The Power and Pitfalls of Analogical Thinking in Business Leadership

Analogical thinking is a powerful cognitive tool that can help business leaders find creative solutions to novel or complex problems [1]. By drawing on past experiences and knowledge from other domains, business leaders can use analogies to make sense of new situations and generate innovative ideas. However, this approach is not without its risks. If the analogy is weak or superficial, and does not capture the structural similarities between the source problem and the target problem, teams risk anchoring themselves to potentially ineffective solutions [2].

The picture may be worth a thousand of more words, however, instructional text for context and better understanding may be needed.        

The following is an example of visual analogy graphics for instructions that compare (on the left side) Earth’s convection currents and plate movement to a boiling pot of water and (the right side) Earth’s layers to the layers of a Peach. In Enhancing the Comprehension of Science Text through Visual Analogies the results were consistent with recent research suggesting that factors that promote comparison, such as side-by-side presentation of examples, facilitate learning from text.

One way for business leaders to avoid using superficial or “false” analogies is to engage in similarity mapping [3]. This exercise, which should be conducted by a dedicated “red team,” prompts business leaders to look at the source problem (the apparently similar problem from another context) and the target problem (the actual problem a company faces) and actively identify structural similarities between the two. Through this process, business leaders can determine the conditions that must be met for the analogy to make sense in a new context and can fine-tune the proposed solution accordingly [4].

A successful example of similarity mapping in action is Charles Merrill's creation of a financial supermarket model based on Safeway's business model. Merrill recognized that both businesses involved selling a wide range of products to customers through a single point of contact, and used this insight to create a new model for his brokerage firm that revolutionized the financial industry. On the other hand, an energy company that failed to use similarity mapping suffered losses by entering the broadband market based on a false analogy with the energy market.

In conclusion, analogical thinking can be a powerful tool for business leaders, but it must be used with caution. By engaging in similarity mapping, business leaders can test the validity of their analogies and fine-tune their solutions accordingly. This approach can help companies avoid costly mistakes and find innovative solutions to complex problems.

[1] Don’t rely on weak analogies to solve your biggest business problems | McKinsey

[2] How Strategists Really Think: Tapping the Power of Analogy (hbr.org)

[3] Analogies in Business & Strategy Best Practices and Examples (stratechi.com)

[4] Business Model: Why Do Analogies Matter In The Business World? - Forbes India Blogs