Design of Business: Why Design Thinking is the Next Competitive Advantage

Metadata

Title: Design of Business: Why Design Thinking is the Next Competitive Advantage
Author: Roger L. Martin
Book URL: https://amazon.com/dp/B004OC07J4?tag=malvaonlin-20
Open in Kindle: kindle://book/?action=open&asin=B004OC07J4
Last Updated on: Friday, January 4, 2019

Highlights & Notes

He simplified the McDonald’s system down to an exact science, with a rigid set of rules that spelled out exactly how long to cook a hamburger, exactly how to hire people, exactly how to choose locations, exactly how to manage stores, and exactly how to franchise them.

“No good product was ever created from quantitative market research. Great products spring from the heart and soul of a great designer, unencumbered by committees, processes, or analyses.”

The most successful businesses in the years to come will balance analytical mastery and intuitive originality in a dynamic interplay that I call design thinking.

Being precise about concepts is important, because they are the critical building blocks of any human enterprise, intellectual and otherwise.

Heuristics are different from hunches in that they are explicit: they bring intuitions to language.

Algorithms are certified production processes. They guarantee that, in the absence of intervention or complete anomaly, following the sequence of steps they embody will produce a particular result.

The beauty of heuristics is that they guide us toward a solution by way of organized exploration of the possibilities.

An algorithm is an explicit, step-by-step procedure for solving a problem. Algorithms take the loose, unregimented heuristics—which take considerable thought and nuance to employ—and simplify, structuralize, and codify them to the degree that anyone with access to the algorithm can deploy it with more or less equal efficiency.

” Contrast Greenbaum’s career with that of U2, the band that developed a heuristic—a way of understanding the world and conveying that understanding through harmony, melody, and rhythm—that enables it to write songs that resonate with millions of people worldwide, not once but over and over. From the release of the earnest, anthemic album Boy in 1980 to the eclectic pleasures of Achtung Baby in 1991, U2’s mastery of heuristics produced a string of industry awards and top-forty hits. But when the band consciously stepped away from the heuristic that had served it so well—experimenting with techno, dance, and electronica on Zooropa and Pop—fans promptly voted with their feet. When, in 2000, the band reunited with producers Brian Eno and Daniel Lanois to record All That You Can’t Leave Behind, it also returned to its pre-Zooropa heuristic, leading to Bono’s famous remark at that year’s Grammy Awards: “The whole year has been quite humbling,” he said. “Going back to scratch, reapplying for the job. What job? The best-band-in-the-world job.” 2 The heuristic still worked; Rolling Stone called All That You Can’t Leave Behind U2’s third masterpiece (after The Joshua Tree and Achtung Baby). 3

Contrast Greenbaum’s career with that of U2, the band that developed a heuristic—a way of understanding the world and conveying that understanding through harmony, melody, and rhythm—that enables it to write songs that resonate with millions of people worldwide, not once but over and over. From the release of the earnest, anthemic album Boy in 1980 to the eclectic pleasures of Achtung Baby in 1991, U2’s mastery of heuristics produced a string of industry awards and top-forty hits. But when the band consciously stepped away from the heuristic that had served it so well—experimenting with techno, dance, and electronica on Zooropa and Pop—fans promptly voted with their feet. When, in 2000, the band reunited with producers Brian Eno and Daniel Lanois to record All That You Can’t Leave Behind, it also returned to its pre-Zooropa heuristic, leading to Bono’s famous remark at that year’s Grammy Awards: “The whole year has been quite humbling,” he said. “Going back to scratch, reapplying for the job. What job? The best-band-in-the-world job.” 2 The heuristic still worked; Rolling Stone called All That You Can’t Leave Behind U2’s third masterpiece (after The Joshua Tree and Achtung Baby). 3

3 Yet even U2’s greatest albums contain some forgettable songs; its mastery of the heuristics of the pop song falls short of a surefire algorithmic formula. The occasional failures of a serial hit maker like U2 tell us something important about heuristics: they don’t guarantee success. Heuristics can do no more than increase the…

Yet even U2’s greatest albums contain some forgettable songs; its mastery of the heuristics of the pop song falls short of a surefire algorithmic formula. The occasional failures of a serial hit maker like U2 tell us something important about heuristics: they don’t guarantee success. Heuristics can do no more than increase the…

What is the value to a business of driving through the knowledge funnel from mystery to heuristic to algorithm? The reward is a massive gain in efficiency.

