The study presented in this work investigates the impact of forms of logical reasoning on company performance. Under changing market conditions and uncertainty, executives too often fail to foresee strategic options that lead to superior company performance. One reason for this is that executives tend to rely on deductive/inductive logic in order to reduce the risk associated with decision making under uncertainty. Deductive/inductive logic relies on general rules or prior observations. This means, rules or observations must be known prior to the decision. However, during early-stage innovation and strategic planning, future conditions are usually unknown. Therefore, it is unlikely that one will have made all observations necessary for such an explanation. As a consequence, executives often become risk averse and make predictable decision errors.
In order to successfully foresee strategic options—despite changing market conditions and uncertainty—executives need to change their approach and particularly the reasoning they apply. In the area of design and concept selection, scholars promote the use of abductive reasoning. This type of logic forms plausible hypotheses about future outcomes and events instead of deducing/inducing what is known from the past. When using abductive reasoning, thinking becomes more future orientated, and the potential of yet-not-existent concepts and outcomes can be better recognized despite the present uncertainty. This is important not only for design and concept selection, but also for other processes such as strategy development.
Building on prior studies and literature from the field of cognition, strategizing, opportunity recognition, design and abductive reasoning, I hypothesized that abductive reasoning should positively influence company performance. Under the umbrella of a larger research project funded by the Australian Research Council (ARC), I conducted a study investigating this link both qualitatively and quantitatively. The research was conducted at the University of Sydney in cooperation with Delft University of Technology under supervision of Dr. Massimo Garbuio, Dr. Boris Eisenbart and Prof. Andy Dong, and with Prof. Petra Badke-Schaub as chair of the graduation committee.
The study is based on secondary data of 30 US companies in the Software and Development Industry that went public on the US-stock market (NASDAQ) in the period between 2013 and 2014. The data was derived online via the US Securities and Exchange commission database. For the assessment of abductive reasoning, a framework was developed that expands existing frameworks used for the assessment of (abductive) reasoning during concept selection. Financial data were acquired via COMPUSTAT.
Results of the study confirm that abductive reasoning leads indeed to significantly greater company growth performance. Furthermore, abductive reasoning positively influences company profitability when used in conjunction with deductive/inductive logic, and was found to 1) introduce new business or revenue models 2) identify market segments 3) define a product or service offering, 4) invent technical solutions 5) revise and form beliefs/missions, and 6) explain observations such as (market) behavior.
Qualitative analysis suggests that specific observations made prior to or during early-stage venturing—referred to as observation sets—stimulate abductive reasoning. Three different categories of these observation sets were identified: analogy, anomaly and paradox. Observations about technological developments are suggested to enable innovation, i.e. the technical component of a new venture idea, while demographical and organizational observations are often the source of new strategic options.
Up to this point, the most commonly accepted view has been that strategic decisions are made rationally. Therefore scholars advise the use of tools which rely on deductive and inductive logic to assess and create strategic options. Results of the presented research, however, suggests that companies should instead make an effort to complement their strategy development with abductive reasoning approaches. In this paper, the results are discussed, managerial implications and contributions to literature are presented, and future research is suggested.

