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 -^ 
 
 FACULTY WORKING 
 PAPER NO. 870 
 
 Policy Dialogue and Problem Formulation in 
 Strategic Planning 
 
 Charles Schwenk 
 Howard Thomas 
 
 of 
 
 U* 
 
 
 tv^e 
 
 Coliege of Commerce and Business Administration 
 Bureau of Economic and Business Research 
 University of Illinois, Urbana-Champaign 
 

 
BEBR 
 
 FACULTY WORKING PAPER NO. 870 
 College of Conimerce and Business Administration 
 University of Illinois at Urbana-Champaign 
 1-lay 1982 
 
 Policy Dialogue and Problem Formulation 
 in Strategic Planning 
 
 Charles Schwenk, Assistant Professor 
 Department of Business Administration 
 
 Howard Thomas, Professor 
 Department of Business Administration 
 
Abstract 
 
 Decision analysis has been criticized by some practitioners for its 
 inability to deal with strategic planning problems. It typically starts 
 with the assumption that a problem has been recognized and stated and 
 that the task of the step-wise decision analysis process is to indicate 
 the optimal strategy in terms of a specified choice criterion. Writers 
 such as Ackoff, Mason and Mitroff, and Raiffa have argued that this 
 approach may lead to solving the wrong problem and that this is potentially 
 dangerous, particularly in the context of ill-structured, planning 
 problems. 
 
 The paper develops an understanding of the process of organizational 
 problem formulation through the examination of current literature and 
 research. This is a necessary prerequisite for discussing the value of 
 decision aids for strategic planning. Approaches to problem formulation 
 such as matching of problem to problem type, creativity stimulants, and 
 dialectical inquiry and devil's advocate are examined as well as an 
 expanded view of decision analysis as a policy dialogue process. Finally, 
 the relationships between the various approaches are examined and a 
 synthetic model for their use in problem formulation is suggested. 
 
INTRODUCTION ' ' ' 
 Strategic planning can be considered a type of ill-structured de- 
 cision-making. It has been argued that decision analysis, which has 
 proven effective in dealing with relatively well-structured problems, is 
 of little value in the ill-structured problem solving which characterizes 
 strategic planning. '**'' • * ' 
 
 The decision analysis paradigm is both an approach to decision- 
 making and a set of techniques. The approach involves consideration 
 of issues such as the decision-maker's search for alternative strategies, 
 the recognition and subsequent assessment of the uncertainty inherent 
 in the problem and the process by which policy judgments about an appro- 
 priate course of action are made. It, therefore, allows a decision- 
 maker to carry out a thorough and logical evaluation of alternative 
 strategies in order to determine systematically the 'best' available 
 strategy in terms of some stated preference criterion for choice amongst 
 them. Thus, decision analysis provides a basic model of rational choice 
 under uncertainty for an individual decision-maker. 
 
 Decision analysis typically starts with the assumption that the 
 problem has been identified and stated and that the task of the analyst 
 is to provide a solution. Managers, however, are interested in the 
 processes of problem recognition and diagnosis. Problem recognition can 
 be facilitated by the identification of signals such as lost profit or 
 by a pattern in a series of prior events which provides an indication of 
 how the problem arose. Problem diagnosis is achieved by specification 
 of the organizational context of the problem, by the identification of 
 key uncertain variables and by the generation of feasible alternatives 
 
-2- 
 
 for problem solution. These processes of problem recognition and diagnosis 
 are missing links in the effective application of the decision analysis 
 approach to strategic planning. j . 
 
 In this paper, a broad view of decision analysis is adopted. Decision 
 analysis is viewed as an approach to problem solving somwhat similar to the 
 diagnostic, clinical component in medical training. It is, therefore, a 
 'thinking algorithm' or 'decision structuring' framework for the decision- 
 maker. Second, it is contended that decision analysis should be regarded 
 as an analytic decision aid rather than as a technology for developing 
 an optimal solution. A decision analysis can best be thought of as a 
 multi-stage decision procedure involving the following steps (see Raiffa 
 [48], Brown, Kahr and Peterson [6], Moore and Thomas [43]) problem decom- 
 position; decision structuring; probability and utility assessment; solution 
 income of expected utility; sensitivity examination; decision review 
 and implementation. Schematically, the process is depicted in Figure 1: 
 
 Insert Figure 1 about here 
 
 Whilst some authors quoting papers such as (Brown [4], Greiner [20], 
 Conrath [10]), point to the limited range of application of such ap- 
 proaches, we would not share this view. The more recent work of, for 
 example, Keeney and Raiffa [29], of Brown, Kahr and Peterson [6], Kaufman 
 and Thomas [28], and Moore, Thomas, Bunn and Hampton [44] lists an 
 impressive range of applications — even though some authors (e.g.. Lock 
 [34]) have questioned the soundness of these applications in terms of 
 issues such as the organizational resistance to the approach and the 
 fact that the analytic conclusions were rarely substantially implemented. 
 
-3- 
 
 They have argued that implementation is hindered both by poor problem 
 
 formulation and also by the inability of decision analysts to recognize 
 
 that the approach is essentially an organizational 'intervention' mechanism 
 
 requiring careful design in the context of a political decision-making 
 
 process. 
 
 Rex Brown [5], an acknowledged expert and a prominent decision analysis 
 
 consultant, recently made the following statement: 
 
 Decision analysis may well turn out to be one of the 
 most influential aids towards the world's conduct of 
 its affairs. Certainly the pace of application has 
 perceptibly quickened during this past decade at 
 upper levels of government and industry in the 
 United States. 
 
 He continues as follows: 
 
 The first major field of application was business. 
 Probably a third of the five hundred largest busi- 
 nesses now make some use of decision analysis, many 
 of them at board level. To take just one organiza- 
 tion, at least three senior executives of Ford Motor 
 Company, have based major decisions on systematic 
 analysis: one used it in the decision to drop con- 
 vertibles; another to evaluate a move into the tire 
 business; the third to adjust prices on tractors. 
 
 A number of authors (see Kunreuther and Schoemaker [30], Jenkins 
 [27], Moore and Thomas [43]) have pointed out that despite the strong 
 assets inherent in the approach, it has not lived up to its potential. 
 The reasons given range from the inadequate attention given to organiza- 
 tional processes (such as for example the potential relationship between 
 the organization's ability to cope with uncertainty and the organiza- 
 tional structure) to a concern, often expressed, that insufficient 
 allowance is made for the descriptive content of the process of problem 
 formulation. 
 
-4- 
 
 On the other hand, congnitive psychologists and systems scientists 
 are generating debate about problem formulation and are seeking to inte- 
 grate descriptive and prescriptive decision-making analyses. Tversky and 
 Kahnemann [57] are prominent amongst the cognitive psychologists interested 
 in decision analysis. They have demonstrated the crucial importance of 
 designing meaningful decision frames and problem formulation in the context 
 of applied decision analysis. They state that the relative attrac- 
 tiveness of options in a decision situation varies when the same decision 
 problem is framed in different ways. The authors have obtained systematic 
 preference reversals by changes in the framing (or formulation) of deci- 
 sion problems. These formulation changes have consisted of variations 
 in the framing of acts, uncertain events, or outcomes. This dependence 
 of preferences on decision problem formulation has significant consequences 
 for the theory of rational choice. Thus, in Tversky and Hahnemann's words, 
 adoption of a decision frame is an ethically significant act. 
 
