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Analogical Strategic Reasoning

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Analogical Reasoning is the process of reasoning from particular to particular, it derives a conclusion from one’s experience in one or more similar situations. The simplest and most common method of reasoning, it is also most fraught with chances of making a mistake. With deductive reasoning and inductive reasoning, it constitutes the three basic tools of thinking. It is one of the most common methods by which human beings attempt to understand the world and make decisions. When a person has a bad experience with a product and decides not to buy anything further from the producer, this is often a case of analogical reasoning. It is also implicit in much of science; for instance, experiments on laboratory rats typically proceed on the basis that some physiological similarities between rats and humans entails some further similarity (e.g. reaction to a drug).[1]


Analogical Strategic Reasoning is described in the HBR article "How Strategists Really Think," authored by Giovanni Gavetti and Jan Rivkin. Much of this document is based on the thinking proposed by these authors. Analogical Strategic Reasoning is often used by strategists for the following purposes:

  • The amount of information available in many strategic situations is similar to the information required to draw analogies.
  • The wealth of managerial experience matches the need for that experience in analogical reasoning.
  • The need for creative strategies can be fulfilled through analogy's ability to spark creativity.

Successful strategy consultants and firms are known for their ability to draw lessons from one industry and apply them to another--i.e. apply Analogical Strategic Reasoning.[2]


Origin of Analogical Strategic Reasoning[3]
Political scientists Ernest May and Richard Neustadt found that analogical reasoning often leads astray policy makers.


Usage of Analogical Strategic Reasoning
1.Tool for choosing between possible solutions for strategic problems (but follow the 4 steps below)
2. Acting as catalyst for generating creative options (out of the box thinking).
3. Communicating complex messages quickly (people easily understand simple analogies).


Strengths of Analogical Strategic Reasoning

  • Compared to deduction and trial and error, Analogical Strategic Reasoning (according to Gavetti and Rivkin) has the advantage that strategic problems are neither so novel and complex that only trial and error can provide help, nor they are so familiar and modular that they permit deduction.
  • The amount of information available in many strategic situations is similar to the information required to draw analogies.
  • The wealth of managerial experience matches the need for that experience in analogical reasoning.
  • The need for creative strategies can be fulfilled through analogy's ability to spark creativity.


Limitations of Analogical Strategic Reasoning

  • Danger exist to draw an analogy on the basis of a too superficial similarity, not deep causal traits.
  • Distinguishing deep similarities from superficial resemblances is difficult. People tend to make little effort to draw such distinctions. This is caused by anchoring (once used, an analogy anchors itself and is hard to dislodge), and caused by confirmation bias (decision makers tend to seek out information confirming their beliefs and to ignore contradicting data).


4 Steps in Analogical Strategic Reasoning
To avoid the limitations or pitfalls of analogical strategic reasoning, Gavetti and Rivkin recommend the following four steps:
1. Recognize the analogy and identify its purpose. Is analogy being used and how is it being used?
2. Understand the source. Why did the strategy work in the former setting?
3. Assess similarity. Is the similarity more than superficial? Where are the differences?
4. Translate, decide and adapt. Will the properly translated strategy work in the target industry?


Assumptions of Analogical Strategic Reasoning

  • Strategic problems are neither so novel and complex that only trial and error can provide help, nor they are so familiar and modular that they permit deduction.
  • Previous experience can be useful in strategy.
  • It is possible to distinguish the good analogies (beforehand) from the superficial ones.
  • The authors only mention deduction and trial and error as alternatives for strategic reasoning by analogy. However many more approaches do exist. Find examples below.


References

  1. Defining Analogical Strategic Reasoning Marketing Mix Hub
  2. Explaining Analogical Strategic Reasoning Flevy
  3. Origin of Analogical Strategic Reasoning PPT Lab


Further Reading

  • Strategy-Making in Novel and Complex Worlds: The Power of Analogy Darthmouth
  • How Strategists Really Think: Tapping the Power of AnalogyHBR