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About 15 years ago, Glenn Carroll and Jesper Sørensen began teaching a mandatory course for first-year MBA students called Critical Analytical Thinking at Stanford Graduate School of Business. “It was not a particularly popular course,” Carroll recalls. “These are kids that just came to business school, it’s their first quarter, and rather than learning about business, they’re learning about logic.”

Carroll and Sørensen sought ways to connect the subject to traditional business material. They found that logic could be used to discuss strategy. They reasoned that a disciplined system of thinking can help business leaders generate new ideas or solutions.

However, logical thinking does not come naturally to most people. Carroll believes this is because most people have been taught that assumptions lead to conclusions, when often it is the other way around: The insight comes first, and then logical reasoning tests if the insight is correct.

Carroll and Sørensen compiled these ideas in their book "Making Great Strategy: Arguing for Organizational Advantage." After its publication, they realized they had omitted an important tool for guiding corporate strategy: analogy. They addressed this in a new paper in Strategy Science offering a step-by-step procedure for building and testing analogies between companies.

Sørensen explains analogy as "a very common way in which people argue" because it provides structure to otherwise vague ideas quickly. Analogies are intuitive compared to other forms of logical reasoning, appearing frequently in popular discourse such as movies or descriptions of wars.

To draw a useful analogy, Carroll and Sørensen suggest starting with the endpoint you wish to reach and finding another company—the target—that has achieved a similar outcome. For example, Glassdoor's founders pitched their startup by comparing it to Tripadvisor due to both platforms using ratings and user comments.

Such similarities may be superficial. An analogy “can also be dangerous,” warns Sørensen. To avoid mistakes, Carroll advises examining the target company’s business model closely and identifying shared elements or premises with your company before comparing each premise.

Sørensen shares an exercise involving Australian executives discussing Rover.com as the "Uber of dog-walking." Misunderstandings arose when they assumed Rover offered on-demand services like Uber when it did not; Rover required scheduling in advance despite both employing gig workers.

There are horizontal comparisons focusing on business features like Rover-Uber and vertical comparisons concerning business decision logic. Sometimes vertical comparisons offer more value.

Sørensen recounts how a former student drew an unlikely analogy between wheelchair-accessible transport and Cemex's cement delivery due to similar fixed-cost investments creating market pressure allowing only one player to dominate each market.

Analogy strategies should involve group exercises where participants propose analogies for their businesses then compare results. “It’s one technique you could use,” says Sørensen, “for understanding your current business but also for thinking about new opportunities.”

This story was originally published by Stanford Graduate School of Business.