By John Kay Monday, 01 March 2010

Obliquity: the roundabout route to success

Rather than be prescriptive, try the indirect approach to achieving your goals - obliquity, in a word ...

Why is it that some of business' wealthiest people never directly set out to become rich? It's almost as if they had stumbled across their fortunes as they looked the other way. Sam Walton, Wal-Mart's founder, has confided that 'creating a huge personal fortune was never particularly a goal of mine'. And the wealth of Warren Buffett was not so much his objective as a means of keeping score: he lives in the bungalow in Omaha that he has occupied for 50 years, and still works hard at the age of 78.

Amassing wealth isn't billionaire Donald Trump's primary objective either. 'I don't do it for the money. I've got enough - much more money than I'll ever need. I do it to do it. Deals are my art form.' The property magnate claims to engage in business not as a means, but as an end in itself. Building a successful company - the main route to a spectacular fortune today - requires devotion to business, exceptional talent and immense hard work; which is not at all the same as love of money - a lesson that the failed Lehman Brothers did not learn.

'I think Lehman went under in part because the culture there was not conducive to teamwork ... they (the partners) diverted earnings from the firm in the form of swollen bonuses and dividends to themselves'. These comments were not made after Lehman's failure in 2008; they come from John Whitehead, then chairman of Goldman Sachs, Lehman's rival, commenting on the earlier collapse of Lehman's in 1984. Lacking a corporate culture that valued the practice, as well as the profits, of banking, Lehman fell victim to the profit-seeking it extolled.

Obliquity describes the process of achieving objectives indirectly, such as the financial success that comes from a real commitment to business. And obliquity is ubiquitous - it can even be applied to happiness. It has long been suspected that the happiest people are not those who pursue it directly. John Stuart Mill was the strongest exponent of utilitarianism, the notion that the goal of mankind was the greatest happiness of the greatest number of people. Yet towards the end of his (far from happy) life, Mill found that 'this end was only to be attained by not making it the direct end. Those only are happy (I thought) who have their minds fixed on some object other than their own happiness - on some art or pursuit, followed not as a means, but as itself an ideal end. Aiming thus at something else, they find happiness by the way.'

Surely obliquity goes against everything we've been taught? Isn't it true that you must do better if you set out to maximise something - happiness, wealth, profit - than if you don't? Surprisingly, the answer is no. Life is too complex and uncertain for us to be able to predict and follow the most direct perceived route to success. Our knowledge is always imperfect, and events are influenced by the unpredictability of other people and organisations. Instead, our objectives are best achieved by a more meandering approach that enables us to adapt our strategy to changing situations. And we learn about the nature of our objectives and the means of achieving them through a process of experiment and discovery.

The most striking instance of obliquity in business is the profit-seeking paradox, which is the idea that the most profitable businesses are not the most profit-oriented. The modern Boeing Corporation was created by its long-term (1945-70) CEO Bill Allen. During Allen's tenure, Boeing built the 737, the biggest-selling aircraft in history, and he then bet the company on the 747 jumbo jet. Allen described the purpose of his company as 'to eat, breathe and sleep the world of aeronautics'. When a non-executive director asked for details of the expected ROI on the 747, he was brushed off: some studies had been made, he was told, but the manager concerned could not remember the result.

Phil Condit became CEO of Boeing in 1997. Condit explained that the company's preoccupation with meeting 'technological challenges of supreme magnitude' would have to change. Under Condit's regime, 'unit cost, ROI, shareholder return are the measures by which you'll be judged'. That was a big shift. But it was Allen's firm that created bucketloads of shareholder value: Condit's did not.

What about Citigroup? When John Reed and Sandy Weill were briefly its joint CEOs in the 1990s, Reed gave a visiting journalist a lengthy description of his objectives: 'The model I have is of a global consumer company that really helps the middle class.' He was abruptly interrupted by Weill: 'My goal is increasing shareholder value.' Weill forced Reed out, but as reputational scandals assailed Citigroup, the shaken dealmaker was forced to acknowledge that 'we must be conscious of a broader purpose than simply delivering profits'.

Weill himself was replaced by the lawyer Chuck Prince, but to little avail: within a decade of the Citicorp/Travelers merger in 1998, almost all shareholder value in the business had been destroyed.

Obliquity can be applied not just to business success. The skill of problem-solving frequently lies in the interpretation and reinterpretation of objectives, and many great achievements are of this kind. Alexander Graham Bell's invention of the telephone, like Akio Morita's creation of the Sony Walkman and Steve Jobs' reinterpretation of Morita's idea in the iPod, were solutions to problems that people did not know they had. Henry Ford reportedly said that if he had asked his customers what they wanted, they would have said: 'A better horse.'

We have been encouraged to believe that there might be a science of decision-making - a scientific procedure that should lead every conscientious person to the same objective answer. The distinction of the great business leader, the measure of financial acumen, would rest only in their ability to arrive at the objectively right answer faster than anyone else. I call this concept of scientific decision-making Franklin's Rule, after the great American polymath Benjamin Franklin, who set it out in a famous letter to the English scientist, Joseph Priestley. Franklin explained that one should make decisions by listing pros and cons, and attaching weights to each item on the list.

