We think a lot about cause and effect; it's a basic principle of business life. We agree that proper problem-solving starts with identifying the root cause. But what if you can't identify cause or effect? What if there is no root cause?
This alarming situation is surprisingly common. Let's start with a famous historic example: the Cold War arms race. The US invested huge amounts in the development of new nuclear weapons. Why? 'Because the USSR is increasing its arsenal and we need to maintain our position relative to it.' But the Russians used the same logic to justify their own correspondingly large arms expenditure.
Both these explanations make perfect sense on their own, but combined they create a horrific situation. It's a vicious circle: you can't identify which is 'cause' and which is 'effect'. The obvious solutions will simply make matters worse.
It applies equally in business: 'We are cutting costs because profits are falling.' Plausible, but you may just as well say: 'Profits are falling because we are cutting costs.' Cost-cutting damages quality or service, leading to lower sales and profits, leading to further cuts. Repeat to extinction.
Fortunately, vicious circles can be broken. Firstly, look out for them. Any time you choose a course of action, look for ways in which that action might have the opposite effect to the one you're hoping for.
Once you have identified a vicious circle, stop making it worse. Then look for ways to turn it into a virtuous one. Instead of cost-cutting, imagine a virtuous circle in which investment in quality raises profits, which create more funds for more investment in even better quality.
The arms race came close to blowing up the entire world. You could start a vicious circle that could blow up your business. Don't.
- Alastair Dryburgh is chief contrarian at Akenhurst Consultants. Subscribe to his newsletter at www.akenhurst.com and he will give you more on how to spot vicious circles and how to turn them virtuous.