 Ackoff [1], a proponent of the systems approach, catalogues the 
 weaknesses of rationalistic approaches known under the general heading 
 of operations research (and these would also presumably apply to the 
 approach known as decision analysis). He suggests that in the organiza- 
 tional context the operations research (OR) paradigm should be replaced 
 by one directed at designing a desirable future and inventing ways of 
 achieving successful implementing of that future. Further, OR should 
 replace its problem-solving orientation by one that focuses on interactive, 
 planning for, and design of, systems. 
 
 In this interactive planning process, the formulation phase, 
 described as "formulating the mess", is considered to be very important. 
 
-5- 
 
 In this phase, Ackoff notes the importance of managerial involvement in 
 the identification of problems and prospects facing the organization. 
 Through this involvement, managers become better sensitized to the rela- 
 tionships between problems and problem variables and can begin to concep- 
 tualize them as a system. His view is that such conceptualization requires 
 skills of integration and synthesis rather than decomposition and analysis. 
 Further, the mess often is best formulated through scenarios of likely 
 futures of the organizations which are based on the (not necessarily 
 valid) assumption that no significant changes will be made in current 
 organizational policies and practices. 
 
 Ackoff also believes that most problem identifiers lack a WELTANSCHUNG 
 or world view. They are uncomfortable in the world of ideas and like to 
 formulate problems in terms of closed mechanical systems. They do not 
 understand the structure or functioning of organizations, business or 
 government, nor of the environment which contains them. 
 
 This paper concentrates on the processes of problem formulation and 
 structuring in relation to decision analysis. It addresses particularly 
 those problems often categorized as ill-structured, unprogrammed, and of 
 strategic concern to the organization. Subsequent sections will focus 
 on three main topics. First, the processes of organizational problem 
 formulation will be examined, as well as appropriate paradigms for 
 conceptualizing this process. Second, aids for problem finding and 
 formulation will be discussed. Evidence which bears upon the role and 
 value of such aids will be presented. Finally, a synthetic model will 
 be developed which attempts to integrate these aids within the strategic 
 planning framework. 
 
-6- 
 
 At this initial stage, it is appropriate to provide working definitions 
 of two terms which will be used frequently, namely problem and problem 
 formulation . 
 
 A problem exists if there is a gap between an existing or antici- 
 pated state of affairs (performance level) and some desired state (a 
 set of goals or objectives), and if someone wishes to accept the respon- 
 sibility of attempting to close that gap. Problems can arise as a result 
 of performance deficiencies, threats to future performance, or opportuni- 
 ties which may alter goals or objectives. 
 
 Problem formulation is the process of formulating the present set 
 of conditions, symptoms, causes, and triggering events into a problem 
 or set of problems sufficiently well specified so that the risk of using 
 analytic procedures to solve the wrong problem has been minimized. 
 
 ORGANIZATIONAL PROBLEM FOMIULATION 
 
 Problem formulation has traditionally been viewed as an ill-structured 
 and unprogrammable process which differs from organization to organization, 
 from decision-maker to decision-maker, from problem to problem. If it is 
 not possible to develop generalizations about problem formulation, it is 
 not possible to develop generally applicable suggestions or techniques for 
 improving the process. However, research has demonstrated that it ij_ 
 possible to develop generalizations about problem formulation and general 
 techniques for improving it. 
 
 There is a rich literature in the areas of cognitive psychology, 
 organizational behavior, and international relations which is applicable 
 to managerial problem formulation. This literature describes the process 
 
-7- 
 
 of problem formulation and outlines the potential malfunctions in the 
 process caused by the fact that decision-makers operate with limited 
 information and limited information processing capacities [51], [52]. 
 
 The discussion which follows will draw upon this literature. First, 
 a general model of the problem finding/problem formulation process will 
 be developed. Next, organizational problems will be divided into two 
 categories and the unique aspects of problem formulation in each category 
 will be discussed. A variety of biases in problem formulation and decision- 
 making will then be listed and several individual and situational factors 
 which aggrevate these biases will be covered. 
 
 The Process of Problem Formulation 
 
 An early paper by Pounds [46] discusses the first part of the 
 problem formulation process: problem finding. Pounds clearly distin- 
 guishes problem finding from problem solving and offers a model of the 
 problem finding process drawn from Simon [51] and Miller, Galanter, & 
 Pribram [38]. Figure 2 represents his model: 
 
 Insert Figure 2 about here 
 
 Pounds describes the first four stages of his model as follows: 
 Managers have conceptual models of the operation of the firm and its 
 environment which they use to make predictions of outcomes important to 
 the firm such as sales volume, cost of sales, etc. The models are devel- 
 oped from the managers' experience, from formal planning models, other 
 people associated with the firm (customers, suppliers, etc.), or from 
 sources outside the organization such as trade journals or industry-wide 
 
-8- 
 
 groups [46, pp. 474-478]. In the first stage, they choose a model as 
 the basis for problem finding and make outcome predictions from it. 
 
 Once they have selected a model and made outcome predictions from 
 it, they compare these to reality in the second stage. In the third 
 and fourth stages, differences are identified (these constitute problems) 
 and one or more of the differences is selected for problem solving. 
 Problem solving consists of the selection and implementation of "oper- 
 ators"; elements of managerial activity which transform a set of input 
 variables into a set of output variables according to some predetermined 
 plan [46, p. 470]. 
 
 As mentioned earlier. Pounds focuses on problem finding rather than 
 problem formulation or diagnosis . Once a difference has been identified 
 between predicted and actual outcomes, managers may use their own conceptual 
 models to identify causes of these differences. Pounds' model does not 
 explain how decision-makers react to different types of gaps (for ex- 
 ample, those indicating a crisis vs. those indicating an opportunity). 
 Nor does it explain how they search for information related to the causes 
 of the gap or how they define those causes. 
 
 Mintzberg, Raisinghani, and Theoret [39] point out that differ- 
 ences between expectations and outcomes may be perceived as either op- 
 portunities, problems, or crises [39, p. 251]. They also expand Pounds' 
 discussion by adding an explicit diagnosis routine to the problem- 
 formulation process. Through studying managers' descriptions of 25 
 specific organizational decisions, they found that an explicit diagnostic 
 or formulation step could be identified for most of the decision-making 
 processes which were activated by problems. However, far fewer of the 
 
-9- 
 
 decision-making processes activated by opportunities and crises showed 
 an explicit diagnosis stage. Mintzberg, et. al,, suggest that opportuni- 
 ties may not require much problem definition since only improvement of 
 existing conditions is required rather than correction. On the other 
 hand, time pressures and cognitive pressures which discourage formal 
 diagnosis may be produced by crises. This point is supported in the 
 studies of Billings, Milburn and Schaalmar [3] and Smart and Vertinsky 
 [53]. 
 
 The Mintzberg, et al. model includes the following phases and 
 subroutines, the first phase of which involves problem formulation: 
 
 A) The Identification Phase 
 
 1) The Decision Recognition Routine : Opportunities, prob- 
 lems, and crises are recognized and evoke decisional ac- 
 tivity. 
 
 2) The Diagnosis Routine : Information relevant to opportu- 
 nities, problems, and crises is collected and problems 
 are more clearly identified. 
 
 B) The Development Phase 
 
 3) The Search Routine : Organizational decision makers go 
 through a number of activities to generate alternative 
 solutions to problems. 
 
 4) The Design Routine : Ready-made solutions which have been 
 identified are modified to fit the particular problem or 
 new solutions are designed. 
 
 C) The Selection Phase 
 
 5) The Screen Routine ; This routine is activated when the 
 search routine generates more alternatives than can be 
 intensively evaluated. Alternatives are quickly scanned 
 and the most obviously infeasible are eliminated. 
 
