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Fieldguide 01

Introduction to integrating theory building into organizations

What is a theory?

What is a theory? How does a theory differ from a hypothesis? Understanding the difference is the bedrock to understanding how product success can be predictable. A theory has been proven through experiential results. A theory links several concepts into an explanatory framework. It will give reasonable context into how and why things happen. A theory is accurate and predictable. Finally a theory is measurable and falsifiable. A hypothesis on the other hand is a proposed explanation for an observed phenomenon that will be tested and reviewed. When a theory has been properly created, a practitioner is able to look forward and accurately predict what will happen. It can be applied to related phenomenon and give contextual guidance of what outputs will be created from a given input.

The scientific and academic community has leveraged these principles for thousands of years. They empower every major scientific discovery that we know. Einstein used theory to predictably explain how the phenomenon of gravity reacts consequentially to the curvature of spacetime and the distribution of mass across the universe. Louis Pasteur created the world's most advanced explanatory framework of how the spread of disease is perpetuated with his germ theory. The track record of theory is all around us. It's time for organizations to discover how theory building can gain a place inside of their organizations. We'll explain in this guide what the general outline of theory building activities look like, and describe each research activity in depth in our subsequent Craftnotes fieldguides.

Why organizations don't invest into mixed method research

There's a few common and popular objections to integrating theory building activities into organizations. Most of the different arguments usually array themselves in the following ways:

  1. Heavy and taxing operational expenditures
  2. Time to capture market opportunity

These objections are fixated on the fallacy that theory building is ultimately more time consuming and less cost effective than conjectures. Executives and managers examine the total cost of integrating these activities into their production ethos, without factoring in the downstream effects. This way of thinking is a text book example of the marginal cost paradox that organizations find themselves in every day described by Clayton Christensen. He explains:

To follow a principle that is taught in every fundamental course in finance and economics... [that] ... in evaluating alternative investments, we should ignore sunk and fixed costs, and instead base decisions on the marginal costs and revenues that each alternative entails. But it's a dangerous way of thinking. Almost always, such analysis shows that the marginal costs are lower, and marginal profits are higher, than the full cost.

This doctrine biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they'll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future's different—and it almost always is—then it's the wrong thing to do. ..We end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not.

Organizations reject theory building activities because they examine the marginal costs of iteratively building conjectures. They've made decisions in the past to build and produce particular product verticals, and when examined locally the marginal cost of trying another idea in reaction to the response to a previously failed attempt is dramatically lower than the full costs that are incurred by implementing the activities that come along with theory building. Similarly, the marginal costs of continuing to move forward as to not miss an opportunity, are measured in juxtaposition to the full costs of experientially learning what drives your product's consumers. Candidly, most organizations operate this way under the assumption that they're being lean, when in reality they're falling victim to a bastardized representation of the process.

This is only logical. When you examine both options on the ledger, there's a great deal of financial clarity on what direction looks correct. It's absolutely imperative that we remember these decisions are only correct in a vacuum. They're only correct if the competitive landscape won't change. They're only correct if technology doesn't change. They're only correct if the findings and constructs of a theory will not inform future decisions. In my experience these things are never true in perpetuity. You always end up paying the full cost— and more. This becomes clear when you look at the consequences of your first conjecture being incorrect. Unless you are correct from your very first guess, then you've already implicated the development costs of solving the problem twice.

Theory building research activities

Looking at the product development industry today, there's a good chance that your organization is already doing many of the activities associated with theory building. It's becoming rare to find a product development organization that isn't speaking to their customers, or doing some form of design before implementation. These are excellent strides in the right direction. There are large gaps in what organizations can do still. This is in large part due to a lack of understanding of how a theory can impact their existing and future efforts. There's also a good chance that product development organizations don't have a good understanding of what's in their toolbelt. It's difficult to advocate for the benefits of a particular research effort when you have very little experience or heuristics with it. It's imperative that organizations understand that they can reach reasonable levels of predictable success without resorting to a waterfall process. Via observations and hypotheses, a company can iteratively build frameworks of understanding that will build predictably successful outcomes. Take a moment and read these questions and evaluate where your organization currently stands within each category.

We want to hear from you! Tell us what you're working towards inside of your business, what difficulties you're experiencing, and what wins you're seeing via your efforts.

  1. Capturing phenomenon
    • Does your organization currently capture and canonize events or situations that trigger important business questions or possible opportunities?
    • Are these phenomenon viewed objectively as unanswered and ambiguous at this stage?
    • Do these captured phenomenon lead to charters for teams to perform a needs assessment before a strategic initiative is championed?
    • Is there an understanding that these phenomenon could lead to a recommendation to not invest in specific strategic initiatives?
  2. Observe the context
    • Does your organization start by scoping and framing new research efforts with assumption mapping, resource recognition, bias recognition, and other risk mitigating activities?
    • Does your organization take time to stratify research participant sampling to ensure the sample is representative of macro market behavior and your customer base?
    • Does your organization conduct a variety of ethnographic studies to understand customers, organizations, processes, and their surrounding context?
    • Does your organization make an effort to avoid confirmation bias in it's research efforts?
    • Does your organization conduct in-context observations (contextual inquiry) in an effort to discover and understand tacit consumer knowledge?
    • Does your organization conduct interview of key stakeholders, and subject-matter experts?
    • Does your organization invest into relevant secondary research studies to balance and broaden research efforts?
  3. Synthesize & Analyze
    • When research efforts are concluded; is the research coded? Is it themed?
    • Does your organization create artifacts that represent and bring research findings to life via narrative and understanding?
  4. Opportunity Assessment
    • Does your organization strategically deduce whether or not to invest into an opportunity only after it's correlating phenomenon have been properly understood?
    • Does your organization quantifiably consider the possible customer and business outcomes that could come from a researched phenomenon?
  5. Defining the Hypothesis
    • Does your organization facilitate activities to encourage cross functional ideation and buy-in?
    • Does your organization create progressively detailed prototypes of hypothesized solutions?
    • Does your organization define a stated and measurable hypothesis for the solutions that are tested?
  6. Experiential Results
    • Does your organization iteratively test prototypes in an effort to find reliably valuable solutions?
    • Does your organization test competing hypotheses?
    • Does your organization strive to see patterns in behavior before building or investing into a product ready solution?
  7. Defining the theory
    • Does your organization have a constructed theory that surrounds initiatives and value propositions?
    • Is there a framework that surrounds researched phenomenon that explains causality and associated environmental factors?
    • Can you predict customer behavior around problems and solutions?
    • Have you seen your leading hypothesis proven repeatedly?
    • Does your organization define how they will know whether or not the solution will be successful?
  8. Measuring the impact
    • After your organization has delivered a product or solution, do they define the key indicators of success?
    • Does your organization look at the metrics at a per user or customer level instead of focusing on misleading aggregate numbers?
    • Does your organization observe and monitor key behavioral cohorts?
    • Is there a clear understanding by your organization as to how the solution will impact key business unit economics?
    • Does your organization cyclically capture phenomenon at this stage and feed them back into future theory building activities?
    • Does your organization create environments of transparent accountability surrounding the success of new and existing theories?

We believe that theory building objectively leads to the creation and capture of customer value. The Craftnotes fieldguides will look at each one of these scenarios in depth. In the coming weeks and months we will explain industry best practices that surround each of these situations and their correlative activities.

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