The Design Thinker’s Dilemma

There are two mindsets – the ‘competitive’ mindset where the market is believed to be finite in scope and scale, that assumes that resources are scarce, an approach to strategy based on solely on the competitive aspects of fundamental frameworks like Porter’s Five Forces. Or as I see it, a zero sum game.

That is, the mentality that thinks that ‘if the other guy wins, I lose’ or ‘If I win, the other guy loses’. That makes sense in poker, which is in fact a game, but not, imho, in the business of value creation, revenue generation and growth. It assumes the pool is stagnant.

The other mindset – one that is quite rightly gaining traction, but has yet to be wholly understood in the context of growing the market or generating revenue – is that of a ‘design thinker’. Bear with my choice of words for moment, let them not distract you from the abstract concept that I am trying to convey. The ‘design thinking’ mindset believes that the market is infinite, in scope and scale, it assumes that value can be added, enhanced and created, it’s an approach to strategy that does not need ‘one right answer’ as the goal before it’s implementation. And due to this basic difference, there cannot, thus, be a zero sum game.

That is, ‘if I win, I would have created value, adding to the pool from which my wins come to me, therefore I’m not taking away the other guy’s wins which existed before I came along and added some more.’

Let me try to explain this thought a little further. Here is the basic ‘Competitive Forces‘ Model by Porter, better known as the ‘Five Forces’,

Porterfiveforces

From the same website, comes this accompanying cautionary note,

Porter’s
competitive forces model is probably one of the most often used
business strategy tools and has proven its usefulness on numerous
occasions. Porter’s model is particularly strong in thinking
outside-in. Care should therefore be taken not to underestimate or
underemphasize the importance of the (existing) strengths of the
organization (inside-out) when applying this framework.

And quite rightly, since it’s a model that is used for analyzing the industry
in which the company is a part of, rather than an analysis of the
corporation itself. Better suited for the use by external management
consultants than a corporate planner. I would hazard a guess however
that  ‘competitive strategy’ has been understood only it’s
basic terms of competition without the nuances of strategic thinking
behind it. In fact, Fast Company has this article on Michael Porter’s
contribution to strategic thinking and his opinions, which I found
extremely relevant to the current conversations – from Davos to the
blogosphere – on creativity, innovation and design as value creators for competitive advantage. I’m reproducing
here, a significant yet relevant portion of it, in order to support my
viewpoint.

This is the paradox that Porter faces. His notions on strategy are more
widely disseminated than ever and are preached at business schools and
in seminars around the globe. Yet the idea of strategy itself has, in
fact, taken a backseat to newfangled notions about competition hatched
during the Internet frenzy: Who needs a long-term strategy when
everyone’s goal is simply to "get big fast"?

[...]

Strategy has suffered for three reasons. First, in the 1970s and
1980s, people tried strategy, and they had problems with it. It was
difficult. It seemed an artificial exercise. Second, and at the same
time, the ascendance of Japan really riveted attention on
implementation. People argued that strategy wasn’t what was really
important — you just had to produce a higher-quality product than your
rival, at a lower cost, and then improve that product relentlessly.

The third reason was the emergence of the notion that in a world of
change, you really shouldn’t have a strategy. There was a real drumbeat
that business was about change and speed and being dynamic and
reinventing yourself, that things were moving so fast, you couldn’t
afford to pause. If you had a strategy, it was rigid and inflexible.
And it was outdated by the time you produced it.

That view set up a straw man, and it was a ridiculous straw man. It
reflects a deeply flawed view of competition. But that view has become
very well entrenched.

[...]

There’s a fundamental distinction between strategy and operational
effectiveness
. Strategy is about making choices, trade-offs; it’s about
deliberately choosing to be different. Operational effectiveness is
about things that you really shouldn’t have to make choices on; it’s
about what’s good for everybody and about what every business should be
doing.

[...]

Japan’s obsession with operational effectiveness became a huge
problem, though, because only strategy can create sustainable
advantage. And strategy must start with a different value proposition.
A strategy delineates a territory in which a company seeks to be
unique. Strategy 101 is about choices: You can’t be all things to all
people
.

