Book Review: The Design of Business: Why Design Thinking Is the Next Competitive Advantage

    By: PDMA Headquarters on Oct 04, 2013

    Book Review: The Design of Business: Why Design Thinking Is the Next Competitive Advantage       

    By: Roger Martin, Boston : Harvard Business Press , 2009 . 191+xiii pages.
    Review by: George Castellion

    Book ReviewDesign thinking is a trendy topic, gaining attention from chief executive officers (CEOs) and new product and service practitioners. These two books guide practitioners through the growing thicket of claims and tools embraced by design thinking enthusiasts. Each book possesses unique and notable strengths built on the authors' different backgrounds and experiences in design thinking.

    Roger Martin, dean of the Rotman School of Business at the University of Toronto and author of the first book in this review, is a pioneer in applying the design thinking to solve wicked organization problems. “Wicked problems are ill-defined and unique in their causes, character, and solutions” (p. 94). With wicked problems, innovators need to understand the nature of the problem before solving it. Martin provides a provocative and convincing guidebook for discovering valid solutions by first understanding the nature of the problem—by problem setting before problem solution.

    Chapter 1, “The Knowledge Funnel: How Discovery Takes Shape,” introduces a three-stage pathway for driving insights for possible solutions through the funnel. The first stage of the funnel is exploration of a mystery. The next stage is using a heuristic, a rule of thumb that helps narrow the field of inquiry and work the mystery down to a manageable size. When practitioners put a heuristic into action, study it more, and think about it intensely, they can convert it into an algorithm, a fixed formula, the final stage in the knowledge funnel.

    Every group of practitioners creating value across the knowledge funnel engages in two distinct pursuits. First is exploration, the search for new knowledge through the funnel from mystery to heuristic and heuristic to algorithm. Second is exploitation, gently honing and refining an existing heuristic or algorithm. Both pursuits can create enormous value, and both are critical to the sustainable success of the product idea.

    However, it is hard to engage in these pursuits simultaneously. Focusing on exploration alone results in an unstable organization model and will not create the consistent returns needed to fund further exploration of new ideas. On the other side of the coin, focusing on creating value through exploitation alone and never returning to exploration exhausts value creation. Practitioners cannot exploit the same piece of knowledge forever. Trying to do so endangers the long-term survival of the organization.

    A group of practitioners remaining at a single stage in the knowledge funnel misses the opportunity to dig into the next mystery and push that mystery through the funnel ahead of the competition. By redeploying practitioners who successfully tackled the last mystery to work on new mysteries, an organization both defends its current position and goes on the offensive by exploring new mysteries. Design-thinking organizations are the relatively few organizations that balance exploration and exploitation by continuously looking back up the knowledge funnel.

    Design thinking demands a different way of organizing work for innovation. Most organizations, whether they know it, favor reliability overvalidity. The goal of reliability is to produce consistent, predictable outcomes. The goal of validity is to produce outcomes that meet a desired objective. “The challenge is how to balance the irresolvable tension between operating within the current knowledge stage and moving through the knowledge funnel. The tension can't be fully resolved but only balanced and managed, because reliability and validity are inherently incompatible” (p. 37).

    The search for reliability is the subject of Chapter 2, The Reliability Bias.” Six Sigma programs and total quality management (TQM) systems drive out the waste from an organization's systems. Customer relationship management (CRM) systems promise an organization will know exactly who its customers are, what they are buying, and what more it could sell to them. Knowledge management (KM) systems try to organize all the knowledge in a corporation. All of these pursuits crunch data and extrapolate from the past in the search for reliability.

    Commercial organizations also seek validity, usually classifying this pursuit as research and development (R&D). Organizations consider R&D a high-risk pursuit because organizations cannot quantify the people, money, or time frame needed to solve the mystery. This means debt financing, paid back on a predetermined schedule, cannot be used as a source of funding for the exploration. Exploration needs equity financing with no fixed schedule for paying back equity providers. Given that equity providers may never be repaid, it is no wonder that organizations have a bias for reliability over validity.

    In a self-contradiction, even though reliable heuristics and algorithms are supposed to cut out uncertainty, an organization overweighted toward reliable pursuits is taking a high risk. Its structures, processes, and norms drive out the search for valid answers to new questions. Organizations dedicated to running reliable algorithms may reduce the risk of small variations in their businesses, but they increase the risk of failing to respond effectively to future events when the algorithm is no longer relevant or useful.

