From Spreadsheet Thinking to Operational Thinking: using iThink to develop and communicate a business plan quickly

By:Bill Harris

Facilitated Systems

Many of us may associate Systems Thinking with the big problems of the world: population issues, natural resource sufficiency, pollution, supply chains, and the like. I recently had an experience that reminded me how valuable what Barry Richmond called "operational thinking" is for more everyday business issues.

As an independent consultant, I received a request for proposal (RFP) for a job that was too big for one person. I quickly called on two other consultants I knew and trusted to help me. We discussed whether we wanted to do this and how we'd approach the task, and we quickly agreed on how to divide the work of preparing the proposal. Within a day or two, we had the technical content of the proposal complete.

That left the business side: costing and pricing the work. If we charged too much, we'd probably lose the job. If we charged too little, we might lose money and regret having bid on the job. If each person didn't get what he or she felt to be his or her fair share, someone might feel hurt, and the team result might suffer. As the lead on this effort, how could I make sure we set a price that was fair to all? How could I communicate this to the others on the team?

Traditionally, one turns to spreadsheets for this work, but they don't show the structure of the business except indirectly. As we were creating a business venture from scratch, we didn't have a shared mental model of that structure. The RFP was also vague about the extent of services they might buy, so we needed to run multiple scenarios to be able to price our services fairly over a range of options. Finally, we were in a hurry, and we needed a solution that wouldn't confuse us. It's awfully easy to change a single cell in a spreadsheet to test an immediate "what-if" and forget to change it back, thus losing control over the calculations.

I decided to try Barry's Operational Thinking approach. I crafted an iThink model that showed the "physics" of the business we were proposing. The model clearly represented the structure of the business: the services we'd deliver, the hours each service would take, the materials that would be used, and the money that would flow.

Then I made a control panel that would allow any of the three of us set parameters: how many services we provided, what each service cost, and how much time we'd need to spend. I preloaded each parameter with what I thought were reasonable values, but sliders and list input devices enabled any of us to try alternatives easily. Because we were all used to looking at spreadsheets, I made the primary output a series of tables rather than a graph, and I added numeric displays to show cumulative return to each member of the team as well as cumulative hours spent by each.

Now we could each try the model and decide for ourselves how much we thought we should charge. I added a "Print" button so people could record results. There was a "Help" button to introduce the system to the others, and there was an Explore Model button that took advantage of iThink's Storytelling feature to unfurl the structure of the model for them. The figure shows a control panel with many of these features.

The total exercise took less than half a day from deciding to create the model to sharing it with my colleagues -- about what it might have taken with a spreadsheet model. Based on their feedback, I revised the structure and default parameters off and on over the next day or two, and we set our pricing based on what we had learned.

What was the result? Having the structure and the financials in the same object let us clarify our assumptions quickly. It helped us see our differing assumptions about the quantity and nature of work called for, and it helped us try alternatives in a disciplined manner to find a pricing strategy that worked for a range of possible purchases by the client. It helped us understand the timing of our investment and our returns, and that helped us modify our approach to delivering the work to reduce the lag and thus the risk.

So, the next time you're tempted to pull out a spreadsheet to analyze and communicate your strategic business issues, try iThink instead; you may find you have a more useful result in about the same time.