The essence of strategy is that you must set limits on what you’re
trying to accomplish. The company without a strategy is willing to try
anything. If all you’re trying to do is essentially the same thing as
your rivals, then it’s unlikely that you’ll be very successful. It’s
incredibly arrogant for a company to believe that it can deliver the
same sort of product that its rivals do and actually do better for very
long. That’s especially true today, when the flow of information and
capital is incredibly fast. It’s extremely dangerous to bet on the
incompetence of your competitors — and that’s what you’re doing when
you’re competing on operational effectiveness.

What’s worse, a focus on operational effectiveness alone tends to
create a mutually destructive form of competition
. If everyone’s trying
to get to the same place, then, almost inevitably, that causes
customers to choose on price. This is a bit of a metaphor for the past
five years, when we’ve seen widespread cratering of prices.

There have been those who argue that in this new millennium, with
all of this change and new information, such a form of destructive
competition is simply the way competition has to be. I believe very
strongly that that is not the case. There are many opportunities for
strategic differences in nearly every industry; the more dynamism there
is in an economy, in fact, the greater the opportunity. And a much more
positive kind of competition could emerge if managers thought about
strategy in the right way
.

In sum, imho, the much more positive kind of competition that Porter is talking about, one that demonstrates comparative advantage, offering different choices for different needs – a Long Tail, if you will -  can only emerge from the return to the basics of business. That is, to create a strategy based on differentiation yourself from the market, offering a unique product that no rival can offer, simply by virtue of it’s roots – it emerges from your understanding of your core value proposition, that differentiates you from any other, and then enhancing, creating and finally communicating that difference.

And that is where the basic principles of design methodology – design thinking, if you will – together with the basic principles of strategy 101 can come together to provide you with the tools to observe the market, draw your insights on your intended ‘user’s needs, create a product or service for those ‘as yet undiscovered’ needs and so, create your market.

Which in turn, implies that you are then not taking away somebody else’s share of the pie, because you are baking a new pie.

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5 Responses to The Design Thinker’s Dilemma

  1. jens says:

    is it just me or is there some brilliance shimmering through these lines.
    design and everything else is in its place.
    and the long tail fragmentation of markets makes strategy a whole new story.
    i love it.
    that is brilliant.

    can somebody call oslo!

