Value of the Irrational

One of the two books about business to which I return often is Strategy Safari by Mintzberg et. al. It is a delightful tour through the jungle of approaches to strategic management people have suggested over the decades. In spite of it’s cheerful and concise nature I find I can’t casually read this book. I need to stew for a week or two on each section before deciding I’m done with it. At the same time I prefer to skitter about in the book so I can let one framework fight it out with another while I watch in amusement.

Back in the 1970s and 80s I spent some time associated with the knowledge engineering crowd. That community labored to build a class of software systems, expert systems, that could perform as well as an expert in this or that narrow technical domain. For example let’s say you had a huge expensive chemical plant. In that plant you’d find a guy, call him Joe, and Joe knew how to start it up. It would take a few days to get the thing running and Joe was the guy who knew how to do it. Did I mention? Joe is retiring next year. In the knowledge engineering crowd approach to this problem was to see if you could extract from Joe, via observation, interviews, what ever, a codification of his knowledge. In the AI/expert systems branch of knowledge systems the idea was to code it up software. The unit for such encoding was rule; i.e. Given that the pump in the basement of building 7 is making that funny noise it sometimes makes delay starting the boiler in until the noise stops.

This turns out to be much harder than it looks. Which we probably knew going into it, since back in the 70s it became common to observe that it took experts about a decade to become competent. That if you modeled the scale of their rule set you can then say that they learned a new rule at the rate of about one or two a day over that decade. It is unlikely you can pull the rules back out of Joe’s head much faster than that. Joe can’t just rattle off his rule set as if you were down loading some file. For Joe these rules are intuitive. I like to say they are compiled in. He doesn’t think thru why the boiler’s start up should be delayed, and in fact he may not even be able to tell you that he’s waiting or the pump to stop making the funny noise. At least he can’t tell you without a effortless moment of introspection.

I was reminded of all that as I read the delightful chapter on the “culture school” of strategic management. The culture school had a few years of popularity when the Japanese cars caught the attention of the B-school crowd. Any number of them up and ran off to Japan and for many of them it was the first time they had seen a radically different culture, i.e. Japanese culture. So a favorite theory what the strategic magic Toyota had that GM didn’t was culture.

But what is culture? It’s unlikely that GM could have been saved by introducing underwear vending machines; but would moving all their suppliers into a dense single city have helped? Culture is like expert knowledge, decompiling it is very hard. If you stop a member of a culture in the midst of some activity and demand “so, why do you do that?” What is the functional value of sleeping on the train? Standing up?

I was delighted by the answer they suggest in Strategy Safari, i.e. that Culture is exactly that which you can’t explain; i.e. it is the expert knowledge which you haven’t codified and made rational. Which of course makes it a bit difficult to manage. If your faced with a competitor who’s advantage over you is cultural the challenge is convert culture into codified knowledge. That’s hard, like getting Joe to mention that thing about the funny noise. Machine that changed the world is a good attempt at that for the Toyota example.
Strategic Safari has a nice framing of why culture is valuable. Firms have unique resources; e.g. capital, location, skills, property, talent. Some of these unique resources are particularly unique because their competitors can’t imitate them; e.g. these resources are valuable, hard to substitute for, and rare. When Steve Job’s brings a few other CEOs on stage during his MacWorld keynotes he is signaling just that: Apple has Steve and as you can see these other guys ain’t Steve. Microsoft has HotMail, but competitors like Google and Yahoo are able to, over time, imitate it and build a substitue.

Knowledge resources are particularly easy to imitate, but only if you can codify it. The harder a company’s knowledge assets are to codify, aka cultural, the more likely they can actually provide a strategic advantage. A valuable culture will be hard to codify. They also have nice five step recipe for how to kill a culture (useful when faced with a dysfunctional culture):

  1. Manage the Bottom Line, no actions that can’t rationally explain their benefits.
  2. Plan every action, avoid spontaneity and thus learning.
  3. Move managers around preventing domain expertise from displacing their managerial skills.
  4. Always objective, aka portfolio management.
  5. Always use recipes with five steps.

Discussing with a friend how culture is the asset you can’t rationalized he mused that it sounds like the problem many super heroes have e.g. that their super power is accessible only via some irrational pathway. We chortled at the idea of a fantastic four of strategic marketing. The Johnny Storm of PR; the Incredible Hulk of closing; Mr. Fantastic of discriminatory pricing; and the Invisible Woman of customer support.

0 thoughts on “Value of the Irrational

  1. Sandro Groganz

    Great post! The only thing I wonder about is whether using “irrational” in the title is the right word for what you describe. Maybe “informed intuition” or just “intuition” is better.

  2. bhyde

    Intuition, or irrational both tend to imply an absence of expertise. Maybe I picked the more provocative one intuitively?

  3. Sandro Groganz

    Sorry, I should have elaborated more. “Irrational” reminds me of the subconscious, the dark side of the psyche. This term also includes that you might do things you did not intend to do. While “intuition” is about gut feelings, the essence of past experiences as a basis for assessing a situation. Intuition tells you what you actually intend to do. Does that make sense?

  4. Daniel Costello

    As I read your post the very radiators were steaming and rattling away here and I notice similarities between actual engineering design and cultural comparativeness factors where one national culture may be attempting to replicate efficiency, effectiveness and modernity in its economy as a form of competition with another but may just end up with an expensive system which needs an immediate over-haul as soon as it is completed.

    One really cannot hope to field categorical understanding of culture, even one’s own culture. A good example here is Bill Reid’s description of his master sculpture, “The Spirit Of Haida Gwaii”.

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