 6) The Evaluation-Choice Routine : An alternative is chosen 
 either through a process of analysis and judgment or a 
 process of bargaining among decision makers. 
 
-10- 
 
 7) The Authorization Routine ; When the individual making 
 the decision does not have the authority to commit the 
 organization to a course of action, the decision must 
 move up the organizational hierarchy until it reaches a 
 level at which the necessary authority resides. [39, 
 pp. 252-263] 
 
 The authors also point out that the processes of problem formula- 
 tion and decision-making are generally not linear but cyclical . By 
 cycling within one phase or between phases, the decision-maker gradually 
 comes to comprehend a complex problem. Further, the most complex and 
 novel decisions seem to involve the greatest incidence of cycles. 
 Mintzberg, et al. state. 
 
 He (the decision-maker) may cycle within identification 
 to recognize the issue; during design, he may cycle 
 through a maze of nested design to develop a solution; 
 during evaluation, he may cycle to understand the 
 consequences of alternatives; he may cycle between 
 development and investigation to understand the problem 
 he is solving; he may cycle between selection and 
 development to reconcile goals with alternatives, 
 means with ends [37, p. 265]. 
 
 Types of Strategic Problems and Differences in Problem Formulation 
 
 It may be that different types of strategic problems are formulated 
 differently. Maier has pointed out one important distinction between 
 problem types in his discussion of "Type I" and "Type II" problems [35 , 
 pp. 325-326] . With Type I problems, standards of high quality are applied 
 to solutions and it is not difficult to obtain acceptance of the solution 
 by those responsible for implementing it. Type II problems are those in 
 which internal political and bargaining processes are important and 
 acceptance of the solution is the most important evaluation of its 
 quality. Numerous theorists have discussed the characteristics of Type 
 II problems [31], [32], [47], [61]. 
 
-11- 
 
 There seem to be at least two fundamental differences between the 
 problem-formulation process for Type I problems and Type II problems. 
 Lindblom's work [31], [32] on incremental decision-making processes sug- 
 gests that for strategic problems in which organizational acceptance is 
 the crucial factor, there may be little or no attempt to collect preliminary 
 information about the environment or to formulate the problem. Rather, the 
 problem is defined as a demand by various interest groups for a change in 
 some aspect of organizational policy. In response to this problem, the key 
 decision-makers make a small incremental change in organizational policy in 
 the direction demanded by the interest-groups. The decision-makers then 
 wait for reactions to the new policy from those who are affected by it 
 and modify it incrementally in the direction of the new demands. Lindblom 
 calls this the method of successive limited comparisons [31, p. 84J. 
 
 Maier [35, p. 348] has suggested that group decision-making may 
 be more important in dealing with Type II than Type I problems be- 
 cause it promotes acceptance of decisions. The role of the leader is 
 also important in assuring acceptance in Type II decision processes. 
 
 Vroom and Yetton [61] have suggested a related notion in their 
 discussion of a continuum of five possible levels of participation by 
 subordinates in organizational decision-making. In their model, the de- 
 gree of participation varies from the lowest level (the leader makes the 
 decision and announces it to the group) to the highest level (the leader 
 involves subordinates in the decision from beginning to end and accepts 
 the group's consensus decision). Vroom & Yetton specify a number of 
 contingencies which should help leaders determine how much participation 
 
-12- 
 
 to allow in the decision process. The importance of group acceptance 
 of the final solution is one of these contingencies. 
 
 Though the problem formulation process may be somewhat different 
 for different types of strategic problems, the same general model of 
 the decision-making process can be developed and used as a basis for 
 suggestions on improving the formulation process in all types of problems 
 in strategic planning. This model would include the following stages: 
 
 1) Gap identification/problem recognition 
 
 2) Problem diagnosis/formulation 
 
 3) Alternatives generation 
 A) Alternatives selection 
 
 At any point, decisional activity may cycle back to any previous stage. 
 For different types of problems, different stages should be empha- 
 sized. For Type II problems for example, very little activity is re- 
 quired at the problem diagnosis/formulation and the alternative genera- 
 tion stage. In fact, there may be no clearly identifiable diagnosis 
 stage. Also, group members should be involved at the alternative selec- 
 tion stage if more than one alternative was generated. 
 
 Biases and Malfunctions in Problem Formulation 
 
 Research in the areas of cognitive psychology, organizational behavior, 
 and international relations has uncovered a number of biases which afflict 
 decision-makers during problem foirmulation and the generation of alternatives 
 for solving problems once defined [23], [55]. A few of the many biases 
 identified in this literature will be discussed in order to illustrate 
 their effects on problem formulation and other decisional activities. 
 
 As has been suggested earlier, stage 1 of the problem formulation 
 process results from the recognition of a difference or gap between 
 
-13- 
 
 expectation and organizational performance. At this stage, decision-makers 
 sometimes avoid problems by not recognizing gaps. Forecasts of expected 
 organizational performance should be revised as new information comes 
 in, particularly if this information indicates that assumptions underlying 
 the forecasts were wrong. However, Tversky & Kahnemann [57] discuss 
 a decision heuristic called adjustment and anchoring which (among other 
 things) causes decision-makers to inadequately revise predictions as 
 new information comes in. They cite earlier research showing that decision- 
 makers are conservative information processors; that they develop an 
 initial judgment based on preliminary information and then anchor on 
 that judgment as they deal with new information. Their revisions are 
 smaller than are justified by the new information. Because decision-makers 
 use this heuristic, they may miss gaps and may therefore benefit from 
 techniques designed to stimulate the search for potential problems. 
 
 Decision-makers may escape the negative effects of this heuristic, 
 admit that the gap does exist, and move to stage 2: problem diagnosis/ 
 formulation. If this happens, there is at least one heuristic which 
 helps to determine the manner in which the problem will be defined. 
 Steinbruner [54] calls this heuristic reasoning by analogy . Reasoning 
 by analogy involves the application of analogies and images from one 
 problem situation to another. In organizational decision-making, it 
 typically involves the application of analogies from simpler situations 
 or from memories of recently solved poblems to complex strategic deci- 
 sions. This helps to reduce the aversive uncertainty perceived in the 
 environment. 
 
-14- 
 
 However in strategic decisions, which involve a great deal of 
 uncertainty and complexity, the use of simple analogies is likely to 
 mislead the decision-maker into an overly simplistic view of the stra- 
 tegic decision situation [54, p. 115]. Research in cognitive psychology 
 [19] indicates that decision-makers' psychological set may induce a kind 
 of fixation on particular analogies or problem definitions. A decision 
 analyst who has dealt with a large number of organizational problems may 
 be able to suggest better analogies through matching a particular problem 
 to a "problem type" he has identified through his experience. 
 
 Once decision-makers have defined a problem, do they generally de- 
 velop numerous alternative solutions for dealing with it in stage 3? 
 Cyert and March [12] among others suggest that they do not. They suggest 
 that search for solutions to problems is simple-minded (it proceeds from 
 simple concepts of causality and is conducted in the neighborhood of 
 the problem symptom and the current alternative) and biased (that is, 
 it is distorted because of training of organizational members, their 
 hopes and expectations, and communication problems within the organiza- 
 tion) [12, pp. 120-122]. 
 
