Category Archives: Methodology & Tools

A Simple Framework to Develop Deep Strategic Understanding in Uncertain Environments

Posted on November 15, 2012 by | 2 Comments

In a previous article, we discussed how, when facing an uncertain situation, a deep understanding of the present beats prediction about the future. One tool that Milo and I developed for strategists to think in detail about the present – in other words to answer the pretty basic strategic question “What is going on?” –  is a refinement of a framework developed by the historian Ernest May and political scientist Richard Neustadt.  We call it the “KPUU framework”.  It demands strategists answer and drive towards discussion (and perhaps agreement about) four simple questions about a situation.

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Crafting Non Predictive Strategy, Part III: Acknowledge the Nature of the Problem

Posted on October 4, 2012 by | 13 Comments

Despite formidable developments in business strategy over the last fifty years, organizations keep being disrupted by events they should have seen coming, but didn’t, or by events they saw coming but were unable to avoid or take advantage of. In 1971, NCR was surprised by the rapid rise of electronic cash registers and lost its leadership of the market. In 2007, Nokia was unable to react to the launch of the iPhone, an event the Finnish firm dismissed as minor, and is now struggling to survive. In 2011, the Arab uprising came as a complete surprise to everybody, not just business and governments but the people involved as well. And the list goes on:  if strategy is about addressing the key challenges an organization face, then the general lack of preparedness (if not prevention of) the economic and political crises that the world has been facing since 2008 is a massive failure of strategy. Hence it’s no surprise that in a survey conducted in 2011 by consulting firm Booz, fully 53% of senior executives did not think their company’s strategy would be successful. Houston, we have a problem…with strategy. Continue reading →

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Crafting Non-Predictive Strategy, Part I: Deep Understanding Beats Prediction

Posted on June 27, 2012 by | 9 Comments

As Milo and I have argued before, the environments and issues businesses deal with are more complex than traditional strategy models admit.   Business issues today display high levels of uncertainty, they can behave non-linearly, and they can be vulnerable to “Black swans”, i.e. low-probability but high impact events that disrupt even the best formulated strategies.  The added difficulty for strategists and managers is that nonlinear environments often appear linear for an extended time period (think US house prices).  As a result, some conclude that what seems to be an essentially linear pattern (prices fluctuate a bit around a ‘long term trend’ but always rise), are linear in reality – before a radical change occurs that completely disrupts previously assumed patterns (e.g. prices fall dramatically).  In short, people often assume an environment is linear and predictable when in fact the continuity we observe is only a particular case of limited duration.  To make matters worse, with many nonlinear systems change is not nicely spread over the years:  most of the cumulative change occurs in one, single – often dramatic – occurrence.  In the language of engineering, some things don’t “fail gracefully” (e.g. a bridge that breaks suddenly instead of bending slowly).

Not a “graceful failure”.

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Geopolitics and Investing: A Reading List

Posted on May 1, 2012 by | 4 Comments

As I explain to my students at IE, the most any business school can hope to do is move you from unconscious ignorance to conscious ignorance of a subject.  In other words, a course can lay a firm foundation in a subject, and then provide a jumping off point for future self-study.  After my MIAF course “Geopolitics and Investing”, that usually prompts the question, “Where should I begin such self-study?”

As I said in an earlier post, there are certain key books that point you towards how to think like an intelligence analyst.  Because the skills of an intelligence analyst and a geopolitical investor overlap so much, I would also say that investors interested in geopolitics start with those key books.  In particular, if you haven’t mastered the critical thinking and the basic analytic  techniques described in Thinking in Time, Essence of Decision and The Thinker’s Toolkit, you are still in kindergarten as far as intelligence analysis is concerned.    Heuer’s Psychology of Intelligence Analysis (downloadable free from the CIA’s site here) is also immensely valuable.  None of these books will teach you geopolitical analysis per se, but they will give you a solid foundation in non-quantitative analysis.

One investor gets a grip on Geopolitics

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Start with Geostrategy, or call it Tactics

Posted on December 10, 2011 by | 13 Comments

Many business people seem to operate under the unconscious assumption that they’ll gain a competitive advantage through a careful daily reading of the business press.  They won’t.

They’re also unlikely to gain a decisive edge by combining the daily parade of conventional economic data with stale “strategic” frameworks like the BCG Matrix (which dates back to 1968), Porter’s Five Forces (created in 1979), or Value Chain Analysis (introduced in 1985).   Anyone who has studied business in the last 30 years – including your competition – uses these.   They also probably read the same newspapers and buy the same economic data.   In short, the old-school “Business Strategy 101” toolkit is like a white shirt in your closet:  always safe, sometimes useful, but not a decisive business edge.   Face it:  apart from their other limitations (see below), these old strategy models are fully depreciated.  How is the unconsidered imitation of commonplace ideas “strategic”?

