16/1/2014

Understanding the Knowledge Funnel to reinvent your organisation

The mighty business models of giants like Home Depot failed when they entered China. One of the main reasons was the lack of empathy with customers and understand what is that they value.

Why did this happen? I cannot in all honest answer this question. However, Can you stop this from happening? I think there are ways to think about it.

Roger Martin introduced the idea of the Knowledge Funnel in his book, The Design of Business. My wife helped me recreate it. The idea is that everything in the world that is created goes through possibly three steps. Mystery, Heuristic and Algorithm.

Martin explains as follows:

To innovate and win, companies need design thinking. This form of thinking is rooted in how knowledge advances from one stage to another-from mystery (something we can’t explain) to heuristic (a rule of thumb that guides us toward solution) to algorithm (a predictable formula for producing an answer).

Knowledge FunnelKnowledge Funnel

In the book you will find examples of McDonalds and the science of perception and its use in the modern world. I find the idea that knowledge moves from one stage to another quite powerful and it fits when I map that to innovation projects that we have completed.

It works in a powerful way when you can use to evaluate your current project, program or organisation. In the Home Depot example, it was clear that there was a clear lack of understanding of the customers and their needs. Why did this happen with successful and smart people? Home Depot was in the algorithm stage of the knowledge funnel. It had a business model that works very well in many countries and the idea was to replicate that algorithm in China. However, the fundamental mystery of do it yourself” that Home Depot solved in the US does not work in a do it for me” need in China. And for that, no level of business model tweaking at the algorithm level works. You need to go back to the mystery.

In the social sector, it is the same. Lets take child protection. Over 30 years many developed countries like Australia have developed policies, legislation and programs to support children in scenarios where they are not well taken care of by their parents. However, in the last 30 years the world has changed, parents have changed, societal expectations have changed and our understanding of brain development and attachment theory which explains the need for love and relationship at a young age is better.

All of this means that we cannot tweak the child protection algorithm, we need to go back to the mystery and understand from fundamentals what’s happening and why. This is where the analogy of the knowledge funnel is powerful.

For that we need to be humble enough to accept that we do not know. Then, innovation starts.


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Why Foreign Retailers Stumble in China: Lack of Empathy Why did the might Home Depot and other retailers, very successful in the US and Canada, fail in China. Anil Gupta and Haiyan Wang explain in the
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