Devotion to exploration is the invention of business, a risky proposition and the reason that nine of ten entrepreneurial start-ups expire in less than two years. Exploration alone is unstable business.

A small fraction of those companies generate a second intuitive breakthrough—often, as in the case of McDonald’s, from a new owner rather than the original entrepreneur—and drive the heuristic to algorithm. These exceptional companies grow to massive size, thanks to the efficiency advantage gained over competitors left behind in the heuristic stage. But they too can fall prey to a new competitor that returns to the original mystery and generates a new heuristic—one powerful enough to overcome even the enormous efficiency advantages of the algorithm. They too can be supplanted in due course.

The answer lies in embracing a third form of thinking—design thinking—that helps a company both hone and refine within the existing knowledge stage and generate the leap from stage to stage, continuously, in a process I call the design of business.

For now, let me say that at the heart of design thinking is abductive logic, a concept originated by turn-of-the-twentieth-century philosopher Charles Sanders Peirce. His important insight was that it is not possible to prove any new thought, concept, or idea in advance: all new ideas can be validated only through the unfolding of future events.

To advance knowledge, we must turn away from our standard definitions of proof—and from the false certainty of the past—and instead stare into a mystery to ask what could be.

amazing!

At the time a heuristic is first tentatively proposed, no one can prove whether it is useful or valid at all. Proof comes only if the heuristic is tried and found to be helpful in producing the desired, or valid, result. The same holds for turning the heuristic into an algorithm. Neither of these steps into new knowledge can be proved in advance; all are validated—or not—through the passage of time.

As such, abductive logic sits squarely between the past-data-driven world of analytical thinking and the knowing-without-reasoning world of intuitive thinking. Rather than being confined to regressing the past to hone and refine within the current knowledge stage, the design thinker can add abductive logic to the reasoning repertoire to drive the organization through the knowledge funnel. And rather than being confined to the knowing without reasoning of intuitive thinking, the design thinker uses an explicit form of logic and a process that, while less certain and clear than analytical thinking, has promise for producing advances with greater consistency and replicability than pure intuition.

While some aspects of the organization can and should continue to be structured as permanent jobs or tasks, significant parts of the organization should be structured as projects—that is, with teams and processes designed to move knowledge forward a stage—with a definite end point. While planning and budget management can’t be thrown out the window, they have to be loosened to incorporate initiatives and investments whose outcomes can’t be predicted in advance. And culturally, it’s imperative that people know it is safe and rewarding to bring forward an abductive argument.

CEOs must learn to think of themselves as the organization’s balancing force—the promoter of both exploitation and exploration, of both administration and invention.

To become a design thinker, you must develop the stance, tools, and experiences that facilitate design thinking. Stance is your view of the world and your role in it. Tools are the models that you use to understand your world and organize your thinking. Experiences are what build and develop your skills and sensitivities over time.

He believes that the answers to mysteries can often be found in the “outlier” data that does not seem to fit comfortably within one of the categories he or others have constructed.

In scientific research as in business, pushing knowledge from heuristic to algorithm generates impressive efficiencies.

What organizations dedicated to running reliable algorithms often fail to realize is that while they reduce the risk of small variations in their businesses, they increase the risk of cataclysmic events that occur when the future no longer resembles the past and the algorithm is no longer relevant or useful.

Such organizations inevitably come to see maintenance of the status quo as an end in itself, short-circuiting their ability to design and redesign themselves continuously. This wouldn’t be such a big problem if the world never changed; in those circumstances, continuing to replicate the success model would make lots of sense. However, as we all know, the world is continuously changing, and with every change, crucial new mysteries spring up that reliable systems simply won’t address or even acknowledge.

In most large business organizations, three forces converge to enshrine reliability and marginalize validity: the demand that an idea be proved before it is implemented, an aversion to bias, and the constraints of time.

future. It is no accident that the future predicted through analytical methods closely resembles the past, differing in degree but not in kind.

