Knowledge Funnel– Drive Balanced Thinking for Creativity, Innovation, Value Creation: Fuel the Funnel…

As knowledge moves through the ‘knowledge funnel’, productivity grows and costs drops… The knowledge funnel balances the exploration of new knowledge (innovation) with the exploitation of current knowledge (efficiency) that facilitates value creation…

In today’s competitive business environment, organizations must remain nimble, relevant, and responsive. Constant change is inevitable– everything is dynamic. Business decision-makers are challenged with developing new ideas, just to survive and compete.

According to Roger Martin; the knowledge funnel is process that’s followed by many leading business to innovate more consistently and successfully. The knowledge funnel has three different phases: mystery → heuristic → algorithm. Where, mystery stage comprises exploration of the problem, and then transitions to heuristic stage, where a ‘rule of thumb’ is generated to narrow work to a more manageable size. In the algorithm stage the general rule of thumb (heuristic) is converted to a fixed formula, and that takes the problem from complexity-to-simplicity.

According to Martin; there are two forms of business thinking: 1. Analytical thinking– driven by quantitative process, standardizing to eliminate judgment, bias, and variation… 2. Intuitive thinking– focus more on instinct to drive creativity and innovation. Analytical thinking is more prevalent in organizations, because it’s more consistent, easier to measure, and can scale in size. Martin labels difference between a bias for the two schools of thought as the distinction between ‘reliability‘ versus ‘validity‘.

Organizations are much more likely to favor what is reliable because their structures tend to incentivize the advantages of analytical thinking. This means that organizations are often poor at achieving valid solutions because they do not fully take advantage of all three areas of the knowledge funnel, just the two latter stages (heuristics and algorithms).

Martin argues that business is currently missing abductive reasoning. Abductive reasoning is the third form of logic (deductive logic and inductive logic are the other two)… Charles Sanders Peirce described the process of discovery as new ideas that arose when thinkers observed data that did not fit with the existing models. The first step of reasoning is not observation, but ‘wondering’.

In the article Knowledge Funnel: How Discovery Takes Shape by Roger Martin writes: The model for value creation requires a balance, or more accurately, the reconciliation between two prevailing points of view on business today. One school of thought, put forward by some of the world’s most respected theorist and consultants, holds that the path to value creation lies in driving out old-fashioned practices of ‘gut feeling and instinct’, replacing them with strategy based on rigorous, quantitative analysis. In this model, the basis of thought is analytical thinking, which harnesses two familiar forms of logic– deductive and inductive reasoning– to declare truths and certainties about the world.

The goal of the model is mastery through rigorous, continuous repeated analytical processes– judgment, bias, and variation are the enemies. Then the theory goes, if these are vanquished, great decisions will be made and great value will be created. The opposing school of thought, which is in many ways a reaction to the rise of analytical management, is centered on the primacy of creativity and innovation. To this school, analysis has driven out creativity and doomed organizations to boring stultification.

According to some  experts; no good product was ever created from quantitative market research. Great products spring from ‘heart and soul’ of great designers, unencumbered by committees, processes, or analyses. The proponents of this philosophy suggest the creative instinct and unanalyzed flash of insight is venerated as the source of true innovation.

At the heart of this school is intuitive thinking– the art of knowing without reasoning— the world of originality and invention. These two models seem utterly incommensurable; organizations must choose to embrace either– analysis or intuition as their primary driver of value creation. The choice plays-out in structure and norms of the organization.

Organizations dominated by analytical thinking are built to operate as they always have– they are structurally resistant to the idea of inventing-reinventing themselves and their business dynamically, over time. They are built to maintain the status quo. By sticking closely to the tried and true, organizations dominated by analytical thinking enjoy one very important advantage– they can build size and scale, relatively easy. In organizations dominated by intuitive thinking, on the other hand, innovation may come fast and furious, but growth and longevity represent tremendous challenges.