 Steinbruner [54] elaborates on Cyert and March's notions of prob- 
 lemistic search in his description of a process he calls single outcome 
 calculations . Rather than attempting to specify all relevant values and 
 goals and all alternative courses of action as normative decision theory 
 would suggest, decision-makers may focus on a single one of their goals or 
 values and a single alternative course of action for achieving it. They 
 then simply refuse to consider other alternatives and in justifying their 
 choice, attempt to interpret facts in such a way that the favored alternativ( 
 
-15- 
 
 appears to serve several values simultaneously and appears to have no 
 costs associated with it. They attempt to deny that there are tradeoffs 
 and that there are some values which may not be served by their favored 
 alternatives. This is an extremely powerful simplification mechanism 
 and is more likely to be used in highly complex and uncertain decision 
 environments such as those characteristic of strategic planning. Since 
 this mechanism allows decision-makers to deny the unpleasant value trade- 
 offs which are always present in a choice between alternatives, it signifi- 
 cantly reduces the stress associated with ill-structured decision-making. 
 
 In any complex decision environment, several alternative courses 
 of action may be identified as new information comes to the decision- 
 makers. These alternatives are troublesome to a decision-maker using 
 single outcome calculations. There is at least one mechanism available 
 to decision-makers for dealing with unwanted alternatives: inferences 
 of impossibility . In contrast to the suggestions from normative decision 
 theory, decision-makers may devote a good deal of effort to pointing 
 out the negative aspects of non-preferred alternatives and attempting 
 to convince themselves that they are not possible to implement [54, 
 p. 119]. Since this mechanism forces premature rejection of alternatives, 
 it may have disastrous consequences for decision-makers who use it. They 
 will achieve a premature closure at the cost of rejecting possibly the 
 most feasible alternative. 
 
 These malfunctions and biases in problem-formulation cause problems 
 to be misdefined or to remain unrecognized and restrict the number of 
 alternatives generated to deal with these problems. The decision analyst 
 who concentrates only on the alternative selection phase of the process 
 
-16- 
 
 and does not help decision-makers to correctly formulate the problem and 
 generate good alternatives for solving it may find himself helping them 
 to solve the wrong problem or to choose the best from among several 
 low-quality alternatives for solving it. 
 
 Individual and Situational Factors 
 
 The biases and mechanisms previously discussed distort problem 
 formulation even under the most ideal conditions. However, individual 
 and situational factors may greatly magnify the impact of these mechanisms 
 on the quality of problem formulation. Stress and tension may cause 
 decision-makers to become stereotyped in their attempts at problem de- 
 finition or to devote little or no time to problem definition. Person- 
 ality factors such as dogmatism and cognitive complexity may effect pro- 
 cedures chosen for problem definition. 
 
 Goldstein and Blackman [18, pp. 98-100] discuss a number of studies 
 which suggest that highly dogmatic decision-makers tend to make judgments 
 about data necessary for problem-definition quickly and not to defer 
 judgment until sufficient data are available to make an informed judg- 
 ment. Further, they cite evidence that high dogmatics adopt simple 
 strategies for processing information and use small amounts of informa- 
 tion in making judgments because of their great need to reduce uncer- 
 tainty. 
 
 They also discuss the effects of cognitive complexity on the forma- 
 tion of judgments [18, pp. 118-125]. Evidence suggests that cognitively 
 complex people make more inferences from information and are better able 
 to integrate discrepant information in making judgments. 
 
-17- 
 
 Stress induced by time pressure and other factors may also influ- 
 ence the decision-maker's tendency to quickly choose simple analogies 
 to help in defining the problem. Stress may also cause decision-makers 
 to avoid dealing with the problem altogether. 
 
 Under high levels of stress, the need to escape from the decision 
 situation may become acute and decision-makers may resort to one of two 
 types of behaviors whose primary purpose is escape rather than resolu- 
 tion of the problem. These behaviors have been described by Janis and 
 Mann [26, p. 52] as defensive avoidance and hypervigilance . Defensive 
 avoidance on the part of decision-makers involves attempts to avoid the 
 problem by ignoring information about it, developing an overly fatalistic 
 attitude about their ability to affect outcomes, or relying on others 
 to make the decision (buck passing). Hypervigilance is commonly called 
 "panic behavior" and involves making snap decisions generally on the 
 basis of the first bits of information to become available. This be- 
 havior is often observed when decision-makers feel they do not have time 
 to collect information and evaluate alternatives. 
 
 Cohen, March, and Olsen [9, p. 33] discuss two related problem 
 avoidance processes which they call flight and oversight . Flight involves 
 reactively applying a solution to a problem which has traditionally 
 been applied and failed to solve it. Oversight occurs when a choice 
 between a number of courses of action is made without consideration 
 of any of the organizational problems which might be resolved by the 
 choice. The authors claim that flight and oversight are the most common 
 approaches to decision-making in organizations [9, p. 34]. 
 
-18- . 
 
 Decision analysts may be unable to prevent defensive avoidance or 
 flight. However, by helping managers to more effectively use their time 
 in problem solving when time is in short supply, they may be able to 
 minimize hypervigilance. By encouraging decision-makers to specify out- 
 comes and the subjective probability of each outcome, they may be able 
 to discourage decision by oversight. -.,_ 
 
 Summary 
 
 In this section, a general model of problem formulation has been 
 developed. Its applicability to different types of problems has been 
 discussed and a number of possible malfunctions in the problem formulation 
 process have been considered. This discussion has shown that problem 
 formulation can be modeled, that managers can make a variety of errors 
 in the process, and that decision analysts can and should assist managers 
 in problem formulation in order to avoid being put in the position of 
 helping managers choose between a number of low quality alternatives 
 for solving the wrong problem. 
 
 DECISION AIDS IN PROBLEM FORMULATION 
 In this section, four types of decision aids will be discussed. 
 The first three are, in sequential order: matching of problem to problem 
 type approaches, creativity stimulants — aids for generating new ideas, 
 and devil's advocate/dialectical inquiry approaches. Each of these is 
 designed for dealing with difficulties at a particular stage in the 
 problem solving or strategic planning process. However, each technique 
 may also indirectly affect all stages. The fourth aid discussed involves 
 the use of decision analysis as a stimulus for policy dialogue. Finally, 
 
-19- 
 
 an integrative model is presented which shows the appropriate use of these 
 approaches at various stages in the process. 
 
 Matching of 'problem' to 'problem type' approach 
 
 Reference to earlier writing on decision analysis suggests that 
 researchers have either elected to avoid the problem of how to elicit 
 the structure of a decision situation or have argued that such decompo- 
 sition and structuring skills can only be 'learned by doing.' To 
 illustrate the first view Ulvila [58] has, for example, indicated that 
 there are few, if any, computer aids available for structuring although 
 a number had been developed for aiding solution procedures. Raiffa [48] 
 also implied that he would prefer to by-pass the structuring problem in 
 decision analysis even though he considered it an important issue. The 
 second view of learning by experience in decision analysis has much support 
 (Moore and Thomas [43], Brown, Kahr and Peterson [6], Holloway [24]) as a 
 practical guideline. This view suggests that managers, through recogni- 
 tion of patterns or familiar problems, become more aware of certain pro- 
 blems and problem-types, (i.e., they have gone through some form of pre- 
 diagnosis and can "reason by analogy" to them) . This form of awareness 
 can be described as internal learning about problems. Often, however, 
 this internal learning is not translated into organizational learning 
 either because of lack of communication or because of poor maintenance 
 of records in organizational settings. 
 
