Reconciliation Matters

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The model for value creation requires a balance—or more accurately a reconciliation—between two prevailing points of view on business today. One school of thought, put forward by some of the world’s most respected theorists and consultants, holds that the path to value creation lies in driving out the old-fashioned practice of gut feelings and instincts, replacing it with strategy based on rigorous, quantitative analysis (optimally backed by decision-support software). In this model, the basis of thought is analytical thinking, which harnesses two familiar forms of logic—deductive reasoning and inductive reasoning—to declare truths and certainties about the world. The goal of this model is mastery through rigorous, continuously repeated analytical processes. Judgment, bias, and variation are the enemies. If they are vanquished, the theory goes, great decisions will be made and great value will be created.

The opposing school of thought, which is in many ways a reaction to the rise of analytical management, is centered on the primacy of creativity and innovation. To this school, analysis has driven out creativity and doomed organizations to boring stultification. “The minute you start analyzing and using consumer research, you drive all the creativity out of the product,” the vice chairman and chief of design for a world-leading American firm told me recently. “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.” To proponents of this philosophy, the creative instinct—the unanalyzed flash of insight—is venerated as the source of true innovation. At the heart of this school is intuitive thinking—the art of knowing without reasoning. This is the world of originality and invention.

These two models seem utterly incommensurable; an organization must choose to embrace either analysis or intuition as the primary driver of value creation. This choice then plays out in the structure and norms of the organization. Organizations dominated by analytical thinking are built to operate as they always have; they are structurally resistant to the idea of designing and redesigning themselves and their business dynamically over time. They are built to maintain the status quo. By sticking closely to the tried and true, organizations dominated by analytical thinking enjoy one very important advantage: they can build size and scale. In organizations dominated by intuitive thinking, on the other hand, innovation may come fast and furiously, but growth and longevity represent tremendous challenges. Intuition-biased firms cannot and will not systematize what they do, so they wax and wane with individual intuitive leaders.

Neither analysis nor intuition alone is enough. Rather than forcing a binary choice to drive out either analysis or intuition, the burden of this book is to reconcile the two modes of thought. I will argue that aspects of both analytical and intuitive thinking are necessary but not sufficient for optimal business performance. 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. Design thinking is the form of thought that enables movement along the knowledge funnel, and the firms that master it will gain a nearly inexhaustible, long-term business advantage. The advantage, which emerges from the design-thinking firms’ unwavering focus on the creative design of systems, will eventually extend to the wider world. From these firms will emerge the breakthroughs that move the world forward.

Design-thinking firms stand apart in their willingness to engage in the task of continuously redesigning their business. They do so with an eye to creating advances in both innovation and efficiency—the combination that produces the most powerful competitive edge. This is not to suggest that only design-thinking firms pursue innovation. No, the value that business leaders place on innovation is reflected in the wealth of resources that they devote to its pursuit. But in all too many cases, businesses unwittingly work against their own purposes. Even as corporate leaders chase the vital, elusive spark of creativity, their organizations’ structures, processes, and norms extinguish it wherever it flares up. Their cultures and routines privilege analysis over intuition and mastery over originality.

As A. G. Lafley has demonstrated at Procter & Gamble, however, even organizations with a deeply ingrained bias toward analysis and mastery can develop powerful capacities for innovation. With determined leadership, they can develop the skills, structures, and processes that generate value by driving valuable insights along the knowledge funnel. Figure 1-1 shows how knowledge proceeds through the funnel.

The first stage of the funnel is the exploration of a mystery, which takes an infinite variety of forms. A research scientist might explore the mystery of a syndrome such as autism. A hospital administrator might ask what kind of space would improve the condition of cancer patients coping with chemotherapy. Or an ambitious salesman might ask how and what Americans would like to eat on the go.


The knowledge funnel


The next stage of the funnel is a heuristic, a rule of thumb that helps narrow the field of inquiry and work the mystery down to a manageable size. The heuristic may be a genetic anomaly, a user-centered approach to the process flow of a chemotherapy patient, or the concept of a quick-service, drive-through restaurant. It is a way of thinking about the mystery that provides a simplified understanding of it and allows those with access to the heuristic to focus their efforts.

As an organization puts its heuristic into operation, studies it more, and thinks about it intensely, it can convert from a general rule of thumb (Americans want a quick, convenient, tasty meal) to a fixed formula (Kroc’s totally systematized McDonald’s). That formula is an algorithm, the last of three stages of the knowledge funnel. (For another perspective on the path through the knowledge funnel, see “Hunches, Heuristics, and Algorithmics: A Quick Note.”)

Each stage of the knowledge funnel has its own unique features that are worth examining in some detail. It is said that the road to wisdom begins with ignorance, and that is where we begin.

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