  2. Ralf Beuker says:

    Niti, your recent postings seem to be another case of what we’ve called eureka moments last year and to which you are referring to in your posting from September 21st titled “Souls in the Great Machine v.2 – conversation with Ralf” (http://www.nitibhan.com/perspective/2005/09/souls_in_the_gr_1.html).
    Since Wednesday this week I’m crafting a posting on my blog where I a) use the case of your blog (referring to your ethnic roots and India in particular) in order to b) demonstrate your and my strategic moves in the blogosphere in relation to strategy models. Please expect a trackback from my blog soon ;-)
    Coincidentally just after I’ve written my first sketch you are announcing in “Recess – India Everywhere” that you will stop posting about India and today you’re applying Porter’s strategy models on the idea of design thinking while I’ve been thinking to comment on design management on different strategy levels … perfect match! … anyway while I’ve made myself comfortable at your virtual living room please allow me to play the “academics advocate” and comment on your reasonings above. This seems to be a good exercise both in the light of the above mentioned posting of mine as well as in terms of clarifying how design thinking integrates itself into the concept of strategy in general.
    Basically there are three levels of strategy (corporate, business and operational) and you are referring to the first two in your posting. However one should be careful not to mix up these levels as well as the model associated to these levels.
    The 5–Forces model is clearly addressing “corporate strategy” and seeking for an answer to the question: “What industry are we competing in or how attractive is the industry we are competing in and what are the driving forces working in the background?”
    You are correct that managers as well as consultants have adopted this tool right from the start, because of its simplicity and conciseness. While the application of this model to an industry is always some sort of static snapshot it provides some good hints on how to change to current forces in the future as well. Recommendations like horizontal or vertical integration derive from the application of this model and Apple’s iTunes store in combination with its iPod offering are a good example of the application of design thinking on this level of strategy analysis. By the same token design thinking can help to overcome what Theodor Levitt once called “Marketing Myopia” in his groundbreaking HBR article. Steve Jobs has clearly overcome the myopic mindset of other hardware manufacturers by defining the market not as the “MP3 player industry” but rather as the “music entertainment industry” which creates a fundamental different market place. From my perspective design thinking on this level can help to overcome myopic mindsets as the Apple case demonstrates and as Paul Nixon (now working for Apple ;-) illustrates in his brilliant chart (http://nixlog.com/apple/).
    Later on in your posting your are referring to the Fast Company article on Michael Porter and why the concept of Strategy has been suffering. Much criticism on Porter’s ideas clearly derived from the “third reason” you are citing from the Fast Company article: considering strategy as a static and inflexible. Actually the main model which has been under attack here has been the “Generic Strategies” model which is in contrast to the 5–Forces addressing the level of “competitive or business strategy” asking: “How do we compete in a given industry?”
    Porter’s answer is: By applying the three generic strategies either by “Differentiation” or by “Cost Leadership” each in combination with (the third generic strategy) “broad or narrow focus”! Porter’s view has been (and still is) that you have to make a clear trade-off either by being a “cost leader” or a “differentiator” but not both at a time (aka “stuck in the middle”). And this argument has lead to Porter’s HBR article titled “What is Strategy” where he’s explaining the differences between “operational effectiveness” and “strategy” you are referring to in your posting. In the last 15–20 years since Porter introduced this model his generic strategies concept has been constantly challenged by reality and academics from the field of strategy and Porter has always been keen to defend it. From my perspective and this is what academia and reality have realized as well recent advancement predominantly in the area of IT have enabled businesses (in contrast to Porter’s view) to compete on both cost and differentiation as the example of Dell Computer is clearly showing. (there are clearly more models like the strategic groups and strategic space model which need to be considered here as well, but … ) In any case: what else if not design thinking which is aiming to address “wicked problems” with (paradoxical) multiple solutions is the approach to contribute to the business strategy level?!
    Interestingly in your last paragraph you are referring to the idea of “create your market” and “baking you own pie”! Agreed, but … so far you’ve solely considered models from the “outside-in” or better known as the “market based view (MBV)” perspective of which Michael Porter is the world leading protagonist. However the main limitation of this perspective arises from the basic assumption that the structure of an industry is somehow given and the only way to compete in this structure is to adapt (therefore the assessment of the 5 forces) or look for an industry which is more attractive (step out)! This means that you chances of “baking you own pie” are somehow limited to the ingredients the industry is offering. The countermovement to the “market based view (MBV)” is the “resource based view (RBV)” or also known as “inside-out” perspective. One of the main protagonists of this movement are Robert Grant (Contemporary Strategy Analysis) as well as Gary Hamel (Competing for the Future). The central paradigm for them is that while the market(s) are constantly changing and consequently adaptation to these outside conditions are likely to fail due to the time lag. Therefore the only promising way in this framework in order to achieve a sustained competitive advantage is to transform resources (tangible, intangible and human) into (unique) “organizational capabilities” which together with the consideration of “industry key success factors” are determining your strategy.
    The main goal of this approach is to create “casual ambiguity” which prevents competitors to copy or replicate your business model. This means the more complex your set of resources & capabilities is, ranging from single task capabilities to cross functional capabilities, the harder it will be to copy these. Having said this you see that while the strategic options of MBV are somehow limited to the dominating market forces in the RBV you will find an “infinite number” of choices to become a unique organization offering unique products. Interestingly this approach is exactly addressing the win-win scenario you are referring to and companies following this approach do not need to fear competition due to their unique configuration. Again Apple is a perfect example for this: Even though they are simply selling MP3 players offered by many other companies in the market as well, they have built on a complex (or is it “simplicity”?!) set of resources & capabilities which has enabled them to claim some 75% market share and remain unmatched (so far!).
    Having said this all (and I hope typepad accepts such a long comment ;-) I think the design thinker in not longer in a dilemma, but instead facing a paradoxical situation (see my posting: http://www.design-management.de/archive/2005/10/design-thinking-and-the-management-of-tensions/) with many and/or scenarios rather than either/or decisions.
    Are you with me … ;-)

