The Design of Business

In his new book, Roger Martin, dean of the Rotman School of Management, says an eye for innovation and efficiency creates a powerful competitive edge

By Roger L. Martin

The McDonald brothers had opened their first restaurant in 1940. It attracted throngs of customers, with harried carhops serving up to 125 carloads at a time. Within the decade, though, Mac and Dick realized they had to revamp their restaurant or find a new line of work. Some of their best customers were families giving mom a night off from the kitchen. But now these families were driving right past, turned off by the loitering toughs that drive-ins attracted. Many of the remaining customers complained that the food got cold on the journey from kitchen to car.

So they cut the menu to only 25 items, and standardized the burgers. They replaced carhops with service windows. Productivity enhancers like five-at-a-time milk shake mixers enabled them to turn around food orders quickly.

It wasn't long before the brothers had opened four additional outlets. They could have stopped there, but the man who sold the brothers those five-at-a-time milk shake makers was not about to. Ray Kroc imagined the scene repeated from coast to coast—and around the world. He relentlessly stripped away uncertainty, ambiguity, and judgment from the processes that emerged from the McDonald brothers' original insight. And by fine-tuning the formula, Kroc powered McDonald's (MCD) from a modestly prosperous chain of burger restaurants to a scale previously undreamed of.

The path taken by McDonald's is not just a study in entrepreneurship. It's a model for how businesses of all sorts can advance knowledge and capture value. The McDonald brothers and Ray Kroc took the same route followed by successful business innovators in every domain.

Seeking Reconciliation

The model for value creation that Kroc followed, which can be replicated, requires a balance—or a reconciliation—between two prevailing points of view on business today.

One school of thought holds that the path to value creation lies in driving out the old-fashioned practice of gut feelings and instincts, replacing it with strategy based on rigorous, quantitative analysis (optimally backed by decision-support software). In this model, the basis of thought is analytical thinking, which harnesses two familiar forms of logic—deductive reasoning and inductive reasoning—to declare truths and certainties about the world. The goal of this model is mastery through rigorous, continuously repeated analytical processes. Judgment, bias, and variation are the enemies. If they are vanquished, the theory goes, 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. Analysis has driven out creativity and doomed organizations to boring stultification. To proponents of this philosophy, the creative instinct—the 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. This is the world of originality and invention.

These two models seem utterly incommensurable; an organization must choose to embrace either analysis or intuition as the primary driver of value creation. This choice then plays out in the structure and norms of the organization. Business organizations dominated by analytical thinking are built to operate as they always have. By sticking closely to the tried and true, organizations dominated by analytical thinking enjoy one very important advantage: they can build size and scale. In organizations dominated by intuitive thinking, innovation may come fast and furious, but growth and longevity represent tremendous challenges.

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