Our latest post on Forbes is a reflection on the limits of explaining state behavior with reason and rationality. An obsession with finding rational explanations – however far-fetched – for a state’s actions may lead us to ignore important emotional motivations, and result in miscalculation or outright surprise. Read our piece here.
Every time Milo and I teach about how organizations can make sense of their environments, we are confronted with the difficulty of explaining why uncertainty is so different from risk and why understanding that difference matters to entrepreneurs and managers. In this article, we address those questions and discuss the practical implications that flow from them.
The goal of strategy is to decide what to do in a given situation to achieve a given objective. Basically, strategic decisions comes down to the question “what to do next?”. In environments characterized by uncertainty (defined as objective lack of information), this is no simple question, and several approaches are possible to address it. Two dimensions characterize these possible approaches: prediction and control.
Prediction asks to what extent does my approach rely on a forecast of the future environment. Strong prediction corresponds to either a planning-type approach – I create a detailed prediction of the future before initiating action – or a vision type: I imagine the future and I strive to make this vision a reality. Low prediction corresponds to a more adaptive approach: I do not try to predict the future environment, but instead I move on and I adapt to changes along the way.
Control asks how I can control the evolution of my environment. The over-arching assumption of classic strategy is that the firm has little influence on its environment, which is for the most part given (or “exogenous”). All a firm can do is to find a place in this environment (planning /positioning) or adapt when it changes (adaptation). Hence the importance of the notion of “fit” that the field insists upon (e.g. Michael Porter in 1996). On the opposite side of the spectrum, the field of entrepreneurship observes that a firm can change its environment in profound ways, sometimes from an ex ante defined vision, or through the logic of future-agnostic gradual transformation of the environment. There are many examples of entrepreneurs starting with odds apparently stacked against them and completely transforming their environments: Michael Dell, Richard Branson, Sam Walton, to name just a few.
I have discussed the topic of the use of history for decision makers in a previous post about Richard Neustadt and Ernest May‘s analog framework. Historian Francis Gavin gave a very interesting speech for the Longnow foundation on the same question, but from a different angle. Gavin lays out five key concepts which, if properly understood and employed, should provide a firmer grasp on how historical analysis can be of benefit to decision makers. I would also argue that they can benefit not just the policymakers but also the public at large. These concepts are vertical history, horizontal history, chronological proportionality, unintended consequences and policy insignificance.
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
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.