The Analytical Stranglehold

The fuel for the modern growth in interest in all things strategic has been analysis.  While analysis has been the watchword, data has been the password.  Managers have assumed that anything which could not be analyzed could not be managed.  The last 40 years have seen a ceaseless quest for things, actions and decisions which can be analyzed.  The belief in analysis is part of a search for a logical commercial regime, a system of management which will, under any circumstances, produce a successful result.  But, effective analysis does not guarantee effective, or even appropriate, implementation.

Indeed, all the analysis in the world can lead to decisions which are plainly wrong.  Kodak had all the data about its markets, yet reached the wrong conclusions.  It is a problem not restricted to business.  British Prime Minister Harold Macmillan was once asked what was the most difficult thing about his job.  “Events, my dear boy, events,” he replied.  For all its usefulness, analysis does not dictate events.  Big data does not automatically equate to big insights and solutions.  Things may add up, but they don’t necessarily work.

“Strategy-making is an immensely complex process involving the most sophisticated, subtle and at times subconscious of human cognitive and social processes,” writes Henry Mintzberg.  “While hard data may inform the intellect, it is largely soft data that generates wisdom. They may be difficult to “analyze”, but they are indispensable for synthesis – the key to strategy making. As Mintzberg puts it: “Real strategists need to get their hands dirty digging for ideas.”

Roger Martin, former dean of the Rotman School of Management at the University of Toronto, is known for his work on integrative thinking as a means of solving complex problems and has argued that organizations should adopt a more design-based approach to thinking. Designers get close to the end-user and use abductive reasoning – pragmatic guesswork – to create more value. They balance two kinds of models of value creation – analytical thinking and intuitive thinking – to produce “design thinking”. The mix is the thing.

“Sound qualitative judgement is behind most market-beating innovations,” says Alessandro di Fiore of the consulting firm ECSI. “Building a qualitative judgment capability requires a significant shift for most companies, which are deeply ingrained in number-driven innovation. The pathway should reflect the starting point. The first step should be an assessment of the company’s current capability. Then, companies should agree on its critical axes of change which might reflect some of or all six presented rules.

“Finally, they should agree on an appropriate ambition level and develop a shared road map to attain it. For many companies, to develop such a capability will remain a source of frustration. For the best ones, however, it will represent an exciting journey. Figuring out how to harness the power of qualitative judgement as a driver of innovation and growth could represent the ultimate competitive advantage in today’s knowledge society.”

Di Fiore is right. There are two basic problems with the reliance on analysis.  First, it is all technique.  Watching the implementation of a strategy which is solely based on analysis is like listening to a synthesizer recreate the sound of a Stradivarius.  It is hollow and de-humanized.  Even in the technological age, de-humanized management remains a contradiction in terms.

The second problem is more fundamental.  Analysis produces a self-increasing loop.  The belief is that more and more analysis will bring safer and safer decisions.  If analysis is insufficient, the manager begins to feel guilty.  How can they produce a strategy when the data is non-existent or insubstantial?  To assuage the guilt they carry out some more analysis.  The process continues, relentlessly delaying any decision-making.  In such cases, strategy is driven by guilt and fuelled by analysis.  Eventually, enough data is bound to filter through and a strategy of sorts will emerge.  The process is, however, time-consuming and tortuous.  Before the resulting strategy becomes action it is likely that the self-perpetuating combination of analysis and guilt will continue to interfere with and slow the process.

The traditional view is that strategy is concerned with making predictions based on analysis.  Predictions, and the analysis which forms them, lead to security.  The bottom-line is not expansion, future growth or increased profitability – it is survival.  The assumption is that growth and increased profits will naturally follow.  If, by using strategy, we can increase our chances of predicting successful methods, then our successful methods will lead us to survival and perhaps even improvement.  So, strategy is to do with getting it right or, as the more competitive would say, winning.  Of course it is possible to win battles and lose wars and so strategy has also grown up in the context of linking together a series of actions with some longer-term goals or aims.

This was all very well in the 1960s and for much of the 1970s.  Predictions and strategies were formed with confidence and optimism (though they were not necessarily implemented with such sureness).  Security could be found.  The business environment appeared to be re-assuringly stable.  Objectives could be set and strategies developed to meet them in the knowledge that the over-riding objective would not change.  This approach became known as Management By Objectives.

Management By Objectives (MBO) was about identifying a target and developing strategies to achieve it.  Under MBO, strategy formulation is a conscious, rational process. The process is backed with hard data and analysis so that a single, right answer can be identified and a clear plan articulated.

In practice, MBO demanded too much data.  It became overly complex and also relied too heavily on the past to predict the future.  The entire system was ineffective at handling, encouraging or adapting to change.  MBO simplified management to a question of reaching A from B using as direct a route as possible.  Under MBO, the ends justified the means.  The managerial equivalent of highways were developed in order to reach objectives quickly with the minimum hindrance from outside forces.

“The confusion of means and ends characterizes our age,” the Canadian strategy thinker Henry Mintzberg observes and, today, the highways are liable to be gridlocked.  When the highways are blocked managers are left to negotiate minor country roads to reach their objectives.  And then comes the final confusion: the destination is likely to have changed during the journey.  Equally, while MBO sought to narrow objectives and ignore all other forces, success (the objective) is now less easy to identify.  Today’s measurements of success can include everything from environmental performance to meeting equal opportunities targets.  Success has expanded beyond the bottom line.

Another fatal flaw in the conventional view of strategy is that it tended to separate the skills required to develop strategy in the first place (analytical) from those needed to achieve its objectives in reality (practical).  The divide between analysis and practice is patently artificial.  Strategy does not stop and start, it is a continuous process of re-definition and implementation.

When the future could be expected to follow neat linear patterns, strategy had a clear place in the order of things.  Now, the neatness is being upset, new perspectives are necessary.  Even attitudes to time are being questioned.  Western admiration of the Chinese economic renaissance makes Eastern notions of time intriguing – the East tends to use a cyclical conception of time which is not driven by achievement or by short-term objectives.  Instead, it is deterministic and fatalistic.

If time can be questioned — or, at least, our perception of time — nothing is sacred and, corporations must constantly wrestle with fundamental issues.  While accepting that every company needs a strategy – either explicit or implicit – it is increasingly recognized that expressing a need for strategy does not help to determine what strategy actually is or entails.

Resources
Alessandro di Fiore’s articles are at ecsi-consulting.com

This was originally published in What we mean when we talk about strategy by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).