  3. What a great conversation this is. I am like a mouse in the corner trying to take it all in.
    “means the more complex your set of resources & capabilities is, ranging from single task capabilities to cross functional capabilities, the harder it will be to copy these”
    Ralf’s mention of the RBV formed an image of the biggest box of crayons – the more colors you have, the more likely you are to have a story like Apple’s to tell.

  4. Niti Bhan says:

    Why thank you Jens! I emailed you but it bounced back saying “delay”.
    Ralf, thank you for the insightful comment, let me try to respond here, you make many valid points and provide numerous examples, I agree with respect to the different applicabilities of the five forces model and concept of ‘strategy’ as a tool, in fact, to your example of Porter’s generic strategies i.e. Cost leadership, differentiation and focus, I would like to add my observation that it’s not the particular strategy per se, that I am objecting to, but using the five forces as an example to demonstrate that the theories of strategy, as disseminated by Porter and Hamel and Prahalad, are in fact simplified and often, used incorrectly. By incorrect, I do not mean to imply that the strategist is not creating the correct framework or filling in the correct blanks, but in fact that the theories are applied in a rote manner, in the form of tools that are ‘guaranteed to work’ and provide results, rather than divining Porter’s true message which is:
    a) analyze the market you are entering OR playing in [viz., industry analysis via 5 forces model for example)
    b) Analyze the organization in the context of the market that you are playing in as well as what value proposition (or in Prahalad's words, core competencies or in advertising/branding terms, what USP - unique selling proposition that you/ the organization possess) - for example a SWOT analysis
    c) once you have analyzed what differentiates you from the other players in the market, you are now in a position to create a strategy, to quote from Porter above,
    "And strategy must start with a different value proposition. A strategy delineates a territory in which a company seeks to be unique. Strategy 101 is about choices: You can't be all things to all people."
    c) proceed, knowing all the while what your core differentiators are, what your value to the market is, and therefore what niches, markets, customers you can serve.
    The concept of the 'design thinker's dilemma' on the other hand, that the design thinker is by virtue of the nature of the beast, a strategist, as per Porter's definition given above. The concept of design thinking is never to compete on what has been referred to above as "operational effectiveness". Which is why by good design a Dyson is able to reach the point in the market that an old established firm like Hoover is selling out. [http://business.guardian.co.uk/story/0,,1701989,00.html] This news article in fact is a wonderful example of a Dyson – focusing entirely on creating an entirely ‘new pie’ i.e. the new technology for the vacuum cleaner based on his combination of design, invention, innovation and engineering – being able to change the industry itself for the ‘first mover’ Hoover.
    The issue is not that you choose a strategy based on cost leadership or differentiation, the issue is confusing what is Strategy itself with operational effectiveness. Walmart is a cost leader. Target is a differentiator. They both operate with effectiveness that places them in case studies by Harvard. Dyson, I’m sure, operates with effectiveness, and is certainly not a cost leader, being the most expensive on the market.
    However, when the two are confused, i.e. operational effectiveness with strategy, that the destructive competition arises. For example, were Company X to come out with an iPod that was cheaper – everything else the same, AND were Apple to compete by cutting costs, then you’d have the destructive competition problem that Porter refers to. I brought in his use of Japan as a timely example because China is playing a similar role in the market today, as is the concept of ‘outsourcing’ – which in turn is affecting entire industries.
    The design thinker’s dilemma therefore, is what to do with the mindset pervasive in business thinking today that cannot differentiate between operational effectiveness and strategic thinking. It is this reason that those who have no strategy, or vision or goal for the future, no value proposition per se beyond playing follow the leader, without a clear objective and role for the organization to play in their industry, are left feeling hemmed in by the increasing competition globally.

  5. niti bhan says:

    God bless us all.

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