 As a consequence it has been suggested that a taxonomy of problem 
 types, (e.g., new product, manufacturing investments, etc.), should be 
 developed so that the problem solver could be aided early in a decision 
 
-20- 
 
 analysis by being able to make a comparison of his particular problem 
 with this taxonomy. This approach would also be reinforced by external 
 learning. That is, by managers reading accounts of case studies of 
 applications performed in other organizations or by consultants. There 
 is, by now, an increasing volume of such case studies and applications 
 reprinted in the literature (see, for example, Brown, Kahr and Peterson 
 [6]; Holloway [24]; Bell, Keeney, and Raiffa [2]; Kaufman and Thomas [28]; 
 Moore, Thomas, Bunn, and Hampton [44]), and the range of reported appli- 
 cations continues to widen. 
 
 Interestingly, over the last ten years the areas of application 
 have moved from well-structured and well-programmed problems to 
 increasingly ill-structured and strategic ones. Recently, public sector 
 applications have been more in evidence. 
 
 There are dangers, however, in the managerial use of the 'matching 
 of problem to problem type' approach as a problem formulation aid. First, 
 externally reported applications of decision analysis often appear to be 
 too easy and simplistic and to be examples of 'techniques in search of 
 solutions.' In addition, the descriptions rarely provide sufficient 
 detail and do not adequately catalogue some of the difficulties — problem 
 identification, assumption testing, problem formulation, structuring 
 and assessment — involved in applications. That is, they do not throw 
 sufficient light on the structuring and problem formulation phases of 
 decision analysis. 
 
 Second, recent events might tend to make a particular problem 
 type obsolete. A good example of this lies in insurance decision- 
 making. The impact of inflation upon the operations of insurance firms 
 
-21- 
 
 in the second half of the 1970s has significantly changed the balance 
 between their underwriting and investment activities. Many individual 
 insurance accounts (for example, for the insurance of marine , fire , and 
 automobile risks) now show underwriting losses which are more than 
 balanced by the rapid increases in investment gains generated by the 
 continuing high levels of interest rates. As a result the view and 
 premise held in the stable environment of the 1960's, namely, that 
 'underwriting profit is king' has eroded and has been replaced by a 
 more adaptive strategic balancing posture which looks at the joint 
 impacts of underwriting, investments, and claims upon the overall profit- 
 ability of the insurance company. 
 
 Third, in some reported applications decision analysts may have 
 biased the manager's perception of the problem and in so doing provided 
 an inappropriate problem formulation and ultimately, an incorrect solu- 
 tion. For example, a decision analyst whose primary training background 
 is in management science models might define every problem as a mathe- 
 matical programming, resource allocation type of problem. As a result 
 he might ignore potential problem differences and the availability of 
 other solution procedures. Fourth, this type of approach is probably 
 better suited to well-structured than ill-structured problems since it 
 relies on such things as the recognition of familiar problem patterns 
 and the presence or absence of key problem variables. 
 
 Nevertheless, the continued development of a taxonomy of problem 
 types is an useful first step in helping the process of 'reasoning by 
 analogy' even though it may 'anchor' the decision-maker's thinking 
 around a previously developed problem structure and solution. However, 
 
-22- 
 
 such a taxonomy should be based on case studies of ill-structured, complex 
 
 problems. These case studies should catalogue the resolution of issues 
 
 both in relation to problem formulation and policy dialogue about "messy" 
 problems. 
 
 Creativity Stimulants 
 
 Typically when more structured approaches and analytic aids do not 
 help with problem formulation, managers must search for new options. 
 In those instances, consultants may assist through the use methods for 
 developing creative alternatives. In some cases, these methods encourage 
 new problem definitions as means to developing new alternatives. 
 Certain conditions are important prerequisites for creative thinking. 
 First, the organizational conditions have to be designed to allow the 
 bridge between thought, creativity and idea generation to be built 
 effectively. At minimum this means that there must be tangible organi- 
 zational commitment to the creative search process. For example, there 
 must be reduced stress and pressure on managers so that they have suffi- 
 cient time to think about problems and gather and absorb any appropriate 
 information about them. Second, creative thinking aids must be designed 
 to include certain key features. For example, aids should attempt to 
 free managers from conceptual or perceptual blocks to thinking and the in- 
 fluence of any inhibiting factors whilst simultaneously encouraging the 
 utilization of past problem solving experience. In addition, aids 
 should also make effective use of devices for introducing alternative 
 ideas and problem critiques into the creative process. This controlled 
 introduction of viewpoints should allow managers to consider, in a 
 
-23- 
 
 broadly based manner, the influence of other ideas and assumptions about 
 the decision problem. Thus, the mind's natural ability to explore the 
 unknown and its natural curiosity about conflicting signals and incomplete 
 problem linkages can be tapped. This curiousity ultimately leads managers 
 to attempt to "complete the incomplete" and recombine the signals and 
 linkages in a subjectively meaningful form, i.e., to attempt to achieve 
 "order out of chaos". ' 
 
 The literature on creative aids is somewhat diffuse and piecemeal 
 and some techniques have not been subjected to thorough scientific testing. 
 However, an overview of some of the main classes of methods is presented 
 below in order to provide some tentative operational guidelines for their 
 use. 
 
 In this brief review it is not possible to discuss the full range 
 of approaches for generating ideas and new alternatives. Instead, the 
 concepts underlying some widely used approaches are examined in succeeding 
 paragraphs. The structured approaches considered include brainstorming, 
 synectics, morphological analyses and Delphi approaches. Unstructured 
 approaches are limited to techniques for generating scenarios and alter- 
 native futures. Unstructured approaches attempt to stimulate the genera- 
 tion of new ideas whereas structured approaches try to systematically 
 organize ideas and synthesize patterns from a broader set of ideas and 
 viewpoints. 
 
 Brainstorming 
 
 This is a group procedure [see Osbom [45]] usually involving a 
 nominated chairperson. The group is usually of small size and goes through 
 
-24- 
 
 a number of phases such as fact-finding, idea-finding and solution-finding 
 in the brainstorming process. 
 
 The group is co-ordinated by a leader, who, having socialized the 
 group and defined the problem and group agenda, sets the framework for 
 the idea-finding phase. Typically, the group is counselled to operate 
 in a mode in which judgment about suggested ideas is deferred and crit- 
 icism is held back. It is stressed that group members should think 
 freely, generate as many ideas as they wish and, if appropriate, build 
 on ideas suggested by other members of the group. Once all possible 
 ideas have been generated the leader should attempt to synthesize the 
 ideas and try to focus further brainstorming on criteria by which alter- 
 native ideas should be judged. The best ideas are then listed and group 
 members are asked to develop strategies for implementation and adoption 
 of these ideas. 
 
 Existing research suggests that individuals brainstorming separately 
 produce a larger number of high quality ideas than do interacting groups. 
 The main advantage of the group may lie with the ease of organizing brain- 
 storming and the group's cohesion in subsequently gaining acceptance of 
 new ideas and proposals. 
 
 Synectics 
 
 This is a group creative thinking process [see Gordon [19]] directed 
 by a leader responsible for encouraging certain reasoning mechanisms in 
 the group members. The leader directs a thinking by analogy process in 
 which a series of creative ideas are generated by evoking appropriate 
 analogies. This approach involves the use of a trained and skilled 
 
-25- 
 
 leader who possesses the ability to understand group dynamics, psycholog- 
 ical strain, role playing and to facilitate and catalyze group communication 
 and committment. The leader should also direct the group towards approval 
 of the ideas generated in the synectic process. 
 
