Strategy Consulting And Wisdom - A Match Made In The 21st Century
I WANT A FASTER HORSE!
The steam locomotive. It was not an instant crowd pleaser when it was introduced in the early 19th century. Sure, it promised to have extraordinary power, be incredibly fast, and able to cover a lot of ground. Many people, however, could only see one thing: it wasn’t simple. And the horse and carriage was. It was an undeniable truth. The steam locomotive was much more complex than a horse, or a carriage, and it certainly took more time, effort and skill to build. Even worse, the designing alone required all kinds of new knowledge about difficult stuff like thermodynamics and mechanical engineering. Why would anyone bother with this solution when there is no problem? Why not continue to breed ever faster horses? Good point.
STRATEGY CONSULTING IN A WISDOM AGE
This article is dedicated to how the want of wisdom could invigorate strategy consulting, and how the Model for Strategic Wisdom is able to guide this quest in practice. And by ‘wisdom’ I do not mean the mythical ‘true’ wisdom, but the down-to-earth wisdom that is defined as the proper application of knowledge. That knowledge is not elusive either as it equals justified true belief. Strangely enough, this definition is not well-known, even though it is very practical and has hardly been disputed. In fact, it was Socrates who stated that what is said cannot be accepted as knowledge unless what is stated is both logically true, and sufficiently justified. It is as simple as that. And by that I mean the definition, not the practicing.
If this is about strategy consulting and wisdom, than why the metaphor? Well, just replace the horse and carriage by ‘educated guesses’, and the steam locomotive by ‘wisdom’, and you will see. It will reveal that what is argued at the top, still applies. Demonstrating wisdom, like the steam locomotive, is much more complex than the existing alternative, and it definitely takes more time, effort and skill. Understanding wisdom also requires familiarity with certain new types of knowledge. In this case, epistemology would replace thermodynamics, and rhetoric replaces mechanical engineering. But, just like with the steam locomotive, when it comes down to practice, wisdom is also far superior to the alternative in all but one respect: simplicity.
That is absolutely true. Yet we all know what happened to the horse and carriage.
Remembering this historical fact, should a proper assessment of the wisdom alternative to strategy consulting be based on convenience alone? I think not. To be more specific, I argue that any new approach to consulting should be judged on the contribution to the purpose of consulting. Assuming that strategy advice aims to result in better decision making, this would mean that an alternative that aims for wisdom should be judged on its potential for speed, power and reach. Just like any transportation purpose is ultimately about speed, power and reach, and not about things like the quality of the horse, the weight of the carriage, or the sturdiness of the wheels. It means that when the end-product is better advice, strategy consultants must necessarily be in want of strategic wisdom.
NO NEED
Just to be clear, the Model I present aims for better judgment, whereas strategy consulting is a business in itself and, as such, primarily driven by what sells, and not by what is good. This observation makes that there is in principle nothing to object about the use of possibly flawed thinking, of making sense of the past, using fallacies, dealing with the obvious, or even advice that is unfounded. In fact, many clients simply want to be reassured. Which is understandable. When one is again confronted with the complexity of the business environment, explanations for what happened in the past and simple solutions for the future, are among the most pleasant things to hear. Besides that, like the majority of people, many clients will be unable to spot ‘twists’ in the story plot or fallacies anyway. Especially when they are presented with confidence, as any consultant is bound to do. Being able to see through convincing, but nonetheless shoddy, reasoning requires critical thinking skills not everyone possesses. I completely understand that commercial interest will prevail over justification, or the best possible advice. And, as business is still booming, it is perfectly understandable that there is no need for a Model that improves reasoning or provides better answers. Just bring me a faster horse. Nevertheless, I think reality calls for some remarks about how the pursuit of wisdom is most relevant for strategy consulting.
STRATEGY AND STRATEGIC THINKING
Before I continue on how any quest for more wisdom offers an exciting and inspiring opportunity for the improving of strategy consulting, I want prevent any confusion regarding the term ‘strategy’. In my opinion strategic thinking has very little to do with the formulation of ‘a strategy’, being some sort of master plan that needs to be executed. Mostly, because this view of strategy ignores an important truth, which is that the company’s path is not defined by words on paper, but by many consecutive decisions. It is simply not laid out once a strategy is formulated.
