The Design of

Business
Why Design Thinking is the
Next Competitive
Advantage
Roger Martin

One of the most compelling examples in Roger Martin's book is a personal tale from his own
days as a consultant. Asked by a Canadian bank to come up with a new strategy to cater to
high-net-worth clients, Martin and his team came up with a bold plan they thought might
revolutionize the bank's entire business. The bank's chief executive met the excited
presentation with one question: Had any competitor already gone this route? "No!" Martin
replied brightly. "You would be the very first!" And with that the meeting was over, the idea
was killed.

The story, and others in Martin's new book, The Design of Business: Why Design Thinking Is
The Next Competitive Advantage, illuminates more than just the risk-aversion of so many
leaders. Instead, Martin is calling for a new way of thinking to permeate business that
embraces the tricky reality of executing innovation. He calls the technique "design thinking"
and argues that it provides the necessary balance between the poles of analytical and
intuitive thinking that are commonly taught and nurtured in today's professionals.

Dean of the Rotman School of Management at the University of Toronto, Roger Martin has
been a key figure in driving understanding of the concept of design thinking. With examples
from companies such as Procter & Gamble and Research in Motion, Martin shows the power
of design thinking in action.

The Knowledge Funnel

Analytical, Intuitive and Abductive thinking
Knowledge Funnel
Analytical Thinking
Analytical thinking harnesses two 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. Strategy based on rigorous
quantitative analysis is at the heart of analytical thinking.
Intuitive Thinking
Another school of thought is intuitive thinking – the art of knowing without
reasoning – this is the world of originality and invention. To this school, analytical
thinking has driven out creativity and doomed organizations to boring stultification.
“No great product was created from quantitative market research”. Great products
spring from the heart and soul of a great designer unencumbered by committees,
processes or analysis.
Design Thinking
Design thinking is a discipline that uses the designers’ sensibilities and methods
(including immersion research and analytics) to match people’s needs with what is
technically feasible and what a viable business strategy can convert into customer
value and market opportunity. Design thinking uses abductive logic rather than
deductive logic or inductive logic.
Deductive logic – the logic of what must be – reasons from the general to the
specific.
Inductive logic - the logic of what is operative – reasons from the specific to the
general.
Abductive logic - the logic of what might possibly be true - involves “making a
logical leap of the mind” or imagining what might be rather than what can be
proven deductively or inductively.
Organizations dominated by analytical thinking are built to operate as they always
have; they are structurally resistant to the idea of redesigning themselves and their
systems dynamically over time. They are built to maintain the status quo. By
sticking close 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, innovation may come fast and
furiously, but growth and longevity represent tremendous challenges. Intuition
based firms cannot and will not systematize what they do, so they wax with the
individual leaders.
The most successful businesses in the future will balance analytical mastery with
intuitive originality in the dynamic interplay called design thinking. Design thinking
firms stand apart from in their willingness to engage in the task of continuously
redesigning their business. They do so with an eye in creating advances in both
innovation and efficiency.
The knowledge Funnel
The Knowledge funnel is a model for how businesses can advance knowledge and
capture customer value. There are three parts that make up the funnel, mastery,
heuristic and algorithm.
The beginning is mystery where a question is posed to frame the opportunity (a
hunch or pre-linguistic intuition). This step is situated in intuitive senses that draw
from many sources and experiences. Mysteries form in the subconscious mind and
can be triggered from immersion, study, research or casual exploration.
The second stage is a heuristic is an open ended prompt to think or act in a
particular way (heuristics are explicit and bring intuition to language). Heuristics
are rules of thumb hat helps narrow the field of the inquiry and work the mystery
down to manageable size. They guide us to a solution by way of organized
exploration of the possibilities (if this… than that).
Algorithms are certified production processes. They guarantee that in the absence
of intervention, following the steps they embody will produce a known result.
Algorithms take the loose unregimented heuristics and simplify and structuralize
them to the degree that anyone with access to the algorithm can deploy it with
equal efficiency.

Validity vs. Reliability Biases

Exploration – Exploitation
Validity
Reliability
Organizations move through the knowledge funnel stages to create value.
Management theories claim that organizations engage primarily in one of two
modes; exploration or exploitation. The author shows that design thinking can
enable the advantages and balance of each mode as a competitive advantage.
Exploration is the search for new knowledge that will drive growth from new
platforms. Exploitation is the maximization of payoff of existing knowledge. The
table below contrasts the two organizational modes.
Characteristics of Exploration and Exploitation

Exploration Exploitation
Organizatio The invention of The administration of
nal focus business business
Intuition, feeling, Analysis, reasoning, data
Driving
hypothesis about the from the past, mastery
forces
future, originality
Future
Long term Short term
orientation
Risk and High risk, uncertain but Minimal risk, predictable
reward potentially high reward but smaller rewards

Failure to consolidate Exhaustion and

Challenge
and exploit returns obsolescence
An organization exclusively dedicated to exploration will expire in relatively short
order. Exploration alone will not typically generate enough returns to fund more
exploration.
A business that creates value solely through exploitation will exhaust itself in due
course. It can’t exploit the same piece of knowledge forever. The author uses two
additional perspectives to illustrate the need for balanced exploration and
exploration to drive sustainable growth. The perspectives are reliability and
validity.
Reliability
The goal of reliability in organizations is to produce consistent, predictable
outcomes. Business systems such as Six Sigma, CRM, Lean and ERP are examples
of reliability based methodologies that reduce waste and variability (low risk).
Reliability is strongly supported by deductive logic (the application of a general
rules derived from past experience). These systems operate in the algorithm part
of the knowledge funnel.
Validity
The goal of validity is to produce outcomes that meet the correct user needs
(articulated or not). This may mean that the correct outcome is not predictable
therefore not reliable (risky). It requires a prediction about the future that is not
directly derived from past results. It utilizes abductive logic to imagine a future that
is non-linear with the past.
Three forces converge to feed reliability and marginalize validity;
• the demand that an idea be proven before advancing (can’t prove something
never been done)
• an aversion to bias (the need for market data)
• the constraint of time (reliable systems are predictable, breakthroughs
cannot have certain schedules)

Design Thinking
What is Design Thinking?
The design thinker employs abductive reasoning to discern a pattern in what to
others is still an amorphous whole. Of course, the search for patterns is typically
marked by repeated false starts and blind alleys. With experience, design thinkers
learn to spot handholds where others only see sheer cliffs.
It is critical to use design thinkers in the appropriate forum. Do not set reliability
and algorithmic expectations for these talented people. Develop management
methods that grow their abilities, protect them from the judgment of those that
distrust intuition in favor of data. The manager must also keep them in the
“mystery” portion of the knowledge funnel. In the near future, physical segregation
may be the best method for cultural growth. As early successes drive cultural
acceptance of design thinking as a valued talent, integration will be important for
sustained growth.

Transforming the Corporation

Building a Design Thinking Organization from Within
The transformation requires a leader that can speak the language of design and the
language of business. The leader must take steps to bring design into an
organization. The list below is from P&G;
• Set expectation clearly up front and get the leaders on board
Start in the areas of the business with an existing interest in design
(not where it is needed most). Start where there is ‘suction’ and
willingness to learn
• Get external help
Build a network of experts and partners with tools and capabilities that
will be needed.
Hire the best experienced talent even if you need to flex the rules
• Expect some speed bumps
Everything will need to be constructed including tools, work
environment and metrics
• Don’t try to talk about it. Just demonstrate it, demonstrate it,
demonstrate it
Most of this art cannot be explained well but can be richly experienced
Include Sr. management in the research to get them on-board with the
process and success.