StratChat 10 September 2020: Design Thinking and Business Strategy

StratChat is a weekly virtual networking event for business strategists and anyone with an interest in developing and executing better business strategies. It is an informal community-led conversation hosted by StratNavApp.com. To sign up for future events click here.

StratChat is conducted under Chatham House Rules. Consequently, the summary below is presented without any attribution of who said what. As such, it is an agglomerate of views - not necessarily just those of the writer or indeed of any one individual.

This week's conversation looked at Design Thinking and how it relates to Business Strategy.

What is Design Thinking?

Design Thinking is a problem-solving methodology originating from the field of design.

As with most methodologies, you can find lots of different descriptions and interpretations of design thinking. But most focus on 5 modes.

1. Empathise: This is what we would call Analysis in strategy and other methodologies. But design thinking emphasises that people are not just rational, but also bring emotions, feelings and biases.
   
   This is one of the more interesting contributions that design thinking makes. In business strategy terms it probably most closely aligns with stakeholder analysis. Whilst it would be convenient if business strategy were a purely rational process, in practice, stakeholders bring the emotions, feelings, bias and vested interests to the table. So business strategy must address these to succeed.
   
   
2. Design: It is said that a problem well defined is a problem half solved. Design thinkers place an emphasis on this and it is almost certainly sound advice.
   
   
3. Ideate: This seems to be a fancy word for brainstorming. Brainstorming is a fairly widely used practice. It has well know advantages and disadvantages. And it can be done both well and poorly. Design thinking no doubt has some good pointers for when to do it and how to do it well.
   
   
4. Prototype: This is what it says. The idea in its simplest form is that if you have an idea, you should test it on a small scale before going to the expense of building it on a large scale. This could be
   • a scale model of something large,
   • a low fidelity model, or
   • a process of testing something on a small sample of people before rolling it out en masse.
5. Test: The purpose of a prototype is to have something to test. So it makes sense that this is the final phase.

These are sometimes presented as a linear process, but equally sometimes presented as a more iterative process. In practice, it makes sense to iterate between the various modes as required to get the desired outcome. There are numerous diagrams floating around the internet which show various ways of iterating between the modes. Ultimately, you probably want to be doing all 5 modes continuously all of the time. But as you add people to the process, this can become confusing. So talking about them as specific discreet modes probably makes it easier for people to understand what is going on.

Design Thinking as a problem-solving methodology

There are many different problem-solving methodologies arising from different disciplines. Many of them say similar things but with slightly different emphases. This makes each more or less useful in specific circumstances.

For example, in management consulting, you have the SCQA methodology. (SCQA stands for Situation, Complication, Question and Answer.) Business strategy itself is a problem-solving methodology of sorts.

What we should aim to do is to familiarise ourselves with a range of methodologies and then use the ones that are best suited to the situations, the people and the culture we are working with.

Most of these methodologies start to look fairly obvious once you understand them and have experience in applying them. Sometimes you have to remind yourself that there was a time before these methodologies we considered best practice or even common sense existed. But each methodology reminds you that they're very useful in helping you to adapt a new approach to a different kind of problem.

Because, in business, they are mostly trying to achieve the same thing, most methodologies evolve by borrowing and absorbing the best bits from each other. We can see the similarities between Design Thinking, Lean, Agile, TQM. Perhaps they might all eventually merge into one super methodology. (Although, human nature being what it is, we'll probably just keep developing new variations.)

Like most methodologies, design thinking is not without its critics. Most of these seem to be directed against those who would elevate design thinking about all other methodologies with an almost religious fervour. As if design thinking stands alone as completely new, unique and superior to all other methodologies. As if it is the only methodology. The mystification of simple concepts like 'brainstorming' with unnecessarily complex words like 'ideate' almost certainly does not help.

How does design thinking relate to business strategy?

Design thinking comes from a product or service design environment. If your business strategy calls for a new or improved product or service, then design thinking may be the best methodology to apply to that part of the strategy.

But can we draw on design thinking ideas to improve the way we develop and execute business strategy itself?

Business Strategy as a continuous and iterative process

Like design thinking, business strategy is best thought of as an iterative process.

In many organisations, business strategy is an event - an intervention. The organisation has lost its way, there has been some failing in the fortunes of the organisation, or it just has new leadership. Business Strategy becomes a way to breath new life in the organisation. The old strategy is thrown out, and a new strategy is developed and adopted.

In other organisations, business strategy is a cycle. This may be a 3-year planning cycle, a 1-year planning cycle, or even a quarterly cycle. The length of the cycle would depend on the rate of change in the environment and the organisation's 'nimbleness' and change capability. Organisations might strive to increase the speed of the cycle in order to become more competitive.

