The Power of Analogy

Computerworld - Low-end chips are to Intel Corp.'s future as concrete reinforcing bars were to U.S. Steel's. Unless you know the history of the steel industry, that analogy will leave you cold. But it compelled former Intel CEO Andy Grove to change his product strategy.
In this month's Harvard Business Review, Jan W. Rivkin and Giovanni Gavetti explain how managers often use analogical reasoning to make strategic decisions. Rivkin, an associate professor in the strategy unit of Harvard Business School, told Computerworld's Kathleen Melymuka that to harness the power of analogy, managers must also understand the pitfalls.

So, analogies are powerful, but they can lead you astray? An IT example got me onto my soapbox on this. Everyone knows the Dell story. Compaq, IBM, HP and Gateway have all tried to match what Dell has done, but no one has been able to. Once, after I'd taught the Dell case, a student came into my office and said, "I've thought over the Dell story, and I've decided I want to become the Michael Dell of the pizza delivery business." I said, "That sounds exciting, but if you mean you want to make pizza to order, we kind of already have that."

What are the core elements of analogical reasoning? You start with a target problem. This is the setting for which you want to create a strategy. Through some process of similarity mapping, you identify a source environment that is similar in its essentials. From that source environment, you grab a candidate solution -- the thing that worked well in the source environment. You translate that solution to the target environment. For example, Thomas Stemberg, who founded Staples, was exploring a possible new business that he thought could be the Toys R Us of office supply. In that case, office supply is the target, the toy business is the source, and Toys R Us is the candidate solution.

What does analogical reasoning do for me? There's enormous efficiency in thinking that way. You get a whole bundle of solutions: what it should look like, shopping carts, checkout counters, style of retailing, logistics. The question remains whether office supply really does resemble the toy business.

Jan W. Rivkin of Harvard Business School