Monday, November 17, 2014

MANAGEMENT / STRATEGY SPECIAL .............................From black swans to grey rhinos: Four ways academics can help managers

From black swans to 


grey rhinos: Four ways 


academics can help managers



In his famous book, Nassim Taleb admonished us to beware of “black swans,” disasters so rare that managers disregard them and academic models exclude them—and for which we’re therefore not prepared.

Personally, I think this concern is overdone. The real danger is “gray rhinos”: while hard to miss in the zoo, they are surprisingly difficult to spot in the South African bush, obscured as they are by the vegetation. By the time they’re visible, they are already storming toward you, leaving little chance to react. As academics, our job is to help managers tune into the rustling leaves or cracking twigs of an approaching challenge—or opportunity—before it’s upon them. To do that, we must focus on the parts of the environment that matter most and make sure the tools we carry are fit for the purpose.

A recent roundtable discussion involving leading-edge thinkers and practitioners from business schools, corporate-strategy departments, and McKinsey vividly illustrated both the promise and the challenge of turning academic research into actionable insights. Academics are often criticized—fairly, on the whole—for working in ivory towers far removed from the needs of real-world executives on the ground. In my view, we can do a great deal more to realize “gains from trade” between our two worlds, and in this article I set out four areas where that can happen.

How being rigorous helps improve decisions

First and foremost, we need rigor. But there are different types of rigor: the rigor of abstract analytical models, and behavioral rigor, which looks at how individuals, groups, and institutions actually behave. So far, we’ve expected too much from research that might be analytically rigorous but still doesn’t describe reality accurately. I’m thinking particularly of work that comes out of economics, such as game theory or financial economics, which can help but also can obfuscate.
When we confuse beautiful models with messy reality, we all suffer. In the run-up to the financial crisis of 2008, for example, many policy makers deluded themselves into thinking that markets could regulate themselves, while regulators remained blissfully unaware of the business models and structures that had developed in the financial sector. Academics and their models share the blame for these oversights.

Behavioral work, though, is far more promising. We’re learning more and more about behavioral biases and the way individuals really make decisions. Now we need behavioral and evolutionary economics to step up and show us how organizations make decisions—and why we can expect them, quite predictably, to make bad decisions and to stick with the wrong behavior. The more we know about organizational pathologies, the better the outcomes we can achieve.

Strategy doesn’t work the way we think it does

The importance of investigating these organizational dynamics speaks to a related issue: as academics, we don’t spend enough time looking at the way strategic decisions are really made. Often, what we call strategy is less about navigating to a distant shore and more about allocating resources among competing projects or people in the here and now. Even our infatuation with innovation may have to do more with making sure the organization keeps its focus on customers (as opposed to internal politics) than it does with new products and services. Strategy acts as a motivating and disciplining device, which helps avoid organizational pathologies.
By leveraging behavioral and evolutionary work, we can get a much clearer picture of the organizational reality of strategy and a better understanding of how to add value through cognitive issues (such as the use of the right frameworks and analogies) and a focus on the most relevant parts of the business environment. And without focusing too much on the negative, we need to understand strategic failure better and to identify the process that drives it.

Winning doesn’t just mean finishing first

There’s also a growing body of research, in institutional and evolutionary economics and economic sociology, looking at the web of relationships within a sector and in the economy: how complex production systems emerge, evolve, and interact and how value migrates within and between sectors. Whether you call these webs industry architectures, ecosystems, or organizational fields, they’re a lens for viewing reality and can show us some very valuable new perspectives.
These ideas have some big implications for competition—implications that we’re only just beginning to understand. In many sectors, winning doesn’t just mean finishing first; it means changing the rules of the game to your own advantage. Consider how Google and Facebook have redefined the way we interact with information, while also creating ecosystems that collaborate and compete with Apple.

New landscapes demand new maps

Finally, academics and consultants can come together to revisit popular ideas, even those that have profoundly shaped practice, such as Clay Christensen’s views on disruptive innovation or Michael Porter’s five forces. Models like these are widely used and accepted because they’re user-friendly, make things simpler, and reassure executives that they’ve acted on well-substantiated knowledge.
But should established firms try to be disrupters? Is Porter’s famous model universally applicable? Academic research on such questions is limited, and some of that work suggests the answers are not clear-cut; there are many “ifs” and “buts” that popular frameworks lack. Sadly, though, mainstream academic journals aren’t interested in testing, refuting, or updating strategy frameworks, for all these publications’ stated interest in practical implications. As academics, we can add value by being objective and rigorous about the conditions under which established views do and don’t work well. We can also point out some new, valuable ideas that don’t get enough play in the popular business press and the consulting community.

In all of these areas, what really excites me is the prospect of a stronger link between practitioners and academics, so we can leverage the research we’ve done and shape the research we need to do. Together, we can simplify reality without distorting it and uncover the social laws that we don’t yet understand but shape our world.

Michael G. Jacobides
http://www.mckinsey.com/Insights/Strategy/Synthesis_capabilities_and_overlooked_insights?cid=mckq50-eml-alt-mip-mck-oth-1411

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