Distillations in this newsletter: Strategy as a model of causation; Loretta Ross’s ‘calling-in’ framework; ChatGPT: When do hallucinations turn into deceit?; Strategy Distilled – free pdf compilation
A monthly concoction of insight, learning and things you might have missed for anyone who works on strategy, works with strategy or just loves strategy.
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This month …
- Strategy as a model of causation
- Strategy snippets you might have missed: Loretta Ross’s ‘calling-in’ framework; ChatGPT: When do hallucinations turn into deceit?
- Strategy Distilled – free pdf compilation: The first two years of Strategy Distilled compiled into an 88-page pdf – free to subscribers.
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Strategy as a model of causation
“Cause-and-effect relationships lie at the heart of all strategic decision-making. The raison d’etre of strategy is the idea that our choices matter. We make deliberate, strategic choices because we believe what we choose shapes what is to come. All definitions of strategy link present decisions to some desired future condition. Therefore, good strategy depends on the effective identification and manipulation of causal relationships”. Hill & Gerras (2018) Stuff Happens: Understanding Causation in Policy and Strategy.
I suspect we all know, deep down, that strategy is actually a model of causation – strategy proposes that certain actions we take will cause beneficial changes to our situation in the future. It is only, however, when we make this model of causation explicit that we can start to explore its full implications and be deliberate in our focus on causation.
Frameworks for making sense of causation. There are three frameworks that help make sense of causation and these provide a useful starting point for exploring strategy. The first can be thought of as a model for the maturity of evidence-based thinking (Fig. 1); one that I’ve adapted from Gartner’s model of analytics maturity within organisations.
Figure 1. Model for the maturity of evidence-based thinking
Evidence-based thinking can be thought of as happening at a continuum of levels, of increasing sophistication. This continuum begins with descriptive thinking. What evidence can we use to characterise what happened in the past? Is there a set of data that defines our current situation? Then at a slightly higher level of sophistication, we have diagnostic thinking. Why are things the way they are? What made them that way? Moving up again, we have predictive thinking. What would happen if …? And finally prescriptive thinking. How can we bring about …? This is referred to as a continuum because, given enough description, you start to see reasons why things are as they are (diagnostics); given enough diagnostics, you start to see how things will be in the future (prediction); given enough prediction and you start to see how best to bring about the future you seek (prescription).
Strategy clearly lives at the prediction / prescription end of this evidence-based thinking continuum. It is about predicting the range of futures that might come about and then prescribing the much narrower range of futures that we choose to try to bring about.
The second causation framework is similar in certain ways but presents levels of causation in a different way – it is Judea Pearl’s Ladder of Causation (Fig. 2), from his book, The Book of Why (p28).
Figure 2. Judea Pearl’s Ladder of Causation
This framework suggests that there are three levels of sophistication in how we come to understand causation. The first is empirical – how we sense the world. This enables us to ask some rudimentary ‘what if …?’ questions. If I see someone walking down the street with an ice-cream cone, I imagine they just bought it from an ice-cream shop or an ice-cream van parked on the street. I might think they were feeling hot or maybe were rewarding themselves for something they just accomplished. Or maybe they were just feeling peckish and thought it was still a long time until dinner. These are the every-day causal connections we learn from our lived experiences. More sophisticated causal inferences can come from data. Someone who buys toothpaste in a shop may have a higher conditional probability of also buying dental floss.
The second level of sophistication in Pearl’s ladder of causation comes from us changing the world by our actions and interventions. Most of us believe that if we take aspirin we will, soon afterwards, move from a state of ‘headache’ to a state of ‘no headache’. Here lie the experiments by which we design our personal lives, our businesses and our government. Going on a ‘Paleo’ diet may cause weight-loss. Reducing my prices may make more people purchase, which may increase profits. Forcefully deporting asylum seekers to Rwanda may discourage illegal immigration (thankfully the Court of Appeal has found the procedure unlawful).
