Sensemaking and innovation. A primer.

By Johann Harnoss & Justin Harnoss

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The world seems increasingly volatile, complex and uncertain.

We often struggle to make sense of the world and its go-abouts. What if, however, it’s not the world that is more uncertain — what if we are?

In search of a rock to stand on, many of us seek clarity in the concepts du jour of business fashion. Methods like agile, design thinking or tools like advanced analytics and AI are all the rage right now. This hype is dangerous.

Hype kills all context: What works when, where, for which type of problem? Out of context, all our methods and tools will fail us. This matters because tools and methods are nothing but crutches for our own thinking.

The way we think shapes what worldly problems we see and how we solve them. If we improve on the way we think, we have a better chance to understand the world and seize emerging opportunities.

1 | Three different types of thinking

Let’s take a fresh look at what we can do to make sense of the world and solve (business) problems. We — the two of us — draw on our experience of many years grappling with strategy, innovation, and product development challenges in Europe and the US, working with companies large and small.

Let’s start with the simple observation that context matters. Not every method or tool will solve every type of problem. This means it’s crucial to have a taxonomy — a perspective on what types of problems and solution approaches there are to start with. We believe that most business problems we know today can be put into three neat categories:

TYPE I problems: Questions that can be solved via analysis or domain expertise, like “Where do we cut costs from operations?”
TYPE II problems: Questions that can be solved experimentally, like “Which customer journey design maximizes our revenue?”
TYPE III problems: Questions that can be solved experientially, like “Why do kids play and what makes a ‘toy’?”

Each type has its own caste of experts:

TYPE I problems are the classic domain of business strategy consultants. The predominant mindset values objective truth, deductive logic, stringency of analysis and reasoning on the basis of available data. Analysts of all stripes use tools like “driver trees”, “segmentations”, and believe there is something such as a “best practice”. This group prays to the god of Aristotle.
TYPE II problems are the domain of software engineers and product managers. The mindset values making over analysis. Typical tools are “prototyping” and “user-testing”, its preferred method of experimentation relies on iterative induction. This group prays to the gods of “Silicon Valley”.
Type III problems are the classic domain of social scientists such as anthropologists, but also of some designers. They value immersive studies of people’s worlds and draw upon ethnographic methods to discover sources of meaning that form the basis for social and economic value in society. These people pray to the god of Heidegger.

2 | Innovation is not one problem

Needless to say, since each caste prays to different gods, speaks different languages and is generally unaware of the work and value of their respective “unbelievers”. Herein lies the crux of the matter: Although we just neatly divided up all (business) problems in the world into three boxes…

It turns out few problems neatly fit into one box alone. As a result, many problems cannot be solved by one approach alone. Innovation is such a problem. Let’s say an “innovation” is something that is new and valuable, and innovating means successfully searching for this very thing.

Innovation does not fit into one box only. This makes innovation a fundamental challenge for any “true believer”, of any caste.

Let’s see why:

Innovation is not only a TYPE I problem — IBM in fact was told by a big consultancy once that there was only a market for 10 computers a year, worldwide. Most people understand very well that you can’t reason yourself to the next big thing.

Innovation is not only a TYPE II problem — Google succeeded in A/B testing its logo’s 50 shades of blue, but despite all its smarts, its iterative, adaptive approach in its “moonshots” factory has largely fallen flat. You cannot iterate yourself to the next big thing — this is less well understood.

Innovation is not only a TYPE III problem — Apple succeeded in making the Apple Watch a product that fits into the lives of many, and is intensely loved by more than 95% of its customers, but it wasn’t the big hit everyone expected it to be (so far). It’s a moot point to speculate what Apple should have done instead to increase its commercial success. The point is merely that deeply understanding some of your customers only isn’t enough. This is generally a rare error to make because TYPE III thinking is in practice still rare.

So, if innovation is neither type III, II or I, what is innovation? We believe successful innovation isn’t even one problem, but a series of problems.

