(This article was first published in the "Liu Run" public account, subscribe to the "Liu Run" public account, and I have an insight into the essence of business)
Many students asked me, Runzong, how can you quickly see through the essence of a thing like you?
This question is difficult to say clearly in one or two sentences.
To answer this question, I even opened a course on "Getting", called "Liu Run Business Insight 30 Lectures".
The core competency of a business consultant is the insight into the essence through phenomena.
So what exactly is insight?
Let me give you an example. When I was working at Microsoft, the company offered lunch and dinner.
Lunch is generally more frequent than dinner, because not everyone has to work overtime at night.
So the suppliers who make lunches are more profitable.
But sometimes, lunch is badly done...
What to do?
The essence of the problem is, the supplier cut corners, is it not good to do?
So I sent someone to stare at him to do a good job?
Ask them to update their recipes?
Change chefs every once in a while?
These methods are useless.
Improvement requires cost, and suppliers will violate the yin and yang because of the pursuit of profits.
So what to do?
Microsoft came up with a system:
1. Choose 2 suppliers, one for lunch and the other for dinner;
2. Do a satisfaction survey every 3 months, do you prefer lunch or dinner?
3. If you like dinner more, lunch and dinner suppliers exchange;
4. If lunch wins for 6 consecutive months, change the dinner supplier.
Since the implementation of this system, those suppliers who say that "they have done a good job" and "the cost of changing flavors will be greatly increased"...
Soon it will be able to provide a much better service than the original.
Employee satisfaction has also increased dramatically.
This is the way that people who have insight into the essence come up with.
The essence of the problem is not that the supplier has a problem and cuts corners; it is that the "relationship" between Microsoft and the supplier is problematic.
In the face of this problem, the way of thinking of ordinary people is to ask suppliers to improve their level, and if not, I will replace you.
However, when Microsoft has only one supplier, the supplier has no sense of crisis, and no matter how much you push him, he is unscrupulous.
And when you bring in another supplier, after having competitors, the sense of crisis of being eliminated will drive them to find ways to improve the service.
Therefore, people who have insight into the essence, their mode of thinking will be to introduce a competition mechanism, let competition replace labor, to supervise suppliers, and to provide better services.
This is insight.
Insight is not a gift that God has quietly given to some people.
It is an ability that everyone can constantly practice and improve through the scientific method.
Today, I will share the core insight method - "business insight model" to you.
— 1 —
Look at the system through appearances
When we usually observe a thing, what we can observe is usually only the appearance.
For example, if you look at a mechanical watch, you can see the dial, which has a time hand, a minute hand, a second hand. Next to the dial, there is also a crown.
When the mechanical watch is not gone, you can pluck the crown, wind it, and the watch will start walking.
When the time is out of date, you can adjust the time by pulling out and turning the crown, and the minute hand will follow suit.
This is the "law" we observe about mechanical watches.
What is a regularity?
You give it a stimulus, and it produces a behavior, and that's the law.
For example, if you flick the crown, it is a stimulus to it.
After the crown is flicked, the watch begins to go, and this is the behavior it produces after giving it this stimulus.
What we usually observe and summarize when we study things is generally such a law.
But they are, in fact, only appearances.
Take a deeper look, why do these laws happen?
Why does the crown start to move, and where does its power come from?
Why pull out and turn the crown and the minute hand rotates with it?
We don't really understand these questions.
Behind every appearance, there is a black box. We can't see it.
But this black box is the cause of all laws.
We call this black box the system.
When the system is working properly, we can continue to follow the rules.
But once the system goes wrong, the law begins to fail.
If you can't see the system behind the surface, you can't know what's wrong.
Not to mention how to solve it.
We exercise our insight in order to understand the "black box" behind the "appearance" - the system.
Thus really from the essence, solve the problem.
— 2 —
System =Feature*Join Relationship
What is a system?
A system is "a set of interconnected elements."