Intuition-biased firms cannot and will not systematize what they do, so they wax and wane with individual intuitive leaders. Neither analysis nor intuition alone is enough. The most successful businesses in the years to come will balance analytical mastery and intuitive originality

In the article Creating Value Across Knowledge Funnel by D. Murali writes: Creating value across the knowledge funnel requires two very different activities. One, moving across the knowledge stages of the funnel from mystery-to-heuristic and heuristic-to-algorithm. Two, operating within each knowledge stage of the funnel by honing and refining an existing heuristic or algorithm...

Successful companies balance exploration and exploitation by continuously looking back up the knowledge funnel to the next salient mystery (or back to the original mystery) and driving across the knowledge funnel, in a steadily cycling process. These relatively few organizations come to be defined by their balanced approach. Whereas, many organizations increasingly rely on algorithm-based, decision-making, decision-support, and get highly skilled at using algorithms to produce outcomes that are reliable; that is, consistent and predictable.

Companies that devote all their resources to reliability lack the tools to pursue outcomes that are valid; that is, that produce a desired result. Indeed, many organizations see no value at all in valid outcomes. Little wonder, then, that those same organizations don’t know how to manage validity-seeking activities to generate lasting business value.

Advances in knowledge emerges from the pursuit of valid results. Highly reliable processes lead to reduction-in-costs and rise-in-efficiency, by eliminating uncertainty. Whereas, organisations that defines themself as being primarily or exclusively in the business of running algorithms is taking a high risk, e.g., they increase the risk of cataclysmic events that occur when the future no longer resembles the past and the algorithm is no longer relevant or useful…

In the article Disruption, Knowledge Funnel, and Learning in New Product Development by admin writes: I recently read an interesting article in Fast Company magazine on a start-up airline called ‘Surf Air’, and its unique business model. Basically it’s the first all-you-can-fly airline: For a flat fee per month, you can fly anywhere they fly, which right now is just four regions in California…

They utilize small, regional airports with no waits and no screening, since the FAA considers them a charter service. The story of this airline illustrates three important aspects of new product development that is worth reflecting: First, the concept of disruption; large carriers, the article claims, are ripe for disruption because of ‘low profits’ being earned from nickel-and-dime passengers, and suggesting that as airline profit goes up, passenger satisfaction goes down.

However, consider the question– is the proposed Surf Air’s model really disruptive or will the airlines, as they have done in the past with upstart carriers, find a way to crush them? It’s possible that Surf Air may avoid that fate by their focus on small regional airports. Second concept can be described as moving up and down the knowledge funnel. All new products start as mysteries, then move to the heuristic stage, and finally companies are able to codify the model into an algorithm. That is certainly where the airline industry is, and what most companies strive for.

Being able to turn a business model into an algorithm provides for reliability of results which is certainly what financial markets reward. Every business needs to balance– need for reliability while developing new mysteries to solve, otherwise competitors will. Of course, this is just what the concept of disruption is all about, and that’s what Surf Air is trying to do.

They looked at a mystery associated with the airline industry, and that led to a new business model. Note: in this case, the mystery is not associated with technology, but with the business model and the market itself. I believe many companies that manufacture highly engineered industrial products, for instance, tend to ignore these types of opportunities, when trying to gain competitive advantage…

Finally, this story illustrates the concept of– iterate and learn when faced with a high level of uncertainty in product development; e.g., Surf Air is starting with a small user base– limited deployment to assess passenger behavior, then they adjust the business model… Whether you are dealing with uncertainty in the business model, or in the technology associated with a new product; iterate and learn is a powerful way to manage the project…

Corporations and organizations must empower and build a culture of creativity and innovation to promote relevancy in today’s marketplace. With all this emphasis on the shift in the way we fundamentally approach business challenges– it’s interesting to note that the focus is placed on thinking about ideas and concepts that do not currently exist, as being the pendulum of scientific management. It’s in this vain that one might argue that the pendulum has surely swung.

Some experts say the 20th century, in essence was all about ‘things that functioned’, whereas the 21st century will be more design focused and interested in making ‘elegant stuff more elegant’, which is ultimately how new ideas are born. Strategy in business is about where to play and how to win– be different and embrace creativity and innovation… 

As Martin’s overriding thesis suggests, which for some may seem radical, is simply; to advance knowledge, we must turn away from our standard definitions of proof – and from the false certainty of the past – and instead stare into the mystery of what could be…