Years after the peak of the Global Financial Crisis, Europe as a theatre of business remains exposed to considerable pressures from uncertainties in the development of national economies. One key element to sustainable success in corporate venturing is the capacity of enterprises to sense and seize an opportunity to grow value through investment in innovation before market logics have been proven elsewhere. While improving innovative performance in terms of launching novel and commercially successful products and services remains the imperative aim of sustainable business venturing, history has taught us time and again that a substantial product innovation will be picked up and replicated by competitors very quickly, posing stark challenges to companies to repeat the innovation cycle quickly following the launch of a novel product. (Massa & Tucci, 2013; Casprini, 2015). This thesis reports on the underlying premises that BMI is appropriate for fostering sustainable competitive advantage of businesses. Furthermore, the benefits and influences of abductive reasoning on leading managers’ decision making and reasoning during the process of BMI to create superior strategies and appendant corporate success are demonstrated in this thesis. Prior research at the University of Sydney, has shown the potential of novel forms of logical reasoning, in particular abductive reasoning, which is often considered as the kernel of innovative/creative design practice, Design Thinking (or ‘designerly ways of thinking’ more general), to support decision making in product innovation management (Dong et al., 2015; Mounarath et al., 2011). Cognitive strategies related to abductive reasoning, such as creativity, analogizing, mental simulation as well as well as pre-factual thought (Epstude et al., 2016; Dong et al., 2016; Ball and Christensen, 2009; Gavetti et al., 2005), have further been linked to success of entrepreneurial and intrapreneurial endeavours (Huang & Pearce, 2015). After extensive literature research, it was determined that on paper, product innovation processes are very similar to BMI processes. Furthermore, it has been stated by Teece (2007) that a business model itself is a hypothesis about what customers want and how a company should confirm these needs and be paid for them. This suggests that the principles of abductive reasoning and generative sensing may similarly apply to business model innovation. This is to be examined during the empirical research. This empirical research, employed the semi-structured interview approach in which 15 leading top-managers were interviewed. In BMI visioning and strategizing is key and is therefore predestined to come from higher hierarchical levels in an organization, whereas PI is mainly promoted by individual designers, engineers etc. in a rather bottom-up process. This research specifically aims to find information about the decision process, the (logical) reasoning process of executives within the BMI process. The results presented in this thesis are derived from in-depth conversations with 15 experts on the topic of business model innovation. Within these conversations their approaches and motivations during the business model innovation process were discussed. The research goal was to find out if managers use instances of abductive reasoning during the BMI process and what the effect of this reasoning is on successful business venturing. The results of the empirical research show that most cases of successful BMI that were heard seem to involve some form of abductive reasoning and/or generative sensing mechanisms. Hence, there is a good likelihood of this being applicable on a broader basis. Therefore, it is likely that there is a correlation between abductive reasoning and successful business venturing, not only owing to a more future-oriented mindset and the prediction of a future outcome scenario but even more because often it creates a certain timespan and plausible path into this future outcome scenario and/or future end goal or end value. Rather than just future or divergent thinking, it helps managers to create plausible explanations for certain observations and formed hypothesis. In line with these results, the one example in which abductive reasoning was present during the BMI process but did not lead to ultimate success reveals sustentation for the positive effect of abductive reasoning during the BMI process. After all, any support in business venturing can make a difference between success and failure. Based on the experiences of the interviewed executives, business leaders should make an effort to advance their cognitive capabilities to envision future opportunities by doing extensive market research, investigating trends and understanding customer needs and wants. Managers should be well aware that the use of iteration and reframing during the BMI process is key for a successful outcome. Moreover, managers should use forecasting methods such as creating business cases, examining trends and contextual research for example in other domains and to mentally forecast and simulate plausible paths to predict future outcomes and opportunities. Managers should train themselves into adopting a mindset like this, train themselves in this business model innovation process as it can lead them to grasp opportunities better. This could be done by searching for inspiration and information in other domains, where managers or entrepreneurs might have or might not have prior knowledge (Fiet, 2007; Guenther et al., 2017), to find new opportunities. Furthermore, to become successful at business model innovation, it is important for managers to use be open to experimenting, questioning the status-quo and easily recognize patterns (Dyer et al.,2008). Especially pattern recognition shows similar cognitive processes to those used in creative thinking (Weisberg, 1999; Welling 2007) and is often linked to counterfactual thinking (Gaglio, 2004). In conclusion, the results of this present investigation suggest that there is a correlation between abductive reasoning and successful business venturing. Combined with the findings from the present investigation, managers should use creative capabilities such as abductive reasoning and generative sensing during the business model innovation process in order to become successful at both the ideation and the implementation of a new business model. Managers should train themselves into adopting a mindset like this, train themselves in this business model innovation process as it can lead them to grasp opportunities better. However, there is no definite set of capabilities or specific reasoning process which managers should ubiquitously adopt, this research suggests that when applying abductive reasoning logic and using instances of generative sensing during business model innovation, it is highly likely that this will have a positive effect on the final outcome of a business model.