    “Design isn't just about making things beautiful; it's also about making things work beautifully” (p. 58). Chapter 3, “Design Thinking: How Thinking Like a Designer Can Create Sustainable Advantage,” provides an introduction to the designer's most crucial tool for solving wicked problems: abductive reasoning. The two most common reasoning tools—deductive reasoning and inductive reasoning, grounded in scientific tradition—allow the user to declare at the end of the reasoning process that a statement is either true or false. Deductive reasoning (i.e., the logic of what must be) follows logical thought from the general to the specific. Inductive reasoning (i.e., the logic of what is working) follows logical thought from the specific to the general. Both are tools of great power.

    Abductive logic has fewer concerns about how one declares a statement true or false than in the process by which we come to know and understand. An early user of abductive reasoning, Charles Sanders Peirce, argued that no new idea could be proved deductively or inductively using past data. “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” (p. 65).

    “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” (p. 68). However, abduction thinkers must always match the design to what is technologically feasible and makes business sense. Innovative products launched without this awareness are research projects with no future or means for value creation.

    Roger Martin's insider anecdotes from his role as a consultant to design-thinking organizations such as Research in Motion (Blackberry), Herman Miller, and Procter & Gamble (P&G) reinforce his prescriptions for using design thinking to resolve wicked problems. Chapter 4, “Transforming the Corporation: The Design of Procter & Gamble,” provides a detailed and instructive account of how P&G dramatically turned around an unfavorable trend in its value equation by embracing design thinking. (An organization's value equation is the value its goods and services create for consumers relative to the cost of creating that value.)

    P&G assembled a group of three academics: David Kelly of the Hasso Plattner Institute of Design at Stanford University; Patrick Whitney of the Institute of Design at the Illinois Institute of Technology; and Martin. In 2005 this group created a program that would provide practical experience in design thinking to P&G leaders. “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” (p. 88).

    To promote design thinking in P&G's hierarchy of values, the new CEO, A. G. Lafley, made solving wicked problems a high-status, glamorous assignment. “He also set up explicitly project-based work with managers, making clear that their work was time bound and that they would go on to another project or assignment when they had completed their current project” (p. 88). There are powerful incentives for owners of marketing skills to keep their heuristics to themselves. P&G is systematically stripping away those incentives and driving much of the brand-building discipline all the way to an algorithm. Senior managers are free to focus their talents not on heuristics or algorithms but on the next mystery to create the next brand or brand extension that consumers want.

    All industries have design-thinking organizations; however, they remain a small minority in the corporate world, and most are relatively small. In practice, the larger an organization is the less likely it will be receptive to design thinking. The incentives to seek reliability are always there, while the rewards of seeking validity appear distant and uncertain. “Few large companies have managed—or even attempted—to balance sufficient predictability and stability to support growth with sufficient creation of new knowledge to stimulate growth” (p. 117; emphasis in original).

    Chapter 6, “World-Class Explorers: Leading the Design-Thinking Organization,” is directed to CEOs seeking to create a design-thinking organization. For the rest of us, Chapter 7, “Getting Personal: Developing Yourself as a Design Thinker,” serves as a guide to act as design thinkers on our own jobs. This guide serves even in an organization that seems to aggressively blot out all traces of the balance between validity and reliability.

    Martin suggests developing your own design-thinking personal knowledge system. Such a system has three mutually reinforcing components. The broadest component is Stance: Who am I in the world and what am I trying to accomplish? Design thinkers want their ideas to make a difference in the world. The next component is Tools: With what tools and models do I organize my thinking and understand the world? Key tools are (1) deep, careful, open-minded observation; (2) imagination; and (3) configuration. “An expert of configuration is Steve Jobs who created an activity system for the iPod, including iTunes and Apple stores. The system made iPod a compelling product, exceedingly hard to replicate and highly profitable” (p. 163). The final component is Experience: With what experiences can I build my repertoire of sensitivities and skills?

    This slim, pocket-sized book is easy to read. Martin's insights are unique and deep. I read it through slowly twice in preparation for writing the review and continue to extract out of it solutions to new product management problems.

    Roberto Verganti, author of Design-Driven Innovation, is professor of management of innovation at Politecnico di Milano and founder of PROject Science, a consulting firm. He informs the reader, “This is not a book on design, at least not in the way many people think of design: it is not about styling or about creativity, or about scrutinizing users. This is a book about management. It's about how to manage innovations that customers do not expect but that they eventually love. … This strategy is called design-driven innovation because design, in its etymological essence, means making sense of things. And design-driven innovation is the R&D process for meanings” (pp. i–ii).

    A decade ago Verganti began a series of academic research projects and consulting assignments centered on understanding the role of design thinking in launching products and services that tell a radical new reason for customers to buy them. He views design-driven innovation as a suitable strategy for every firm that steps back from users and takes a broader perspective. “They explore how the context in which people live is evolving, both in sociocultural terms (how the reason people buy things is changing) and in technical terms (how technologies, products, and services are shaping that context). Most of all, these firms envision how this context of life could change for the better” (p. 11).