Fully Depreciated Thinking

There is no clearer path towards creating a strategically autistic culture or organization than by mistaking the very definition of strategy.  That’s why to gain a competitive advantage in today’s world, you have to do more.  In my view, that “more” starts by gaining an understanding of what actually constitutes business strategy, i.e. understanding the deep, structural forces that bear on the long-term success of firms, and how these forces can be engaged and harnessed.  In the classes that I teach at IE, I argue that these deep forces are geopolitical.  The metaphor that I use to explain my approach is that geopolitics shapes the climate of business, whereas the daily news and conventional economics – even macroeconomics – simply address the weather of business.

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Why theory matters. Even to business and yes, even to you as well

Posted on September 5, 2011 by | Leave a comment

It’s become commonplace to hear, including from my fellow academic colleagues, that we academics write articles in journals that nobody reads. Students and participants in executive programs, we are often told, want practical tools that they can apply immediately in their job, and they have no patience for theory. It often goes to the point where we are asked not so much to teach as to get participants to talk about their favorite topic, ie themselves, and lead a class discussion on this anecdotal basis supported by some multimedia slides while students are transfixed by their twitter account. Some schools have even acknowledged this and claim that they don’t teach, but develop what’s already inside participants. Put otherwise, bring your own food: we repackage what you know already and you pick up the bill. The idea that we as teachers may, at some point, introduce some theoretical content increasingly seems suspect and the sure sign of out of touch academia trying to influence a world they are said not to understand. What do eggheads know about business? The idea of teaching, that we could impart some knowledge, but also exert our professional judgment on what we should teach to whom seems preposterous and a sure sign of academic arrogance. I disagree. I teach, and I make no apologies for it.

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Four Tools for Managing Oneself – Staying on the High Wire

Posted on August 13, 2011 by | 2 Comments

One of the things that I enjoy most about the summer break is a chance to reflect upon my goals, and how I’m doing on my path to achieving them.   Though sometimes mistaken for its superficial relative “self-help” literature (beset by fads and pop-psychology), the systematic study of self-management is important for any professional.  In fact, I wish I’d paid more attention to the topic during my MBA.  Anyway, in pursuit of both summer self-reflection and preparing to teach in the autumn, I thought I’d offer my four favourite tools for managing oneself.

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Three Videos on Forecasting and Strategic Surprise

Posted on July 20, 2011 by | 1 Comment

Many people are either beginning their  holidays or are already in the midst of them.  If you’re the type of person who  reads a blog like this, you probably already know what you’re hoping to read on your break.

Therefore, I thought I’d try a different approach and offer a summer watching list rather than summer reading list.  This list recommends three videos that you might consider for your travels or during your “down time”.   All address different aspects forecasting, uncertainty, strategic surprises and decision-making.  When you feel like a break from reading, give them a try.

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Business and Intelligence Techniques: the Role of Competing Hypotheses

Posted on July 1, 2011 by | 7 Comments

I get a lot of requests to discuss further the application of intelligence analysis to business, so today I’ll discuss the uses and limitations of a common analytic technique.

One tool that I teach at IE is the Analysis of Competing Hypotheses (ACH).  ACH is an analytic tool originally developed by Richards J. Heuer at the CIA, but it is remarkably useful in business as well.  ACH uses a deceptively simple framework to use ideas from the scientific method, cognitive psychology and decision analysis to overcome a common but immensely important bias:  the fact that we tend to perceive what we expect to perceive rather than what actually exists.  To illustrate this tendency, read the words in the three triangles below:

If you’re like most people, the phrases “written” in the triangles are familiar.  To find out what’s actually written in each triangle, refer to the bottom of this entry (or try the old proof-readers trick of reading them backwards).

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“Facts” Everybody Knows – Statistical Cautions about the BRICs (in honor of Igor Birman)

Posted on April 8, 2011 by | 8 Comments

In business and finance, statistics and quantitative comparisons are daily companions.  Sometimes, however, key statistics can become too familiar, and reify, i.e. harden into “facts” that everybody knows.  In so doing, they play a large part in strategic surprises.

In the late 1980s, for example, the US Intelligence Community “knew” that Soviet GDP was $2.5 trillion, i.e. about 52 percent of the US GDP of $4.8 trillion.  How?  Their computer models told them so.  These models relied upon – among other things – assumptions about ruble-dollar Purchasing Power Parity (PPP).

Western academic Sovietologists also “knew” the USSR’s economy was about $2.5 trillion.  How?  Mostly, they relied on an authoritative source:  the CIA.

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