For more than a year, seismic shifts in the global economy have sent shock waves through C-suites in companies around the world. According to Federal Reserve Chairman Ben Bernanke, the recession is probably over. Yet business leaders still face a slew of management challenges: how to survive tight credit, reduce costs and increase earnings, make supply chains more efficient, and adapt to legislative or regulatory changes. To find solutions to challenges such as these, leaders frequently assemble cross-functional teams of key executives. Conventional wisdom, after all, dictates that diverse perspectives and objectives bring about better outcomes. But new research by three Olin Business School professors reaches a different conclusion. Most teams don’t deliver anticipated results because group dynamics prevent them from identifying the right problems to solve. Markus Baer, assistant professor of organizational behavior; Kurt Dirks, professor of organizational behavior; and Jackson Nickerson, Frahm Family Professor of Organization and Strategy and director of Brookings Executive Education, explore this phenomenon in their Olin Award-winning paper "A Theory of Strategic Problem Formulation." "Reports on cross-functional teams dealing with high-stakes problems are surprisingly consistent," Dirks says. "Too often these meetings can end with the group partitioned into competing coalitions, limited agreement on necessary next steps and emotions running high." Olin Business Magazine talked with the authors about problem solving pitfalls and their innovative process for getting teams to generate more productive solutions.

WHY IS STRATEGIC PROBLEM FORMULATION CRITICAL TO BUSINESS SUCCESS?

Baer: Let’s start with some context. Albert Einstein said, "The formulation of a problem is often more essential than its solution…" Business problem solving, however, has been more art than science. In fact, a study of large U.S. companies found 75 percent of high-potential teams solve the wrong problem and have to start over again. Cycling back sparks opportunity costs and delays. As a result, fighting fires becomes a common response to strategic challenges.

Dirks: The plaque of Olin’s namesake, John M. Olin, in Simon Hall has a quote that’s similar to Einstein’s: "Once the problem is known, the solution suggests itself." Olin’s statement fits nicely with what we’re saying. Markus references the large percentage of teams who solve the wrong problems. Here’s why this happens: There is a natural tendency for team members to focus on aspects of the problem that directly affect them, rush to provide solutions, embroil themselves in internal politics and, consequently, spend little or no time defining the problem itself. Consider the savings in time, money and resources if organizations solved the right problem the first time.

WHAT LED TO YOUR COLLABORATION?

Nickerson: My work on Olin’s critical thinking initiatives got me thinking about the biases people bring to decision making. So I appealed to these gentlemen and tried to coerce them into joining me in the subject research.

Dirks: One of Olin Business School’s unique features is its emphasis on learning and collaboration across disciplines. Jackson covers strategy; Markus and I bring expertise from organizational behavior (OB). Although the topic of problem solving has a strong foundation in OB research, what got me excited about our work was that two big issues seem to have been overlooked in business literature and practice: the process by which problems are clearly defined and the process by which teams reach effective solutions.

Baer: I study creativity and innovation. In all the research I’ve done and all the literature I’ve read, I’ve found that few people consider the nature of a problem. Outcomes are heavily influenced by how teams define initial problems. This collaboration was an opportunity to move problem solving in a different direction.

Nickerson: In the field of strategy, problems have been assumed and theories have been developed around solutions. There hasn’t been much insight into how to formulate the problem in the first place. More or less, what we’ve been saying to people is: "Here’s a hammer. Here’s a nail. Go fix the problem."

Dirks: Our research goes beyond theory to practice. We’ve taken something conceptual and drilled it down into a process executives can implement.

GIVE US AN EXAMPLE OF INEFFECTIVE PROBLEM SOLVING.

Baer: In our article, we refer to the high-profile team of Henry Paulson, Ben Bernanke and Timothy Geithner. Obviously, we weren’t part of their meetings, and more time must pass before their responses to the financial crisis can be evaluated fully. It’s fair to say, though, the team appeared to battle one flare-up at a time and repeatedly cycled back to reformulate the problem. Their singular explanations, in lieu of a more comprehensive approach, may have worsened the situation.

WHAT RED FLAGS INDICATE TEAMS MAY BE SOLVING THE WRONG PROBLEMS?

Dirks: There are several: a solution appearing early in meetings; meetings consumed by debates on competing solutions; a few team members dominating conversations and others acquiescing; conflict among team members; eagerness to end meetings; emotional investment in a particular solution; and, most important, failure to ask, "What problem are we trying to solve?"

YOU’VE IDENTIFIED SOME TRAPS TO PROBLEM FORMULATION. TELL US ABOUT THEM.

