The Design of Business: Why Design Thinking Is the Next Competitive Advantage Read online

  Copyright

  “Hunches, Heuristics, and Algorithmics: A Quick Note” and “Reliability Versus Validity: A Note on Prediction” Copyright © 2009 Mihnea Moldoveanu.

  “Why You’ve Never Heard of Charles Sanders Peirce,” “Building a Design Thinking Organization from Within,” and “Wicked Problems” Copyright © 2009 Jennifer Riel.

  Copyright 2009 Roger Martin

  All rights reserved

  First eBook Edition: October 2009

  ISBN: 978-1-422-17780-8

  Dedicated to Jennifer

  Contents

  Copyright

  Acknowledgments

  1 The Knowledge Funnel

  How Discovery Takes Shape

  2 The Reliability Bias

  Why Advancing Knowledge Is So Hard

  3 Design Thinking

  How Thinking Like a Designer Can Create Sustainable Advantage

  4 Transforming the Corporation

  The Design of Procter & Gamble

  5 The Balancing Act

  How Design-Thinking Organizations Embrace Reliability and Validity

  6 World-Class Explorers

  Leading the Design-Thinking Organization

  7 Getting Personal

  Developing Yourself as a Design Thinker

  Notes

  About the Author

  Acknowledgments

  I have many generous friends and colleagues to thank for their help on this book. In particular, I would like to thank and recognize three intellectual partners: Hilary Austen, Mihnea Moldoveanu, and Jennifer Riel.

  Hilary Austen has had a profound influence on the way I think about design. The model for building one’s personal design capability, which is outlined in chapter 7, is based directly on Hilary’s work on artistry. I am thrilled that she is (finally) capturing her brilliant work in a book, tentatively titled Artistry: How to Achieve and Enjoy Great Performance. I believe that it has a chance to be the best book on artistry since John Dewey’s 1934 masterpiece, Art as Experience.

  Mihnea Moldoveanu, director of the Desautels Centre for Integrative Thinking, has been my closest and most important thinking partner since he joined me at the Rotman School a decade ago. We collaborate on numerous projects, and very little that I write cannot be traced back to one of our many conversations. You will see his insightful sidebars at various points in the book. I am particularly indebted to Mihnea for introducing me to the wonderful work of Charles Sanders Peirce, who is sufficiently obscure that only a polymath like Mihnea would have discovered his potential contribution to our work.

  Jennifer Riel, who is associate director of the Desautels Centre, played the primary editing and research role on this book. She became ever more centrally involved in its evolution over the past year. Her advice was enormously helpful, her editing shaped and improved the book, and her discipline ensured that the manuscript met every deadline. You will see Jennifer’s nicely crafted sidebars at various points.

  I would also like to thank three people who let me interview them extensively. Claudia Kotchka, a dear friend and Procter & Gamble’s first vice president of the figures in this book, including “The Knowledge Funnel.” The third vice president of innovation strategy and design, gave me lots of time and insights and also provided detailed feedback on the first manuscript of the book. Mike Lazaridis, founder of Research In Motion, creator of the ubiquitous BlackBerry, and one of the busiest people I have ever met, was very generous with his time and thoughts. Dr. Stephen Scherer, a world-renowned geneticist at the Hospital for Sick Children, not only let me interview him but gave me an extensive tour of his laboratory. What an eye-opener that was!

  The primary financial supporter of my work in integrative thinking and design is my wise and far-thinking friend Marcel Desautels. Without his support and devotion, DesignWorks would have been one project, not a vibrant research and action-learning center. I would also like to thank Heather Fraser, the terrific leader I hired to head Rotman DesignWorks. She has done a wonderful job of building DesignWorks and furthering both the intellectual development and the practical application of the concepts in this book.

  My designer friends were helpful and generous. Tim Brown and David Kelley of IDEO and Sohrab Voussoughi of Ziba answered a series of questions for me; their insights are dotted throughout. Bill Buxton of Microsoft and John Maeda, president of Rhode Island School of Design, did likewise and in addition reviewed the draft manuscript for me.