In most corporations, for example, the first measure of an operation’s success is whether it reliably meets a predetermined quantitative goal: the budget. Anything new and different that threatens the overriding goal of making budget is rejected out of hand.

The managerial skills that are built and rewarded are those of running heuristics or algorithms to produce reliable outcomes.

“An organization that engages exclusively in exploitation will ordinarily suffer from obsolescence.”

activity—moving knowledge through the funnel faster than competitors, driving down costs of current activities, and freeing up time and capital to engage in new activities—that creates enduring competitive advantage.

Private capital embraces knowledge advance, while public capital—knowingly or unknowingly—discourages it.

Winston Churchill, first we shape our tools and then our tools shape us.

Design isn’t just about making things beautiful; it’s also about making things work beautifully.

Product design, he says, “has to push the envelope to the point where it seems like you’re making a mistake.”

‘Is there something fundamentally wrong with the way we’re seeing the market? Are we dealing with incomplete information?’ Because that’s what’s going to get you: it’s not necessarily that some young whippersnapper’s going to come up with some better idea than you. They’re going to start from a different premise and they’re going to come to a different conclusion that makes you irrelevant.”

Tim Brown of IDEO has written that design thinking is “a discipline that uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity.”

A person or organization instilled with that discipline is constantly seeking a fruitful balance between reliability and validity, between art and science, between intuition and analytics, and between exploration and exploitation.

Deductive logic—the logic of what must be—reasons from the general to the specific. If the general rule is that all crows are black, and I see a brown bird, I can declare deductively that this bird is not a crow. Inductive logic—the logic of what is operative—reasons from the specific to the general. If I study sales per square foot across a thousand stores and find a pattern that suggests stores in small towns generate significantly higher sales per square foot than stores in cities, I can inductively declare that small towns are my more valuable market.

Peirce named his form of reasoning abductive logic. It is not declarative reasoning; its goal is not to declare a conclusion to be true or false. It is modal reasoning; its goal is to posit what could possibly be true.

) Whether they realize it or not, designers live in Peirce’s world of abduction; they actively look for new data points, challenge accepted explanations, and infer possible new worlds. By doing so, they scare the hell out of a lot of businesspeople.

Whether they realize it or not, designers live in Peirce’s world of abduction; they actively look for new data points, challenge accepted explanations, and infer possible new worlds. By doing so, they scare the hell out of a lot of businesspeople.

They choose to embrace a form of logic that doesn’t generate proof and operates in the realm of what might be—a realm beyond the reach of data from the past.

Embracing abduction as the coequal of deduction and induction is in the interest of every corporation that wants to prosper from design thinking, and every person who wants to be a design thinker.

” Notifying the user only when the message is ready to be displayed, combined with giving just enough information to allow the user to make a quick assessment of what to do with it, is the BlackBerry breakthrough.

Notifying the user only when the message is ready to be displayed, combined with giving just enough information to allow the user to make a quick assessment of what to do with it, is the BlackBerry breakthrough.

as knowledge moves through the funnel, costs fall.

The benefits of moving knowledge to the heuristic stage derive from the process of omission. Instead of having to consider every facet of a mystery, the creator of a heuristic need consider only a subset, which yields results more quickly.

The algorithm generates savings by turning judgment—a general way of getting toward the desired solution—into a formula or a set of rules that, if followed, will produce the desired solution. Having removed further variables and variation from the equation, an algorithm is even more efficient than a heuristic. Algorithms can be run by less experienced and less expensive personnel than can heuristics.

Computer code—the digital end point of the algorithm stage—is the most efficient expression of an algorithm.

At the code stage, knowledge has been narrowed to the extreme. But with it comes lightning speed and infinitesimal costs, the ultimate efficiency. Code takes the cost dynamic of knowledge to its logical limit.

Companies that leave important mysteries as mysteries not surprisingly find themselves with no resources available to solve mysteries, precisely because the companies are so very inefficient.

We believed that design thinking for business broke down into three essential components: (1) deep and holistic user understanding; (2) visualization of new possibilities, prototyping, and refining; and (3) the creation of a new activity system to bring the nascent idea to reality and profitable operation.

