What it is: “The Design of Business” book is about how companies can avoid stagnating and look towards future markets.
In business, there’s a tendency to play it safe. That means doing the exact same thing as before but tweaking its parameters to make it more efficient. In the manufacturing industry, that means making items cheaper and better than before such as making cars with improved safety features.
The problem with business is that focusing on improving the current business is a guaranteed recipe for failure. What happens when the current market dries up? Just ask Blockbuster Video what happened when people stopped renting DVDs or ask Borders Books what happened when people found it more convenient to buy books online through Amazon?
Both Blockbuster Video and Borders Books continually optimized their business to deliver the same product, only better at less cost. That meant Blockbuster Video completely ignored video streaming and Netflix while Borders Books completely ignored online shopping and the rise of ebooks.
In “The Design of Business,” author Roger Martin says there are three types of logic that businesses need to embrace:
- Deductive logic
- Inductive logic
- Abductive logic
Deductive logic goes from the general to the specific. That means if a business learns that their best customers are over 50 years old, then Bob, the 50-year old man living in Ohio will likely be a potential customer.
Inductive logic goes from the specific to the general. If you discover that Susan, a 22-year old woman just graduated from college enjoys your restaurant’s salads for dietary reasons, then you can target other 22-year old women and assume a large portion of them will also enjoy your restaurant’s salads.
Both deductive and inductive logic look for “proof”, and that’s what businesses do. They look to the past and the present to predict the future. That’s why so many companies focus on improving their products and services because they can see how cutting costs by 5% can generate 10% great profits on a consistent basis.
Unfortunately, certainty never exists in the future. That’s why adductive logic is important because abductive logic doesn’t try to tell you what’s true or false. instead, abductive logic looks to tell you what might be true.
In other words, rather than focus on optimizing a company’s products or services, abductive logic looks to see what people might want in addition or instead of your company’s current products or services.
For example, rival DVD rental stores never threatened Blockbuster Video. Streaming video over fast Internet connections did that. That’s why Blockbuster Video executives focused on improving in-store sales without ever thinking about streaming video. It was easy to get sales data on past DVD rental sales. It was impossible to get sales data on streaming video because it hadn’t happened yet.
Kodak focused solely on selling and developing film so they focused on optimizing selling and developing film. Then they invented digital photography, which didn’t need film. Rather than embrace this new possibility, Kodak simply ignored it until digital photography quickly surpassed the use of film.
At one time, tourist areas used to sell Kodak film so people could buy extra film to take pictures. Nowadays, nobody sells Kodak film except for speciality stores.
Kodak used deductive logic to predict the future, and used inductive logic to use present data to help them make decisions for the future. Yet Kodak failed to use abductive logic to look at a possible future where film didn’t exist.
Roger Martin emphasizes that companies need to use both inductive/deductive logic and abductive logic. They need to optimize the efficiency of the present but they also need to look for the future where their current products and services might no longer be necessary.
Amusingly, “The Design of Business” was published in 2009, which was two years after Apple introduced the iPhone. Roger Martin even used Blackberry as an example of a company that had anticipated the future of smartphones and discovered that physical keyboards were the answer.
Back in 2009, Blackberries were so popular people called them Crackberries for their addictive nature. Yet Blackberry failed to anticipate a future where people didn’t need physical keyboards, and that future appeared in the iPhone, which wiped out Blackberry’s market.
Blackberry had spent so much time optimizing their physical keyboard design that they completely missed the touch screen interface of the iPhone.
The big lesson is that companies are never threatened by rivals doing the same thing as they are. Instead, companies are always threatened by massive shifts in the future. Kodak died because of digital photography. Sears died because of online sales.
Go back even further and you can see that buggy whips died when cars became popular and slide rulers died when pocket calculators became popular. Something new will always wipe out something old, so if your company focuses solely on tweaking the old, it will eventually get blindsided by something new.
Despite its age and its amusing promotion of Blackberry as a company that anticipated the future, “The Design of Business” is an excellent book to help you realize how companies should work.
They should focus their time and effort on their current business, but they should also look to anticipate the future. Companies that fail to anticipate the future have no future. Just ask Blockbuster Video, Radio Shack, and Sears about that.
