19 April 2010
John Kay’s Foundations of Corporate Success is one of the best books on business strategy, a brilliant counterweight to Michael Porter’s thinking, with its emphasis on barriers to competitive entry. Like Porter, Kay is primarily an economist, though one with many intellectual interests. His latest book, Obliquity, pulls together ideas he has been developing for several years in his columns in the Financial Times, (many of which are available free at johnkay.com.)
In Obliquity he argues that our most important goals in life are best achieved, not by systematic planning and rational analysis, but obliquely. Indeed, the goals themselves are rarely clear-cut and explicit, and are frequently adjusted in the light of experience.
Virtually all my stories in Winners and Losers bear this out. None of the market creators I studied were slaves to their business plans – if indeed they had one – but modified both their strategies and their objectives in the light of what they learned through trial and error. One of my most surprising discoveries was that making shed-loads of money was not a primary goal for any of them. Kay argues that those who are obsessed by it are unlikely to be successful in the long run, bankers providing all too many recent examples.
He also cites the sad history of ICI, Britain’s greatest manufacturing company when its mission was ‘the responsible application of chemistry’. Its long years of research into drugs like beta blockers led, obliquely, to the birth of the enormously important British pharmaceutical industry and the emergence of Smith Kline and Glaxo. In the 1990s impatient investors like Hanson pushed ICI into making shareholder value its watchword. It soon entered a decline that led to its disappearance as an independent company with dismal consequences for shareholders as much as for employees.
We should beware of attributing ICI’s demise entirely to this change of business philosophy, but it clearly played a part. Kay’s main point is that making money should never be a business’s primary goal – it is a necessary condition for success and a consequence of it. The best businesses always have a sense of purpose that is unique to them, closely related to what they’re uniquely good at – their distinctive organizational capabilities.
On the futility of over-elaborate, root-and-branch planning, Kay is essentially re-stating the arguments of yet another heterodox economist, Charles Lindblom, who in 1959 wrote a seminal article, The Science of Muddling Through. This was mainly about setting public policy but the principles were clearly equally applicable to business strategy. Lindblom’s ideas were much derided by business gurus like Igor Ansoff, who thought it self-evident that brilliant planners at companies like TRW and Litton Industries had mastered the art of exploring ‘vast vistas of opportunities in the process of formulating strategy’. Shortly after Ansoff’s book came out in 1985, TRW and Litton had disappeared.
Comprehensive, detailed planning is something of a fantasy, as there are simply too many variables and unknowns. The future can never be more than partially predictable or controllable. The most spectacular failures of this essentially hubristic philosophy that Kay cites are political – the Soviet Union’s planned economy and Robert McNamara’s conduct of the Vietnam war. An excellent complement is Henry Mintzberg’s The Rise and Fall of Strategic Planning, a devastating indictment of the follies of businesses who thought they could analyse their way to success.
Kay is an admirer of Isaiah Berlin, a big influence on my thinking. Central planners are what Berlin calls hedgehogs, with one big idea or theory, into which everything has to be squeezed. He had in mind thinkers like Plato and Marx. Foxes like Shakespeare, Machiavelli and Montaigne on the other hand know that the world is too complicated for this – they are pluralists. Kay’s foxy heroes are Franklin Roosevelt and John Maynard Keynes. FDR is a brilliant example of obliquity in action: he knew that public opinion in the US wouldn’t allow him to declare war on Germany, but edged towards it in a crablike way, brilliantly described by Ian Kershaw in Fateful Choices. Although not Rooselevelt’s explicit goal, this policy played a part in precipitating Hitler’s (unnecessary and disastrous) declaration of war on the US after Pearl Harbour.
Central to Kay’s thinking is Berlin’s conviction that the ends of man are incommensurable – there is no way of having a perfect balance of ideals like justice and mercy or freedom and security. We have to make painful choices to which there is no one right answer. Many managers would like to believe that there is one, but are obliged to makes pragmatic choices every day, in the light of changing circumstances.
Whilst agreeing wholeheartedly with Kay, I do wonder if he isn’t trying to be just a bit hedgehog-like in trying to squeeze quite so many ideas into a single word. Obliquity fits someone like FDR perfectly, as it does other crafty statesmen like Cavour and Bismarck, but many of the examples Kay cites were not deliberately oblique. Most business creators for example pursue what seem to them very clear goals, though they adapt them in the light of experience and changing circumstances. Another way of describing this process is serendipity, or Eric Beinhocker’s phrase ‘deductive tinkering’. Yet another way of looking at it is that life is full of surprises, but as Pasteur observes, and Kay reminds us, ‘Fortune favours the prepared mind.’
This is a minor quibble. Every chapter in Obliquity is a gem. I particularly treasure what Kay call’s Franklin’s Gambit. ‘So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one had a mind to do’. We all tend to rationalise with the benefit of hindsight, and the cleverer we are the more likely we are to fool ourselves in this way.