I have a strategy lesson for you
Read our latest piece on Forbes here.
In it, we argue that how an organization perceives competition or reacts to a disruption in its environment depends on its identity. Hence, before you start trying to understand them, try to understand yourself first.
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Read our latest piece on Forbes here. Our previous piece was on how the lack of diversity can cripple your company. Read it here.
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A control expert preparing for the eventual collapse.
Posted in Case study, Our work featured
Tagged decline of organizations, disruption, Forbes, Microsoft, organizational decline
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).
Posted in Methodology & Tools, Theory
Tagged analysis of competing hypotheses, brainstorming, disruption, failure of imagination, generation of competing hypotheses, Heuer, intelligence, Intelligence Analysis, non-spreadsheet risk, Psychology of Intelligence Analysis, Rodin, social facts, social loafing, strategy, surprise
Last Tuesday I attended the Economist’s Bellwether Europe conference in London. Several speakers raised ideas that made me want to follow up Philippe’s latest piece “Has China Peaked?”.
At the conference, many speakers and panelist (from regulators like the FSA’s Martin Wheatley, to economists like Roubini’s Arnab Das, to portfolio managers like Blackrock’s Richard Kushel) linked the future stability of the Eurozone and the prosperity of America to the continued growth of China. Niall Ferguson was even more explicit, saying at one point that “The governor of the PBOC has far more control over the future of the US and European economies than either Ben Bernanke or Jean-Claude Trichet”. I tend to agree that US and EU economic stability is tied to Chinese growth, but am worried by that fact, and skeptical about Chinese “control” of their economy either through their Central Bank or through “administrative measures”.
The People's Bank
The image evoked by statements such as Ferguson’s (even though I am sure he is too smart to have intended it) is of a carefully calculating Zhou Xiachuan sitting behind a desk in Beijing pressing buttons and pulling levers – a man in commanding a linear, essentially Newtonian system. The same tends to happen when people talk about the powers and actions of the Fed and the ECB. Even so-called “centrally planned” economies don’t work like that. Economies are not not machines, and they are not linear in the sense that once the behavior of its component pieces are understood individually, one simply needs to add them up to predict – and control via a Central Bank or other bureaucracy – the behavior of the whole.
A point which is not original but which bears repeating because it is so often forgotten is that Economics is not Physics, it’s a “Social Science” (a false metaphor if there ever was one). As one scholar says “God gave Physics the easy problems” and the behavior of economies is non-linear rather than additive.
Posted in Theory
Tagged bubble, Catallaxy, China, disruption, forecasting, Geopolitics, Hayek, intelligence, Newtonian metaphor, non-linearity, non-predictive strategy, prediction, scientism, strategic surprise, Use of history, USSR
The fog of war, a long 2003 interview of Robert S McNamara, shows that how one frames an issue has an influence on how a question can be solved. As soon as they got engaged in Vietnam, the US presented the conflict as a fight between freedom and communism. This happened in the late fifties, after China had become communist and right after the Korean war, in a context in which the communist world seemed to progress inexorably. The domino theory, introduced by the Republican US president Eisenhower in 1954, stated that once a country fell and became communist, neighboring countries also would. Hence it became crucial to defend any country facing a communist insurgency. As David Halberstam mentions in his book “The best and the brightest”, the US national context also played a role later in the Vietnam process: Harry Truman, Eisenhower’s Democratic predecessor, was accused during the cold war to have “lost” China in 1949 and to have been weak against the communists, particularly during the Mccarthyst period. A longstanding reputation of “Democratic weakness” persists to this day as a result. In the early 60s, the democrats were still traumatized by these accusations that were systematically used by their Republican adversaries. This is the initial cognitive frame with which the Vietnam question was analyzed by President Kennedy’s administration. Right from the beginning then, the administration was prisoner, without being aware of it, from a frame that was in effect imposed by their adversaries. Despite their doubts and mounting skepticism, they would remain unable, right until the very end, to get rid of it.
Posted in Theory
Tagged decision making, disruption, framing, GM, non-predictive strategy, Robert McNamara, Sarah Kaplan, sense making, strategy, turbulence, uncertainty, vietnam war
A central tenet of innovation research is that firms often fail to act on a disruption that threatens their business, and falter as a result. A case in point is AT&T, the 120 year-old subsidiary of Bell Telephone Company, child of Alexander Graham Bell, an American icon.
In 2005, AT&T was sold to SBC Communications. It was in a way a family story, as SBC Communications started in the mid-eighties as the smallest of the seven “baby bells”, the companies created after the regulator ordered the AT&T break-up. But what a story !
AT&T introduced many innovations, and not small ones: first commercial radio (1922), first television transmission (1927), first mobile phone (1946 !), first transistor (1947), first telecom satellite (1962). AT&T has long been a giant of the economic landscape: one million employees at the beginning of the 80s, and not so long ago a market value of $180 billion (1999).
Posted in Case study, Theory
Tagged disruption, organizational decline, prediction, strategy
One of the features of our age is the idea that business suffers from a unique level of technological disruption, an attitude that I call Techno-Egotism. Businesspeople are told routinely that they operate in an era of “unprecedented” technological change; as a result, they feel very Modern (and rather sorry for themselves). They also, however, end up lacking perspective, and that can be a strategic liability.
I believe that if posterity registers our age’s Techno-Egotism at all, they will find it rather quaint. This thought struck me with great force last week as I drove across the George Washington Bridge, from New York to New Jersey, specifically in order to spit legally into a tube, and then mail that tube.
Posted in Case study, Theory
Tagged 23andMe, Burlington Northern Santa Fe Railway, disruption, disruptive technology, DNA, genetics, Gordon Moore, Lloyd's, moore's law, Navigenics, New York State Law, non-predictive strategy, Panama Canal, Panamax, Royal Mail, steamship, strategy, Suez Canal, Tactics, Techno-Egotism, technology, Warren Buffet
An interesting way to think about how organizations deal with disruptions in their environment, and what ultimately causes their demise, is to consider the thesis of Arnold J Toynbee on the decline of civilizations and apply it to the world of organizations.
Toynbee is the author of “A study in history“, the landmark book on the history of civilizations. The book comprises 6,000 pages, no less. Fortunately, a professor decided to write an abridged version, which allows normal people like you and me to grasp the virtuosity and knowledge of Toynbee in only… 1,200 pages in two volumes. What does Toynbee write? According to him, a civilization grows when its elite is creative enough to attract inside and outside constituents. The civilization breaks down when the elite loses this creative capacity and gives way to, or transforms itself into, a dominant minority. When this happens, the driver of the civilization becomes control, not attraction, and its unity ends.
One of the characteristics of a disruption is that one has to deal with a new situation for the first time. Hence, almost by definition, one doesn’t have any prior experience to draw upon, and often no existing framework to use.
Does that mean that radically new situations must be dealt with without referring to the past experience? In their book, “Thinking in time”, Richard E. Neustadt and Ernest R. May think not. They argue that there is always an analog, ie a past situation decision makers can refer to, but on the conditions that the similarities and differences with the present situation be clearly understood.
