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

by Roger L. Martin

No retailer, including Target, is immune to the hazards of standing still in retail. The company now faces a resurgent Walmart, and challenges from newer entrants such as H&M, which have begun to imitate the successful Target heuristic by offering budget-friendly clothing from high-end designers like Stella McCartney and Comme des Garçons. Now that Ulrich has left the company in the hands of new CEO Gregg Steinhafel, his longtime second-in-command, it will be interesting to see if the company seeks to refine its existing heuristics and algorithms or turn its attention to the next mystery. Keeping alive the spirit of innovation and balancing the reliability necessary to compete against Walmart on efficiency with the validity necessary to out-innovate Walmart is Ulrich’s legacy as CEO of Target. A merchant, not a designer, he counted on others to design, while he maintained a design-thinking organization.

  The Hybrid Leader

  Between the extremes represented by Lazaridis and Laliberté at one end and Lafley, Hackett, and Ulrich at the other, there is a vast expanse of productive middle ground. The specific role played by the CEO is not important. What is important is the protection of validity and the promotion of design thinking. A fine example of successful CEO behavior between the two extremes is Steve Jobs, cofounder and returned CEO of Apple.

  Jobs has a long-standing reputation as a visionary designer. He was the cocreator of the Apple II, the forerunner of the Apple Macintosh, and after he left Apple in 1985, the company fell into a succession of disastrous strategies and fratricidal politics. Since his triumphant return as CEO in 1997, Apple has produced a string of design hits including the iMac series, the iPod, and the iPhone. Given his reputation and track record, most people would assume that Jobs functions as Apple’s analogue to Laliberté and Lazaridis, chief designer as well as the company’s leading advocate of validity. But in actual fact, Jobs operates as more of a hybrid.

  While he is credited with launching the iMac line of wildly colored desktop computers upon his return to Apple as CEO, Jobs did not create or even initiate the iMac. Star Apple designer Jonathan Ive conceived and created the iMac, which was essentially ready to go by the time Jobs returned to Apple. Previous management had hemmed and hawed over releasing the over-the-top iMac, which looked like nothing the personal computer industry had ever seen before. PCs were beige or grey boxes whose plain, hard shell masked the complexity inside. But the iMac came in candy colors like turquoise and tangerine, and it showed the guts of the computer through a translucent skin.

  When Jobs returned to Apple and saw Ive’s bold design, he faced a fundamental choice. From an analytical, reliability-oriented perspective, he would have been able to see that there was no data to suggest that the iMac would have appeal. But the intuitive, validity-oriented argument would have held that people might crave beautiful objects, even when it comes to electronics. If that argument was right, the iMac might actually succeed. Jobs chose decisively for validity and for the iMac, which would become the instrument of Apple’s regeneration. But mistakes are inevitable when the CEO prioritizes validity over reliability. Just because something could be right does not mean it must be. Apple’s post-iMac G4 Cube was a rare miss and was discontinued after less than a year on the market. The iPod Hi-Fi sank without a trace.

  Missteps aside, the iMac heralded the return of Apple. Soon afterward, Jobs looked at another of Ive’s new designs—an MP3 player to be dubbed iPod—and decided that the next Apple product would not be a computer at all, but an entirely different product, which would be a late entrant into a crowded field. All the reliable data said that was a dumb idea. But Jobs chose to believe in what might be, rather than what was; he stared into the mystery of how young people in the twenty-first century wanted to interact with their music and green-lit something that a reliability-oriented system would have strangled in its crib.

  Not even Steve Jobs could have predicted how consumers would embrace the iPod. How in the world could one device achieve 70 percent share of such a crowded market? It seemed impossible, but it was achieved thanks to someone (Ive) designing a marvelous product and someone else (Jobs) giving it a chance to succeed. Rather than operating directly as the head designer, Jobs insisted that design thinking would prevail at Apple Computer, which tellingly changed its name in 2007 to Apple Inc. Rather than create the designs himself, he selected great designs created by his organization and approved them for launch. It helps, of course, to have a designer as brilliant as Ive on your team. But would Ive’s game-changing creations have ever seen the light of day with someone other than Jobs at the helm?

  Jobs was most certainly acting as validity’s champion and design thinking’s enabler. He played a pivotal role in interpreting consumer perceptions and deciding which products should or should not go forward. In this respect, Jobs is a hybrid. He goes beyond setting up structures, processes, and norms to promote design thinking but no longer engages in design himself. But he is at least as successful as those occupying the extremes of the distribution.

  Jobs, Lazaridis, Laliberté, Hackett, and Ulrich demonstrate that different CEOs have different approaches to their role as the organization’s chief advocate for the inclusion of validity in decision making. Across each approach, however, is a common theme: a commitment to making the constructive balance of validity and reliability the central component of their job.