As a result, successful innovation relies on a series of type III, type II, and type I problem solving approaches. Innovation starts with a TYPE III problem — what do people find valuable and around which beliefs and needs will cultures construct future value? It morphs into a TYPE II problem — what is the right solution that delivers this value? Finally, it converges towards a TYPE I problem — how to scale up and profit from a working solution?

3 | What to do now

This means that to innovate successfully you need to do one big thing: Master all three types of problem solving and know when to apply which mode.

Sometimes it’s easier to illustrate a point by showing what not to do. Here are three common “failure modes” from our own experience.

Failure mode #1: You think you know your customer. You don’t.

At best you may understand why a customer values your product (the job to be done of your customer), but few understand their customers holistically — how they make sense of their worlds and relate to other things and people.

A first specific failure we see is to think of people as separate individuals with personality traits who orient their existence towards fulfilling their personal needs while avoiding ‘pain points’ along their ‘journey’s’ to getting things done. Instead, people live in relationships to other people and objects. They value depending on the world that they’re currently maneuvering (in the “world of coffee” for example the long and tedious process of grinding and brewing coffee is highly valuable for some).

A second specific failure results from this, namely the idea that “customer discovery” is a task that can be outsourced to external vendors. We have seen the loss of valuable nuance and subtle meaning in the study of customers often enough to not believe that the results of immersive studies can be communicated through presentation decks, or videos to senior management.

To innovate successfully, you need to understand how people perceive and construct value. Understanding people’s world views is a prerequisite for that. Expose yourself to Type III thinking. Here is a good book.

Failure mode #2: You are over-dosing on agile.

Agile is an effective approach for a specific type II problem, namely the challenge of quickly building a working product of service that is good enough for a particular customer.

Agile has become a fashionable catch-all to foster culture change or even design and execute large transformation projects.

Overdosing on agile means overdosing on iteration and under-dosing on analysis (type I) or immersion (type III). When you under-dose on type I, you make predictable errors. In our work, we have seen solutions being developed very quickly for problems that turn out to be valuable for very few actual users. Do you know the feeling when you are certain that a healthy dose of good old desk research could have saved you countless nights? Conversely, when you under-dose on type III thinking, you pivot but you don’t pivot towards value.

Failure mode 3: You are over-analyzing it

This is a classic failure mode of engineering oriented companies, large bureaucracies and cultures that value scientific, deductive logic reasoning (looking at you, Germany). At times, analytical approaches can be effective when the goal is to develop incremental solution improvements to known problems.

The danger of the analytical method is that it sheds light on some things and darkens others. An analysis will always be limited by the framework that you impose on the problem. Analysis will thus help you identify untapped sources of value within an existing structure, but not show you entirely new ones.

Take P&G for example. The company is a world class innovator in terms of inventing new products (and sometimes even new categories), and it is known to follow a well-documented methodical approach to innovation. Still, its analytical lens on the shaving category made it overlook a gigantic opportunity to capture new sources of value. A new competitor emerged to take it: The Dollar Shave Club.

To avoid this mistake, realize that successful type II and type III approaches often masquerade as type I thinking, simply because the subtle magic moments of insight that happen in type II and type III thinking have a habit of disappearing when writing about them.

4 | Coda

Let’s recap: We all struggle to make sense of the world at times. This happens because some of the most interesting (business) problems we face cannot be solved by one approach only.

Most of us tend to be monotheists — we believe in one “god” only.

But certain problems like innovation require us to be polytheists — we need to know and execute all three approaches to problem solving. If we can’t, we at least need to build and manage teams that can.

To get started, ask yourself these 4 questions:

Do I have a default problem solving approach? What’s my “god”?
Do I have a basic understanding of the approach I am least familiar with?
Do I have practitioners of other types of problem solving in my team?
Do I have a good intuition for when to use what, and how to mix them?

___________

This is our first joint blog post. 
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Johann D Harnoss is a Project Leader at a large strategy consulting firm and has published on matters of strategy and innovation as well as diversity of immigration.

Justin Harnoss is a Manager at a large digital strategy consulting firm and has published on matters of philosophy and meditation.