The Road Home

On the journey to commercial success, strategic choice defines both the pathway to take and, as a result, the roads not to be traveled. Subsequent tactics make up the means with which we are to get to where we are headed – the shoes on our feet or the horse in front of the cart. Importantly, the relationship does not work the other way around; it puts the cart in front of the horse and even if it were to push the cart forward, it would not have any idea of where it was going, its view obfuscated by the wagon before it.

CHOICE MEANS RISK

Life is the sum of all our choices, as Albert Camus once wrote. By extrapolation, history equals the accumulated choices of all mankind. Indeed, no matter who we were, are or will be, from the moment we wake up until the second we fall asleep, our days were, are and will be filled with decisions.

Many of them, even in the corporate setting in which we act, are mundane. Others are anything but, their implications, positive or negative, potentially enormous. All ultimately boil down to an either-or decision – either we decide to do something, or we do not. While decision implies an end to deliberation and a beginning of action, remaining undecided is no less a choice, one of inaction over action.

Every choice carries a consequential cost. By explicitly choosing to do one thing, we implicitly choose not to do another. The essence of our decisions is, thus, one of sacrifice.

Of course, the reality of business is inherently complex and, as a result, strategic choice is risky. We will never be able to know for sure how our choices will turn out. Not only are we bound by the realities of ever-changing contexts, strategic decisions are made with the intention of outdoing an adversary – while understanding that the adversary is simultaneously attempting the very same maneuver. Above all else, this means that the outcome that matters is relative, not absolute. That is not to say that absolute performance does not matter. Increases in absolute performance can have dramatic effects on relative performance. One must, in other words, grasp not merely the marketplace (customers, rivals, technologies etc.) in which one acts, but also the means and internal capabilities (e.g. causal ambiguity) with which one can act, not least because it limits assumptions.

This is no revolutionary truth – Occam’s razor states that when presented with competing hypotheses to solve a problem, one should select the solution with the fewest assumptions – but it remains true nonetheless. The more assumptions made, the more potential points of failure and opportunities to be wrong. There is a significant difference between being 90% correct 90% of the time, and being 100% correct 10% of the time. Or to put it differently: assumptions may lead you to be largely right, but also hugely wrong.

AN INFORMED DECISION

Consequently, the first step in any strategy is one of information gathering. This, importantly, does not mean one should collect all the data one is capable of, though it all too often does. Defensive decision-making regularly leads to information-gathering not for enlightenment but enablement of post hoc inferences to escape blame (colloquially: one uses data the way a drunk uses a lamppost – for support, not illumination). The aim should instead be to gain enough of an understanding to weigh risk, identify uncertainty and judge capabilities.

One must also acknowledge the interplay between the context and the nature of the decision. Occasionally (particularly in situations where competition is intense, payoff distribution severely skewed, the speed with which technology advances is high or a win is necessary for survival), failure to act is the greatest sin, as Phil Rosenzweig once wrote. Though action is risky, it carries at the very least a modicum of potential success. Inaction brings none. In other scenarios, however, it might be prudent not to err on the side of action, but on the side of caution – when decisions are large, complex and difficult to reverse.

To complicate matters further, different decisions carry different feedback loops. The consequences of certain choices will be almost immediate, while the outcome of others invariably will require time to materialize, similar to how activation evaluation is relatively fast, while brand-building evaluation is relatively slow. In a modern business world of intense pressure, this often means that decision-makers are attracted by the siren song of the short-term, but be wary. In a corporate setting, one can overdose on placebos. The value of a path lies not in the ease with which one can travel down it, but in the destination to which it takes us.

MORE THAN MEETS THE EYE

In order to counteract our inclinations, we must come to terms with the fact that we all view the world subjectively through lenses that have evolved across millennia, and because of it are susceptible to narrative fallacies, confirmation biases, illusory superiority, clustering illusions and halo effects. While strategic-decision making in practice often carries certain safeguards against such subconscious direction, for example by decisions being made to a larger degree by teams, one can nonetheless get fooled by the false sense of security that consensus provides. Biases, such as pluralistic ignorance, are equally plentiful in groups. Every stakeholder involved in a decision process can be pulled down by the riptide of its psychological undercurrents. The only way to keep afloat is by valuing data over anecdotes, quantifiable experience over generic advice and critical thinking over alluring promises.

Every analysis will be biased, every model will have its assumptions, so it is imperative that we identify what they are, keep them to a minimum and practice our Bayesian thinking.

STRATEGY IS NOT SCIENCE

Much of modern business strategy discourse falls into two categories. On one hand, there are corporate astronomers, who treat business analysis as if it were physics. On the other, there are corporate astrologers, who provide generic solutions to specific challenges. Unfortunately, both are demonstrably wrong, as they claim able to provide the unprovidable: steps to guaranteed success, something we know not to exist. Businesses do not run with the precise predictability of Swiss clockwork. Rather, due to their complexity, they are much more like clouds, as Karl Popper once wrote. We speak of the vagaries of the weather. Perhaps we should also speak of the vagaries of companies.

Of course, such a proposition is significantly easier to offer than implement. As we have established, we are all psychologically primed to gravitate towards easy-to-understand answers with the speed at which they fit our personal narratives. Unfortunately, this inherent desire to provide a seemingly coherent direction to events may lead us to see patterns that do not exist, infer causes incorrectly and ignore facts that do not fit the story.

The only way to obtain an optimum result, or at least of increasing the odds of reaching such an outcome, is by analyzing the individual problem at hand and providing a tailored strategic solution. Salvation may appear in the form of similarity, but the Devil is found in the crucial differing details. Post hoc, decisions should at first be analyzed independently of performance. This can perhaps feel somewhat counterintuitive, after all, surely what matters to a company is the outcome. But corporate success is a matter of achieving positive results over a sustained period of time. The aim of strategic decision-making is to improve the odds of such an outcome, to increase the baseline and overall long-term performance. What matters, therefore, is do not exclusively the result of an individual given decision after-the-fact (negative results do not necessarily mean that mistakes were made, nor do positive outcomes necessarily mean flawless process – the difference may simply be one of randomness in one’s favor, i.e. luck), but the quality of the decision-making itself.

SUCCESS ON TRIAL

Nobel prize winning physicist Murray Gell-Mann once said, “imagine how difficult physics would be if particles could think”. In so many words, that is the reality that has faced any business in history – ultimately, at least for the time being, the customer is human and therefore post-rationalizing beings more so than rational beings. As a result, repeatability in business related fields is consistently inconsistent. Financial theory is largely based on realities that don’t exist, marketing research has a replicability rate of less than 2%, management books are proven wrong the moment they hit the shelves and psychology hypotheses are disproven daily.

A strategy must factor all this in and allow space for testing that makes contextual sense. Trial-and-error carries risk and uncertainty, but risk can be managed and uncertainty accounted for. It is a matter of finding ways to improve the odds of success, never imagining that success is certain, despite promises to the contrary made in best-selling books. The key to business is not doing things well, but doing things better that one’s competitors. That requires going outside of the comfort zone and trying the angle that others have not.

TAKE THE STEP

Strategy is choosing what to do, and thereby what not to do, its essence one of sacrifice. Not taking action is often the riskiest move of all. Curiosity killed the cat, but complacency kills companies. Dare to take the step. Dare to be brilliant. Increase the likelihood of future fortunes and define the history of your business, one choice at a time.

Or end up lost in the dark.