  Deep in my past, three people strongly influenced my interest in design in business, and I probably would not have written this book without them. The husband and wife team of Bob Hambly and Barb Woolley (of the design firm Hambly & Woolley) have been my friends for twenty-five years and first got me interested in design. They played an important role by inviting me to be a keynote speaker for a 2003 design conference, which created an excuse to organize my thinking on design into a talk I called “The Design of Business.” It went over so well at the conference that I was motivated to write an article by the same name based on the conference presentation. Shockingly to me, publications from over a dozen countries saw the article in Rotman Magazine and asked permission to republish it in their country (and language). The high demand for the article encouraged me to write the book. So without Bob and Barb, I am not sure this book would have happened. By the way, Bob and Barb designed a number of the figures in this book, including “The Knowledge Funnel.” The third important influence is Rob Harvey, whom I met in 1993 when he was the senior vice president of design at Herman Miller. He was so passionate about design that he made it impossible for me to ever think again in the traditional ways I had thought about business.

  I am fortunate to have a wonderful group of friends who reviewed the draft manuscript and gave helpful comments. First and foremost was Malcolm Gladwell, whose three-thousand-word critique was a thing of beauty and dramatically altered the structure of the book—for the better to be sure. In addition to those already mentioned, I received helpful reviews from Brendan Calder, Melanie Carr, Delaine Hampton, Bruce Kuwabara, A. G. Lafley, Sally Osberg, Filippo Passerini, Joe Rotman, Suzanne Spragge, Patrick Whitney, and Craig Wynett.

  Jennifer Riel and I also got valuable research help from Sean Forbes, Signy Franklin, Albert Ko, and Mark Leung.

  I got fabulous help and support for my writing at the Rotman School. Karen Christensen, who publishes our wonderful Rotman Magazine, jumped on the design theme early and encouraged me to write several design articles for the magazine, pieces of which found their way into the book. Steve Arenburg and Ken McGuffin in media relations and events provided opportunities for me to write about design in business in publications such as Fast Company and BusinessWeek and speak at conferences in New York, San Francisco, Hong Kong, and London. Each time I wrote or spoke about design, I got feedback that helped me refine my thinking. And when I took off the summers of 2007 and 2008 to write, my great vice deans Jim Fisher and Peter Pauly and stellar chief operating officer Mary-Ellen Yeomans ran the school so efficiently that no one noticed I was gone!

  This is my second book with Jeff Kehoe and his terrific team at Harvard Business Press. It was wonderful to work with Jeff a second time. I appreciated both his advice and his support through the book’s long gestation. It is my second collaboration with editor Harris Collingwood, who also worked on The Opposable Mind. Harris was a delight to work with—a consummate writing professional whose instinct to shorten and simplify everything I write is well placed.

  Last, but certainly not least, I want to thank
the incomparable Tina Bennett—uber agent. I owe my book publishing career (such as it is) to this talented woman. She helps shape each project to make it exciting for the publishers and makes everything move like clockwork. I look forward to many more collaborations with Tina.

  I do hope you enjoy this book and that it helps you express your personal and organizational creativity to the fullest. If I have contributed even in a small way to that optimization, I will be a happy author!

  CHAPTER 1

  The Knowledge Funnel

  How Discovery Takes Shape

  THE UNITED STATES in the years after World War II was a restless place, engaged in an audacious social experiment that would eventually transform how and where Americans worked, played, and consumed. Victorious with the Allied nations against the Axis, then instrumental in the rebuilding of Europe, the United States had become the West’s undisputed military and economic champion. Not all was cheery, mind you. Communist powers posed a new threat, the nuclear age had dawned, and Cold War anxieties ran high. Yet Americans felt confident in their place atop the global order and free to invent new ways to enjoy their burgeoning prosperity.

  The automobile was central to the sense of open-ended possibility shared by America’s rapidly growing middle class. Spurred by the development of the Interstate Highway System, new roads were rolling out from the cities to the suburbs springing up at their edges. The number of cars sold in America leapt from just seventy thousand in 1945 to more than six million in 1950. A mobile, moneyed lifestyle was taking root, with the automobile at its center.