 Morphological analysis 
 
 This approach, originally developed by Zwicky [63] in the context 
 of the Apollo project, is a structured search technique particularly 
 useful for situations of novelty such as new process or product development 
 in an environment of rapid technological change. An attempt is made to 
 promote openmindedness by encouraging decision-makers to identify the 
 characteristics or attributes defining the novel situation and to define 
 a list of all possible combinations of attributes which can be generated 
 from them. The process continues by reviewing each feasible combination 
 and trying to devise a problem solution which may fit that combination. 
 The intention is that one or more alternative solutions from the range 
 of potential solutions generated will be, at least, worth detailed con- 
 sideration for potential implementation. In essence, the process tries 
 to bring ideas into conjunction with alternative specifications of the 
 situation Ce.g.j a weapons system) under study. By such directed mapping, 
 it is anticipated that creative and novel solutions will be found. 
 
 The Delphi approach 
 
 Linstone and Turoff [33] provide a very broad definition of the 
 Delphi method as follows: 'Delphi may be characterized as a method for 
 structuring a group communication process so that the process is 
 
-26- 
 
 eff active in allowing a group of individuals as a whole, to deal with a 
 complex problem. ' 
 
 The Delphi procedure follows a series of phases in which a group 
 of people anonymously participate in a problem solving process and in 
 which the group's response (say, in terms of generation of alternatives 
 for a problem situation) from the previous phase is given as feedback 
 for the next phase. This feedback, is controlled and synthesized so that 
 at each phase some assessment of the group judgment (or consensus) is 
 provided and an opportunity is presented for each individual to revise, 
 change or revise his or her views. 
 
 Van de Ven and Delbecq [59] compared the effectiveness for decision- 
 makers of Delphi, nominal group (i.e., nominal brainstorming groups) 
 and interactive group meetings. Their conclusion was that both the 
 nominal and Delphi approaches were more effective than interacting groups 
 in producing high quality ideas and that the nominal approach was marginally 
 more effective than Delphi. 
 
 Delphi has been used widely in applications such as the forecasting 
 of future technological change and for idea generation for strategic 
 planning in relation to organizational policy formulation. Linstone 
 and Turoff's book [33] reviews a wide range of applications of the 
 approach which seek to elicit either facts, ideas or decisions in or- 
 ganizational problem-solving. 
 
 Scenarios /Alternative Futures 
 
 A scenario can be described as a description of how some set of 
 events defining a problem situation might come about over some defined 
 
-27- 
 
 period of time in the future. It is most often developed by decision- 
 makers in order to throw light upon the strategies which a business or 
 public sector organization might take in confronting and adapting to an 
 uncertain future. Usually a number of scenarios of alternative futures 
 are developed to reflect a range of uncertain future conditions. Very 
 often three scenarios are generated to reflect so-called pessimistic , 
 most likely , and optimi stic sets of future conditions. 
 
 Such generation of scenarios requires that individual decision-makers 
 attempt contemplation about future events by adopting a "fantasy mode of 
 thinking" in order that they can anticipate future events and surprises 
 which cannot be predicted through the use of common extrapolative fore- 
 casting techniques. Decision aids such as logic trees, fault trees, and 
 other structuring devices can help this contemplation process but the bur- 
 den rests upon decision-makers' insights and creativity in judging the 
 course of future events. 
 
 Earlier sections of this paper have pointed to biases in judgment 
 about uncertain events and Hogarth [22] also reports on judges' 
 difficulties in assessing future events in relation to a long-term 
 future. Pierre Wack, a noted expert on scenario forecasting in Shell 
 International, in disciissing Shell's use of scenarios [62] points out 
 that they currently ask decision-makers to assess only pessimistric and 
 optimistic scenarios. This is because past use of a most likely scenario 
 in addition to the pessimistic and optimistic cases had the effect of 
 narrowing the range of scenarios confronted by decision-makers. An 
 explanation for this finding is the anchoring and adjustment bias of 
 
-28- 
 
 Tversky and Kahneman [57]. That is, decision-makers 'anchor' around 
 the most likely scenario (often an extrapolation of the status quo) and 
 make an inadequate adjustment around the 'anchor' in order to develop 
 the pessimistic and optimistic scenario. •; .tj:' 
 
 Though scenario development has sometimes been criticized as being 
 unrealistic, it is an useful aid for drawing attention to the impact of 
 alternative futures and in generating ideas for confronting such potential 
 futures. 
 
 ■II 
 The Devil's Advocate and Dialectical Inquiry 
 
 Writers in organizational behavior have recommended two techniques 
 for the introduction of interpersonal conflict into the strategic plan- 
 ning process [15], [16], [36], [37], [40], [41], [42], Mitroff and Emshoff 
 [40] and Mason and Mitroff [37] have suggested that there are three activ- 
 ities which can improve the quality of strategic planning in uncertain 
 environments. The first is the generation of conflict between decision 
 makers or within a decision maker. The second is the identification of 
 assumptions regarding the internal and external environment and the nature 
 of the problem. The third is the challenging of these assumptions. 
 
 Two techniques which may help to promote these activities (con- 
 flict, assumption identification, and assumption challenging) have been 
 offered as aids to the strategy formulation process. These techniques, 
 called the dialectical inquiry (DI), devil's advocate (DA), are seen as 
 improvements on the traditional expert (E) approach in which decision 
 makers formulate strategy with the help of advice from experts (such as 
 decision analysts). In this approach members of a planning department or 
 
-29- 
 
 consultants provide expert advice regarding the definition or structuring 
 of the problem and the plans the organization should follow. The planners 
 make a study of the organization's environment (opportunities and threats), 
 its resources (strengths and weaknesses), its value structure, and its 
 social responsibilities. The result of this study is a definition of 
 the planning problem and a set of planning recommendations which are 
 usually presented to management in the form of a strategic briefing 
 session. Mason suggested that the planning recommendations contain 
 hidden assumptions which are frequently not communicated to management. 
 These, in turn, effect the structure of the problem. This is one of the 
 most critical drawbacks of the E approach [36, pp. B406-B407]. 
 
 The DI was first proposed as an aid to strategy formulation by 
 Mason [36]. Mason, building on C. West Churchman's [7] ideas, suggested 
 that a dialectical approach to decision-making would involve examining 
 a decision situation completely and logically from two different and 
 opposing points of view. 
 
 The dialectical process as incorporated into the DI involves 
 three basic steps. First, a thesis is developed and a "case" for the 
 thesis is constructed. 
 
 Next, the antithesis is developed and defended. A true antithesis 
 is the "deadliest enemy" of the thesis and should stimulate "an anti- 
 conviction of forcefulness at least as great as the conviction (in the 
 plan)" [8, p. 172], The antithesis must be a different plan or posi- 
 tion (not necessarily the opposite of the thesis) which has the maximum 
 amount of credibility and can present the strongest challenge to the 
 thesis in order to generate this anti-conviction. According to Churchman 
 
-30- 
 
 [8, p. 172], the clearest example of this "deadliest enemy" concept is 
 found in politics. The deadliest enemy of democracy, says Churchman, 
 is not nondemocracy, but a very explicit and detailed political design 
 called the Communist Party. 
 
 Finally, the synthesis emerges from the efforts of an observer of 
 the conflict between the thesis and antithesis. This observer is op- 
 posed to the conflict and wishes to bring it to an end but understands 
 the world-view or assumptions underlying both the thesis and the anti- 
 thesis. This observer constructs yet another world-view which is more 
 "objective" than that underlying either the thesis or antithesis. The 
 act of generating the synthesis as well as its perceived ability to 
 resolve the conflict between the thesis and antithesis tends to generate 
 a strong conviction regarding its truth in the mind of the individual (s) 
 who developed it. 
 
