The feature article in the April HBR is entitled "How Strategists Really Think: Tapping the Power of Analogies", (abstract here). In it, the authors outline three modes of thinking about strategic problems, running from deduction to trial and error, with analogy right in the middle. The article caught my eye because their descriptions of where and how analogies can be useful, where and when they can be dangerous, and how they can be deployed are similar to how we describe the scenario planning process (and its benefits) to clients.
Both deduction and trial and error play important roles in strategy, but each is effective only in specific circumstances. Deduction typically requires a lot of data and is therefore at its most powerful only in information-rich settings—for instance, mature and stable industries. Even where information is available, processing a great deal of raw data is very challenging, particularly if there are many intertwined choices that span functional and product boundaries. The mental demands of deduction can easily outstrip the bounds on human reasoning that psychologists have identified in numerous experiments. For this reason, deduction works best for modular problems that can be broken down and tackled piece by piece.
Trial and error is a relatively effective way to make strategic decisions in settings so ambiguous, novel, or complex that any cognitively intensive effort is doomed to fail. In altogether new situations, such as launching a radically new product, there may be no good substitute for trying something out and learning from experience.
Many, perhaps most, strategic problems are neither so novel and complex that they require trial and error nor so familiar and modular that they permit deduction. Much of the time, managers have only enough cues to see a resemblance to a past experience. They can see how an industry they’re thinking about entering looks like one they already understand, for example. It is in this large middle ground that analogical reasoning has its greatest power...
Wharton’s behavioral approach to management... emphasizes the limits on human reasoning... Harvard’s strategy tradition... stresses the power of rational economic choice. Analogical reasoning lies in the middle ground between the two... potent because it makes the most of bounded cognitive abilities.
Indeed. The MBA-heavy consulting industry tends to rely too heavily on rational deduction, even when it is cumbersome, inappropriate or misleading. (If I may be permitted one analogy here: like the drunk looking under the streetlight for his keys because that's where the light is better.)
One difference between scenario planning and analogical thinking is that the latter (almost by definition) is bound to the past, whereas scenarios directly enable consideration of future strategic options. Scenarios also differ from analogy in their complexity. We typically use idealized, hybrid sets of analogies to create four or five whole-industry 'endstates' - the mainstays of an effective scenario planning workshop. Counter-intuitively, these more complex constructs (built of modular analogical pieces) make it easier to identify specific points of divergence and intersection across a range of different analogies. That's a critical aspect of putting them into practice, and monitoring how close they come to the actual evolution of an industry. The authors too, note danger in simple "this is like that" analogical thinking:
Though analogical reasoning is a powerful and prevalent tool, it is extremely easy to reason poorly through analogies, and strategists rarely consider how to use them well. Indeed, analogies’ very potency requires that they be used wisely... The danger of focusing on superficial similarity is very real, for two reasons. First, distinguishing between a target problem’s deep, structural features and its superficial characteristics is difficult, especially when the problem is new and largely unknown... [second], people typically make little effort to draw such distinctions. In laboratory experiments conducted by psychologists, subjects— even well-educated subjects—are readily seduced by similarities they should know to be superficial... Not only were the students swayed by superficial likenesses, they were not even aware that they had been swayed... Once an analogy or other idea anchors itself in a management team, it is notoriously hard to dislodge... The anchoring effect is reinforced by another problem: decision makers’ tendency to seek out information that confirms their beliefs and to ignore contradictory data.
These factors help explain why scenario planning and thinking are often seen as easy and fun while at the same time getting a bad 'rap' for a perceived lack of efficacy and rigor. The reason I suspect, is that both scenarios and analogies are too often sloppily applied. They can be dangerous precisely because of their power to galvanize management change. Executed properly however, and applied to the right kinds of problems, scenarios (again, built out of analogies) can give management teams a powerful effective 'shorthand' language for expressing vision, setting strategy, allocating resources and coordinating distributed efforts over a long period of time. The authors especially note the power of analogies (and by extension, scenarios) for breaking out from industry conventional wisdom, characterizing them as "catalysts for generating creative options":
...a management team might choose a company it deeply admires in a distant business and ask itself, “What would it mean to be the Wal-Mart or GE or Dell of our industry?” We see little danger in using analogies this way—as long as managers test any analogy carefully when they move from generating options to choosing among them. Analogies are also powerful tools for communicating complex messages quickly. When the executives turning around Ducati began to speak of the legendary Italian motorcycle maker as an entertainment company comparable to Disney, they made it clear, to insiders and outsiders, that they planned to invest more in the experiential aspects of the brand and less in the physical product.
On-line access to the full text requires an HBR subscription. Worth reading if you have one.