The top-most rung in Pearl’s ladder of causation is the level of counterfactuals. What would have happened if …? Many of science’s natural laws are counterfactuals. Hooke’s Law, for example says that if the force on a spring is doubled, the length of extension of the spring will double as well. In terms of strategy, it is these counterfactuals that enable us to imagine futures that have not yet happened. What if we doubled our innovation budget? What if we focused all our efforts on enterprise sales? What if we made a commitment to Net Zero by 2040?
The third framework is The Futures Cone (Fig. 3).
Figure 3. The Futures Cone
The message from this framework is simple: not all futures are equally likely to happen. By grading them into degrees of likelihood, we can start to explore what makes one future state ‘probable’ whilst another is merely ‘possible’. There are, of course, many different ways to estimate the likelihood of future events or states happening. The Futures Cone is merely one way, and a highly visual way to conceptually categorise the future. A variety of more numerical approaches fall under the banner of probabilistic forecasting.
Having an awareness that strategy is actually a model of causation and also having a number of different frameworks for making sense of causation provides fuel for rich and detailed conversations about strategy.
So, in summary, we have three frameworks for making sense of causation. The Maturity Model of Evidence-Based Thinking shows how our thinking needs to progress beyond descriptive and diagnostic thinking and into predictive and prescriptive thinking in order to be useful for strategy. Judea Pearl’s Ladder of Causation reminds us there is only so much we can deduce about the causal relationships that underpin strategy by simply experiencing the world around us. To properly understand causation, we need to interact with and experiment upon that world and ultimately model it in terms of counterfactuals. And the Futures Cone tells us that not all causal relationships are equally likely to come about. A key part of strategy is to work out how likely cause-effect relationships are on their own, and how much more likely we can make them by means of our strategic intervention.
The practical implications of strategy-as-a-model-of-causation
There are two practical implications of strategy-as-a-model-of-causation for us practical strategists.
The first is how we approach strategy development. I would always recommend that strategy development starts with strategy scoping. Why does your organisation need a strategy? Why right now? What do you hope will be different by the time the strategy is finished, compared to right now? Only three questions in and we are starting to explore causation. Let’s ask the question a different way. What is it the key change that your strategy seeks to bring about and what is it you need to do to cause those changes to be brought about? I have long argued that having a clear scope is essential for any new strategy. In light of strategy as a model of causation, I feel strategy scoping is even more important. What sort of causal relationships does this new strategy seek to affect? What does our vision say about the new world of causation that we seek to bring about? What does our data say about how we change the world right now … and what do we want the data to say in the future, once our new strategy is achieved? If you want to find out more about strategy scoping then Chapter 7 of the The Strategy Manual provides in-depth coverage, or read a summary here.
The second, much deeper and more profound, implication of strategy-as-a-model-of-causation is reconciling strategy with complexity theory. Many strategy experts, from Henry Mintzberg to Rita Gunther McGrath, have argued that organisations are far too unpredictable to be able to prescribe a strategy and expect it to still be meaningful and impactful several years later. Things just change too fast! Instead, they argue*, we need emergent strategies that adapt in response to changing circumstances. This has always seemed something of an oxymoron to me. The value strategy gives to an organisation is sustained focus on changes that will remain impactful despite any turbulence in the organisation’s operating environment. Strategy-as-a-model-of-causation helps reconcile these differing viewpoints in two main ways.
Firstly, the study of causation lends itself to systems thinking. Let’s work through an example. My organisation offers a service that customers pay to access. How can we view the causes of this customer relationship at different systems levels?
- My service satisfies a specific and urgent customer need.
- My service works well, has good customer reviews, is competitively priced and available for immediate delivery.
- My service is part of a family of products that are well established over many years, are used by many well-recognised enterprises and are known for their reliability.
- My organisation is a trusted brand in our marketplace with award-winning levels of customer support.
- Most of the territories we operate in are free-market economies with little state intervention on the supply of, and demand for, services.
