Sherlock Holmes once told Watson: “You see but you do not observe.” In today’s business world the difference between observing and merely gathering data is just as clear as it was back then. According to consultants Christian Madsbjerg and Mikkel B. Rasmussen, observation is a skill that can be learned, practiced, and applied successfully to business to achieve breakthroughs in strategy, product design, and marketing.

Madsbjerg will speak at the Princeton Keller Center on Wednesday, November 15, at 4:30 p.m. at Aaron Burr Hall, Room 219. For more information, visit www.kellercenter.princeton.edu or e-mail bjarvie@princeton.edu.

In his talk at the Keller Center, Madsbjerg will go over the philosophical background of using observation, and use the example of J.A. Baker’s 1967 classic nature book, “The Peregrine,” to see what great observation looks like.

Madsbjerg is a business consultant and founder of ReD Associates, a firm with offices in New York and Copenhagen, Denmark. His writing has appeared in the Wall Street Journal, the Washington Post, and other publications. In 2014 he co-wrote a book with Rasmussen called “Moment of Clarity.” Earlier this year he published “Sensemaking: The Power of the Humanities in the Age of the Algorithm.” The following passage is adapted from an article first published in the Harvard Business Review in 2014:

by Christian Madsbjerg

In 2006 a major European brewing company we’ll call BeerCo was faced with falling bar and pub sales and, despite muscular market research and competitive analysis, couldn’t figure out why. Customers liked its core product, a standard lager, and store sales were up. But something wasn’t clicking in bars, and aggressive promotions weren’t helping. What was wrong?

Having exhausted conventional research approaches, BeerCo commissioned a team of social anthropologists to visit a dozen bars in the UK and Finland to find out. The anthropologists approached the project as if they were studying an unfamiliar tribe in Borneo. They immersed themselves in the life of the bars, simply observing the owners, staff, and regulars without any hypothesis about what they might find. They returned with 150 hours of ethnographic video, several thousand still photographs, and hundreds of pages of field notes. Over the ensuing weeks a team of managers from BeerCo sifted through the raw data together with the anthropologists, searching for themes.

In time patterns emerged. Although BeerCo had thought that bar owners valued its promotional materials — coasters, stickers, T-shirts, and so on — in fact those items were at best underused, at worst treated with derision (in one bar, a researcher found them crammed inside a cupboard and labeled “box of crap”). The team also discovered that female servers felt trapped in their jobs and resented having to be flirtatious, an experience they referred to as being “hot pantsed.” What’s more, they knew very little about BeerCo’s products and didn’t want to know any more — and yet they were a primary channel for sales.

These findings and others led to a sharp shift in how BeerCo approached pubs and bars. Instead of bombarding them with one-size-fits-all promotional materials, it began customizing items for different types of bars and bar owners. It trained its salespeople to understand each bar owner better and invented a tool to help owners organize sales campaigns. It created in-workplace “academies” to train waitstaff about its brands and won over female servers by providing taxi service for employees who worked late. After two years BeerCo’s pub and bar sales rebounded, and both sales and market share continue to grow.

Most people in business associate the human sciences — anthropology, sociology, political science, and philosophy — with academia, and for good reason. The work of scholars in these fields is notoriously difficult to understand, and the insights they offer often seem to have little practical relevance in business.

But that is changing rapidly. An emerging method is dramatically shaping how businesses can apply the human sciences. This new approach is finding its way into the labs of technology companies such as Intel, IBM, and Samsung; the marketing departments of large consumer-product companies such as Adidas, Lego, and Procter & Gamble; global health care companies such as Novo Nordisk and Pfizer; and the thinking and writing of business leaders and new breeds of consultancy that, like our own, merge hard and soft sciences.

According to a recent global study of 1,500 CEOs conducted by IBM, the biggest challenge those CEOs face is the so-called complexity gap. Eight out of ten expect the business environment to grow in complexity, but fewer than half feel prepared for the change. The research also reveals that CEOs see a lack of customer insight as their biggest deficit in managing complexity. They prioritize gaining customer insight far above other decision-related tasks and rank “customer obsession” as the most critical leadership trait.