  Of course, you might argue that a CEO has the kind of leeway to transform his or her organization that the rest of us do not. Setting aside that the CEO might counter with a series of tales of pressure from stockholders, analysts, and board members, let’s assume for the moment that is true. How can the rest of us—who don’t have the ability to reimagine the structures, processes, and norms of the entire organization—do our best to act as design thinkers on our own jobs, even in a culture that seems designed to stamp out all traces of the balance between validity and reliability? That is the challenge of the next chapter.

  CHAPTER 7

  Getting Personal

  Developing Yourself as a Design Thinker

  IN THE PAST SIX CHAPTERS, I’ve discussed ways to balance validity and reliability at the organizational level and delved into examples of CEOs who have achieved the balance within their own enterprises. The discussion might lead you to ask whether design thinking is the exclusive domain of the CEO and the members of the senior management team. What can you hope to achieve if you’re not a senior manager? What if, for instance, the CEO of your organization carefully protects reliability against validity and steadfastly favors exploitation over exploration? Should you just give up and work at exploiting the current knowledge to produce reliable outcomes? Is that all you can do?

  Not by a long shot. It is true that your organization won’t advance knowledge as quickly as it could if the CEO made validity a personal protectorate. But that doesn’t mean that you can’t function as a design thinker, even in the bowels of the most reliability-oriented company. You can work to develop your own design-thinking skills and individually produce more valid outcomes. And you can learn how to work more effectively with non-design thinkers in your organization, rather than engaging in counterproductive battles that result in standoffs, hard feelings, and inaction. Both developing your own designing-thinking skills and learning how to deal more productively with colleagues who are analytical thinkers and intuitive thinkers will help you be a capable and successful design-thinking CEO someday.

  Developing Your Design Thinking Personal Knowledge System

  In my previous book, The Opposable Mind, I introduced the concept of a personal knowledge system as a way of thinking about how we acquire knowledge and expertise. 1 I argued that we all have a personal knowledge system, whether or not we recognize it. For most people, this system develops in an implicit and largely unguided fashion. But that need not be the case. If you work in a reliability-driven, exploitation-oriented organization, your personal knowledge system will naturally develop in a reliability-friendly way, unless you explicitly develop and nurture a balance of reliability and validit
y. Lack of explicit attention to personal knowledge systems helps ensconce reliability orientation in business organizations and slows movement across knowledge funnels. That is why it is important for you to develop your knowledge system consciously and explicitly.

  In The Opposable Mind, I explained that your personal knowledge system has three mutually reinforcing components (see figure 7-1). The broadest and most abstract element of that system is your stance. It is the knowledge domain in which you define how you see the world around you and how you see yourself in that world. For instance, a design thinker sees the world as a place that welcomes new ideas, rather than a hostile environment that punishes change. Remember that designers care profoundly about impact. Their ethos is to do meaningful work. John Maeda of the Rhode Island School of Design captured the optimism of the designer’s stance when he told me, “I am encouraged by the potential that artists and designers have to make real changes in the world. Artists and designers have a powerful role in this expansive universe—to take all of the complexity and make sense of it on a human scale.” 2 Design thinkers want their ideas to make a difference in the world. Their stance takes for granted that the world can change, and that they, as individuals, can bring about that change. It is a wonderfully open and optimistic way of being.

  FIGURE 7-1

  Your personal knowledge system

  We all have a stance, and that stance deeply influences our actions. The actions of someone who sees the world as unchangeable and the self as a small cog in a giant machine are very different from the actions of an open and optimistic designer. Yet despite the profound influence our stance has on our actions, we don’t often step back to think about what lies beneath that view and behind those actions. Instead, we often take our stance for granted, completely ignoring its impact on our actions and the outcomes they create. We chafe against unsatisfactory outcomes, but rarely go back to explicitly examine how our stance contributed to those outcomes. In fact, because we are so often unconscious of our stance and the assumptions about the world that flow from it, its pushes and pulls are all the more powerful and all the more difficult to resist.

  One step down in your personal knowledge system are the tools you use to organize your thinking and to understand your world. There are many tools—from strict analytical frameworks to loose rules of thumb—that can be learned and applied to any number of problems. The tools are efficiency vehicles: without a conceptual tool kit, you would have to tackle every problem from first principles. Theories, processes, and rules of thumb make it possible to recognize and categorize problems, and apply tools to them that have proved effective in similar circumstances in the past. We don’t have the need, the time, or the inclination to acquire all the possible tools, so our stance guides which tools we choose to accumulate. Imagine you see yourself as artistically inclined—as someone who loves playing with graphics on a page—and the world as a place in which you can be well paid to pursue your passion. Your stance as a graphics aficionado, for instance, might guide you to enroll in a graphic design program at an art or design school, to gain the formal conceptual tools you’ll need to design logos, annual reports, and advertisements.

  The final component of the personal knowledge system is experiences. Your experiences form your most practical and tangible knowledge. The experiences you accumulate are the product of your stance and tools, which steer you toward some experiences and away from others. If your stance as a business executive is as a great model builder, and your tools for understanding consumers are sophisticated quantitative models, your experience likely comes from analyzing survey results in your office, not from talking face-to-face with consumers. If instead you see yourself as a people person, skilled at getting consumers to open up about their needs and desires, you will be inclined to build tools for in-home visits and accumulate experiences talking to consumers.

