About 15 years ago, Glenn Carroll and Jesper Sørensen began teaching a mandatory course for first-year MBA students called Critical Analytical Thinking. “It was not a particularly popular course,” Carroll recalls. “These are kids that just came to business school, it’s their first quarter, and rather than learning about business, they’re learning about logic.”
Carroll and Sørensen, professors of organizational behavior at Stanford Graduate School of Business, looked for ways to connect the subject to more traditional business material. Eventually, they discovered they could use logic as a way to talk about strategy. A disciplined system of thinking, they reasoned, can help business leaders come up with new ideas or solutions.
However, they saw that logical thinking doesn’t come naturally to most people. Carroll believes this is because most of us have been taught that assumptions lead to conclusions, when really it is often the other way around, even for scientists: The insight comes first, and then logical reasoning becomes a test to see if the insight is correct.
Carroll and Sørensen put these ideas in a book, Making Great Strategy: Arguing for Organizational Advantage. But after it came out, they realized they’d left out one important tool for guiding corporate strategy: analogy. They’ve rectified this in a new paper in Strategy Science in which they offer a step-by-step procedure for building and testing analogies between companies.
In some ways, analogy is one of the more accessible logical tools. “It’s a very common way in which people argue,” Sørensen says. “It very quickly gives people a way of structuring their thinking about otherwise vague ideas.”
Analogies, Carroll says, are more intuitive than other forms of logical reasoning. That may be why they often appear in popular discourse, particularly in descriptions of movies (Carroll mentions a hypothetical “When Harry Met Sally meets The Terminator”) and wars (any long, expensive quagmire will invariably be compared to Vietnam). And they’ve become an easy way to describe new apps or services — to say a startup is “like the Uber of ____” has become a Silicon Valley cliché.
To draw a useful analogy, Sørensen and Carroll suggest starting with the endpoint or solution you wish to reach. Then you should find another company — the target — that has reached a similar conclusion. For example, the founders of the job review site Glassdoor pitched their startup by comparing it to the popular travel website Tripadvisor: Both used ratings and user comments to offer otherwise hard-to-find information about personal experiences. Glassdoor was similar to Tripadvisor, the logic went, therefore it would be similarly successful.
Compare and Contrast
Of course, such similarities may prove skin deep. An analogy, Sørensen says, “can also be dangerous. You can get seduced by the analogy, and what you tend to lose sight of is the way in which the analogy might not work.” To avoid that mistake, Carroll says you should take a closer look at the target company’s business model and identify the elements, or premises, it has in common with your company. The next step is comparing each premise. This is where promising analogies sometimes die.
Sørensen recalls working through this exercise with a group of Australian executives. The analogy under discussion was that Rover.com was the “Uber of dog-walking.” As the group delved into the comparison, they stumbled on a potentially consequential misunderstanding. The Australians, who had never heard of Rover before, assumed it offered dog-walking on demand much as Uber offered rides on demand. But this was not the case: The similarity between the two companies was that both provided jobs for gig workers. Rover customers still had to schedule their dog walks in advance.
There are two types of comparisons: horizontal and vertical. Horizontal comparisons are about the features of a business, as in the Rover-Uber analogy. Vertical comparisons are about the logic of a business decision. Sometimes they can be more valuable to an analogy.
Sørensen recalls a former MBA student who became an executive for a large rideshare company. The company wanted to provide rides to wheelchair users but couldn’t figure out why, in most cities, a single company tended to dominate this market. The alum found the answer by drawing an apparently unlikely analogy to the Mexican cement company Cemex.
He saw that providing accessible transport and making cement depend on large initial investments in specialized equipment, and there are limits on the scope of both businesses. It’s expensive to move cement, so a plant can only serve a certain area; likewise, a wheelchair-accessible van can only transport a certain number of passengers. “A fixed-cost investment like that creates really strong pressure so that only one player can survive in this market,” Sørensen explains. “So whoever gets there first and makes all those big investments will then be the only one who can survive.”
The appeal of these types of comparisons, Sørensen adds, is that they give you a chance to look at something that already works. He suggests making analogy strategy a group exercise where everyone is encouraged to come up with their own analogy for their business and then compare the results.
“It’s one technique you could use,” he says, “for understanding your current business, but also for thinking about new opportunities. When you do it in groups, you start to see how everyone thinks about the business differently.”
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