Hypothesis Driven Approach to Strategy Consulting

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Aniket Deolikar
Consultant, India

Hypothesis Driven Approach to Strategy Consulting

🔥NEW An hypothesis is a testable statement about the relationship between two or more variables or a proposed explanation for some observed phenomenon. It can include the initial assumptions, or it may be a theory which is yet to be tested.

A regular decision-making process involves linear thinking where a problem is defined and there are various alternative solutions proposed and the best possible solution is selected. Whereas in a hypothesis-driven approach, a hypothetical solution is selected early in the process and is later confirmed or refused.

Hypothesis based approach can be applied to a consulting project. The following steps must be followed when applying the hypothesis-driven approach to strategy consulting:
  1. Defining the strategic question: You must define what are the problems to which you need solutions. Try to look at the big picture rather than listing many separate problems. You may specify one or two questions that might have sub-questions but as of now, you must clarify the major questions at hand.
    The strategic question is all about closing the gap between the client's wants and what the client currently has. So, we need to focus on recommending actions to the client which will eventually bridge the gap.
    For example, let's assume a client is facing low growth on some of the products.
  2. Generating the hypothesis: In this step, you generate the hypothesis. You can generate many hypotheses as there can be various reasons which could have caused the problem. One you have generated enough hypotheses; you would want to select only the promising ones for the next step.
    For example, lack of marketing capabilities for the product, targeting a wrong segment, choosing a wrong geographical area for the product launch
  3. Testing the hypothesis: Here we select the most promising hypothesis for testing. Once you have selected the hypothesis, we must identify which analyses are needed to be performed and how will you collect the data for the design study. Once you have collected the data, you need to test the hypothesis using that data and decide whether the data supports the hypothesis or rejects it.
    For example, perform a market analysis by surveying people in various segments of various geographies.
    You can use the data from the survey to accept or reject the hypothesis. You can find additional data to reject the discrepancies in the hypothesis or you can move to a different hypothesis for testing and follow similar steps.
  4. Presenting the Findings: Once you have done with hypothesis testing, you must present the findings supported by facts and available data and recommend the course of action to the client.
Problems that are strategic in nature need a different approach. Usually, problems lacking a specific definition and a solution, and where multiple possibilities exist are referred to as "Wicked Problems". A linear approach does not suffice for these problems and hence this hypothesis-driven approach can be used.

Sources: Jeanne M. Liedtka, "Using Hypothesis-Driven thinking in Strategy Consulting", Darden Business Publishing, 2006

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