Design Thinking inside Strategy

Formulating a good Strategy is hard. Not that much because the strategic thinking process would hide arcane ways of comprehension, or because essential information about the future might be disguised as weak signals, but mostly because the way to formulate Strategy in a logical and adaptive way, combining inductive, deductive, and abductive reasoning, remains largely elusive. This is a process that is often plagued by subjectivity, by shallow or approximate approaches, surrogate or obsolete tools, self-enforced simplifications, and awash in confusions about what is part of Operations and what is part of Strategy.

Along the years, some parts of this process have been clarified by enlightening milestones placed in the ground by visionary Strategy thought leaders. But some of them still remain blurred. One such blurry part is about making Strategic Choices on Strategy's two dimensions of Where-to-Play (WTP), driven by our understanding of customer's Jobs-to-Be-Done (JTBD), and that of How-to-Win (HTW), driven by our ability to find adequate solutions to those jobs. These choices to change certain things in the future, but not others, represent the foundation upon which our Strategy is built. You can find out more about them in The Balance of Strategic Choices article, part of this newsletter series.

Where to find Jobs-to-Be-Done?

I think that this is a fair question, within the context of our Strategic Choices. Which jobs that customers are trying to do should we be looking for? Should we search what jobs our existing customers are doing, or look at what potential customers are trying to accomplish? Then, is our quest related to one or more of our existing products or services, or we should perform the research for developing future ones?

These are important questions. Ask the wrong ones and you may risk spending resources and time on products or services that won't sell. Such flops can happen, but they are avoidable if we ask the right questions. So which JTBD should we target and which kind of solutions should we provide to the customers in typical circumstances? We'll start from a diagram and then dive into the main cases and its quadrants. We can call it the JTBD Map, as it is a genuine illustration, although inspired by Tony Ulwick 's JTBD Growth Strategy Matrix that can found in his book Jobs to Be Done: Theory to Practice (2016).

Jobs of Under-served Customers

One of those important questions is: "Which customers are the most under-served?".

These are customers who look for a better, more functionally-complete, more durable and reliable, more capable to interconnect product or service. They haven't found it yet in the marketplace, so they are an excelent opportunity sweet-spot for us, if we can overcome the challenges to provide them the right solution for their JTBD. Others are locked-in or captive into markets where solutions alternatives are artificially scarce, due to monopolies, licenses, standards, or exclusivity constraints, or due legal constraints. Those are some under-served markets, as well.

For these customers, we'll be able to charge a premium price, because we provide the best solution for their JTBD. Sometimes, we cannot provide such solution ourselves, therefore we might require a certain ecosystem of partners to accomplish that. In other cases, the customers are located in geographical territories where such products or services are scarce or difficult to access, therefore they represent a geographical expansion opportunity. Same goes for customers in adjacent markets that are under-served by the suppliers available over there. That is another potential expansion opportunity for us. So, we must look for such unsatisfied JTBD cases and choose carefully our next step.

Jobs of Over-served Customers

Another question may be: "Which customers are over-served, being offered products or services that they'll use only partially, or not at all, because they are too expensive or too complicated?".

These are customers that require a disruptive product or service, made out of cheaper but good enough material, with simpler user interfaces, or with fewer functions, therefore manufactured cheaper, better suited for a specific instance of the job, therefore tailored only for that instance and simpler. This is the opportunity sweet-spot for disposable or single-use products, for no-subscription services, for rent instead of buy, or for shared ownership and shared use.

If we succeed to provide these customers with less sophisticated products or services, with less quality, but still good enough to do their JTBD, with business models that will conveniently replace at a discount the traditional ones, we'll be able to get a growing business, because customers like these tend to be part of what is called the long tail. Again, we must choose carefully. Read more about this in ...

• The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail , Clayton Christensen, (1997)
• Long Tail: Why the Future of Business is Selling Less of More , Chris Anderson, (2006)

Jobs of Non-consumers or Marginal Customers

Ultimately, we can ask this: "Which customers would be willing to pay for a new solution when none is yet available for the job they are trying to get done, or those available are inadequate?".

They are the so-called non-consumers, or marginal customers. When radios were expensive pieces of furniture with vacuum tubes, younger people welcomed the new portable tranzistor radios that usually had a bad quality reception, but could be taken at outdoor gatherings, away from parents' eyes, and dance on rock-and-roll music. Something similar happened with the personal computers that people could operate at home, unlike the bulky mainframe computers in computer centers. Middle-age customers don't go to circus shows, were children are usually taken there by their grandparents. But if the music concert, ballet dance, and theatre backgrounds are combined in spectacular circus shows of sound and music, then their needs for entertainment may be well satisfied. When such JTBD are purposely built for them, to be addressed by conceptually new solutions, we have a case of Blue Ocean creation. Read more about this in ...

• Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant , W. Chan Kim and Renée Mauborgne, (2005).

Can we satisfy such JTBD, by employing novel technologies or business models? If Yes, then we'll strike a growth opportunity, in a potentially fast-growing market, where we might enjoy no competition, for a while, or some reduced competition. These opportunities have the potential of placing our company on the top of the competitiveness food chain

The wicked problem. The gnarly challenge

Prof. Roger Martin has written in 2009 a book less popular than his latest ones, The Design of Business: Why Design Thinking is the Next Competitive Advantage , which focuses significantly on employing Design Thinking for solving wicked problems that can then become the foundation of our Competitive Advantage, if we can find solutions for them. This year (2022), Prof. Richard Rumelt has written his second high-impact book, The Crux: How Leaders Become Strategists , in which he argues that any Strategy must be the response to a paramount, gnarly challenge that the company is facing in building a Competitive Advantage. Where should we look for such problems and challenges? Which should they be?

The first place to look for such problems and challenges are the Jobs-to-Be-Done that we should be targeting on the Where-to-Play dimension. So, which JTBD to target, and which ones, not? The second place to look for finding high-stakes problems and challenges, should be the solutions we should be providing for those JTBD, on the How-to-Win dimension. Which are the solutions and which are their associated choices that will shape our Strategy?

But which is the best way to find JTBD that require a solution. It's the Design Thinking theory and workflow. Here is the IDEO / Stanford d.school version (click to enlarge).

A simplified version of this workflow would look like this, highlighting the three mai stages of the process: JTBD Analysis, Solution Creation, Solution Testing & Adapting.

The Strategy Formulation process

Guided by the Playing-to-Win Cascade process, described by Prof. Roger Martin in his anthological book Playing to Win: How Strategy Really Works , co-authored in 2013 with AG Lafley , long-term CEO of Procter & Gamble, we can draw the workflow that we use for formulating our Strategy, also considering the Strategic Gaps, the essential ingredient for building an adequately-linked Strategy Execution process, and the Strategy adaptation feedback loops between the formulation and execution cycles. You can find more about the details of this process in the article The Game Inside Strategy , which is also part of this newsletter series.

As we can observe, we are starting from The Crux of wicked problems and paramount, gnarly challenges that drive our Strategy Formulation process. So, where and how do we find them? I think that we have already answered this question, in the first part of this article: by using Design Thinking. Ok, but if we would do that, wouldn't we build our entire multi-annual Strategy on a single product or service line? If we are a Start-up or a company with a single business line wrapped around a product or service, that shouldn't be a problem.

But what if we are not? What if we are a more complex company, with multiple business lines and a portfolio of products and services? How would the Design Thinking process fit into our Strategy Formulation workflow? Well, it wouldn't. We are obviously required to deepen our understanding of the two processes, of inductive design and of deductive or abductive causality, and find a way of interlacing them.

The Logic Reasoning models

Before further discussing their implications for Strategy Management's processes, let us first clarify these conceptual models of reasoning and their differences: Inductive Reasoning, Deductive Reasoning and Abductive Reasoning. Why is this important? Because, as we pass from one of Strategy's core process to another, we must shift our way of thinking, to understand in a very clear way what is going on within each core process.

Deductive reasoning deals with certainty?and involves reasoning toward some logic conclusions. We start from observed facts and define a theory, based on them.?The problem here is that, since we cannot observe all possible occurrences of those facts, the resulting theory may not be universally applicable. We see that all the swans on a lake are white. So, our conclusion is that all swans are white, with a theory that says the if a bird is white, it may be a swan. A theory that is immediately invalidated the first time when see a black swan. Less often, but that can happen.

Inductive reasoning deals with probability?and involves reasoning toward a likely conclusions based on contextual data.?We start from a universally applicable theory that may lead us to a limited number of conclusions and, based on the contextual data available, we allocate probability to its possible conclusions. For instance, if there is more supply than demand, for the same product, the prices will drop.

