In our previous article, we defined design as it pertains to business leaders and introduced the sweet spot between analytical and creative approaches to problem solving: design thinking. In this article, we build upon this foundation by answering the ‘so what’? Why does the business world need design? As we have mentioned in the past, we live in a VUCA world that is rapidly changing at an increasing rate. To thrive in this world, forward-looking organisations recognise the need to be innovative. In many cases, traditional analytical thinking may stifle the creativity required to create new things. Design thinking provides an alternative tool for organisations seeking to effectively build new products, services and business models of the future. The knowledge funnel To begin our exploration of the ‘so what’ of design thinking, it is useful to understand the evolution of problems and problem-solving. The notion of a ‘knowledge funnel’ provides a good framework for our understanding and Roger Martin’s explanation of the funnel, using McDonald’s as an example, is an effective one… The first stage of the funnel is the exploration of a mystery, in McDonalds’ case, is wondering what 1950s Americans would like to eat when they were away from home. The next stage is a heuristic, or possible solution, which progresses our understanding in tackling the problem in that mystery. This ushered in the concept of a quick-service restaurant that offers hamburgers, fries and milkshakes. Note that this is a possible solution, not a right solution. As a business applies the heuristic more intensely, it is able to turn a rule of thumb into a formula, or algorithm – the last stage of the knowledge funnel. For McDonald’s, developing the heuristic of a quick-service, limited menu restaurant gave Ray Kroc the ability to scale the business model using a consistently repeatable offering. Every burger was the same, every employee trained the same way and all locations planned and executed consistently. Continually refining the algorithm allowed the McDonald’s franchise to be more cost-effective and more efficient than its competitors. Many firms get stuck in one stage of the knowledge funnel, and fixate on refining their existing heuristics and algorithms. They focus on optimising what they currently have rather than creating something new. Optimisation drives incremental growth and efficiencies up to a point but the benefits inevitably plateau due to diminishing returns. The process of renewal is deeply rooted in the exploration stage of the funnel, which seeks to address the mystery of a problem with new solutions – whether it be products, services or business models. Limitations of traditional analytical problem solving Analytical thinking pervades the business world. Business leaders typically seek consistency and reliability, leading to the use of past data to plan for the future. They typically value processes that will produce consistent, predictable and measurable results. This bias is reinforced by their environment, the financial market demands forecasts – applauding or punishing companies based on the accuracy of those forecasts. Shareholders want certainty in their returns and dividends. Consequently, companies will typically focus on refining and exploiting their current business model because it produces reliable results – results which can be explained by past data. Such businesses struggle to transform, are slow to adapt their strategy and operating model to the new business environment and thus are at higher risk of being disrupted. Optimisation through analysis has diminishing returns and puts the long term future of the organisation at risk. Back to the McDonald’s example – while it was fixated on refining its algorithm, some of its competitors found new ways to address the original mystery. McDonalds failed to react quickly enough to changing consumer preferences, which shifted towards healthier, organic, environmentally and socially sustainable foods. The inner-city middle class, the core customer base of McDonald’s, increasingly valued these qualities over affordability or convenience. When the McCafe offering was launched in response to this and enjoyed some success in attracting new customers, it was already too late to stem the losses. Excessive reliance on analytical thinking can handicap companies in a VUCA world, as they are less willing to envision potential futures and instead rely on a future resembling the past. At its core, analytical thinking relies on deductive and inductive logic. These two modes allow us to figure out, after reasoning, whether a statement is true or false. It infers that any idea put forward to business leaders must be proven. This stifles innovation. “You cannot prove the future as it does not yet exist – you can only create it.” -Roger Martin Creation through design Neither inductive nor deductive logic can be expected to produce truly new ideas. A new idea cannot be proven to be correct and valid in advance. This is where abductive logic and design comes in. Abductive logic involves an inference to the best explanation. It uses intuitive thinking to produce forward looking ideas that answer the most complex business problems. Intuitive thinking explores new knowledge and thinks of what might be, not just what is. Designers thrive in the world of abductive logic, seeking inspiration, not information, from the past to challenge the status quo in search of a new valid answer. This is a very challenging concept for the core of traditional business leaders: pure design is unreliable, unquantifiable and as such too risky to use. Ultimately, reliability and validity are opposite ends of a spectrum. Design thinking is the sweet spot between the two. Design thinking: combining analysis with creativity To be innovative and successful, businesses need both types of problem solving approaches. This is where design thinking comes in: it is a productive combination of the best of analytical and creative thinking. We can exploit what we already know while exploring what we need to know – balancing the search for inspiration and with the digestion of information. We can use intuition and abduction to come up with new ideas, deduction to hypothesise their outcomes and induction to generalise from the results. Design thinking offers a fresh approach to leverage creativity in strategic decision-making. A strategy toolbox that only holds deductive and inductive reasoning tools is incomplete. Without intuitive, abductive thinking that ponders what could be, a business can only make refinements to its existing heuristic or algorithm. Ultimately, this leaves companies ripe for disruption by competitors or new entrants who find new ways to address the mystery. Just ask the taxi industry about Uber. The industry was so obsessed with streamlining their dispatching operations that they didn’t even think of new ways to address the mystery of matching the supply of taxis with the level of customer demand. Disruption comes because of a huge unmet, or poorly addressed, customer need that is latent and waiting for a new solution. It’s not Uber – it’s a matter of time – andthe cycle time is constantly compressing.