In this definition, there are two key words:
1) Elements.
2) Connection relationship.
For example, a mechanical watch.
The dial, the crown, the hands, and the hundreds of parts and gears behind the dial are the "elements" of the "watch" system.
And how these hundreds of parts and gears are connected and how to bite, this is the "connection relationship" between them.
The so-called insight is the ability to see the elements in the black box of the "system" and the connection between them through the appearance.
It's often easy to see "features", but often ignore the "connections" between them.
And the solution to the problem is often hidden in these "connections".
Let me give you an example.
We've all heard stories of monks dividing porridge.
The two monks divided the porridge, and the monk in charge of the porridge, of course, wanted to give himself more, while the other person of course did not agree.
How to really solve this problem?
Change the "elements"?
Educate them: Monks, should they eat less?
But the monks didn't want to starve to death.
Change the Connection Relationship. Let one monk divide the porridge and the other monk choose the porridge.
The monk who chooses porridge will, of course, pick more than that bowl.
In this way, in order not to suffer losses, the monks who divide the porridge can only divide the two bowls of porridge as much as possible.
By changing the "connecting relationship" instead of the "element", the two monks gained a fairness that they both recognized.
When looking into the system, you must thoroughly understand the elements and the connections between them.
Because the solution to the problem is often hidden in these connections.
Okay, I know connections are important, but how do I find them?
What are the elements and connections in a system?
I'll introduce you to 5 types: variables, causal chains, reinforcement loops, adjustment loops, and hysteresis effects.
where the variable is Feature.
Causal chains, reinforcement loops, adjustment loops, and hysteresis effects are the four "connection relationships".
Any complex system is built from these 5 simple, LEGO-like basic modules.
As long as you learn these 5 kinds of blocks, no matter how complex the system, in your eyes, it is just the permutation and combination of these 5 kinds of blocks.
Let's look at them one by one.
— 3 —
variable
Variables are the "elements" that change in the system.
It will change over time.
For example, your weight, high and low.
For example, corporate finance, good and bad.
For example, store customers, more and less.
Once the timeline is added, the variables take on two different states: stock, and flow.
Take the bathtub, for example.
In a bathtub, the variable "water" has two different states:
Stock, that is, how much water is stored in the bathtub at a "static point in time".
Flow, that is, how much water flows into the bathtub (inflow) and how much water flows out of the bathtub (outflow) during a "dynamic time period".
What's the use of understanding stock and flow?
Because of a small thing, your girlfriend is going to break up with you.
You're depressed: break up for a small thing, as for?
However, is it really because of this little thing that your girlfriend broke up with you?
Of course not.
Your girlfriend breaks up with you, not because of anything, but because of an emotion called "dissatisfaction."
The emotion of "dissatisfaction", like the water in the bathtub, is a kind of "stock".
What about the "little thing" that caused you to quarrel?
That little thing, like a bathtub faucet, creates a mood of "dissatisfaction" and increases the "inflow" of "dissatisfaction."
More "grievances" flow into the bathtub, which will increase the stock of "dissatisfaction".
Did you break up with your girlfriend the first time she got angry with you?
No.
That's because the tub is still empty.
You think, oh, turns out she didn't mind.
In fact, it is not that she does not mind, but that the bathtub is not full, and she can bear it.
I kept getting angry, I kept putting up with it, until the last scoop of "dissatisfaction" poured into the bathtub and finally spilled out, no matter how much you apologize, it was useless.
Boys who only see the "inflow" will think that their girlfriend actually broke up with him because of "a small thing".
Boys who can see the "stock" will know how to use the "outflow" to reduce the stock of "dissatisfaction".
For example, give a gift every now and then. For example, go shopping with your girlfriend. For example, arrange a good anniversary.
Such boys are often referred to as "warm men".
The reason why warm men are warm may only be because they know better than straight men how to use "traffic" to manage "stock".
Flow, change stock.