Abductive reasoning deals with guesswork and it involves reasoning toward possible conclusions based on guesswork, on best guesses. It is a type of reasoning that is used in formulating a hypothesis for further testing. Very often, we hypothesize about causality relationships that will manifest sometimes in the future. Unlike the deductive reasoning, we have an uncertain theory here. For instance, customers may be attracted by smartphones with folding screens. Our theory is about large screens that can still fit smaller pockets. So, many buyers will prefer them (best guess, a hypothesis to be tested). Well, we don't know if that will turn out as valid or invalid, as more criteria are at play when someone decides to purchase a smartphone. So, it remains a hypothesis to be proven valid.

Marrying Inductive, Deductive and Abductive Reasoning

I have mentioned this, some time ago. One of the secrets of a working Strategy Formulation processes is our capability to put together a process of inductive reasoning, which analyses markets, customer Jobs-to-Be-Done and desired outcomes, followed by a deductive and abductive reasoning backbone of linked causal theories, to ultimately produce a Strategy. This is a diagram that illustrates such an interlaced process that smoothly embeds Design Thinking into the Strategy Formulation process.

This is the merging of two diagrams that we have seen above. Let us look into several essential observations about it.

1. Guided Design Thinking. What is this? It about the creative sub-process (the second part of the DT workflow) that does not just use the customer JTBD empathy insights, but also the Where-to-Play choices types decisions that we have made after analyzing multiple challenges resulting from understanding the unsatisfied JTBD opportunities in over-served or under-served markets. In other words, we use inductive reasoning for generating a theory about ideal solution requirements, and then we use the theory of the available Strategic Choices types, to guide us towards the mix of choices types with most probable success chances. That is the deductive reasoning part that guides the DT creative process. This means that we are able to synthesize an aggregated set of wicked problems and paramount, gnarly challenges associated with solving multiple and even serial Jobs-to-Be-Done, defined within the same mix of Strategic Choices. This also means that we are talking now about problems & challenges that, once successfully resolved, may open to us the perspective on multiple product or service lines to be incubated and launched, for gaining Competitive Advantage over a longer-term horizon.
2. Split Design Thinking. That is correct, we should split the Design Thinking process into its two main parts: (a) the inductive reasoning sub-process of insightful-empathic discovery of customer's JTBD, desired outcomes, and associated Customer Experience (CX), and (b) the co-creative process of building customer-acceptable solutions for the jobs, which employs abductive reasoning, based on hypotheses about what solutions may be most successful. Why do we split the Design Thinking process in this way? Because we need to aggregate multiple wicked problems and paramount, gnarly challenges that can be addressed sequentially by the same mix of Strategic Choices types about Where-to-Play, that remain valid for multiple future products / services. Then, we can feed these WTP targeting decisions, together with our discovered solution requirements conclusion, as guidance for Design Thinking's creative sub-process, which is capable to incubate a family of co-created solutions for the multiple JTBD explored with multiple instances of Design Thinking's discovery sub-process.
3. Aggregated JTBD solutions. The output from multiple DT discovery sub-processes becomes the foundation for our next decisions on the How-to-Win dimension. Actually, equipped with such a rich and practical input, the decision process for this set of Strategic Choices types becomes simpler and more powerful, as we know much better what kind of solutions and Value Propositions will differentiate us in the marketplace.
4. An integrated process. By embedding the Design Thinking process in such interlaced manner, our Strategy Formulation process becomes better anchored in the realities of customer JTBD that we are targeting, as well as into a family of JTBD solutions that can sustain our current Competitive Advantage, and allow us to incubate and transform our business for the next ones. As mentioned before, Strategy Formulation includes the concreteness of the Strategic Gaps that we have to close within the Strategy Execution cycles, the validation of that execution's feasibility and viability, as well ass the feedback loops provided by the execution cycle, which allow us to adapt our Strategy. You can find out more about the integrated processes of Strategy formulation and execution in this article: Strategy for Left Brainers (the Strategy Clockwork).

This article was just a hint on the title subject, as I am sure that we will hear much more about opinions related to ways of embedding Design Thinking into the core Strategy Formulation process.

In the mean time, your questions that I promise to always answer, suggestions or bricks thrown at the author, are more than welcome. Thank you for your time!

Other?Strategy Clockwork newsletter?articles:

The Strategic Alignment

Strategy Skunk Works

Don't Rely on a Single Strategy!

Without a Plan, Strategy is a Fairytale

Beyond [static] Balanced Scorecard

The Deeply Integrated Strategy

The Game inside Strategy

The Balance of Strategic Choices

The Corporate Balanced Scorecard

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