FACULTY FOCUS

A.M. Mcgahan + M. Leung

design thinking OVER THE PAST 15 YEARS, has had an explosive impact on innovation and commercialization, especially within established firms. The Rotman School’s former Dean, Roger Martin, has contributed mightily to these advances, notably through his book, The Design of Business. Other authors, including David Kelley, founder of IDEO, have developed and popularized the approach both in principle and in practice.

The methods and approaches of this discipline are varied, yet they generally boil down to unleashing creativity through an iterative series of steps:

1. In a typical UNDERSTAND AND EMPATHIZE WITH END USERS. design-thinking approach, practitioners get out of the organization and into the field to better understand their customers, employing ethnographic research techniques such as user observation and open-ended inquiry to identify unmet needs.

2. Armed with this primaDEFINE THE PROBLEM(S) TO SOLVE. ry research data, they then synthesize different ‘problem frames’.

3. A cross-disciplinary team then IDEATE POSSIBILITIES. brainstorms possible solutions based on the framing in Step 2. 4. The team then prototypes the best PROTOTYPE IDEAS. possibilities into tangible concepts. These may take the form of physical models, storyboards or visualizations.

5. The end products of Step 4 are then TEST WITH USERS. tested with actual potential users. Their feedback is used to iterate on the idea — and sometimes, to reframe the problem to be solved.

While this approach to innovation has been heralded for its effectiveness in product and service design, it has sometimes been criticized when applied to strategy problems. The critiques have come on a number of levels. One is that the kind of blue-sky thinking involved in conceptualizing user needs often leads the team toward ideas that are ultimately infeasible or unviable. Another critique is that the process of design thinking can stir excitement for change, but doesn’t always lead to a roadmap for its fulfillment. Yet another is that the cross-functional working groups at the heart of the design thinking process don’t have the authority or ability to drive implementation of their ideas.

In this article, we take up themes that were first introduced by Roger Martin and former Procter & Gamble CEO A.G. Lafley in their Harvard Business Review article, “Bringing Science to the Art of Strategy.” In this article, the co-authors suggest a design thinking-like approach as a more effective process for conceptualizing and implementing strategy. They begin by recognizing that strategy processes in organizations are often strong on the analysis

of established trends and problems, but lacking in novel hypothesis generation and experimentation.

Martin and Lafley then describe how design thinking can be implemented most effectively: By generating and evaluating strategic options in an effort to resolve core strategic problems in organizations. For instance, Step 1, understanding users, is likely to contribute additional strategic options not previously considered by the team.

By dedicating a number of cross-functional teams to work independently on each of several options generated in Step 3, an organization can benefit from the creativity and energy of dedicated enthusiasts working in parallel: Each team focuses on a distinct option that is designed to be incompatible with the others. A critical insight in their analysis is the idea that, once options are generated and fleshed out, the strategy process then seeks to clarify the assumptions that would have to be true in order for each option to be robust. Thus, instead of engaging in advocacy-driven arguments about the various options, the process again becomes primarily analytical, with each option resting on assumptions that can be stress-tested. Once assumptions are verified, the strategy process concludes with a commitment to a design-based option.

The Martin and Lafley advances constitute a remarkable breakthrough because they demonstrate the relevance of design thinking to the process rather than only to the substance of strategy. Blending art with science, they show that organizations can benefit from both creativity and analysis. Instead of pursuing useless arguments about the ‘fluffiness’ of intuitive reasoning, strategists can integrate design thinking and analytics to achieve more than what can achieved on each independent path alone. These ideas are important because the process that they outline overcomes the three objections that we outlined earlier: infeasibility, dead ends, and lack of authority.

We seek to build on this success by pointing to the importance of design thinking for addressing strategy at another level — one that has emerged recently as central to the field of strategy, and that we believe will become even more important in the near future. It is becoming abundantly clear that a large class of strategy problems involve challenges to the fundamental architecture of organizations. Many of these problems (and solutions) are described as ‘disruptive’, and are equally disruptive to the people associated with the organization.

As a result, addressing the challenge of disruptive innovation requires rethinking the way that all stakeholders associated with the organization — both directly and indirectly — are relevant to value creation, and then assessing how value can be allocated to each stakeholder in a way that is both fair and affordable.