Stock, change the world.
— 4 —
Causal chains
Understanding variables, as well as the two states of variables, "stock" and "traffic", let's look at the first connection: causal chains.
Causal chains are very important.
There is no causal chain, and no matter how many variables are put together, it is just a sand pile without vitality, not a system that is endless.
So, what exactly is a causal chain?
Causal chains are enhanced or weakened connections between variables.
The causal chain of "enhancement" is: you are strong, I am strong.
For example, the relationship between working hours and fatigue levels.
The longer the working hours, the higher the degree of fatigue.
This is the causal chain of "enhancement".
We say that the increase in working hours is one reason for the increase in fatigue levels.
The causal chain of "weakening" is: you are strong, I am weak.
For example, the relationship between fatigue level and work efficiency.
The higher the level of fatigue, the lower the work efficiency.
This is the causal chain of "weakening".
We say that increased fatigue is one reason for reduced productivity.
This is the causal chain.
Causal chains are simple, there are only two cases of enhancement (+), and attenuation (-), and there is no third.
That's pretty simple, isn't it? And then what?
Then use the causal chain to connect all the variables in the system.
Keep picking up two variables that may have a relationship and ask yourself: Is there an enhanced relationship between them, and is there a weakening relationship?
Draw all the causal chains you can find on paper.
Seemingly simple causal chains, connecting thousands of variables piece by piece, have all the complex systems.
Connecting variables with causal chains is the basic skill of insight, and you must practice it carefully.
— 5 —
Enhanced circuits
Variables, which are nodes; causal chains, are line segments.
But the line segment has a head and an end, and the energy is transmitted from the beginning to the end, and it is over.
So what if we connect the ending and the beginning with a causal chain to form a closed loop?
This creates a "loop".
There are two types of circuits, one called the reinforcement circuit and the other called the adjustment circuit.
What is an enhancement loop?
Two "enhanced", or two "weakened" causal chains, are connected end to end to form a "circuit", that is, an "enhanced circuit".
Among them, the cause enhances the effect, and the effect strengthens the cause, which is called the positive enhancement loop.
Cause weakens the effect, and the effect weakens the cause, which is called the negative enhancement loop.
For example, the more knowledge you have, the stronger your ability to accumulate new knowledge; the stronger your ability to accumulate new knowledge, the more you learn to be rich and talented; and then you will be more able to understand new knowledge.
And so on. This is a forward reinforcement loop.
For example, the more credit you have, the more willing others are to cooperate with you; the more willing others are to cooperate with you, the more credit you can accumulate; and then the more people cooperate with you.
And so on. This is also a positive reinforcement loop.
Another example is Tencent's WeChat. The greater the number of users, the more valuable they are to other users; the more valuable they are, the greater the number of users.
And so on. This is the positive enhancement loop of Tencent Social.
For thousands of years, people have given countless names to the ups and downs caused by the "enhanced circuit", religious scholars call it the Matthew effect, economists call it winner-take-all, financial experts call it the compound interest effect, and Internet companies call it exponential growth.
But behind these firework-like phenomena are actually the same building block: the reinforcement circuit.
Whether it is life or business, small success depends on ingenuity, great achievement, and the establishment of a positive enhancement circuit.
— 6 —
Adjust the circuit
What is a regulation circuit?
Cause enhances the effect, the loop of the effect enhances the cause, is the enhancement loop. And the circuit of cause strengthening effect and effect weakening cause is the adjustment circuit.
If there is an augmentation loop, it is to take the world to extremes.
Then the existence of the adjustment loop is to return the world to balance.
Wherever there is an "enhancement circuit", within seven steps, there must be an "adjustment circuit".
When many people start a business, they firmly believe that management without management is the best management.
As a result, they don't have hierarchies, no processes, no KPIs.
Just a few people, encountered any problems, stood up and roared, all solved.
