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Business Framework: Analogical Strategic Reasoning

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PROJECT DESCRIPTION

What is Analogical Strategic Reasoning?

Analogical strategic reasoning is described by Giovanni Gavetti and Jan W. Rivkin in a fascinating article in HBR, April 2005. Although the authors have certainly not invented analogical reasoning, they deserve credit for explaining how it is used and can best be used within strategic decision-making. According to the authors, managers can benefit if they understand their own reasoning by analogy. Faced with an unfamiliar, novel, problem or opportunity, senior managers often think back to some similar situation they have seen or heard about, draw lessons from it, and then apply, transfer, those lessons to the current situation. Strategic reasoning by analogy can be very powerful if used correctly, but unfortunately also has major pitfalls. 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. Here's why Analogical Strategic Reasoning is used often by strategy makers:

  • 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.
Origin of Analogical Strategic Reasoning

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.

Source: Non yet!



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