We've seen an analogous evolution in finance. It used to be that the companies annual accounts took some months to prepare. As a result, they were out of date by the time they were published. Organisations then chased a 'fast-close' reducing the time between the year-end and the publication of the results. Eventually, the close became so fast that organisations could publish more comprehensive results on a quarterly or even monthly basis. Many companies now no longer have an annual budget. Instead, they have a rolling 36-month budget. As this improvement continues, we imagine getting closer to true real-time management and reporting.

Similarly, we could imagine business strategy become more real-time. The market does not wait for your organisation's 3-yearly, annual or even quarterly planning cycle. It changes whenever it changes. And if you have to wait for your next planning cycle to respond, you risk being left behind.

Could strategy even become a continuous process? A process in which the organisation is constantly and simultaneously absorbing information externally from the market and internally from its own business processes, constantly analysing that information, constantly reviewing and adjusting its options and decisions?

If strategy becomes a continuous process do you ever need a new strategy? Or does your old strategy just continue to evolve on an ongoing basis? If you're constantly sensing and anticipating what the future could bring, are you always prepared for it before it arrives rather than changing in response to it?

Or is that all too idealistic?

Do all organisations need to be moving their thinking towards a more continuous process of strategising? Or are there some which operate in more stable industries and which don't need to invest in doing this? Even if there are now, it is likely that some of the competitors will be trying to become more responsive and to disrupt the industry. So it may make sense to invest in such processes anyway, to avoid getting left behind.

Prototyping and Business Strategy

The idea of prototyping is probably the idea that fits least naturally with strategy. You can prototype a product or service, or a change to an aspect of a product or service which you develop in response to your strategy. But can you prototype a strategy itself?

Because strategy is an integrated set of choices and a plan to achieve an overarching goal, it is difficult for an organisation to try several different strategies at a small scale before choosing the one it wants to go with. For this reason, analysis and option evaluation before taking action is perhaps more important in strategy than it is in design thinking.

Business strategy, however, can still be very responsive. Using strategic KPIs to get live 'test' feedback from your strategy, and using A/B Testing to see what impact specific initiatives have on small subsets of customer before rolling them out at scale.

Being smart 'in the room'

One thing that design thinking really reminds is that it is very easy to be smart 'in the room'. However, it is only when we get out of the room and into the real world that we know whether our ideas have any currency or not.

There are a number of quotes on this theme:

1. "In theory, theory and practice are the same thing; in practice, they are not." (Albert Einstein)
2. "Everybody has a plan until they get punched in the mouth." (Mike Tyson)
3. "No plan survives first contact with the enemy." (Helmuth von Moltke)
4. "Plans are useless but the act of planning is priceless." (and variations thereof usually attributed to Dwight Eisenhower)

But it is important not to judge a process on the result alone (what one participant described as 'resulting'.). You may have made the right decision and still go a poor result. Equally, you may make the wrong decision and still get a great result. When presenting company results, leaders often attribute superior performance to 'management action' and poor performance to 'adverse market conditions'. Similarly, some leaders will present growth as a good result despite the fact that their competition did even better over the same period, and that they have only benefited from the fact that 'all ships rise with the tide'.

In strategy, we must consider both the result and how it is achieved. We must understand the difference between luck, timing and good decisions in determining results.

The scientific process of developing and then testing hypotheses can be useful here. Often people (1) plan an initiative then (2) execute it, and then (3) look for data to show whether it worked or not. Confirmation bias is a real problem in this circumstance. In the scientific process, you (1) first decide what you think will happen and why, then you (2) work out what data will confirm or disconfirm that, and only then do you (3) plan and (4) execute the intervention. Confirmation bias is then much less of an issue.

Strategy is as much about the why as it is about the what. If you get good results but you can't explain why, then you can't really say you've understood your strategy. Also, many strategies are post-rationalisations of decisions already made or results already obtained. This is also not a particularly good approach to strategy.

In startups, investors like people who can fail fast. That is because people who fail fast are people who are more quickly able to work out if there hypothesis is correct or not. Therefore they can change and respond to what they learn more quickly.

Attendees: Chris Fox (host and notes), Christopher Sable, David Sierra, Jerald Welch, Matthew Hall, Pratap Lakshmanan and Simon Krystman

Next meeting

There will be no StratChat on Thursday 17 September. However, we will resume on Thursday 24 September where we will be discussing: the fractal nature of strategy.

So don't forget to sign up to join us!