  Some of the first entrepreneurs to see the opportunities in this cultural change planted their flags in California, where so many American trends first take root. Drive-in burger joints began to spring up across southern California, where the nascent car culture cross-fertilized a leisure culture centered on the beach. By 1955, a strong-willed salesman named Ray Kroc was able to make a good living selling milk-shake mixers to a wide collection of mom-and-pop California restaurants. His biggest account was the McDonald brothers, who operated a small but thriving chain of drive-ins in the Los Angeles suburbs. 1

  The brothers had opened their first restaurant, a barbeque and burger drive-in in San Bernardino, in 1940. It wasn’t much different from other drive-ins, which had been popping up ever since A&W first delivered root beer to car windows in 1923. But it was popular. The McDonald’s outpost attracted throngs of teenagers, with harried carhops serving up to a hundred twenty-five carloads at a time.

  Within the decade, though, the McDonald brothers realized they had to revamp their restaurant or find a new line of work. Some of their best customers were families giving mom a night off from the kitchen. But now these families were driving right past, turned off by the loitering toughs that drive-ins attracted. Many of the remaining customers complained that the food got cold on the journey from kitchen to car. The McDonald brothers needed a new approach, but what? How and what did Californians want to eat when they set out in their Fords and Buicks and Studebakers in determined pursuit of sun and surf ?

  The brothers experimented with different menus and store formats until they arrived at a winning approach. They filled in the barbeque pit, cut the menu to only twenty-five items, and standardized the burgers; each one was served with ketchup, mustard, onions, and two pickle slices. The carhops were eliminated, replaced with service windows where customers ordered and picked up their own food. Productivity enhancers like Kroc’s five-at-a-time milk-shake mixers enabled them to turn food orders around quickly. The brothers called their new concept the Speedee Service System. It was the prototype of the quickservice restaurant.

  It wasn’t long before the brothers had opened four additional outlets. They might have been content to stop there, but Kroc was not. He looked at the crowds packed into the brothers’ stores and imagined the scene repeated from coast to coast—and even around the world. He bought out the McDonalds and set about improving and standardizing the mass-production system they had developed.

  Kroc saw that the Speedee Service System, innovative as it was, left too much to chance and judgment. He refined it meticulously, pursuing a vision of a perfectly standardized operation. He simplified the McDonald’s system down to an exact science, with a rigid set of rules that spelled out exactly how long to cook a hamburger, exactly how to hire people, exactly how to choose locations, exactly how to manage stores, and exactly how to franchise them. Under Kroc, nothing in the McDonald’s kitchen was left to chance: every hamburger came out of a stamping machine weighing exactly 1.6 ounces, its thickness measured to the thousandth of an inch, and the cooking process stopped automatically after 38 seconds, when the burgers reached an internal temperature of exactly 155 degrees. In every phase of McDonald’s operations, judgment was removed, possibilities were removed, and variety was removed.

  Kroc relentlessly stripped away uncertainty, ambiguity, and judgment from the processes that emerged from the McDonald brothers’ original insight. And by fine-tuning the formula, he powered McDonald’s from a modestly prosperous chain of burger restaurants to a scale previously undreamed of. Within a decade, McDonald’s grew from a successful local business to a ubiquitous cross-country chain and, in another few decades, to a globe-girdling behemoth.

  The path taken by the McDonald’s and Kroc—from pinpointing a market opportunity to devising an offering for that market to codifying its operations—is not just a study in entrepreneurship. It’s a model for how businesses of all sorts can advance knowledge and capture value. I will argue in this book that the McDonald brothers and Kroc took the same route followed by successful business innovators in every domain. My term for that path is the knowledge funnel. My purpose is to map that funnel in detail and investigate its implications for organizations, individuals, and thinking processes. Along the way, we’ll meet innovators in business, science, and the arts, all of whom are advancing understanding and creating exciting new opportunities for people and organizations.

  Seeking Reconciliation

  The model for value creation offered in this book 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 b
uilt 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.