The essence of our argument is that the greatest potential for the process of design thinking in strategy lies in expanding beyond users to an orientation toward each of the major stakeholder groups. All too often, novel strategies and user-centric ideas never get implemented because they fail to meet the needs of the organization and the people associated with it. Hence, we see massive opportunities to apply design thinking at a much broader scale.

This shift raises questions about which stakeholders are relevant to the ongoing mission of the organization — and particularly, as to whether some stakeholder groups that were previously involved must now be let go, while other groups are enfranchised. Put simply, the unit of analysis moves from the user to the mission of the organization, with the strategy process grounded in the question, What will it take to succeed in fulfilling our mission?

After a comprehensive analysis of the possible answers to this question, the design thinking effort addresses not only user-based concerns, but the challenges facing every stakeholder group that is engaged with the organization — as well as those that must be engaged in the future.

We would argue that the same kind of empathic understanding that is at the heart of user-based design is relevant for every organizational stakeholder, including employees, distributors, suppliers, customers and investors. The goal is to use the process of design thinking to put yourself in the shoes of each stakeholder — and to think about the same questions of business value, user experience, and actualization that have characterized userbased design thinking.

This means broadening our application of design thinking to a more inclusive and participatory model, as follows:

Addressing the challenge of disruptive innovation requires rethinking the way that all stakeholders associated with the organization.

1. Empathize with key stakeholders and users

2. Define the problems to solve from multiple perspectives

3. Ideate possibilities with key stakeholders

4. Prototype Ideas, strategies and models

5. Test with stakeholders and users

Although more complex, this expanded process generates insights not only into the options available to an organization, but it also addresses one of the crucial challenges of conventional design thinking, which is the viability of the options available to the organization for achieving transformation. This is because empathic consideration of the needs of each stakeholder group generates an assessment of each stakeholder’s next-best alternative to participation. By analyzing the results across all stakeholder groups, the strategist can then assess whether sufficient value is created to compensate all stakeholders in ways that are fair and sustainable.

Most importantly, design thinking drives a firm towards an external orientation during crucial periods of strategizing. Instead of seeking compromise on internal issues that are often political and personal, the process stresses value creation, with the fulfillment of the enterprise’s mission front and centre. As Lafley and Martin suggest, analysis and creativity can be integrated through iterative processes that take the output of working groups as fodder for experiments that generate information that can be analyzed rigorously.

Exhibit A: TELUS

TELUS is a Canadian telecommunications company that prides itself on its customer centricity, as evidenced by its customer satisfaction and loyalty metrics. The company’s Service Design Innovation and Strategy Group helps its multiple product line divisions deliver an integrated and seamless customer experience.

‘Stakeholder-centric design’ is at the core of what Service Design Director Judy Mellett and her group do. This entails first understanding the current strategy and the needs of internal stakeholders — whether it be supply chain, repairs or retail; then going out into the field to observe customers in their homes and in stores to understand their perspective; running co-creation sessions with users and key stakeholders to generate and test new ideas; and experimenting within the business to validate new strategies and solutions.

This multi-stakeholder approach drives both internal buy-in and new perspectives and has led to the redesign of many of the internal processes and external experiences at TELUS. According to Mellett, “Broad stakeholder engagement not only garners diversity of input and builds advocacy for resulting solutions and strategies, it also identifies linkages that were previously unarticulated — ultimately lowering uncertainty and risk.”

This approach lends depth to the analysis and experimental concepts when assessing the range of possibilities, she says, and beyond the quantifiable outcomes, “the cohesion people develop in a collaborative working model is a true benefit of a stakeholder-centric approach.”

In closing

By applying processes of design thinking across all stakeholder groups relevant to the fulfillment of your organization’s mission, the toolkit available to the strategist expands significantly. The result: A strategic outcome that is much more likely to succeed.

A large class of strategy problems involve challenges to the fundamental architecture of organizations.

Anita M. Mcgahan is the Rotman Chair in Management and Professor of Strategic Management at the Rotman School of Management, with cross-appointments to the Munk School of Global Affairs and the University of Toronto’s Faculty of Medicine. Mark Leung (Rotman MBA ‘06) is the Director of Rotman Designworks, the Business Design Centre at the Rotman School of Management — his expertise is in design and innovation.