Climate Change and Evidence-based Management [Part II]: The Case for Practical Wisdom

Bookmark and Share

This blog is a continuation of last week’s in which I suggested that in managing complex systems with unstable parameters one cannot rely just on data-based predictions, one has to depend more on judgement-based anticipations:

Berlin made the case of the use of practical wisdom in the human sciences

Isaiah Berlin (1909-1997)

In The Rational Optimist Matt Ridley never gives the reader his definition of rationality. Instead he writes, “I am a rational optimist; rational, because I have arrived at optimism not through temperament or instinct, but by looking at the evidence.” The $64,000 question, of course, is: “How does he know that?” On what “evidence” does he base that conclusion? How does he know that he is not using “hard” evidence to support an Enlightenment faith in Progress? And so on.

The very word “evidence”, with its scientific and legal connotations, has a nice solid ring to it that makes it sound as if its definition was equally solid and uncontroversial. Back in the 1950s and 60s we certainly thought that, especially at Oxford (Dr. Ridley’s alma mater), where the devotion to analytical philosophy and logical positivism was particularly strong. Back then the mind of the scientist was seen as rational in a logical way; detached, objective and dispassionate, rather like that of Mr. Spock of Star Trek fame. The reform of the management academy in the USA was based on similar assumptions with the intention of driving intuition out of management and replacing it with algorithms and cool calculation.

A Change in Philosophy

Since then the theoretical foundations on which the reform movement was based have shifted profoundly. British analytical philosophy, with its love of literal language and its horror of metaphors has dwindled away with logical positivism. Thomas Kuhn questioned the progressive linear model of science, suggesting that periods of “normal science” were disrupted by periods of radical change that he called “paradigm shifts”. Emotion, it now seems, is critical to decision-making; rationality can lay out the options but it takes passion to generate them and emotion to choose. It seems that we are not logic machines – our minds evolved to be “good enough” decision-makers under pressure of time and uncertainty (and scarce conscious thinking capacity). They are not “blank slates” but come pre-programmed by evolution and nurture, giving us vast set of mostly-virtuous habits that form the foundation for us to handle more complex problems.

As I mentioned in my 2012 essay for the Drucker Forum, many mainstream economists and scientists have adopted a glass “half-empty” attitude towards this emerging understanding of the human mind. They focus on the “biases” – deviations from rational – without considering context.. I suspect that Matt Ridley is in this camp. Ecological rationality, on the other hand, takes a glass “half-full” view – it sees the upsides as well as the downsides. If the human mind is embodied and acutely sensitive to context then it is important to understand when and under what circumstances our mental “biases” are adaptive. For example Dr. Ridley makes much of the downsides of the human “confirmation bias” – our tendency to seek confirming evidence to support our views and to ignore data that doesn’t. But the other side of the coin of confirmation bias is intrinsic motivation, the strange passions and hunches that keep us going, even when conventional wisdom (and the current evidence) tells us that we are wrong. If we were totally rational and always governed our lives by our existing understanding of the probabilities, little that is novel or difficult would ever get done!

Thus intrinsic motivation is absolutely critical to entrepreneurs and to business organizations in general. Business organizations are complex systems with unstable parameters and one cannot run them relying only on hard data and solid evidence to make predictions. And every business is unique. In a pair of classic cases Richard Pascale told the story of Honda’s entry into the US motorcycle market. In Honda A he tells the story from the scientific perspective based on a report put together by the consulting firm BCG for the British government. According to BCG, Honda had consciously exploited the experience curve and the resulting decline in their costs had given them a huge pricing advantage over their American competitors. In Honda B we hear the ecological narrative, the story of how Honda people reacted to situations on the ground and of the corporate culture that believed in them because they were on the spot and were trusted do the right thing. It turns out that this (or something very like it) is the only way that Honda could have done what it did. The data the company could have used to calculate and predict the experience curve was available only years after it had won the battle for market share.

So What?

The bottom line is that when it comes to dealing with complex systems with unstable parameters, relying on (and waiting for) hard data on which to make predictions, means that one will always be a day late and a dollar short. One has to develop understandings of cause-and-effect based on history and experience to anticipate what might happen before it is predicted. One of the best ways of doing this is using disciplined analogies from the past. In The New Ecology of Leadership I suggested that historical analogies, disciplined by theories of complex systems, can play a powerful role.

Philosopher Isaiah Berlin wrote an essay on political judgement in which he pointed out that, “The arts of life – not least of politics – as well as some among the human studies turn out to possess their own special methods and techniques, their own criteria of success and failure…Bad judgement here consists not in failing to apply the methods of natural science, but, on the contrary in over-applying them…to be rational in any sphere, to apply good judgement in it, is to apply those methods which have turned out to work best in it…[to demand anything else] is mere irrationalism.”

I would contend that management is one of the fields that falls into this category. Berlin has given us some of the best descriptions of the approach required:

“Above all this [capacity] is an acute sense of what fits with what, of what leads to what; how things seem to vary to different observers, what the effect of such experience on them may be; what the result is likely to be in a concrete situation of the interplay of human beings and impersonal forces – geographical, or biological or psychological or whatever they may be. It is a sense of what is qualitative rather than quantitative, for what is specific rather than general; it is a species of direct acquaintance, as distinct from a capacity for description or calculation or inference; it is what is variously called natural wisdom, imaginative understanding, insight, perceptiveness, and, more misleadingly, intuition (which dangerously suggest some almost magical faculty) as opposed to the markedly different virtues – very great as these are – of theoretical knowledge or learning, erudition, powers of reasoning and generalization, intellectual genius”

This is the capacity that Aristotle called phronesis or practical wisdom. From this philosophical perspective Matt Ridley comes across as quite brilliant and super smart but his suggested “scientific” approach to practices like management is profoundly unwise.

Bookmark and Share
This entry was posted in General and tagged , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

To make sure you are human: *