Design of Business - Why Design Thinking Is The Next Competitive Advantage - A Book Review

One of our favorite recent business books is Roger Martin’s Design of Business, Why Design Thinking Is The Next Competitive Advantage (Harvard Business Press, 2009), hands down. He has managed to capture in an eloquent way the core principles of innovating and running a business (or other non-commercial endeavor) and simplified the profound questions of reasoning and decision making to explain why the traditional fact driven business logic is not suitable for groundbreaking innovation and how “design thinking” and its explorative approach is needed to drive change in the world.

This is nothing new as such, of course. Marty Neumeier, for example, has tackled the topic in his business strategy digests The Designful Company, Zag, and The Brand Gap, where he wrote “Business is a process, not an entity. Successful businesses are those that continually adapt to changes in the marketplace, the industry, the economy and the culture. They behave more like organisms than organizations, shifting and growing and dividing and combining as needed.” But what's new and valuable with the Design of Business is the skillful analysis of the whys and hows of utilizing different information and insights to do drive that change effectively and help everyone to understand the value of doing that.

Below is our take on this gem:

THE DUAL MODEL OF BUSINESS – FROM EXPLORATION TO EXPLOITATION

Generally, as we know, there are two principle functions in every business: exploration of new opportunities and exploitation of existing business model(s). Martin explains how these two happen in a simultaneously manner in a successful company so that the process moves first from exploration of a mystery towards heuristics, simple “rule of thumbs” that help to work the mystery to a manageable size and focus the businesses efforts, and finally towards algorithm that helps to replicate the model and provides massive gain in efficiency, truly "exploiting" the model. (image below)

As we know, the world is continuously changing, and with every change new mysteries spring up that existing models simply won’t address or even acknowledge. Martin continues that “a business that remains at one stage of the knowledge funnel fails to capitalize on the option created when knowledge is advanced quickly through the funnel. It misses the opportunity to delve into the next mystery and push that mystery through the funnel ahead of competition. Therefore it is crucial to look continuously back up to the knowledge funnel to the next salient mystery (or back to the original mystery) and drive across knowledge funnel in a steady cycling process.”

THE DUAL NATURE OF INFORMATION – AND WHY FACT BASED RELIABILITY TRIES TO TRUMP INTUITION DRIVEN VALIDITY WHEN AN ORGANIZATION EXPLORES NEW MYSTERIES

These two roles, exploration and exploitation, are based on different kind of information and understanding of the world. If we think this within the context of innovation and future trends work (Wevolve's home turf) we can say that the Exploration of new mysteries should be supported by a search for valid qualitative trends information, by creating qualitative hypotheses of emerging change and future tendencies that (hopefully) turn out to be true but cannot be judged or measured before the future about which it is predicated actually happens. Exploitation of existing business models (through a heuristic or an algorithm) is, on the contrary, supported usually by reliable trends information, quantitative and proven data that aims to eliminate bias and subjective judgment from future oriented business decisions.

Both levels of information are crucial for the success of any business or organization. The challenge in many organizations is that often the culture of innovation is contaminated by the fact-based-decision-making-mentality where crunching data “objectively” and extrapolating from the past to make “scientific” predictions about the future are integral steps in the process towards new opportunities. All this happens as a part of the quest for reliability, even to the extent that people often tend to think that reliability automatically means validity, i.e. if something has happened before it will also continue to happen in the future. Unfortunately this means that there is not automatically enough room for validity in this kind of organizational culture, resulting of short-term business thinking and possibly eventual exhaustion and obsolescence of the business model.

THE RESOLUTION COMES FROM BALANCING THESE TWO MODES OF BUSINESS AND ROLES OF INFORMATION – AND UNDERSTANDING PRECISELY WHERE THEY ADD VALUE AND WHERE THEY DON’T

The need for reliability is understandable, since without reliability an organization will struggle to exploit the possibilities of it’s business model. But without validity, an organization has little change of moving knowledge across the funnel, to identify new opportunities for creative growth, market innovation and brand change. Therefore we have to balance the two and support these two different kind of processes with different information. (image below)

At Wevolve, where we focus on exploration of opportunities and finding  validated future directions, the big take away from Martin's thinking is that we need to effectively combine the validity and reliability in a holistic way and have an approach for innovation that leverages the potential of both valid and reliable information and is sensitive to the limitations of both.

This will eventually help us to hunt the big game and reveal the intriguing mysteries and opportunities for systemic change and radical innovation – and once the opportunities and models for change are identified, hone those to increase the impact with scale and efficiency to make a long-lasting difference in the world.