Sure enough, everyone's work efficiency is particularly high, and they have grown exponentially in the "product is king" enhancement loop.
Soon, the company grew to several hundred people.
At this time, "no management is the best management" and it no longer works.
Various problems are emerging, product bugs are increasing, and customers are constantly complaining.
The larger the company, the more complex the management. The more complex the management, the more problems there are, resulting in various costs, losses and loss of personnel, and the more constrained the size of the company.
At this time, the "enhanced circuit" of "product is king" has encountered the "adjustment loop" of "management complexity", so the performance has been hovering and it is difficult to break through.
What to do?
Use levels, processes, and KPIs to improve management efficiency.
Cut off the "regulatory loop" of "management complexity" and unleash the potential for further growth.
At this time, these entrepreneurs will realize why the predecessors of large companies often say: to manage the benefits.
In the past, you could do "no management is the best management", just because you are still too young to be far from this "adjustment loop".
As soon as you see the "adjustment loop," you might have an epiphany: a lot of times, our growth doesn't need to slam on the accelerator, just release the brakes.
The most important job of a company's CEO is to step on the "enhancement circuit" of performance and loosen the "adjustment loop" of the problem.
Enhance the circuit and pursue extremes.
Adjust the circuit and return to balance.
In this world, wherever there is an enhancement circuit, within seven steps, there must be a regulation circuit.
The twin brothers, Augmentation Circuit and Adjustment Circuit, have very different personalities, but together they construct the most wonderful things in the world.
— 7 —
Hysteresis effect
The last connection is called the lag effect.
What is the lag effect?
For example, if you are driving in a traffic jam and listen to the traffic radio, the road next to you is very clear, so you hurry up and drive over.
But when you get to that road, you find that it is actually very congested.
Did traffic radio lie to you?
It's because the condition of the vehicle changes in the time you hear the radio, to the time you arrive on that road.
The information of traffic broadcasts has even exacerbated this change.
This is the lag effect.
For another example, when you fill in the volunteer exam for the university, the college entrance examination consulting agency tells you that the international finance major is hot.
So, you report international finance. As a result, when I graduated from college, I found that the hottest thing was artificial intelligence, and it was difficult to find a job in international finance.
Did the college entrance examination consulting agency deceive you?
It's because in the four years you've been in college, the business world has changed dramatically.
Cause and effect are not instantaneous connections; loops are not instantaneous closures.
Between them, there is a time difference.
This time difference is the lag effect.
The lag effect makes the system, which is already very complex in the spatial dimension, add complexity to the time dimension.
It can make causes and effects drift away in space-time, thereby misleading your judgment.
Therefore, when we try to see everything, we must have a lag effect in our hearts.
Know how to add a timeline to everything.
— 8 —
summary
Variables, causal chains, reinforcement loops, regulatory loops, and hysteresis effects.
These 5 blocks are the basis for building all complex systems.
When you encounter a problem, in fact, all the solutions are hidden in these 5 blocks.
When analyzing a problem, keep in mind 5 key steps:
1. Find the core stock.
2. Find the key causal chain.
3. Find the enhancement circuit.
4. Find the adjustment circuit.
5. Consider the lag effect.
Then, see where the problem really goes, what can you do, what connections can you change?
When you do that, you really have insight.
Of course, this is not easy, and you need to think and practice day after day.
Final words
Ordinary people observe a watch, and excellent people have insight into the connections between hundreds of parts.
Ordinary people observe a cooperation, and excellent people have insight into the connection between the distribution of benefits and risk transfer behind the agreement.
Ordinary people observe a team, and excellent people have insight into the intricate connections between responsibilities and rights in the team.
Ordinary people observe appearances, and excellent people perceive the system.
In the classic movie "The Godfather", there is such a line:
People who spend half a second to see through the essence, and people who spend a lifetime can't see clearly, are doomed to have completely different fates.
May you learn to discern, open the eyes of "God", and have an open life.