Book Brief: The Design of Business

What is Design Thinking and Why Does It Matter in Business?

Brief Summary

Title: The Design of Business: Why Design Thinking is the Next Competitive Advantage
Author: Roger Martin
Published: 2009 by Harvard Business Review Press
What It Teaches: The Design of Business teaches about the knowledge funnel — moving from mystery to heuristic to algorithm. It teaches about the battle within business between reliability and validity. It teaches the differences between inductive, deductive, and abductive reasoning. It teaches about the conflicts between intuitive and analytical decision making. It teaches about the need for both discovery and efficiency. In the end, it teaches how to balance all of these competing forces in effectively managing and growing a business.
When To Use It: The Design of Business is not an easy book to read. It does not provide quick and easy answers. It is the type of book that you read slowly so that you can absorb and comprehend what is being said and what it means in the real world. But it is a book that deals with important distinctions for businesses who are positioning for long term success. Read this book when you have time to truly pay attention to what it is teaching and think about the implications for your business.

Brief Review

I had high expectations for The Design of Business. Design thinking is one of the concepts that has impacted business thinking, especially entrepreneurship, over the past 20 years. It’s a topic that I know I’ve only scratched the surface in learning. Roger Martin is one of my favorite writers on strategy-related topics, so when I discovered that this book exists, I thought I’d found the one source that would finally make design thinking perfectly clear and relevant to my everyday work.

However, as I started reading the book, I was very disappointed and almost gave up on the book. The author didn’t seem to be talking about design thinking at all, at least not in the ways that I had been exposed to it. I had expected to quickly learn some frameworks, tools, and methodologies that I could use in my work. Instead, Martin was talking about foreign and relatively complex constructs such as heuristics and abductive logic.

To make matters worse, the book had more of an academic feel than I had expected. Sure, Martin at the time was dean of one of the top business schools in North America, but the articles he’s currently writing are very practical and accessible, so I was surprised to find him unnecessarily using big words when small ones will do. (For example, I almost chuckled when I read “The work never comes to a terminus.”)

But I soldiered on, and I’m glad I did. What I learned is that design thinking is much more than following a specific methodology or using certain phrases or applying design thinking tools. It’s about finding the healthy balance between two opposing mindsets that are both critical for the long term success of a business. Managing that balance requires understanding those mindsets and so the bulk of the book (especially the first several chapters) force us to think differently and to learn the different ways that people approach problems and make decisions.

It’s impossible for me to do the topic justice in a brief review, but I’m going to take a shot at introducing some of the key concepts. If you want to read the book, I think my brief introduction will help you more quickly connect some of the concepts presented and why it matters.

The first major concept that the author introduces is the Knowledge Funnel. In this conceptual model, we start with a “mystery”. This is often in the form of a question, like “I wonder how people want to buy hamburgers?” The first step down the Knowledge Funnel is often a “hunch”. You try something because you think it will work, even though you can’t verbalize why. The next step is a “heuristic” which the author defines as an “open-ended prompt”. It’s like a rule that usually works out (but not always). The next step is an “algorithm” which defines a sequence of steps that is guaranteed (absent any unusual circumstances) to produce the expected result. Finally, many algorithms (but far from all) are then implemented in software to make them as efficient as possible.

We will come back to this framework in a moment.

The second major concept is that there are generally two different approaches to making decisions. (I’m grossly oversimplifying this aspect of the book.) These two approaches are represented by a variety of different ways of characterizing how decisions are made. These various approaches largely overlap with each other (but not perfectly):

• Analytical vs. Intuitive
• Inductive or Deductive vs. Abductive
• Reliability vs. Validity
• Efficiency vs. Discovery
• Exploitation vs. Exploration

The business world generally favors the left side of each of these pairs.

Wall Street wants predictability. For example, when a company reports results that meet or slightly exceed analysts expectations, the company’s stock price performs well. But when a company reports financial results that significantly exceed analysts’ expectations, the company’s stock price often falls. Because of that bias, business leaders make decisions based on analysis using either deductive logic (reasoning from the general to the specific) or inductive logic (reasoning from the specific to the general) because both of those approaches reliably predict the future from the past. This approach focuses on maximizing efficiency and exploiting the company’s established advantages.

Validity, in contrast to reliability, is focused on finding what is true rather than what is expected. This requires abductive logic that attempts to identify the answer that best fits what is known when existing models can’t explain it. This approach often requires an intuitive approach and often requires iterating through multiple trial-and-error hypotheses making the outcome timing and results unpredictable and uncertain. This is a process of exploration and discovery.

And to bring all of that back to the Knowledge Funnel, operating an identified algorithm or heuristic is a matter of efficiency (or exploitation) and relies on an analytical approach to decision making. But solving the mystery to create a heuristic, or to move from heuristic to algorithm is an exploration and discovery process that relies more on intuition and abductive logic.

Using the author’s terminology, for short term performance, businesses need to be great at efficiency. For long term survival they need to be great at discovery. Business leaders need to learn how to balance the two. This book explains how to do that (and no, there are no easy answers).

Bottom Line: The Design of Business is a challenging book. It’s not for everyone. But for those willing to invest the time and effort to truly understand the concepts it teaches, the book provides a new way of looking at how businesses need to operate for both short term and long term success.