What David Hume can tell us about cause and effect in business

Filmmaking is one of those businesses where what seems to be a recipe for success can turn out to be a recipe for financial disaster. You might think that the combination of a good script, a distinguished director and high-profile actors would be a dead cert, but sometimes even those magic ingredients don’t necessarily guarantee rave reviews or a box office smash. Any number of productions perform poorly, while others are simply written off or go straight to DVD.

Given the movie industry’s volatile nature, established actors will often choose safe options over a low-budget independent production. That said, the jury is out over whether a film’s success is due to this or that star’s presence. As a 2006 article in The New York Times, points out, it is often hard to determine cause and effect:

"if a star-studded movie does well, it does not necessarily mean that the stars are causing higher ticket sales. In fact, it seems to move the other way around: stars select what they believe are promising projects. And studios prefer to put stars in movies that they expect to be a success [...] Movies with stars are successful not because of the star, but because the star chooses projects that people tend to like."

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In life, as in business, we need to be able to identify the real causes of events, because it allows us to make decisions and reverse or replicate what happened. For example, if we know that a product that was intended to be innovative has not worked in a market, we try to find out the reasons for the failure, and not look for specious justifications. Spain’s Philip II famously said when he learned in 1588 of the defeat of the so-called "Invincible Armada", tasked with the conquest of England: "I did not send my ships to fight against the elements", referring to the bad weather conditions during the battle. A fallacious excuse if ever there was one.

Cause and effect have exercised philosophers since antiquity. In this regard, I find the work of David Hume, the Scottish Enlightenment philosopher, a useful guide. In his central work?An Enquiry Concerning Human Understanding, he explains that all knowledge is divided into two categories: facts based on ideas, and facts based on experience, a simplification that has come to be known as “Hume's fork”. The former are based on relating abstract concepts, for example, mathematical propositions, which are governed by deductive approaches. The latter refer to judgments that we formulate when we relate experiences or observations, noticing some kind of connection between them. In this second category we find inductive judgments, along with the rules or criteria that we form throughout our life, based on our perceptions or routines. For example, the proposition "the sun rises every day in the east" would be inductive in nature, because it is based on our direct experience and perception. Hume's conclusion to this classification places him in an orbit close to skepticism: the cause-effect relation only applies to deductive judgments, the associations of abstract ideas, but not inductive judgments, and he slips in a phrase that has become famous: from the fact that the sun sets every day in the west I cannot deduce that it will also happen tomorrow.

I’m not about to enter into the scientific discussion of whether we can predict that the sun will set in the West tomorrow, and instead focus on Hume’s concept of causality, because it seems to me to be particularly applicable to management. As the business environment is strategic, and management is not an exact science where deductive reasoning is possible, it is debatable whether causes and effects are produced automatically and evidently as a result of company’s activities.?

Even reasons that may seem to be proven and generally accepted are open to question. Have you ever encountered a case of groupthink, in which a team unquestioningly accepts a particular approach, which later proves to be wrong? Although it may be in good faith, groupthink clouds reasoning and prevents the identification of the roots of a problem. If there is bad faith, the problem is greater.

The?Toyota 5 Whys?was invented by the Japanese carmaker analyse business problems, regardless of whether there were seemingly irrefutable arguments to explain them. The exercise started by posing the initial question, for example "why has the assembly line stopped for two hours?"; the immediate answer could be technical: "because the network has been down for that time". The second question would be: "why has the network been down for two hours?"; to which the answer might be: "because the electrical maintenance team only works an eight-hour shift"; to which the question would be asked: "why does the maintenance team only cover eight hours out of 24?” The answer could be: "to save personnel costs"; and now, the fourth question would begin to get to the heart of the real problem: "why was it decided to save on personnel costs?"; to which the answer would be prompt: "to balance the budget"; and finally, the fifth question would be of a truly strategic nature: "can savings be made on anything other than maintenance personnel?".?

The virtue of the?Toyota 5 Whys?model is that the insistence, almost Confucian, ends up linking issues that seemed disparate, that would not have been probed had the analysis not been extended, that affect several departments or people, and even end up involving general management. Often, similar problems are not solved because either those directly responsible do not have the mandate to make executive decisions to remedy them, and therefore they continue until top management intervenes; or because the questions, complaints and possible solutions get lost in the bureaucracy of the organization.

Toyota's persistent approach is more rigorous, because the analysis of a problem goes beyond the surface and touches other areas. According to Hume's approach, a necessary cause and effect relationship would still be missing that could be projected on to any future situation in which the assembly line stops because the network goes down, and he would be right. Business situations and episodes are human-made, and in events involving personal relationships it is not possible to apply mathematical rules, permanent criteria independent of circumstances or individuals. Our lives are not causal paradigms, such as the one that occurs when two balls collide and transfer the movement to a third one. There are many other unpredictable factors beyond such control.?

As Yuval Noah Harari explains in his Sapiens: "Newton showed that the book of nature is written in the language of mathematics. Some chapters (for example) boil down to a clear-cut equation; but scholars who attempted to reduce biology, economics and psychology to neat Newtonian equations have discovered that these fields have a level of complexity that makes such an aspiration futile.”

Hume's questioning of the causality paradigm in the use of intuition or inductive thinking does not prevent such reasoning from being part of our way of interpreting everyday events, analyzing business situations and making effective decisions. What Hume emphasizes is that causality in such reasoning is apparent, and need not necessarily always occur in the future.

This relative skepticism leads us to be on our guard, especially in the face of momentous decisions in a company, and to avoid overconfidence based solely on previous experience. Again, a convenient prescription is to cultivate humility, possibly the best prism through which to see things in their best light.

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