We now summarize the logic of the scientific approach and its use in practice. As discussed in previous sessions, theory, tests and intuition identify key problems, scenarios, actions, and value of scenario-action pairs. Inkdome, the example we used, developed 16 scenarios according to whether four hypothesis were true or false. They lump them in two scenarios. One in which all four hypothesis were true, and one in which at least one was not true. Their theory suggested that the former is the only scenario that yields positive value. As discussed in the video of Inkdome's case, the company set a threshold V* such that they reject the hypothesis if less than 60 percent of interviewees respond positively. Their tests corroborate the first three hypotheses, but not the fourth one. However, Inkdome's theory and the results of the tests prompted new valuable actions and scenarios. They learn from both accepted and rejected hypotheses. Corroboration of the first three hypotheses, but not the fourth one, suggests that customers need online services because they look for different artists, search online, search is time-consuming, and they do not find, online, all information they want. Inkdome also realized, from its interviews, that customers could benefit from consulting services on the ideal artists for their needs. Thus, the company considers such a service to be supplied via chat or e-mail. This created a new matrix with three actions and two new scenarios. The three actions are implementing the online consulting service via chat or e-mail, and the baseline alternative of no action. The two new scenarios set the original four hypotheses equal to the results of the tests and distinguish whether customers prefer chat or e-mail. As discussed in the video of Inkdome's case, the company sets a higher threshold for the chat, that's a higher V*, because error in this direction is more costly. The test overcame this threshold and suggested that the value of chat is higher than e-mail or the status quo and they implemented it. Theory, tests, and intuition help to see new scenario-action pairs. The earlier test restricted the search to the space of actions that benefit customers that seek different artists, search online, find search time consuming, and do not find all information online. Intuition and creativity probably suggested many actions, but observation, from interviews and logic, nailed them down to chat or e-mail delivery of online consultancy on the ideal artist. Inkdome is a baseline example, but this framework can accommodate more complex settings. Consider the following two generalizations. The first one is that decision-makers may be aware that when they implement an action, they may come up with new ideas that they do not see when they decide to implement the action and eventually pursue their best idea. This simply implies that they have to develop more elaborate theory, tests, and scenarios of the value they create with the action. The second one is that there could be more solutions to given problems. For example, MiMoto is a scooter sharing service in Milan and other major Italian cities. We interview Vittorio Muratore, MiMoto's co-founder, in a later video. MiMoto focused on three problems: target customers, type of motorcycles, market of the service. They theorize that riding motorcycles imply that target customers are young people who need mobility and can pay, the motorcycle had to be safe, the ideal market are cities where people need to move in traffic. They tested their service with university students, large and solid motorcycles, in large cities. They rejected the first two hypotheses and corroborated the last one. Rejection of hypothesis showed alternative scenario-action pairs. First, they realized that university students do not have the hypothesized willingness to pay because they do not need fast mobility and use public transportation. However, targeting young people was a good idea and they figured out that young professionals had the need and willingness to pay. Second, women did not use large motorcycles. Everyone was instead open to scooters, which were equally safe. The theoretical framework highlighted the more fundamental reasons and mechanisms that generate value. This focuses the search after rejections from the tests to similar contexts or conditions that feature these more fundamental mechanisms. Thus, young professionals was a natural choice where to pivot. Similarly, the tests showed that MiMoto did not incorporate, in the theory, the effect of gender. As soon as they found evidence of it, they pivoted to a solution that addressed the problem. MiMoto's case also shows that the number of scenarios and actions raises exponentially. If we lay down all MiMoto's scenarios and actions, we have two options for target customers, university students and young professionals, two for means of transportation, motorcycles and scooters, and two for types of markets, cities and countryside. If each item can be valuable or not, we obtain 48 scenarios, 4 to the power of 3, and nine actions, the no implementation action plus the eight triples composed of each one of the two options for customers, means of transportation or markets. Even these simple set of alternatives suggests that theory should reduce alternative to smaller sets, tests should be carried out sequentially. MiMoto's initial theory focused on students, motorcycles and cities. Rejecting the first two and keeping the focus on cities, they reduced scenarios and actions to four and two. Four scenarios in which professionals and scooters are valuable or not, and two actions, no implementation or implementation of a strategy that targets young professionals with scooters in cities. More generally, decision-makers could use some of the tools we discussed in earlier sessions to create scenarios. For example, the Business Model Canvas provides a natural set of blocks that can be used as scenario-setting. Following our reasoning so far, you have to use theory and intuition to set the prior probabilities of the hypothesized scenarios, define falsifiable hypothesis, and define actions. The Business Model Canvas has many modules, which implies that scenarios can grow exponentially. Therefore, decision-makers have to test them sequentially, starting from what their theories suggest to be the more important modules. Effective theoretical framework help to learn from rejected hypothesis and show where to go to test the next scenario-action pairs.
