6: Evidence of Circumstance
The chapter opens with the example of birth-order dynamics. Some psychologists feel that there is strong evidence that the birth order (oldest, middle, or youngest) has strong implications for personality; others dismiss it as utter nonsense. Reviewing the literature, prominent and well-regarded psychologists fall on both sides of the argument.
The author pauses to consider whether it may be a factor of circumstances: children behave a certain way in the context of their family, but completely differently when they are outside of the home. He mentions his personal experience with one of his own children: teachers worried the child might have developmental issues because he very rarely spoke in class. At home, the child was the most verbal of their children and could "talk plenty."
As such, the psychologists who make much of birth order are likely running into resistance because they make the assumption that behaviors are universal, and overlooking the fact that people behave differently in different situations.
The lesson to be taken for this is that lessons or experiences from one situation do not always transfer neatly to others, and in some instances they can be disastrous. The particular circumstances matter a great deal.
Theory Building
Theory is often considered to be the opposite of reality - when it's said that an idea "works in theory" it is implied that the theory is impractical and disconnected from reality. However, even people who claim to base their decisions on real facts begin with a basis of theory: the theory includes an assumption of the way things work, and they pay selective attention to the details, focusing on those that are relevant to their theory.
The author refers to a three-stage model of theory building promulgated by Carlile and Christensen:
- Observation - attempting to be attentive to a situation in an objective manner, gathering data without imposing a preconception
- Classification - The mass of details from observation are categorized and structured according to various criteria, generally related the qualities of observable phenomena
- Definition - Describing the cause-and-effect relationship between actions and outcomes, considering the classification schema.
These stages repeat when the theory is put into practice, though they tend to be skewed to considering whether the theory holds true - careful attention is paid to anomalies, the cause-and-effect relationships are questioned, and the theory is revised to better suit the situation.
For example, consider early theories of flight: inventors observed the flight of birds, noticed that (with few exceptions) creatures that fly have feathers and flapping wings. As such, the early experimentation in building flying machines, which we find comical today, involved outlandish contraptions with feathers and flapping wings. But it took trying that theory out, and seeing it proven wrong, before we investigated other options (specifically, the shape of the wing and the air currents).
The author suggests that many management practices today "look like feathers glued to wings" - and the problem is that they do not recognize that the theoretical basis is flawed - they keep trying to make their theories work in spite of repeated failure. To make matters worse, consultants and researchers are often stuck in the same paradigm, using case-studies and real-world evidence to refine bad practices rather than seeking a new theory to pursue.
Case Study: Boeing's Dreamliner
In the past few decades, outsourcing has come into fashion - based on the belief that work can be done more cheaply and effectively by an outside company. On the books, the practice reduces the amount of cash that a company has tied up in capital (plant and equipment) and makes the return on investment look better, a mathematical correlation that is clear and undeniable. And yet, it doesn't often work.
Boeing, the world's largest airplane manufacturer, has long used outside suppliers. In truth, Boeing is more of an airplane design company than a manufacturing, as it develops the plans and blueprints and outsources the manufacturing and assembly to other firms. But for its 787 Dreamliner project, Boeing decided to outsource the design as well, asking its suppliers to design and build the sections. The program was a disaster. The first plane arrived in thirty thousand pieces that did not fit together, and considerable adaptation and re-engineering, and it took a lot more time and money to assemble the final plane.
Clearly, outsourcing is not a good solution to any project that requires the integration of many complex and disparate components. The coordination costs are high, as are the risks, that getting the product to work is a challenge. Another problem, akin to complex systems, is the fact that the parts must work together - such that focusing on the efficiency or excellence of individual components does not guarantee that they will be harmonious when wired together into a system.
The author contrasts this to the personal computer industry, in which thousands of companies make parts that are interchangeable and firms such as Dell can buy from any of a number of suppliers. The chief difference is that a PC is a well established machine in which the components are standardized, whereas the 787 was a completely new plane that lacked a blueprint or a working model.
Said another way, applying the same theories and practices resulted in disaster because of failure to consider the differences in circumstances.
Side Track: Strategy Game
The author speaks for a long while about a children's game called "Colonel Blotto" in which players have 100 soldiers to divide among three battlefields. The player with the most soldiers on a given field wins the battle, the player who wins two out of three battles wins the war.
