Strategy Maps and Causality: What we can Learn from Classical and Quantum Mechanics.

The author F. Scott Fitzgerald once said, "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function." For some reason this makes me reflect on how I  think about causality, particularly how it is described on a Strategy Map. (figure 1 shows a map with many arrows, purportedly implying casualty.).

Figure 1: Strategy Map showing assumed causality (source, Derek Brink 1/2016).

 Do I accept the premise that improving capabilities within the Learning & Growth perspective leads to the effective delivery of strategic processes and from that the realization of customer and financial outcomes? Yes I do. Do I think that the causal logic of a map accurately describes how value is created in an organization? Well, no I don’t. 

Making sense of these seemingly conflicting views (and so enabling me to function!!) leads to my mind to wandering into the world of mechanics. Specifically, the differences between classical and quantum mechanics and how this relates to our understanding of how Strategy Maps work.

Classical Versus Quantum Mechanics

As a disclaimer, I am not a scientist, so please forgive any inaccuracies. But from my understanding, classical mechanics tells us (among other things) that if we pull a lever in one place a predictable result will occur elsewhere. The basics of the laws of cause and effect. Quantum mechanics (admittedly at the level of the particle) tells us that for any initial situation there are many possible outcomes, effects, with different probabilities: cause and effect is not deterministic: we cannot predict an effect, just calculate probabilities.

Back in 2006 I wrote a book called Reinventing Planning and Budgeting for the Adaptive Enterprise (1). For that work I interviewed Jeremy Hope (1948-2011), then Director of the Beyond Budgeting Roundtable. He provided this useful observation:

“A lot of the literature shows that we’ve inherited a cause-and-effect, central control form of management from Newtonian physics. The idea that we have a clockwork mechanism where there are levers within levers and that we can predict that if we pull a lever in one part of the organization it will have a predictable effect elsewhere… And strategy mapping is a reflection of that to some degree.

“There’s a lot of evidence now that cause and effect is not a model that represents reality. “The real world is an eco-system and is more quantum mechanics. Things move around and are inter-dependent and more chaotic.”

He added that, “What we’re seeing now is a movement away from the Newtonian model to one that is more organic, more devolved, more adaptive and more flexible to change.”

The Intellectual Capital Model

At the time, Jeremy Hope’s argument reminded me of the work of Hubert Saint-Onge (a sometime co-author of mine) and others in creating the Intellectual Capital Model in the late 1990s (figure 2). The argument was that value (both financial capital and enhanced non-financial capital) was created when customer, structural and human capital interacted (as captured in the intersections between the capital components). It is, in effect, the interaction that creates value; thus, making it an imprecise exercise to measure the contribution of capital components in isolation, or as part of a logical casual sequence. This is certainly more of a quantum than a classical positioning.

Figure 2: The Intellectual Capital Model: value is created at the intersections of the capital components

To be honest, the Enterprise Capital Model made sense to me. It is the interaction that count and the actual drivers of the value created is not easy to isolate. Cause and effect is at best implied. However, although a useful model for visualizing value creation, such a model is extremely difficult to put into practice.

Interactions Between Intangible Assets

In the work of Drs Kaplan and Norton (the co-creators of the Balanced Scorecard system) we also find evidence of value being created through interactions. Within the Kaplan & Norton Balanced Scorecard Certification program (for which I was a Master Trainer) it is taught that intangible assets do not deliver value in isolation. Specifically:

• The value of an intangible asset is determined by its impact on other variables.
• The value of an intangible asset is influenced by its interaction with other intangible assets.
•  It is difficult to isolate the value of one asset.

These observations were directed at the intangible assets found in the Learning & Growth perspective, but it is hardly a stretch to extend to process and customer assets (as described in the Intellectual Capital model).

Indeed, in one of my many interviews with Dr. Norton he stated that when it comes to describing how value is created, a Strategy Map sacrifices some degree of precision for practical usability (a 2D map rather than a 3D model) and that this was a conscious decision. That organizational value is not quite delivered according to the flat cause and effect assumptions within a map but the relationships provide a strong enough picture and narrative to overcome the negatives of imprecision. A recognition, perhaps, that value creation is as much to do with quantum as classical mechanics and that both have a place in managing strategy.

...a Strategy Map sacrifices some degree of precision for practical usability

The Continued Value of Strategy Maps

And this why the Strategy Map, with an arguably flawed cause and effect logic, is still valid.

The fact is that to manage performance effectively we need structure, process and not least roadmap that can be followed. A Strategy Map provides this performance management framework very well -  and in doing so conforms to classical mechanics. Beleaguered managers require such aids.

But we also need to pay attention to the “quantum,” side of the equation.  Albert Einstein commented that “Reality is an illusion. Albeit a very persistent once.” When it comes to performance, cause and effect is indeed oftentimes an illusion: as we know from statisticians, causality is very difficult to prove and requires significant testing. Just because you show there's a relationship doesn't mean it's a causal one. It's possible that there is some other variable or factor that is causing the outcome. This is sometimes referred to as the "third variable" or "missing variable" problem.  

The Value of Correlations

But we can identify strong correlations.  In the end, correlations can be used as powerful evidence for a cause-and-effect relationship. Again, Dr Norton has said to me, "In reality we are looking for strong correlations more than cause and effect."

But it is also one of the most abused types of evidence, because it is easy and even tempting to come to premature conclusions based upon the appearance of a correlation.

However, as long as we are aware of the inherent dangers of taking correlations on face value, these relationships can provide enough evidence to have faith in our strategic assumptions. But in managing this “causal,” link we need to keep in mind that there are innumerable variables that will come into play as the relationship between capital components plays out.

Advanced data analytics is helping us to view the intricate relationships between these variables. Being able to capture and apply such outcomes to solve problems or deliver solutions within specific contexts and over a shorter timescale might well be the way forward. I sense that advanced data analytics will gradually “blur the lines,” between strategy and operations (that I will write on subsequently): or maybe it won't. But that’s another internal conflict between two opposing ideas.

  Ends

As always feedback is welcome.

1.      Reinventing Planning and Budgeting for the Adaptive Enterprise, James Creelman 2006. I am happy to provide a free PDF of this book to any reader that requests it.

James Creelman is the author of 24 books, most recently Doing More with Less: measuring, analyzing performance in the government and not-for-profit sector: (Palgrave Macmillan, 2014) with Bernard Marr and foreword by Dr. David Norton and Risk-Based Performance Management: integrating strategy and risk management, (Palgrave MacMillan, 2013) with Andrew Smart.

He is available for advisory/training/research assignments where the focus is on driving transformational and lasting change.