    When Verganti began his research, he painfully found out why design-driven innovation had remained unexplored. First, firms who are successful at design-driven innovation are not open to someone who wants to investigate their process. Their model is based on elite circles, which admit novices only if they bring interesting knowledge. “It took me literally years to gain their trust to be admitted into the circle and gain access to their processes. … Second, once I got there, I found it a major challenge to understand what was going on. The innovation process of these firms was tacit, invisible—no methods, no tools, no steps. Instead it was based mainly on networks of uncodified interactions among various agents of innovation and was directly led by top executives” (p. 9).

    A table in Appendix A (p. 231) lists the 50 firms examined in the book. One of these firms, Artemide, an Italian firm in the lighting industry and known for profitable and steady growth, is referenced in the first 9 of the book's 11 chapters. Chapter 1, “Design-Driven Innovation: An Introduction,” starts off with a remark by Ernesto Gismondi, head of Artemide: “Market? What Market! We do not look at market needs. We make proposals to people” (p. 2). This sentence undergirds Verganti's research and his evangelistic stance throughout the book. Through this lens he examines firms, primarily in Italy, where he has firsthand knowledge of how they made sense of things. He also evaluates design-driven innovation at firms where he had no firsthand knowledge such as Apple, Bayer, Herman Miller, IBM, McDonalds, Microsoft, Nokia, Starbucks, and Whole Foods Market.

    Verganti states that current management literature is focused on two views of innovation strategy. The first view is that radical innovation is major sources of long-term competitive advantage. The second view is that “… people do not buy products but meanings, … Firms should therefore look beyond features, functions, and performance and understand the real meanings users give to things” (p. 3). Verganti states that “Artemide has followed a third strategy: design-driven innovation—that is, radical innovation of meaning. … This meaning, unsolicited, was what people were actually waiting for” (p. 4).

    In the author's opinion, analysis of users' needs—a user-centered market pull—results only in incremental change. Technology-push, through breakthrough technologies, may produce only incremental change. Much design-driven meaning also leads only to incremental change. However, radical innovation of meaning—design-driven innovation—will result when technology-push overlaps with design-driven meaning. Verganti states such design-driven innovations are the source of the success stories of Nintendo's Wii game console, Apples' iPod, and Whole Food Market's food retailing. Such firms step back from users and take a broader perspective. They explore how the context in which people buy things is changing and how technologies, products, and services are shaping that context. When a firm takes this perspective it discovers it “is surrounded by agents (firms in other industries that target the same users, suppliers of new technologies, researchers, designers, and artists) who share its interests” (p.11).

    Firms that produce design-driven innovations value dealing with these agents (i.e., these interpreters). The process of design-driven innovation involves getting close to interpreters. The process described in detail in the remainder of the book consists of three actions. The first action is listening. Firms that listen better develop privileged links with a group of key interpreters. The second action isinterpreting. The third action is addressing. “Radical innovations of meanings, being unexpected, sometimes initially confuse people. To prepare the ground for groundbreaking proposals firms leverage the seductive power of interpreters” (p. 13) to make the firm's proposal more attractive when people see it.

    The rest of the book is organized into three parts. Part 1, The Strategy of Design-Driven Innovation, explains the specific nature of design-driven innovation and its role in a firm's overall innovation strategy. Part 2, The Process of Design-Driven Innovation, shows how firms can realize successful radical innovations of meanings and digs into the three main actions: listening, interpreting, and addressing. Part 3,Building Design-Driven Capabilities, shows how to start and highlights the key role that top executives play in this process. A related website (http://www.designdriveninnovation.com) has photos of some of the product examples cited.

    Verganti's book is easy to read. He thinks business schools neglect design's significance except for schools such as the Rotman Business School at the University of Toronto (where Martin is dean) Copenhagen Business School, and the School of Management at Politecnico di Milano. He takes a crusading approach to his topic. The prudent reader understands this approach sometimes leads Verganti to sweeping judgements based on evolving verification.

    Martin's and Verganti's books are—in their own ways—valuable guidebooks to a terrain unfamiliar to even seasoned new product/service practitioners. If your inclination is to be knowledgeable before setting out on a journey to uncharted territory, your travel kit should contain both books.

    Released: October 4, 2013, 10:51 am | Updated: November 20, 2013, 12:27 pm
    Keywords: PDMA Blog


    You must create an account or login with your existing account to provide comments or article ratings.

    Copyright © 2017 PDMA - Product Development and Management Association. All Rights Reserved

    330 N. Wabash Avenue, Suite 2000, Chicago, IL 60611 USA   |   Phone: 312.321.5145   |   Fax: 312.673.6885

    Contact PDMA   |   Legal Policies & Agreements