Using Hypothesis-Driven Thinking in Strategy Consulting

Abstract

This technical note describes the process of hypothesis-driven thinking, using examples from strategy consulting, medicine, and architecture. Associated with the scientific method, hypothesis-driven thinking focuses on the creative generation of alternative hypotheses and on their subsequent validation or refutation through the use of data. Hypothesis generation asks the creative question, "What if ...?" Hypothesis testing follows with "If ..., then ..." and brings relevant data to bear on the analysis. Taken together, and repeated over time, this sequence allows us to pose ever-improving hypotheses without forfeiting the ability to explore new ideas.

Excerpt

UVA-BP-0486

Using Hypothesis-Driven Thinking in Strategy Consulting

That's what we're good at—developing good hypotheses about a business situation. When you do a business case, you don't have to be hypothesis-driven, because you've got five or ten pages of data and anybody can process that much in a relatively limited period of time. We have all the data in the world, and it's really hard to get, and so we need to make some judgments about what we think is going to be important and what's not.... Our challenge is to say which questions to start with and figure how to collect the data to answer them.

—Senior Partner, Bain & Company

When consultants begin a new project and have not yet conducted the study, they cannot know for sure what the best solution is. At some point fairly early on, however, seasoned consultants use their experience and intuition to make an educated guess as to what they think the best answer will turn out to be. That is why consulting partners are so valuable: they have significant experience looking at certain kinds of problems that business executives might deal with only a few times in their careers. Consultants have “repertoires” similar to those developed by any set of master professionals such as architects and physicians. They can “size up” a site or situation and determine very quickly the kinds of opportunities and problems it presents. We may live in houses all our lives and know what we want our new house to be like, but most of us build only one or two in a lifetime and so we hire someone who builds a lot of houses to help us design ours.

When the consultant is right, this process is very efficient: the company gets a very focused analysis and doesn't need to do an exhaustive search for all possible solutions—it just zeroes in on “proving” the best one. This is what we mean by hypothesis-driven thinking. Because the costs of being wrong are significant, however, consultants have to look hard for disconfirming data as well as confirming data.

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Keywords: business policy