through the clouded discussion.
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Avenues to Solve the Problem
Our variable costs plus the proportion of fixed costs are too high The only way to increase profit margin is to increase sales price D. Increase the Sales Price

A. To make more money Additional sales mean additional profit

B. Increase the Profit Margin

C. Increase Sales Volume No one will buy more unless we lower price

D’. Decrease the Sales Price We can’t both lower and raise price at the 13 same time

We segment Possible Solutions our market to We reevaluate the way Our variable account our product we costs plus the proportion of fixed view cost-a new costs are too high sell a small portion of our product at a low price (increase volume) without The only way to increase lowering the price for profit margin is to increase all sales price

B. Increase the Profit D. Increase the Margin Sales Price We create a minor difference in our A. To make product at little expense to us that creates more money a value difference to the customer (Home hammer vs. Craftsman hammer) C. Increase Sales D’. Decrease the Additional sales Volume Sales Price We additional any make sure mean We find our customer’s reduction in sales We profit No onereal need more will buy and meet that; can’t both lower price actually and unless we lower be glad to pay raise price at the 14 they will price increases profits even an increased price same time

Creating an Evaporating Cloud
• Process of Creating the Conflict Resolution
• Place this at the top Right

Diagram:  1. PREREQUISITE: What is it you want but can’t seem to get?
D. What I want

D’. What I have to put up with

 2. PREREQUISITE: What is it you have to put up with?
• Put this opposite condition on the bottom right.
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Creating an Evaporating Cloud
• Process of Creating the Breakthrough Diagram:
 3. REQUIREMENT: Why I want what I want
• Place this at the top Middle B. Why I want what I want • Verbalizing what you want is often the hardest part of this cloud

D. What I want

D’. What I have to put up with

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Creating an Evaporating Cloud
• Process of Creating the Conflict Resolution
Diagram:
 4. REQUIREMENT: Why I have to put up with D’ • Place this at the bottom middle B. Why I want what I want C. Why I have to put up with what I have to put up with D. What I want

D’. What I have to put up with

• If you are actively listening, this should be easy to write down
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Creating an Evaporating Cloud
• Process of Creating the Conflict Resolution
Diagram:  5. What is the ‘Goal’ B and C are trying to achieve?
B. Why I want what I want C. Why I have to put up with what I have to put up with

A. The thing we all really want

D. What I want

D’. What I have to put up with

• The Goal is the reason we continue to argue or discuss this conflict.
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Check the Cloud for Logic
• Read from point of arrow to the tail: In order to
have <point> I must have <tail>.
B. Increase the Profit Margin C. Increase Sales Volume D. Increase the Sales Price D’. Decrease the Sales Price

A. To make more money

• Read the conflict: We can’t have <top> and
<bottom> at the same time.
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Check for Structure
• Do D and D’ really conflict? (Should) • Do B and C conflict? (Should not)
B. Increase the Profit Margin C. Increase Sales Volume D. Increase the Sales Price D’. Decrease the Sales Price

A. To make more money

• Do you see the desirable parts (A, B and C) and
the undesirable conflict (D and D’) in real life?
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Cross Check Jeopardy
• In a well formed Cloud the existence of D
jeopardizes the achievement of C.
B. Increase the Profit Margin A. To make more money
dy ? ar Je op
Je op ar

D. Increase the Sales Price
dy

?

C. Increase Sales Volume

D’. Decrease the Sales Price

• The existence of D’ jeopardizes the achievement
of B.
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Surfacing Assumptions (Facts we don’t like) • To verbalize the assumptions behind the
arrows, read from point to tail, In order to <point> I must have <tail> because <…fill in the blank…>. B. Increase the D. Increase the
Profit Margin C. Increase Sales Volume Sales Price D’. Decrease the Sales Price

A. To make more money

In order to “Increase Sales Volume” I must “Decrease the Sales Price” because …. … no one will buy more unless we lower price
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Develop Family Worklife Harmony your

subordinates so they work more effectively without you who work long Only those and then delegate to them hours get promoted and succeed at work D. Put more work hours

B. Succeed at work A. To live a good life C. Succeed at home One can’t work and be Join a telecommuting with family at the program same time

D’. Put less work hours

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Strength of the Conflict Resolution Diagram

• First, it’s superior at structuring and graphically
illustrating the crucial elements of any conflict, from the overt indications through the ultimate objectives of each side. • Second, it helps to expose and identify the unspoken assumptions underlying each element of the conflict. Knowing what these assumptions are is the key to resolving the conflict in a "win-win" manner.

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Summary
• Conflicts exist everywhere in the organization:
Product design, work processes, customer requirements, work/family/life issues • Being quick to identify and resolve conflict is a great asset for the manager • An Evaporating Cloud can quickly focus our attention on areas where we need to work • It can resolve differences quickly and get to a real solution that is not a compromise but actually a breakthrough.

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