Clearly, any strategy that attempts to micro-manage the way individual services meet specific customer needs is going to be overtaken by changes in the marketplace. Portfolio management and brand management, on the other hand, operate at a higher systems level and may be stable over the longer term. High-level, organisation-wide strategy needs to find the system level of causation that has the stability to be enduring. It, however, also needs to be impactful. A strategy that seeks to change the nature of the free-market economies in which our organisation operates may be reaching for a systems-level too far.
So, strategy, at a high level needs to be enduring, but strategy also needs to be actionable, and this requires drilling down to progressively lower and lower systems levels and hence to lower levels of long-term stability. Here, again, strategy-as-a-model-of-causation can help. Remember Pearl’s Ladder of Causation? Experiments and counterfactual models are the most powerful ways to make sense of causation. So, as we drill down into strategy we turn from the longer-term, enduring strategy-as-imperative to shorter-term, emergent strategy-as-hypothesis. We, as strategists, have the confidence to commit our organisations to a clear, defined, enduring strategic destination, but have the humility to admit we don’t know every step of how to get there. We will, therefore, commit to hypothesis-testing to plot that course to our defined future, in a world that will inevitably be changing along the way.
This is the basis of my Separation Model of Strategy, which suggests that strategy should be distinct from strategic planning.
* It is clearly impossible to do justice to Mintzberg and McGrath’s work in a post as short as this. To dig deeper, start with Mintzberg et al’s 1998 book Strategy Safari and read Chapter 7 on Strategy Formation as an Emergent Process. Then read Rita Gunther McGrath’s 2013 book The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business (or Harvard Business Review Article).
Strategy snippets you might have missed
Loretta Ross’s ‘calling-in’ framework
If you call someone out, you do so publicly and usually antagonistically, with the intention of shaming them. Calling-in, according to Professor Loretta Ross, is a very different way of handling opinions you disagree with. You invite the person you disagree with ‘in’ for a private conversation. You listen to them respectfully. It doesn’t mean you should ignore any harm, slight or damage you feel, but nor should they be exaggerated. Calling out assumes the worst. Calling in involves conversation, compassion and context. Since so much of strategy involves reconciling differing opinions, it seems that the principle of calling-in should feature in the early conversations of every strategy development team.
ChatGPT: When do hallucinations turn into deceit?
Having been using ChatGPT as a strategy ‘research assistant’ for my forthcoming book, The Good Strategy Checklist, we were getting on well and developing a productive working relationship … until I caught it lying to me. In my recent LinkedIn article I explored the boundaries between mere ‘hallucinations’ and deceit in AI, and reflected on the implications for AI governance. I’d love to hear your views in the comments section of my post.
Strategy Distilled – FREE pdf compilation
In case you missed it, I have published a compilation of all my articles and ‘strategy snippets’ from the first two years of my Strategy Distilled newsletter. This 88-page pdf contains 24 articles and 53 ‘snippets’, all with links to source material, covering all aspects of strategy, from ‘how to think big in strategy’ and strategy innovation to strategy metrics and the role of values.
STRATEGY ARTICLES – examples:
- How strategy actually works
- Separating strategy from strategic planning
- The case for strategy scoping
- Justifying stakeholder consultation in strategy development
- Managing innovation within strategy
- Can Ikigai reveal the four deficiencies of strategy?
- Leading and lagging indicators as strategy metrics
SNIPPETS ON STRATEGY YOU MIGHT HAVE MISSED – examples:
- Google’s ‘Simplicity Sprint’
- How risky is innovation in your organisation?
- McKinsey’s Seven Step Problem-Solving Process
- Connecting strategy and culture
- What the Beatles can teach us about strategy
- What kind of strategist are you?
The pdf is FREE to subscribers – download your copy now. If you think ‘Strategy Distilled’ would be of value to friends and colleagues, get them to sign up here and they will be sent the compilation straight away.
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If you enjoyed reading this newsletter, don’t forget to forward it to friends or colleagues who might also find it of interest.
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Discover the content of past issues of Strategy Distilled.