Accordingly, many companies are turning to customer research that is powered by big data and analytics. Although that approach can provide astonishingly detailed pictures of some aspects of their markets, the pictures are far from complete and are often misleading. It may be possible to predict a customer’s next mouse click or purchase, but no amount of quantitative data can tell you why she made that click or purchase. Without that insight, companies cannot close the complexity gap.

In the rush to reduce consumers to strings of ones and zeros, marketers and strategists are losing sight of the human element. Consumers are people, after all. They’re often irrational, and they’re sometimes driven by motives that are opaque even to themselves. Yet most marketers cling to assumptions about their customers’ behavior that have been shaped by their organizational culture, the biases of the firm’s managers, and, increasingly, the vast but imperfect data stream flowing in.

The human sciences approach is a radically different way to understand customers. It starts by examining the roots of their behaviors—the complex interplay between their interior lives and their social, cultural, and physical worlds. It digs deep for insights that elude more-traditional business tools.

This nonlinear process, which we call sensemaking, reveals the often subtle and unconscious motivations informing consumer behavior and can lead to insights that enable transformations in product development, organizational culture, and even corporate strategy. As we will see, sensemaking and the tools of human science are at their most powerful when helping businesses address novel problems, or “big unknowns,” in unfamiliar social or cultural contexts, such as new geographical markets or new generations of consumers. They can also be highly revealing in cases where current markets or consumers have begun behaving in unexpected ways.

Sensemaking in Action: At the core of sensemaking lies the practice of phenomenology: the study of how people experience life. Management science can tell Starbucks, for example, how many cups of coffee its customers will drink in a day; phenomenology reveals how those customers perceive the coffee experience. Starbucks has famously leveraged its understanding of the phenomenology of coffee, profiting from customers’ willingness to pay a premium for the often subtle and complex Starbucks experience — the hip baristas, the community of telecommuters, the crafted play­lists — as distinct from the coffee itself.

Consider how the Lego Group used phenomenology to understand its customers’ deepest motivations. Eight years ago Lego had lost touch with its core customers and was bleeding cash; today it’s one of the largest and most respected toy makers in the world, the result of a remarkable turnaround driven in part by its commitment to sensemaking.

The company’s downward spiral was propelled by its determination to leverage the brand and move into new markets rather than to understand what its customers — young builders and their parents — really wanted from play with its products. Acting on mistaken assumptions, Lego branched into action figures and video games, believing that kids, increasingly scheduled and often distracted by faster-paced electronic games, no longer had the time or patience for its old-fashioned plastic bricks. So Lego products got a lot cooler and more aggressive looking, but they also required less time and creativity from the kids playing with them. Meanwhile, parents’ nostalgia for the old Legos began to dissipate, and with it their impulse to buy the bricks.

CEO Jørgen Vig Knudstorp understood that customers had lost their connection with the brand and that new product lines weren’t the solution. He realized that Lego needed to better understand the phenomenon of play. What is children’s experience when they play, what do they desire from it, and how could Lego serve that need?

To find out, the company embedded researchers with families in the United States and Germany. The researchers spent months collecting data, interviewing parents and children, creating photo and video diaries, shopping with families, and studying toy shops — in short, amassing a vast store of information.

As the Lego team methodically sifted through the data, key insights began to emerge. Among them was that children play to escape their overly orchestrated lives and to hone a skill.This insight exposed the false assumption that kids were too busy to engage with Legos. In fact, it emerged, a subset of children have both the time and the desire to commit to the bricks and want to achieve mastery.

As Paal Smith-Meyer, then the head of Lego’s new-business group, explains, “Now we are making products that are proud of being Legos. If you look at a box, you know it’s Lego. You can’t force someone to play with the bricks. The research allowed us to make a decision about whom we wanted to reach. It was a decision that grew into a mantra: We’re going to start making Legos for people who like Legos for what Legos are.”

This was a game-changing insight that conventional strategy processes — market data analytics, conjoint analysis, surveys, focus groups, and so on — had missed and probably could never have provided.

Companies have long used ethnographic tools in market research. The innovation in sensemaking is less about the research technique than about the human-sciences-based analysis. A growing number of organizations globally have begun to apply sense­making, having recognized that it can help solve some of the toughest business problems, such as finding new growth, winning in new markets, and capitalizing on cultural change. Sensemaking reveals answers that conventional tools can’t, and it enables business leaders to think creatively about what business they are really in.

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