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Tuesday, February 04, 2014

Management science's impossible quest: in search of predictability

Many years ago some people came up with a brilliant idea: "what if, we could turn abundant lead (Pb on the table of elements) into scarce gold?". A brilliant idea to be sure, but as we know now, impossible. What made Alchemy grow and thrive as a science, was that people at that time did not know that it was impossible. They did not have enough knowledge of chemistry to know that you cannot turn an element's atom into another element's atom. That did not stop them however! And thanks to those crazy idealists today we have Chemistry. How about that for a twist of fate?

Alchemy's history can be traced back for millennia, and that name stands as the prototypical failed science (except for poets and … idealists). Failed because it based its existence on a belief that was impossible to make reality in our world.

I find many parallels between Alchemy and Management science today. Alchemy wanted to find the magic Philosopher's Stone that could turn led into gold, Management scientists are in a similar quest: in search of the method that can make management succeed as a science. Management science's goal today is to find the magic ingredient that can give us predictability.

Basic Science

Many management-fads are based on the hypothesis that you can control the world around you, mold it in a way that can give you predictability. This (mythical) predictability is a core assumption that enables the management's idea of success: I will do X so that I can achieve Y and therefore succeed.

This predictability is, however, a form of causality. Many, perhaps including you, will not think of it that way, but predictability is only present in systems where you can determine causality. A predictable world is one where we can reliably predict what happens when we do X, i.e. a world where we can establish causality.

Newton's laws gave us predictability in the physical macroscopic world of objects, because they told us what would happen if, for example, you rolled a sphere in an inclined plane, or shot a bullet from a canon, or shot an arrow with a bow. Relativity theory gave us predictability (to a certain extent) in the microscopic world of atoms, or sub-atomic particles also because it established useful and applicable causality rules

Medicine gives us (mostly) predictability in the world of diseases and biologic systems like the human body because it has a system of studying and documenting causality: if you take Aspirin after a great Saturday night party, you will feel milder effects of the oncoming hangover.

You can see why management theorists (and practitioners) would want to achieve the same goal: predictability.

Predictability is management science's Philosopher's stone.

The Philosopher's stone

Planning is one of those attempts at achieving predictability. We plan, because we believe that planning will give us the predictability we seek. Without the goal of predictability we would not plan, there would be no point.

But planning itself rests on the assumption that we can predict (here it comes again) causality in the world where the plan is to be executed. If we did not believe that we could predict B to happen after doing A, then planning would not be possible. It would be illogical.

We plan to be able to predict, but plans only work if we can predict in the first place!

The problem with what is stated above is that it is a circular dependency: we plan to be able to predict, but the act of planing rests on the assumption that the world is predictable. You see where this is going, right?

The sad fact is that there are many other management techniques that both rest on, and try to achieve predictability. For example: pay for performance, management by objectives, or the yearly strategic plan.

Going around in circles

All these management techniques have one thing in common. They are static. They exist at a precise point in time: Strategy is defined in the Spring or Autumn and is supposed to be executed for the next 12, 18, 24 or more months. Objectives or goals upon which our evaluation is based are set several months in advance of the point of evaluation.

All these techniques require perfect, 20/20 foresight. How likely is that?

The basic problem with most perspectives on management today is that they are static analyses of a future environment. And all decisions are made because we believe we can predict the future.

We make these predictions to help our businesses be more predictable, but our predictions depend on our business being predictable. This circular dependency is why most management approaches are doomed to failure. Like Alchemy.

Looking forward

We need a new Management Science, one that does not require the existence of a predictable world. When it defines goals, it does so in a way that is dynamic, i.e. the goals change with the observation of reality. This dynamic adaptation process is what we, in the Agile community, call a feedback loop.

A future-proof management approach must start by basing it's core assumptions on the existence of feedback loops that must be studied and tested as we make decisions. And these feedback loops must be the driving factors for action in management. Not the plans!

How would such a management approach look like?

The first assumption of such a management approach must be that the world is not predictable beyond a very short time. This may be a simple statement, but the consequences of this simple statement are fundamental.

  • First, management techniques must not be based on the existence of a perfect, predictable future. Management techniques must be based on the acknowledgement that we cannot predict what is the best (or worst) possible outcome of our actions. What good is it to plan to sell 100 widgets when the market is - unexpectedly - demanding us to produce 1000 widgets? or 10 widgets?
  • Second, management techniques must be designed to include feedback loops that inform action. Not just as information collection loops, but as fundamental action-defining loops. For example: every single decision is temporary. Every decision must state it's assumptions and when one assumption is proven wrong, the decision must be reverted or at a minimum re-evaluated. When we execute our plans, we must be alert to surprises; without detailing our assumptions we can never be surprised. Surprises are triggers for action - no surprises, no learning, no adaptation.
  • Third, an individual's performance cannot be predicted up front. This tells us that we can only evaluate an individual's performance after we have the facts of what happened. Maybe a sales person failed to meet their sales target, but that could be because they helped R&D get the first pilot customers for an entirely new business!

What would your world look like if you believed and followed the three principles above? How would it differ from your current perspective on management?

Image credit: John Hammink, follow him on twitter.

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  • Agreed. Management Techniques must undergo overhaul. However, if we ask ourselves, how this state of affairs came to be, amidst all the dust, there is one reasonable point - All strategies need time to execute.

    Additionally, large companies with multiple core competencies need time to move - Elephants do need time to dance!

    To move from being a hardware supplier to being a top product maker, Samsung needed the vision and the time to execute.Following trends that change very 6 months reactively in the name of flexibility also may get you nowhere!

    What is needed is a vision, a core path to get to it, feedback loops to quickly change the way you achieve it and a little less frequently, change your vision!

    By Anonymous Sridhar, at February 04, 2014 8:13 AM  

  • There is predictability without understanding causation. For how long could Man predict the sun would rise before understanding why?

    If we assume that the near future is likely to be similar to the recent past, we can make better decisions than someone with a shallower understanding of the prior performance of a given system, even without establishing causality.

    By Anonymous Anonymous, at February 04, 2014 5:54 PM  

  • @Anonymous Predictability does not require causality understanding the case of the sun coming up every morning. However it does when you are trying to recruit people, buy resources, get suppliers to deliver, etc.

    Not the same thing as natural events.

    However, there is some truth in what you said. I'll explore that in later posts.

    By Blogger Vasco Duarte, at February 06, 2014 8:42 PM  

  • @Sridhar You are right. Strategies take time to implement. Actually, Visions take time to implement. Companies like Samsung defined their long term vision and then worked incessantly to achieve that Vision.

    They did that by changing their approach all the time, or - as in Samsung's case - to cover all bases. To use all possible strategies. That's great and it works. But their startegy (cover all bases) did not require predicatbility. They were ready to outspend everybody in the world to reach their goal.

    We should look at other examples. Countries and Cities are better examples in my view. They represent loose coalitions of people that cooperate in an ever changing network of relationships to continue to survive, and have been able to (in many cases).

    Cities do not require predictability to thrive (think Hiroshima or Dresden during WWII). They are constantly adapting to an everchanging reality without the luxury of outspending reality (like Samsung). Cities are a more interesting metaphor for me.

    By Blogger Vasco Duarte, at February 06, 2014 8:46 PM  

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