 The DI is a specific method for applying Churchman's ideas to 
 strategic planning and ill-structured decision-making. This method 
 begins by identifying the prevailing or recommended strategic plan in 
 an organization and the data which were used to derive it. Next, an 
 attempt is made to identify the assumptions underlying the plan. In 
 order to test these assumptions, a counterplan is identified which is 
 feasible, politically viable, and generally credible but which rests 
 on assumptions different from those supporting the plan. 
 
 A structured debate is then conducted. This debate, in contrast 
 to a traditional management briefing, consists of forceful presenta- 
 tions of two opposing plans which rest on different interpretations of 
 the same data. The debate demonstrates that the same data can be 
 
-31- 
 
 interpreted by the advocates of both the plan and the counterplan as providing 
 support for their positions. This in turn should cause those witnessing 
 the debate (those executives responsible for actually formulating the 
 strategy) to focus on and evaluate the assumptions underlying the plan 
 and counterplan [36, p. B408]. Once assumptions have been changed, 
 these form the basis of a new (and better) definition of the problem 
 and a more effective strategy for solving it. Mitroff, Emshoff, & 
 Kilmann [42, p. 583] have suggested that the DI is a methodology for 
 problem formulation especially suited to ill-structured issues. 
 
 There is an alternative approach to strategy formulation which 
 Mason [36] called the DA approach. He asserted that this approach 
 should be more effective than the E approach but less effective than 
 the DI approach. In this approach, a planner appears before manage- 
 ment and advocates a plan. Another planner then takes the role of an 
 adverse and often carping critic of the plan. An attempt is made to 
 determine all that is wrong with the plan and to expound the reasons why 
 the plan should not be adopted. The plan and critique are then presented 
 to management and form the bases for revision of the plan. Figure 3 
 shows the process. 
 
 Insert Figure 3 about here 
 
 Mason suggested that while this approach does expose some under- 
 lying assumptions, it does so in the context of what is wrong with them 
 rather than what they should be. It does not serve to develop a new 
 managerial world view. For this reason. Mason felt that the DI approach 
 
-32- 
 
 should be more helpful in the strategy formulation task than the DA 
 approach [36, pp. B407-B408]. 
 
 Other writers have also discussed the improvement of organizational 
 decision-making through the use of the DA. Herbert & Estes [21] discussed 
 the DA as a way of formalizing dissent in the strategy formulation process. 
 They suggested that an individual, either within or outside the organization, 
 should be appointed to the position of Devil's Advocate for any major 
 organizational decision in which it is desirable to introduce conflict. 
 The Devil's Advocate should begin with the formal statement of a proposed 
 course of action and the analysis underlying the proposal. He should then 
 examine the proposal for inconsistencies, inaccuracies, and irrelevancies 
 and prepare a critique of the proposal based on this examination. A kind 
 of confrontation session between an advocate of the original proposal 
 and the Devil's Advocate is then held with key organizational decision- 
 makers as observers. Based on this confrontation session the organi- 
 zational decision makers can then accept the proposal, modify it, or 
 develop a completely new proposal based on a more complete understanding 
 of the proposal's shortcomings. 
 
 Also, Janis [25] pointed out that the informal use of Devil's Advo- 
 cates was one of the positive features of the decision-making process in 
 President Kennedy's policy-making staff during the Cuban Missile Crisis, 
 The President's brother, Robert, and Theodore Sorensen were instructed to 
 assume the Devil's Advocate role and to promote conflict in order to pre- 
 vent errors arising from too superficial analysis of the issues [25, 
 pp. 147-148]. This, along with other changes in the group dynamics of 
 
-33- 
 
 the President's policy-making group, was credited with the effectiveness 
 
 in the group's decision-making processes during the Cuban Missile Crisis. 
 
 Janis also made the following recommendation for the improvement of the 
 
 process of public policy-making: 
 
 At every meeting devoted to evaluating policy 
 alternatives, at least one member should be 
 assigned the role of devil's advocate. 
 
 [26, p. 216] 
 
 The DI and DA can help deepen decision-makers' understanding of a 
 problem. Mason [36, p. B411] suggests that the use of the DI will help 
 decision-makers form a "new, more encompassing conceptualization of the 
 problem." In other words, it will lead to better problem formulation. 
 Evidence from field studies provides some support for Mason's assertions 
 [16], [36], [41]. Since the problem formulation process is cyclical, 
 the DA and DI may improve this natural cycling process and assure that 
 it includes the identification of assumptions. These techniques begin 
 with a proposed solution to an organizational problem and, through 
 questioning the assumptions underlying the solution, force the decision- 
 makers to return to the problem diagnosis stage. 
 
 Of course, forcing decision-makers to re-examine assumptions after 
 they have already generated a solution may be disruptive and emotion- 
 ally unpleasant. This, plus the extra time involved in a decision- 
 making process using the DA or DI, might cause decision-makers to 
 resist these techniques. Because the DA is a somewhat simpler and 
 more straightforward process, it might be more palatable to decision- 
 makers than the DI. Also, there is evidence from laboratory studies 
 that the DA improves prediction performance, alternatives generation. 
 
-34- 
 
 and overall quality of strategy statements more than the DI [11], [49], 
 [50]. On the other hand, a combination of the DA and DI might be the 
 most effective approach. 
 
 Decision Analysis As An Aid For Policy Dialogue 
 
 In this conception of the role of decision analysis there is no 
 meaningful distinction between decision analysis and problem formulation. 
 Rather, analysis and formulation are parts of a policy dialogue process 
 which aims to provide a decision aid and a 'thinking structure' for ill- 
 structured problems. This dialogue process is seen to be a cyclic search 
 process in which analysis is used in an iterative, adaptive, and flexible 
 manner so that decision-makers are encouraged to cycle back through 
 previous stages of the analysis. Thus, it provides a framework for problem 
 formulation through the continual presentation of problem solutions based 
 on alternative sets of problem assumptions. This may ultimately lead to 
 the development of a set of guidelines which can be used as a basis for 
 framing policy. The essential features of the dialogue approach to decision 
 analysis are described and illustrated in subsequent paragraphs. 
 
 a) Developing a Systems Model 
 
 Policy design and dialogue should begin with problem finding and 
 decision structuring. The basis of the initial phase of problem finding 
 should be an attempt to structure the issues and analyze the decision- 
 making environment, thereby giving the decision-maker an opportunity to 
 explore possible structural frameworks amd assumptions underlying alter- 
 nate problem formulations. This exploration may be performed with some 
 form of decision tree or logic tree as the structuring framework, and with 
 
-35- 
 
 the results of an initial screening procedure or 'first-pass' decision 
 analysis available to the decision-making group for purposes of discussion 
 and debate. 
 
 b) Policy Design: Structuring and Modelling 
 
 It is argued here that any systems model for policy dialogue should 
 have a narrow, specific focus and be designed to answer particular defined 
 questions. That is, it is better to start with a simple model rather than 
 over-complicate the process. In such a model the important uncertain vari- 
 ables would be identified and the problem defined adequately in terms of 
 its anticipated time horizon and scope and through the generation of a 
 range of potential alternative actions. The outputs of such a model 
 would normally be the set of alternatives valued in terms of a number of 
 indicator variables. Such variables could be thought of as "attributes" 
 by which the alternatives should be judged e.g., cash flow, potential cost 
 and R&D expenditure. These indicator variables, or attributes, would 
 typically be presented as a stream or range of values for each period of 
 the specified time horizon, 
 
 c) The Goal of Policy Structuring and Modelling 
 
 The initial structuring and modelling described in a) and b) gives 
 the decision-making/policy group immediate feedback on their initial 
 formulation of the problem under study. This, in turn, develops greater 
 system understanding and develops the dialogue about a more appropriate 
 policy design. 
 