Dirks: We’ve identified three traps groups often encounter when addressing strategic problems: the information trap, knowledge trap and motivation trap. Individually and collectively, these traps can bias, limit or encourage skipping over problem formulation. At best, this results in an incomplete solution. The worst-case scenario is that teams solve the wrong problems.

Baer: The information trap is all about how people communicate. There’s an assumption that cross-functional team members exchange diverse information, enabling them to establish superior solutions. Instead, our findings show they spend a lot of time discussing information they have in common. The relevance of other information isn’t easily recognized and usually is dismissed. Consequently, teams come up with solutions that are mundane and easy to agree on rather than innovative.

Nickerson: The knowledge trap reflects another misconception: that participants’ varying perceptions and abilities deepen the group’s comprehension of company challenges. In reality, most individuals have tunnel vision based on their own experiences.

Dirks: Group members can end up talking past one another, which breeds conflict and distrust and severely constrains problem formulation. This precludes the development of comprehensive solutions.

Baer: A third mistaken belief is that team members’ diverse motivations ensure assorted interests get represented, speeding up implementation after a solution is selected. Unfortunately, the motivation trap often morphs into two of the most pervasive and problematic aspects of problem formulation: political maneuvering and dominance/acquiescence behavior. Both limit the search for solutions and cripple implementation efforts. Some team members have strong personalities, or they have career goals at stake. So they try to dominate group discussions. Others don’t and cede their positions easily. In addition, we’ve found that few team members are motivated to spend time and effort on the problem, and they buy into the first solution that sounds good. The motivation trap amplifies the information and knowledge traps because team members are acting in their own self-interests. This makes the situation worse. If a team member is perceived as advancing his or her own cause, other members may withhold relevant information to let him or her go down with the ship. Another common scenario is that individuals withhold information they believe could hurt someone else.

SO HOW CAN TEAMS AVOID THESE TRAPS?

Dirks: We’ve developed an eight-step Strategic Problem Formulation Process. To implement it successfully, executives ensure their leadership team commits to the process and provides an initial symptom to anchor and launch the inquiry. In many situations, it can also be beneficial to bring in a neutral facilitator to manage the process.

Nickerson: For instance, a company that wants to build organic growth could begin with the observation "Our breakthroughs are few and far between." A firm struggling with poor operating performance might start with "Our quality is inferior to our competition’s."

Dirks: To be clear, a symptom is an indication of a disorder or opportunity and shouldn’t be confused with a root cause, which is the mechanism that creates the symptom. Identifying symptoms helps group members figure out what the elephant in the room looks like and is critical to their ability to avoid the information, knowledge and motivation traps.

Nickerson: Only after group members develop a comprehensive set of symptoms can they move to the next phase, which enables them to figure out why the elephant looks like it does.

Dirks: Let me run through the process briefly. Step 1 is framing the problem to gain group agreement on the ground rules. Step 2 is locating a web of symptoms using the modified Nominal Group Technique. This method requires each team member to write down all the symptoms he or she believes correlate with the initial symptom that launched the inquiry and share them with the group in a round-robin fashion. Step 3 is documenting the team’s collective web of symptoms and citing support for each symptom in appendices. Step 4 is distributing the document to a set of stakeholders who verify or reject each symptom with data, not opinions. Steps 5 through 8 repeat steps 1 through 4, looking for the causes behind the symptoms.

Nickerson: What happens when team members get through this process is magic. They’ve developed trust because they’ve shared information. Bottom line, they’ve come to an agreement that yes, these are the symptoms, and yes, these are the causes. And since they’ve coalesced around a common goal, establishing and implementing solutions becomes much easier.

Baer: Executives must allot time for teams to work through the process. Moving quickly, each phase can be implemented in about half a day. Taking the framing, formulation and solution phases together, the entire process probably can be executed in a day and a half. Keep in mind, this estimate doesn’t account for stakeholder responses to consensus based documents that validate symptoms and causes. So we recommend spreading out the phases.

Dirks: Several factors compensate for time spent on problem formulation. First and foremost, it helps teams solve the right problems without the need to cycle back. Ben Franklin’s adage is apt: "An ounce of prevention is worth a pound of cure." Equally important, the process speeds implementation efforts down the road.

Nickerson: I’d like to emphasize that process should be reserved for complex, unstructured, high-priority challenges — in other words, issues that have a lot of moveable parts and no off-the-shelf solutions. Executives probably can’t justify the opportunity costs of the process for simple problems or problems that have