But Franklin knew perfectly well that people - including himself - did not really make decisions this way. He went on to observe how 'convenient a thing is it to be a reasonable person, since it enables one to find or make a reason for everything one has a mind to do'. This is Franklin's Gambit - the process, so common in business and politics, of constructing elaborate rationalisations of decisions that have already been made on different grounds. Consultants' fortunes have been made on the basis of Franklin's Gambit.

The mistake arises because we believe, wrongly, that we should be applying Franklin's Rule even if, in reality, we do not. But there is not, and will not be, a decision science. We do not solve problems in the way that the concept of decision science implies, because we can't. It's because our objectives are typically imprecise and multi-faceted, and change as we progress towards them. Our decisions depend on the responses of others and on what we expect these responses to be. The world is complex, imperfectly known, and our knowledge of it is incomplete, and these things will remain true, however much we learn and however much we analyse the environment.

Those who assume an oblique approach tackle problems whose natures emerge only as they are being solved. As in all the best adventures, we learn about the nature of our objectives and the means of achieving them through a process of experiment and discovery gathered on the way. Obliquity is about adapting and improvising as you go along.

So the achievement of the successful business leader is not to articulate and realise a comprehensive vision of the economy and industry, but to continuously match the capabilities of the firm to the changing market environment. The test of financial acumen is not to predict the future (because you can't), but to navigate successfully through insoluble uncertainties. The writings of Warren Buffett and George Soros are signally distinguished from those of other investment gurus by their ready acknowledgment of the limitations of their knowledge.

Different people will make different judgments in the same situation, not just because they have different objectives but because they observe different options, select different information, and assess that information differently. And even with hindsight, it will often not be possible to say who was right and who was wrong. In a necessarily uncertain world, a good decision doesn't necessarily lead to a good outcome, and a good outcome doesn't necessarily imply a good decision, or a capable decision-maker. The notion of a best solution may itself be misconceived.

The political scientist Philip Tetlock studied the political predictions of experts over two decades. He made use of Tolstoy's distinction between the hedgehog - which knows one big thing - and the fox, which knows many little things. The hedgehog approaches problems, however complex, directly; while the eclectic fox's approach is oblique. Tetlock found that the foxes were more often right but that the hedgehogs received more popular acclaim. We make better decisions if we are endlessly adaptive, recognise the limits of our knowledge, and range widely in our sources of information and opinion. It's just that we want to describe the world in terms of simple narratives and clear visions.

It is hard to overstate the damage recently done by people who thought they knew more about the world than they did. There are managers and financiers who destroyed great businesses in the unsuccessful pursuit of shareholder value; architects and planners who believed that buildings could be designed from first principles and that vibrant cities could be drawn on a blank sheet of paper; politicians who believed they could improve public services by the imposition of multiple targets. The gravest cases of bad public decision-making of the past decade - the Iraq War and the credit expansion of 2003-07 - were the direct result of assumed knowledge of the world by decision-makers who did not in reality possess such knowledge - and who played Franklin's Gambit in support of their mistaken judgments.

The direct approach to problem-solving requires us to know the method of solution before we start. Even if such a method is possible, it is often inefficient. In obliquity, we learn about the structure of a problem by the process of solving it. So when you're faced with a task that daunts you or a project that you find difficult, begin by doing something. Choose a small component that appears potentially relevant to the task. While it seems to make sense to plan everything before you start, mostly you can't: objectives are insufficiently precisely defined, the nature of the problem keeps changing, it is too complex, and you lack sufficient information. The direct approach is simply impossible.

Good decision-making is pragmatic and eclectic, and alters as and when the changing situation demands. To fit the world into a single model or narrative fails to acknowledge the universality of uncertainly and complexity. Oblique problem-solving is not less rational than Franklin's Rule, but more. Obliquity doesn't mean that we should stop thinking about objectives, fail to examine options or omit to seek information and understand as best we can the complex systems with which we deal. Just the opposite: we should start.

Obliquity is the best approach wherever complex systems evolve in an uncertain environment, and whenever the effect of our actions depends on the ways in which others respond to them. Directness is appropriate when the environment is stable, objectives are one-dimensional and transparent, and it is possible to determine when and whether goals have been achieved. And only then.

THE PRINCIPLES OF OBLIQUITY

- Have objectives, but keep your approach flexible so that you can overcome unforeseen obstacles and take advantage of surprise opportunities.

- Know that your knowledge is always imperfect and incomplete. Cast your net wide - always go fishing for more.

- Don't be afraid to change tack once you've started if you see a better course.

- Meandering can lead to serendipitous discoveries and unexpected benefits.

- Think laterally to solve problems: indirect solutions can often be the most effective answer.

Obliquity: Why our goals are best pursued indirectly, by John Kay, is published on 25 March by Profile Books at £10.99.

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