Clear and Simple Thinking: Business Books

I am always fascinated by why hard nosed, no –nonsense business leaders fall for the nonsense that passes for sound business advice and formulae for business success. What’s more fascinating is that this supposed well researched advice which often is peddled by well respected super star business professors or consultants, is part of a of a long list of contradictory advice. One advice, based on a compendium of data (read anecdotes) tells you do this, while another based on another set of extensive data tells you do the opposite. What do you mean you make ask? Just go to www..Amazon.com, search for business books and a very long list of books awaits you. Next read a random sample of the book descriptions and you will see exactly what I mean.
How can this be? It reminds me of what Richard Feynman said about psychology. To paraphrase Feynman, the problem he said was, that unlike physics, psychology had too few hard facts and too many easy anecdotal associations masquerading as scientific explanations. Feynman is an excellent storyteller and he illustrates this by this story. A famous psychologist was lecturing on the criminal mind at a gathering of psychologists. After the lecture, the famous psychologist was asked why the criminals he had used in his case studies developed the criminal mind. It is easy he answered. His research showed without a doubt that the criminals had not been loved enough by their mothers. Someone in the audience then pointed out that some of the criminals the professor had studied actually came from very loving households. It obvious, the professor replied, in those cases, they were loved too much. Unlike physicists which are content to say we just don’t know, while energetically searching for answers, it seems that psychologists have a very strong need to have an explanation for everything and everything for an explanation. And that is what makes psychology less like astronomy and more like astrology.
So to with business management explanations. Now I am not the first to make this observation. It fact, it has been made much more extensively by Professor Philip M. Rosenzweig in his book: The Halo Effect: .and the Eight Other Business Delusions That Deceive Managers ( link)

The latest example of muddle thinking, which will surely confuse rather than illuminate, comes from Prof Roger Martin’s new book: The Opposable Mind. (although the book is not out yet, I have gather the following information form excerpts that have appeared in the Globe and Mail) Professor Martin has studied what successful business leaders do and concluded that they think differently then the rest of us. He has coined a new term for this different kind thinking. He calls this different kind of thinking Integrative Thinking. And by this he means the ability to simultaneously hold opposing ideas and models in their heads while they work out new solutions to seemingly intractable problems. He cities all sorts of situations where business leaders have supposedly triumphed because of their ability think intergratively.

There are at least two problems with this book. First what is integrative thinking anyway, but let’s leave aside this for the moment and see, even if such a way of new way thinking exists, what is the evidence that it actually works. Although Prof Martin, thinks he has provided substantial evidence throughout his book, he as actually provided none. As professors Rosenzweig and Feynman have pointed out, in order to conclude that integrative thinking actually was a success factor we would have to analyze not just the successes as Prof. Martin has done but also at the failures. By looking at only successes we will erroneously conclude that any attribute that was present is a success factor. For example, the vast majority of successful business leaders studied by Prof. Martin happen to be male. Using the same reasoning as Prof Martin, we could erroneously conclude that being a male is a success factor in working out new solutions to seemingly intractable problems But to support that conclusion we would have to look a failures and find out that the vast majority of the failures involved females not males. Since casual observation shows this not to be the case we can quickly conclude that being male is not a success factor. So before Professor Martin can conclude that interrogative thinking is a success factor let alone THE success factor, he needs to look at failures and show that the reason for the failure is the lack of integrative thinking. We are not asking more of Professor Martin than what we ask medical researches to do when they test for the efficacy of a medicine.

Now lets us return to the very concept of integrative thinking. Either, it is nothing new and simply says that some people, when confronted with two options each of which are not satisfactory, can (sometimes) find a third way that works. So if this is what Professor Martin is saying what is so insightful about that. It is like saying what works works! Or it is a very innovative approach. If it is an innovative approach then don’t look for it in this book because a simple and clear description of the approach, other than the obvious one mentioned in the above, is nowhere to be found.

Just add this book to the ever growing heap of feel good muddled thinking business books.

What is Risk Anyway?

There is so much confusion about what is risk and risk management even among professional risk managers that one has to wonder how much of this confusion contributes to the recurring risk management crises such as the current subprime mess.

I have often heard that risk management is everybody’s business, which means that it is in effect nobody’s business. Or I hear the risk of this and the risk of that and so on and so on which makes it sound as if everything is a risk, which effectively means that nothing is a risk. Science has achieved results, where other approaches have not, mainly because it took undifferentiated blobs (things or concepts) and separated out its components and developed an understanding of the properties of each of its components and their interrelationships. I think this approach could help remove much of the misunderstandings current running rampant within the risk management profession.

I recently read an article in which the CRO of one the world's largest financial intuitions was quoted as saying that business is about taking risk. Now that’s a fine example of muddle thinking, if there ever was one. Does that CRO really believe that everyday business managers wake up and say, “Which risk will I take on today?”

Business is about making money, period. Unfortunately, in this world, most of the time when we set out to make money so many things can go wrong that instead of making money we end up losing money. And risk is simply the potential to lose money. And so hopefully for the shareholders of that financial institution, what the CRO meant is that in taking actions to make money, business managers have to take on risk. So far so good, but not very insightful. Hopefully that CRO also meant to say that just as there are so many ways of making money there are so many levels of risk for any one of those ways. Put more simply, by taking action A you expect to make X, but you have the potential to lose Y. However, if you restructure action A you can still expect to make X and only potentially lose much less than Y. And that is what risk management is all about.
The current subprime mess and all its collateral losses runs in the trillions, once the share value losses suffered by the shareholders of financial institutions are added to CDO investor losses. Perhaps if CROs were more clear in their thinking the losses would have been much much smaller.