As an example, growing through acquisitions might be part of a strategy, but that does not answer the question what companies should be acquired, in the same way that a focus on online-growth still leaves many options to choose from. Strategic thinking is about seeing every day as a decision situation, and about doing the hard work of making judgments in actual cases, and choosing among actual options.
It is equally important to note that strategy is also not about the expressing of strong sounding and decisive statements, and seeing this as signs of ‘good leadership’. When strategy is articulated, it should be about arguments and rhetoric, not about one-liners or prose. Both aspects make that strategic thinking is about constantly making well-founded judgments, regardless of the mission, vision or the catchy name of the strategic plan. This is an important realisation because it also demands the integrating of the financial dimension in strategic thinking from the start. In current practices, strategy is mostly discussed using unclear terms like ‘best’, ‘winning’, ‘options’ and ‘growth’, whereas a detailed financial perspective should be included to establish the value creating impact of what is considered, as well as to establish the usually completely ignored ‘good enough’ option.
The big strategy firms’ business models work very well. Nevertheless, it is sensible to consider certain changes that gain momentum. As can be seen in the Figure, some of these changes are supported by trends that can already be identified (availability of data, integrated thinking), some relate to how business schools are looking to educate a more critical generation of future clients (see previous article ‘Business Schools Must Focus On Wisdom’).
How could these changes impact strategy consulting? To answer this question, it is insightful to recognize that strategy consulting is mostly associated with problem solving. Although there is an overlap in critical thinking skills between strategic thinking that aims for wisdom and problem solving, both approaches are quite different. At its most fundamental level, this difference is reflected by the fact that justified thinking that aims for wisdom requires a deductive approach, whereas problem solving implies an inductive approach to find a single solution for a problem. How the latter inevitably introduces bias from the start is illustrated in the two figures below.
In problem solving, consultants tend to dive into new projects and immediately start with the gathering and analysing of problem-specific data. This plunging-in is bound to result in conclusions very quickly. However, it does not include an assessment of the problem itself, or of the process that is followed to solve it. The first omission is understandable – the focus is on finishing the project as quickly as possible, and in principle not on helping a client given its overall context. The second omission is equally understandable. After all, with the absence of a norm for good strategic reasoning, it is very hard to assess its quality. Besides that, when dealing with complex issues, it is completely natural for humans to make judgments about things that are abstract and ambiguous, on the basis of other things that are salient and seemingly objective, like a bunch of available data.
The logical result is that strategy firms tend to generate propositional knowledge about a company or industry in the same way they find solutions for problems, which is inductively, by means of hypotheses. Naturally, this way of working need not result in bad advice at all, but it did make IMD’s Professor of Strategy Phil Rosenzweig state that “for all their claims of rigorous research, for all their pretentions of science, the variables they draw upon are often not independent of the thing they are seeking to explain. Shoddy reasoning and shaky thinking, passed for knowledge, promising the best of everything”.
I’ll be the first to admit that when strategy consultants care more about finishing projects than about improving reasoning skills, and when clients cannot see how justification could be improved, there is no obvious reason to change anything. If, however, clients would be able to assess logic and reasoning better - and ‘critical thinking’ is seen as a core skill for the 21st century -, consultants would need to focus more on improving the overall quality of strategic thinking, and therefore on becoming wiser. The first step in such a process is adopting a structured, more deductive way of thinking and reasoning, regardless of the project scope. The presented Model provides such a thinking structure.
BUT THE PAST IS NOT VERY RELEVANT, IS IT?
But what about the unprecedented ‘disruption’? What is the point of using past data? I am afraid that anyone who asks that question is not a very critical thinker, as that also implies practicing metacognitive thinking. Such higher-order thinking would wonder: if data from the past is not used, than what input is used for decision making? Data about the future….? Nonsense, of course. There is only data about the past, and that data should be used in thinking even if the conclusion is that it cannot be used. Remember, that conclusion is a propositional statement about a company or industry, and therefore it must be justified to be accepted as knowledge.