Wicked problems aren’t merely harder or more complex than hard problems. They don’t just involve more factors or stakeholders. They don’t just take us longer to solve. Analytical thinking alone, no matter how skillfully applied, isn’t going to generate an answer to a wicked problem. Wicked problems, first identified by mathematician and planner Horst Rittel in the 1960s, are messy, aggressive, and confounding. Rittel’s notion of wicked problems was detailed by C. West Churchman in a 1968 issue of Management Science. Churchman described wicked problems as “a class of social system problems which are ill-formulated, where the information is confusing, where there are many clients and decision makers with conflicting values, and where the ramifications in the whole system are thoroughly confusing.” 8 In other words, wicked problems are ill-defined and unique in their causes, character, and solution.

With hard problems, your job is to look at the situation, identify a set of definite conditions, and calculate a solution. With wicked problems, the solution can no longer be the only or even the primary focus. Instead, dealing with wicked problems demands that attention be paid to understanding the nature of the problem itself. Problem understanding is central; the solution, secondary. It’s no wonder that so many designers have come to embrace the notion that their role is to work with wicked problems. “Designers thrive on problem setting, at least as much as problem solving,”

By handing over the routine part of their jobs to junior staffers, senior brand builders are free to accomplish the framework’s second goal of focusing their considerable talents on the next mystery in order to create the next brand or brand extension that consumers want.

believed the role of designers was to create those valid solutions. The role of sales and manufacturing was to provide feedback that would help designers define problems. The role of top management was to protect the designers from the rest of the company: “In our company, the designers receive and depend upon feedback from Sales and Manufacturing, but they report only to top management.”

The incentives to favor reliability are omnipresent, while the rewards of seeking validity seem distant and uncertain.

A vibrant, growing company makes discoveries that help it get into new businesses or markets, or help it stay ahead of competitors; it continually reinvents itself.

In companies organized around ongoing, permanent tasks, roles are rigidly defined, with clear responsibilities and economic incentives linked tightly to those individual responsibilities. This structure discourages all but senior staff from seeing the big picture.

The project-based work style emphasizes collaboration. Projects are typically assigned to teams rather than to individuals, although that team may have its own internal, and often temporary, hierarchy—a captain or a quarterback, as well as linemen to handle the blocking and tackling. But the solution is expected to come from the team, not the quarterback. And the team is expected to include the client in the collaborative process. Rather than waiting until the outcome is just right, the client is exposed to a succession of prototypes that grow more right and more elegant with every iteration.

As a rough rule of thumb, when the challenge is to seize an emerging opportunity, the solution is to perform like a design team: work iteratively, build a prototype, elicit feedback, refine it, rinse, repeat. The team uncovers problems and fixes them in real time, as the process unfolds. On the other hand, running a supply chain, building a forecasting model, and compiling the financials are functions best left to people who work in fixed roles with permanent tasks, people more adept at describing “my responsibilities” than “our responsibilities.”

Google shows that a global-scale corporation can balance between the two poles. CEO Eric Schmidt has said that the part of Google that looks like a normal company (sales, marketing, operations) is run like a normal company, but the part that defines what the customer sees and experiences (software coding and engineering) feels more like a design shop, free from top-down control.

Two central corporate processes—financial planning and reward systems—are dramatically tilted toward running an existing heuristic or algorithm and must be modified in significant ways to create a balance between reliability and validity. Not unlike the corporate hierarchy, financial planning and reward systems form the hidden infrastructure of the organization, an all-but-invisible force that can promote or stifle design thinking.

But the work of converting mysteries to heuristics and heuristics to algorithms is difficult, if not impossible, to financially plan or budget.

For activities aimed at advancing knowledge, however, financial planning should consist only of setting goals and spending limits. Goals define the breakthrough the company is seeking. Spending limits reflect the reality that the company can afford only so much innovation spending in total, and each knowledge advance is worth only so much to the company. The spending limit has to be attuned to the company’s entire activity spectrum and the estimated value of the innovation.

In essence, the job of the existing heuristics and algorithms, and those managers running them, is to produce the financial capacity to set the spending limit on innovation high enough for the necessary innovation to be within reach of the organization.

It is much easier, safer, and rewarding to run a billion-dollar business than it is to invent one.

