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A Time for Abductive Reasoning

Photo taken in November while visiting Japan

I did a short Strategy Speaking tour four weeks ago and talked about the idea that strategy has to be creative. I touched on the concept of Blue Ocean Strategy and the idea that in teaching strategy, business schools give no consideration to the concept of what does not exist. This is critically important as it is the basis for a disruptive style of a business model.

Covid19 is disruptive and it is apparent that following this outbreak there will be many new winners and many new business models. To determine what your company might do to be a winner or to survive requires abductive reasoning.

In brief there are three types of reasoning: Deductive, Inductive and Abductive.

Deductive reasoning is based on the past, on proven knowledge. An example is the old math class lesson a train travels at x speed and has to go y distance, how long will it take. It is based on known truths and the outcome is guaranteed.

Inductive Reasoning is slightly more creative. It is not a guaranteed outcome rather it is a likely outcome. An example is that a particular restaurant is always full so it must be good. It is a likely conclusion but not guaranteed.

Abductive Reasoning is very creative. The outcomes are not known or guaranteed, nor can it be described as being as likely as inductive reasoning. An example is that of Jane asking john to go to a Party. We might guess that Jane likes John but perhaps Jane just wants to make someone at the party jealous. You can creatively come up with multiple other reasons.

Blue Ocean Strategy is based on abductive reasoning. It is rooted in the idea that if we ignore typical industry values and create new industry values, then we will be able to compete in a market space that is unoccupied, a Blue Ocean.

Abductive reasoning was not taught to me when I took my MBA strategy course, but it is as important as deductive reasoning. There must be a degree of considering what is not known.

In this time of Covid19, inductive and abductive reasoning should apply to business survival as well as business growth opportunities. For survival business should consider what might happen and should plan accordingly.

For business survival you should plan your cash-flows for the next 6 months but based on best case, worse case and worst case. Once you have done so then track what path you are following.

For business growth start considering how your business might change its business model. How will consumers behaviour change? How many people have tried Amazon for the first time? Since Walmart in the USA sells groceries and is essential, how much of a gain will they make during this time? It should be noted that during the depression, Michael J Cullen created the stand-alone supermarket with room for automobiles to park in a lot out front. Within 2 years and in the height of the depression he turned over the today’s equivalent of 75 million dollars with a business model that had never been used before.

The number of businesses that do not do strategic planning is shocking. Now is not a time to be complacent rather it is more important than ever to plan. Try abductive reasoning and give consideration to what is not known.

What is your Strategy?


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