CONTROLLABLE VS. UNCONTROLLABLE, A SIMPLE BUSINESS NAVIGATION MODEL

"...people generally adopt an event-based, open-loop view of causality, ignore feedback processes, fail to appreciate time delays between action and response and in the reporting of information, do not understand stocks and flows and are insensitive to nonlinearities that may alter the strengths of different feedback loops as a system evolves."

- John D. Sterman, Business Dynamics

"...learning...the most defensible competitive advantage of all."

- Gary Hamel & C.K. Prahalad

In 1973, Bill Bain made what would turn out to be a life changing pitch. Summoned to the offices of Union Carbide to discuss BCG's past projects and possible additional consulting work, Bill seized an opportunity. In a sales pitch for the ages, Bill lassoed in Warren Anderson and CEO Perry Wilson into one of the most lucrative contracts in BCG's history - at the time a record $25k ongoing consulting retainer (at the time an enormous sum.) What did Bill Bain and BCG provide to Union Carbide to land such a deal? In essence it was hiring of BCG to help them "look at your entire business as an intricate competitive environment."

The multi-dimensional environments businesses navigate are formidable. While not all businesses have the resources or desire to hire consultants to show them what they're doing wrong, having a model of the business universe is necessary. I would argue that every company, regardless of size should have a model that they can use to help them make sense of reality, and more importantly to help them chart a course for the growth of their business.

What would an effective business navigation model have? The image above shows a simplified sample model. Notice how the I break up external forces and internal forces - uncontrollable vs. controllable elements. Notice also, how I used △ (delta) to designate ongoing change of those variables. Models do not completely summarize reality, but provide a proxy to help make sense of the world.

To navigate the business world and use the model to strategize you need to have an accurate assessment of the external forces. Any assessment is better than nothing. However, only by having a deep knowledge of the external environment can you intelligently make decisions with capital and other resources as you place your bets and make moves in your business.

Take for instance a situation in which the economic environment provides low interest rates, industry competitors are reigning in their spending, and the major business cycles (Juglar, Kitchin, Kuznets) are in a trough. In a country with political stability, borrowing for expansion might be the right strategy - allowing you to invest in product development, speciality hiring, etc.

Given the same situation, but without proper external modeling a company might simply look to other competitors for direction and blindly copy their strategy in a move for survival. Companies that don't model reality well are playing a fools game. They will become insignificant at best and more likely cease to exist altogether.

To paraphrase Gary Hamel and C.K. Prahalad, learning is the most defensible strategy of all.