Design shops have a much different approach to allocating rewards. Rewards accrue not to those who run big businesses and large staff but to those who solve wicked problems—those with no fixed definition or solution.

“If you made your budget, you got a bonus, a pat on the back, and if you missed it, you got a stick in the eye or worse.”

The leader who seeks to balance reliability with validity should expect resistance from directors and capital markets, whose desire for lasting competitive advantage is often greater than their understanding of how to achieve it.

“When people are working on a creative project, they’re happy. When a team can come together around a creative cause or a knotty problem, they want to come to work every day. A tough design challenge could be one of the best retention tools a company today has for its best innovators.”

Rather, the CEO needs to position himself, as Lazaridis and Laliberté do, as the guardian angel of the balance between reliability and validity in the company, building and protecting the organizational structures, processes, and norms discussed in the last chapter. There are multiple ways to play the role of chief design thinker; the key is to do it. It is a job no one else in the organization can take on.

The signals the CEO sends establish the company’s norms. If the CEO reacts to a problematic constraint by complaining about it, treating it as immutable, and taking suboptimal actions that accept its continued existence, the rest of the company will quickly learn to accept constraints as enemies too powerful to defeat. The CEO who unfailingly demands that executives prove their innovative new ideas with airtight inductive or deductive logic reinforces the norm that these are the only legitimate forms of logic. The CEO who harshly punishes executives who champion innovations that fail, upbraiding them for not doing their homework, ensures that abductive logic will quickly be considered verboten.

If the CEO is not the organization’s guardian of the balance between reliability and validity, the long-run sustainability of the company is in question.

Jobs, Lazaridis, Laliberté, Hackett, and Ulrich demonstrate that different CEOs have different approaches to their role as the organization’s chief advocate for the inclusion of validity in decision making. Across each approach, however, is a common theme: a commitment to making the constructive balance of validity and reliability the central component of their job.

Design thinkers want their ideas to make a difference in the world. Their stance takes for granted that the world can change, and that they, as individuals, can bring about that change. It is a wonderfully open and optimistic way of being.

Sensitivity is the capacity to make distinctions between conditions that are similar but not exactly the same.

Skill is the capacity to carry out an activity so as to consistently produce the desired result.

Skills and sensitivities tend to grow and deepen in concert. As you repeat a task, you are inclined to build what you learned from the repetition into the next iteration until you develop a consistent technique. An improved technique sharpens your skill, making you faster and more accurate. And as you repeat a task, you learn to make finer and finer distinctions between levels of quality, so that an experienced chef can tell almost by instinct when a steak is blue and when it’s rare.

You might not be able to change your height or DNA, but as long as you can change your stance, you can change the tools and experiences you use to develop your design-thinking capacity.

Design is not art; it is about pragmatic compromise rather than perfection. Behind the apparent chaos is discipline. It just appears as chaos because the calculus is different than that of other disciplines.”

The key tools of design thinkers are observation, imagination, and configuration.

As a manager, if you want to understand your customers, think carefully about the kind of data you want and how best to get it.

Integrative thinking is the metaskill of being able to face two (or more) opposing ideas or models and instead of choosing one versus the other, to generate a creative resolution of the tension in the form of a better model, which contains elements of each model but is superior to each (or all).

Design thinking is the application of integrative thinking to the task of resolving the conflict between reliability and validity, between exploitation and exploration, and between analytical thinking and intuitive thinking. Both ways of thinking require a balance of mastery and originality.

Originality demands a willingness to experiment, spontaneity in response to a novel situation, flexibility to change directions as information dictates, and responsiveness to opportunities as they present themselves, even if they’re unexpected.

The only way to design a compelling solution is to really understand the user. It’s almost impossible to design something compelling for someone you don’t respect or wish to understand.

The key for design thinkers is to turn the future into the past, because the reliability-driven colleague sees the future as the enemy and the past as a friend.

And as you learn the many ways in which design thinking creates value for a business, you will also discover that design thinking creates meaning for your life.

LLM Book Knowledgebase

Explorer

Design of Business: Why Design Thinking is the Next Competitive Advantage

Design of Business: Why Design Thinking is the Next Competitive Advantage

Metadata

Highlights & Notes

Table of Contents

Backlinks