 The development of a system model which will be acceptable to all 
 members of the decision-making group is an extremely important part of 
 
-36- 
 
 the process of bringing formal decision analytic methods into closer 
 proximity with the realities of the "policy-setting" situation. It is 
 crucial that there be consensus as to applicability of the model because 
 it provides a framework within which the responsibilities and requirements 
 for formal analysis can be divided and delegated amongst the individuals 
 who form the decision-making group. The individuals then jointly become 
 responsible for the tasks of information gathering, evaluation, and 
 assessment of uncertainties and value measures. Finally, through group 
 negotiations and bargaining a preferred strategy option may be chosen. 
 
 d) Obtaining Alternative Policy Prescriptions 
 
 The aim of initial policy design is to provide additional starting 
 points or policy prescriptions. The first-pass initial analysis works 
 from a basic narrow, specific model which focuses on the crucial aspects 
 of the problem. Through the use of analysis (often of the decision 
 analysis /simulation type) time streams of different policy indicators 
 can be presented in order to provide starting points for the generation 
 of more realistic alternatives for dialogue, modification and change. 
 That is, alternative policy prescriptions may be suggested from group 
 dialogue which should be examined and subjected to feasibility testing. 
 
 e) Evaluating Alternative Prescriptions 
 
 The message here is that the goal of the policy evaluation process 
 is to obtain a reasonable set of policy alternatives. Therefore, the 
 evaluation process should move in an adaptive, iterative manner towards 
 a comparison of alternatives in terms of the indicator variables and 
 check on the sensitivity of these alternatives to error, misestimation 
 
-37- 
 
 and future surprises. A set of policy alternatives is then available for 
 consideration by members of the decision-making group. 
 
 f) Implementation of Prescriptions 
 
 The message here is that adaptive/flexible mechanisms lead to 
 successful implementation. The more extensive the previous policy 
 dialogue, the greater the likelihood that the decision-making group will 
 have confronted the range of organizational and other factors which will 
 influence implementation. However, a check must be made on the feasibility 
 of implementation in relation to resources, competition, and other con- 
 straints and, if appropriate, some alternative strategies should be 
 discarded and others added to the strategy space. 
 
 It is argued, therefore, that the greatest emphasis in policy dia- 
 logue and design must be on the flexibility and adaptability built into 
 the analytic process. For example, it is preferable to describe the 
 outcomes of alternative policies in terms of a time-stream of indicator 
 variables, rather than in terms of a single criterion such as expected 
 utility whether or not that utility function is expressed in multi- 
 attributed form. In this manner policies can be examined even more 
 closely to see whether they fit when excluded factors and problem assump- 
 tions are reexamined. The key message is that synthesis, the offering 
 and examination of new options in the strategy space, is even more necessary 
 in the resolution of ill-structured problems than in well-structured 
 problems. This is consistent with Ackoff 's systems-oriented views. 
 
 It should be noted that there is a need to distinguish between the 
 direct value and the indirect value of a decision analysis in understanding 
 
-38- 
 
 its use in policy dialogue. Direct value refers to the process of finding 
 the optimal act. Direct value is not stressed in this paper since the 
 focus is centered around the consideration of complex, ill-structured 
 problems. On the other hand, the indirect value of decision analysis 
 and its positive role as a decision aid is stressed here. Indirect 
 value is concerned with such issues as assiunption and reality testing 
 of alternative formulations and increasing debate and awareness about 
 the influence of problem structure on policy prescription. 
 
 CONCLUSION 
 In this paper it is argued that problem formulation has not received 
 sufficient attention in the context of applied decision analysis and that fc 
 this reason many have suggested it is of little value in strategic planning. 
 Using working definitions of the terms problem and problem formulation 
 a review of the literature on organizational problem formulation re- 
 sulted in a synthetic general model of the problem formulation process 
 which would include the following stages in cyclic form: 
 
 1) Gap identification/problem recognition 
 
 2) Problem diagnosis/formulation 
 
 3) Alterantives generation 
 
 4) Alternatives selection 
 
 Possible malfunctions and biases in this process may, without 
 guidance and counselling, lead to decision-makers presenting decision 
 analysts with a diet of low quality alternatives for solving the wrong 
 problem. Therefore, some aids for the problem formulation process were 
 reviewed and their strength and weakness pointed out. ' Matching problem 
 to problem type ' approaches were seen to be of particular value for 
 
-39- 
 
 handling well-structured porblems and for conditioning decision-makers to 
 problem elements. On the other hand, creativity stimulants are seen to 
 be necessary when the problem formulation process becomes stagnant and new 
 insights and more creative alternatives are required. Although some of 
 the approaches require skilled group leaders they have demonstrated some 
 success in removing perceptual and conceptual blocks for problem formu- 
 lation. The devil's advocate and dialectical inquiry are forms of 
 structured debate to generate a focus around problem assumptions 
 and crucial issues. The evidence suggests that they are effective, if 
 sometimes time-consuming, in expanding and clarifying problem definition 
 and generating feasible alternatives, ideas and high quality strategies 
 in the context of ill-structured problem situations. Analysis for 
 policy dialogue was seen to be an useful aid for formulation in most 
 situations. An exploratory 'first-pass' analysis can be developed and 
 subjected to review and comment by the decision-making group. In the 
 course of this process debate about the problem should become focussed 
 around the questioning of assumptions and the generation of new alternative 
 viewpoints and strategies. 
 
 Figure 4 below shows a conceptualization of the integration of decision 
 aids into the problem formulation process. 
 
 Insert Figure 4 about here 
 
 This figure illustrates the stages of the problem formulation/problem 
 solving/decision making process in strategic planning outlined earlier. 
 The process involves a number of potential cycles from later to earlier 
 
n. ■ 
 
 -40- 
 
 stages. Each of the decision aids previously discussed is normally intro- 
 duced at a particular stage. However, the techniques have impacts on all 
 phases. The matching of problem to problem type approach which helps 
 determine the problem formulation, also constrains the types of alterna- 
 tives generated and may influence choice criteria. The creativity stimu- 
 lants discussed may be introduced during the alternatives generation 
 phase when alternative generation has stagnated. However, in revitaliz- 
 ing alternatives generation, these aids may lead to different formula- 
 tions of the problem. Dialectical inquiry and devil's advocate methods 
 are structured approaches for moving from the selection to the problem 
 formulation phase through questioning the assumptions in an expert's 
 recommendations. Policy dialogue, in which decisions analysis is used 
 ostensibly to assist in selection of alternatives, should result in 
 problem redefinition. 
 
 Though this flow diagram and conceptualization can be regarded as 
 preliminary, it reflects the experience of the authors. For a recent 
 example of the application of this concept see Thomas [56]. In practice, 
 most applied decision analyses are cyclic in nature and different 
 problem formulations are constantly tried. The importance of focussing 
 on the right problem as quickly and effectively as possible is clear if 
 applied decision analysis is to maintain its momentum as an approach 
 and solution dialogue for handling ill-structured strategic planning 
 problems. It should be pointed out that the figure does not imply that 
 each and every decision aid must be applied in a particular problem 
 situation. The different aids provide the decision-makers with a range 
 of 'frames' of the problem environment which, if sensibly developed and 
 
-41- 
 
 applied, should lessen the risk of committing the 'error of the third kind' 
 [48] in decision analysis, that is, solving the wrong problem. 
 
 M/C/282 
 V3 
 
-42- 
 
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FIGURE 4 
 
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