The author suggests that this is often the situation faced by many leaders in real-world situations (military, politics, and business) in which you have limited resources to expend and will likely have to accept defeat in some areas to win. In a fair fight, it's clear that some strategies are virtually certain to lose (100-0-0) and others are virtually guaranteed to win or tie (33-33-34)
However, in a real-world situation, there are other variables to consider. Not all battles are equal in value, and the winner may have fewer but more decisive victories. Also, the different players may have different numbers of soldiers. There may also be any number of battlefields.
In general, the greater the complexity of the game, the better the chance that an underdog can win. For example, a player with 25% fewer soldiers is three times as likely to win in a game with 15 fields than a game with only nine. For this reason, we find that the larger or longer the tournament, the lower the chance that the strongest contender will win.
Coincidence and Causality
A serious and widespread problem is that coincidence is mistaken for causality. People from all walks of life and in the most serious professions often operate as if factors that coincide are causally related.
For example, financial analysts have remarked that there is an 80% correlation between the Superbowl and the stock market. The market goes up withn an NFC team wins and goes down when an AFC team wins. Another stock analyst (Leinweber) found a 75% correlation between butter production in Bangldesh and the performance of the S&P 500 stock index.
The notions that such coincidences represent a causal relationship is patently silly, but many people seem to subscribe to it. The media seems to enjoy publicizing these quirky coincidences and use language that strongly suggests a causal link - "scientists have proven that eating bananas increases intelligent" and "smoking causes cancer." (EN: Truth is, the scientists often report that they observe a correlation, even a very weak one, and journalists misrepresent and sensationalize it.) An amazing number of people are taken in by such claims, and as politicians yield to public opinion, mistaking coincidence for causality can have serious consequences.
For there to be any chance of causation, the cause must happen before the effect - most people get that. But what most people don't seem to consider is that there is often a third factor that impacts both factors. (EN: a good example I heard long ago was "ice cream causes violence" which ignores the fact that another factor, heat, drives up both). And third, there may be no connection between the phenomena at all - sometimes coincidence is just coincidence - and there's no clear way in which the two could be at all connected.
As such, it's important not to automatically accept a statement, or a perception, or causation where coincidence occurs. Until threes three factors are considered, it's likely an assumption - and it's surprising how often suggestions of causation fail those three basic tests.
Adapt to Survive
It's another general principle that adaptation to changing situations is necessary for survival. Darwin made this observation of the animal kingdom, and it's just as true in the corporate world.
As an example, the author looks to the Norse settlements in Greenland - which lasted from the tenth to the fourteenth century - and "one wonders how the society survived as long as it did." The chief problems were cultural inflexibility - the insistence on doing things the same way in Greenland as they did in Norway.
Specifically, the Norse sought to build wooden longhouses in an environment where there were few trees, depended on grazing livestock in a climate where there was little flora, and other choices that were possible in their homeland that could not be supported in their new environment. The Norse had contact with the native Inuit people, who were skilled at surviving in that climate and whose methods of building shelters and gathering food was suitable and sustainable - but the Norse apparently learned nothing from the Inuit, and it's reasonable to conclude that they scorned the primitive ways of the primitive natives and carried on as usual, certain that their culture was right. And so, they struggled, starved, and died.
While this seems a "historical curiosity" it is very much the same way in contemporary organizations: they struggle to do things the way they feel is right, ignoring the evidence, ignoring suggestions to change, and continue to do so until they finally collapse. Meanwhile, the firms that survive and excel change their ways to suit the market, and are flexible enough to change as necessary to enter other markets.
Suggestions
Consider whether the theory behind your decision-making accounts for the circumstances. Especially if you are imitating or transplanting a practice that has been successful, consider what elements in its current context make it successful and whether those same elements will be there in its new environment.
Leave room to evolve. Conditions will change over time, even in the same situation, and the system you put in place should be flexible enough to adapt. In particular, it should not stubbornly insist on doing things that make no sense for the purpose of sticking to tradition.
Be attentive to the assumption that coincidence means causality. Use the three criteria of time precedence, relationship, and external factors to assess whether causality might exist.
Avoid the perspective that there is a single "best practice" for doing anything - much depends on situations and circumstances. Be particularly suspicious of those who suggest adopting a methodology without considering the circumstances.