Business notes: Creative problem solving

Business notes: Creative problem solving 1 Unit 1 – Creative problem solving 1.1 Introduction A business leader is expected to identify problems, implement solutions and find business opportunities. To do so, they must learn to plan, analyse situations, identify and solve problems (or potential problems), make decisions, and set realistic and attainable goals for the business/unit. These are the fundamental thinking/creative requirements for leadership, and these set direction to a successful future. Without this critical competence, you will have to rely on others to do your thinking for you, or you will simply have to learn to nurture your creative thinking skills which will help you on your journey towards successful business. Creative thinking forms part of this continuous problem solving process, and is the fundamental basis for facilitating in the development of solutions, new initiatives, products or services. In an entrepreneurial context, the end result of this process should be directly linked to a feasible opportunity in the market environment. Quote – What lies behind us and what lies before us, are tiny matters, compared to what lies within us. – William Morrow The creative problem solving process consists of the following four steps: ‘ Problem analysis ‘ Solution analysis ‘ Decision analysis ‘ Solution implementation 1.2 The process The creative problem solving process consists of an important core process, namely the idea generation process see figure 1. This is an important step, especially if you need to come up with creative ideas for products, services, and processes, to solve a consumer problem. The idea generation process consists of the following four steps: ‘ Step 1 – Generating ideas ‘ Step 2 – Developing ideas into a concept ‘ Step 3 – Converting a concept into a tangible or intangible product ‘ Step 4 – Finally protecting the tangible or intangible product Figure 1 – The process of creative thinking (idea generation) Initially you need to understand the problem and find the root cause of the problem. Many techniques are available to find the causes of problems, you can use the 5 Why technique in this case, if you are familiar with it. The more advanced courses will describe how to use the major problem identification techniques, but this course will focus on the idea generation process. 1.3 Where to start In the entrepreneurial phase, the best way to start the idea generation process is when you are required to come up with a new product or service, to identify a potential consumer problem. Initially, focus on identifying problems in the area of your expertise (your knowledge base). If you have no knowledge of the problem, the product development stage could be a challenge for you. You will learn in the next section that not all problems are opportunities, and entrepreneurs should be careful as to how they approach this stage, when generating ideas in trying to identify a new product or service. 1.4 Problem versus opportunity In most cases, the idea-generation phase in the creative problem solving process is neglected. Individuals normally identify a problem or an opportunity (which may seem like an opportunity, but is actually just an idea), and then develop a new product in line with the new assumed idea or opportunity. It is therefore important to distinguish between an idea and an opportunity. Resources may be wasted if a mere idea is incorrectly perceived as an opportunity. Any opportunity is initially problem based (e.g. a coffee shop in a destination where there is a lack thereof, this creates several problem situations and potentially feasible opportunities for the entrepreneur). The creative thinking (idea generation process) involved, is the means to solving these problems, and bring forth solutions to the market problems, which create further opportunities. 1.4.1 Difference between problem and opportunity There is, however, a critical difference between a problem and opportunity. Consider the following: ‘ Is it an idea or an opportunity to develop a high speed train between two major cities which are not far from each other? Some may say it is a great idea, but when you need to pay R200 a day to make use of it, it is simply not an opportunity. Only a few people would make use of the service, resulting in a negative impact on the market. ‘ If it is possible to transport people between the two cities for a lower cost, say R10, it would possibly be a more feasible opportunity. Here is a good example of an opportunity – Around the turn of the twentieth century, a shoe manufacturer sent a representative to Africa, to open up a market in the undeveloped area in that continent. After exploring the culture for a month, the rep sent a telegram to the home office shouting, ‘Disaster! Disaster! These people do not wear shoes. Bring me home immediately!’ A short time later, another shoe company sent their agent to Africa for the same purpose. A month later his home office also received a telegram: ‘Opportunity! Opportunity! These people do not wear shoes! Triple production immediately!’ Quote – Every situation contains the potential for disastrous problems or unprecedented success. The event is what we perceive it to be. Unknown Now the question arises: How do I distinguish between an idea and an opportunity? Looking at above examples, every problem is not an opportunity, and it really depends at how you are looking at the problem. If you see a viable opportunity in a problem then you are looking at the problem with a different perception than most people (the glass is half full or half empty). From a business perspective all opportunities are not necessarily a viable opportunity, the market determines the available opportunities. Without the knowledge to interpret the market conditions, you could miss it totally in terms of your opportunity analysis. Table 1 shows the different industries in South Africa, the level of entrepreneurial activity, and how the same opportunity differs in each of these market areas. 1.4.2 The global entrepreneurship monitor The Global Entrepreneurship Monitor ‘ specifically identified the entrepreneurial activity in the various industries of South Africa. It can be generalized to state that an industry with a high level of entrepreneurial activity, gives away more business opportunities (e.g. manufacturing, retail, hotel, restaurant and business services), while one with a lower level will indicate far less opportunities (e.g. agriculture, forestry, hunting, fishing, finance, insurance, real estate and health, education and social services). If we analyse just one ‘high-opportunity’ industry, for instance manufacturing, it may be an opportunity today to manufacture a final product, and export it to an international market. A ‘low-opportunity’ industry, for instance insurance (especially in the market entry phase), may be negative as having an extremely high crime rate and insurance companies have to pay out claims at an alarming rate. It is also evident that low-opportunity industries may create feasible opportunities. An entrepreneur should therefore be wary of following a fad, (latest trend) and exploiting assumed opportunities in a ‘popular’ industry. Percentage of Entrepreneurs ISIC Category Start-ups New Firms Total Agriculture, forestry, hunting, fishing 1,3 2,6 1,6 Mining, construction 9,7 5,0 4,1 Manufacturing 14,3 19,1 13,8 Transport, communications, utilities 9,8 0,7 8,0 Wholesale, motor vehicle sales, repairs 6,0 6,5 6,3 Retail, hotel, restaurant 40,8 47,7 43,5 Finance, insurance, real estate 0,3 5,2 1,4 Business services 10,1 7,9 9,4 Health, education, social services 2,6 0,7 2,3 Consumer services 11,0 3,5 9,7 Source: Driver. Wood, Segal Herrington, 2001 Table 1 – The percentage of entrepreneurs in the different industries in South-Africa 1.4.3 What is an opportunity? What exactly is an opportunity and how does an entrepreneur exploit a feasible opportunity? According to Hesrich Peters (2002), an opportunity is the process whereby the entrepreneur assesses whether a certain product, service or process, will yield the necessary earnings based on the resource inputs that are required to manufacture and market it. ‘ The nature of opportunities needs to be assessed – thus, what leads to the existence of an opportunity? The following factors may result in an opportunity: ‘ General and specific problems faced by consumers ‘ Market shifts ‘ Government regulations ‘ Competition There are two equally important criteria in the assessment of an opportunity. Firstly, the size of the market – will the number of customers reward the input and energy required, to create and deliver the product? Secondly, the length in terms of the frame of the opportunity (window of opportunity). For example, is the demand for this product only a short fashionable phenomenon or is it based on sustainable business, or how long will it take before someone else (a competitor), to grab the opportunity? These two aspects should also link directly to the personal skills and competence of the entrepreneur. For example, entrepreneurs with no skills or interest in information technology will not necessarily achieve their personal goals. They should rather venture into an opportunity which suits their experience and personality. 1.4.4 Transform opportunity into a business Table 2 shows how the development of a business plan links to the identification and evaluation of opportunities, the determination of the resources required and the eventual management of the enterprise. All of these factors play a significant role in the correct assessment of the business opportunity. This means that the business plan must explain in sufficient detail how the business will exploit the situation, to transform the opportunity, into solving a problem for the consumer, which generates extraordinary profits for the people involved. ‘ Identify and evaluate the opportunity Develop the business plan Determine the resources needed Manage the enterprise Creation and length of opportunity Real and perceived value of opportunity Risk and returns of opportunity Opportunity versus skills and goals Competitive situation Title page Table of contents Executive summary Description of business Description of industry Marketing plan Financial plan Production plan Organisational plan Operational plan Summary Appendices Existing resources of the entrepreneur Resource gap and available supplies Access to needed resources Management style Key variables for success Identification of problems and potential problems Implementation of control systems Source: Hisrich, R.D. Peters, M.P. 2002: 40. Entrepreneurship. Boston: Irwin/McGraw-Hill. Table 2 – Link between Opportunity and business plan 1.5 Instruction Exit and resume to your current page.