  As we accumulate experiences over time, they enable us to hone our sensitivities and skills. Sensitivity is the capacity to make distinctions between conditions that are similar but not exactly the same. A chef can make fine distinctions between a piece of meat that is done and one that is not quite. An art critic has the sensitivity to make distinctions between a bold, original talent and a merely competent technician. An experienced equity analyst can read nearly identical financial statements from two different companies, pinpoint where they diverge, and use experience and rules of thumb to accurately predict which will outperform the other.

  Skill is the capacity to carry out an activity so as to consistently produce the desired result. A skilled chef can consistently cook a steak to the desired state. A skilled art critic can help viewers see the difference between a masterpiece and a lesser work. A skilled stock analyst can consistently distinguish between stocks that will track the overall market and those that will outperform it. True skill, it is important to note, does not merely produce the reliable result; it reliably produces the desired result.

  Skills and sensitivities tend to grow and deepen in concert. As you repeat a task, you are inclined to build what you learned from the repetition into the next iteration until you develop a consistent technique. An improved technique sharpens your skill, making you faster and more accurate. And as you repeat a task, you learn to make finer and finer distinctions between levels of quality, so that an experienced chef can tell almost by instinct when a steak is blue and when it’s rare.

  People at all levels of an organization have the opportunity to develop their skills and sensitivities thoughtfully and directly through their experiences. A. G. Lafley developed advanced skills and sensitivities over a quarter-century at Procter & Gamble before he took over the top job. He began as a brand assistant, fresh from Harvard Business School after a five-year stint in the U.S. Navy. He had already developed a stance that said the world would welcome new ideas, and that he was capable of generating those ideas. He acquired a set of tools over his career—supply-chain management in the navy, general management theory from Harvard Business School, and brand-building techniques from the masters at P&G—which he employed to good effect. Finally, he gained experiences that developed both his skills and his sensitivities. He experienced

  running large and highly profitable product lines that needed to innovate and grow; he experienced introducing a relatively unknown brand against a dominant traditional player; and he experienced firsthand how the decisions made by marketing managers affect the sales and distribution teams. He experienced running brands with profoundly different profit dynamics—learning that you can’t charge more than $2 for a four-roll package of Charmin toilet paper, but you can charge more than $30 for a small vial of Olay Regenerist when it is branded in just the right way. The multitude of experiences developed Lafley’s skills and sensitivities as he moved up the P&G hierarchy; what’s more, they reinforced his stance and influenced his continuing development of new and better tools.

  Personal knowledge develops as a system because its three elements influence one another. Stance guides tool acquisition, which in turn guides the accumulation of experience. The flow, however, is not one-way. Experiences inform the acquisition of more tools. As experience leads us to acquire new tools, we add depth and clarity to our stance. When a person starts in a given direction, that direction is likely to be reinforced and amplified, not diminished or altered. This can happen for good or bad; that is, the spiral can be beneficial or detrimental. A narrow and defensive stance will lead to acquisition of extremely limited tools and extremely limiting experiences. Those experiences then feed back into the acquisition of even more limited tools and the formation of an even narrower stance. A more expansive stance will lead to the acquisition of more powerful tools and challenging learning experiences, which will promote more tool acquisition and a more powerful stance.

  Neither a downward nor upward spiral is foreordained. Your personal knowledge system—your stance, tools, and experiences—is under your control. You have wide latitude as to how to develop your personal knowledge s
ystem. You might not be able to change your height or DNA, but as long as you can change your stance, you can change the tools and experiences you use to develop your design-thinking capacity.

  The Design Thinker’s Personal Knowledge System

  The design thinker’s personal knowledge system is distinctive along all three dimensions: stance, tools, and experiences. It generates a self-reinforcing spiral that values validity and exploration; it develops the stance, tools, and experiences that make a design thinker capable of designing new ways of doing business and new businesses. Rather than perpetuating the past, the design thinker creates the future. “Which project is my favorite?” asks the brilliant Sohrab Vossoughi, founder of Ziba Design. “The answer is always the same—the next one.” 3

  Stance

  Design thinkers are under no delusion that the world adores validity and encourages exploration. They fully understand that the world they live in substantially favors reliability over validity, consistency over innovation. They also recognize that honing and refining knowledge within the confines of its current stage in the knowledge funnel is what the world most readily permits and consistently rewards—and that exploitation is essential to a well-performing enterprise.

  Despite that view of the world, design thinkers seek to balance validity and reliability. They don’t ignore reliability by any stretch, but they will trade off against reliability in order to reach a valid answer. In addition, the design thinker lives to advance knowledge to the next stage in the funnel. Advancing knowledge is a core drive, a source of pride and happiness. Although validity is trickier and more uncertain than reliability, the design thinker understands that one without the other does not make a sustainably advantaged enterprise.