Would this argument also hold in cases where industries are so irregular and unpredictable that all data is without direction? Is ‘experimenting’ or ‘intuition’ then not all that is left? Certainly, that might be the correct conclusion, but again, only if such a statement is justified. It would still be the justification itself that is of the most value, not the outcome. Intuition might be a reason to do something, but it must not be confused with the expression of reason. Unless, of course, it is acknowledged that an advice to experiment is given randomly. There are no two ways about it, without justification every statement is an opinion.
Unfortunately, the absence of justification is commonplace, as is the use of fallacies, shoddy reasoning and biases. Often such shortcomings result from using information regarding an extremely small number of exceptional - and therefore widely covered - companies, whilst the thousands of companies that are not exceptional (but effectively make up the business world), are ignored. The unjustified assumption is that the exceptional companies must be seen as a ‘benchmark’ for all other companies. Benchmarking is insightful, and often used in strategy consulting, but it must be approached with great caution. In particular when conclusions are based on similarities between elements that are different from the ones that concern the conclusions. Put differently: things go wrong when it is assumed that because some things are similar, other things are similar as well. That is a clear example of a fallacy. Benchmarking can be valuable, but only if company differences (the ‘anomalies’, as opposed to the ‘analogies’) offer no good reason not to make such assumptions. After all, when performance is fundamentally relative, it must be the differences that drive performance.
The ‘jumping to conclusions’ that is often associated with the practice of benchmarking is known as representative bias because parallels are drawn between things that are unrelated. Other common fallacies in strategy practice include the availability bias (placing too much importance on data that is available), the anchoring bias (scope of analysis is limited from the start), or the commitment bias (ignoring information that is not in line with the hypotheses).They are examples of the sort of reasoning that resulted in books like “In search of excellence” and “Leading the revolution” by management gurus Peters and Waterman and Gary Hamel. The first book was once highly acclaimed, but is now famous for being a grotesque example of selling correlation for causality. The ‘exemplary’ Enron in the second book imploded just one year after publication.
Clearly, adopting a wisdom-seeking approach is more sensible. Mostly because any search for truth is by definition future proof. Yes, this means the considering of differences becomes crucial. And, as said, this is possible only when companies and industries are comparable on all aspects. Hence, it should be no surprise that the Model’s core principle offers a tool for doing just that: putting order in chaos by offering a new mechanism for the ordering of information. When the Model is used, thinking about differences becomes possible after proper analogies are established. As users will learn, this will open up a path to more refined explanations, new insights and more elaborate lines of reasoning.
STRATEGY CONSULTING IN THE 21ST CENTURY
I have three advices for any strategist and strategy consultant: learn to use the entire business world as a reference, always look for justification of beliefs, and focus on cash flow consequences. Combined they are the essence of critical strategic thinking. Being predisposed to think critically in this way also means that one should not start with hypothesis generating, or that testing them is the central activity. It means analyses would focus on the identifying and assessing of the elements that impact what management controls or wants to influence by their decisions (this is all explained in the thesis).
Does this then rule out inductive thinking altogether? Certainly not. Critical thinking requires the expression of criticism as well. This is mostly a subjective method of argument in which arguments are not supposed to be deductively valid. However, critical thinking does mean that one, ultimately, reasons back not from a predefined problem, but from the very fact that the thinking is intended to result in better overall decision making.
A NEW CHAPTER IN BUSINESS THINKING
Stories stand at the core of how we think, remember and explain the world, and the best stories are the ones that are clear, coherent, complete and internally consistent. As users will learn, the Model’s building blocks are like chapters that must be articulated in order for the important ‘value creating’ story of a company to unfold and be understood. As such, it provides a tool for the capturing and structuring of all necessary statements, and therefore for all thinking steps and content, and therefore for the forming of one coherent purposeful view of any company.
I am convinced that anyone prefers a well-told story over accounts of unrelated observations. That is why I expect that both students and professionals will be attracted to the structured and detailed ordering of information that stands at the core of this Model. Of course, no one will be able to present an exhaustive analysis of the business world, but the fact that it can now be imagined will surely drive any new attempt. Certainly, ambitious strategists and strategy consultants should be among the first to benefit from such insights.
