Model Simple and Think Complex…

Earlier this year a man died who had been a low-key, relatively unknown (to the wider world) RAND researcher (where one of his peers was Daniel Ellsberg) and the US Department of Defense (DoD) official leading a highly-secretive unit called the Office of Net Assessment (ONA). The man was Andrew Marshall, who established the ONA in 1973 and officially retired 42 years later at the age of 93.

Of what possible interest could this man’s work be to the world of business, including (re)insurance? After all, he was not involved in game theory, strategic planning, or systems analysis, and was focused on advising the senior echelons of the DoD on a highly-classified basis. He did not even make recommendations upon courses of action.

Consider the fact that, as the economist Herbert Simon said: “Short term thinking drives out long term strategy, every time”.

In other words, individuals, organizations and bureaucracies (such as the DoD, or large multinational corporations) become so caught up in the perceived need to make countless short term decisions, many of which seem incremental or insignificant in isolation, that they utterly fail to think deeply about anything. Cursed by “departmentalization” and the rivalry it engenders, they ignore creating a comprehensive, integrated assessment of the net position in which they are likely to find themselves over the longer term. In decomposing large, complex problems into manageable, smaller ones, they are rarely equipped to re-assemble them back into a coherent whole that can drive key decisions. In theory, the CEO or Board should perform the integrative function, as the Secretary of Defense would do in the US DoD. However, if reliance is placed upon an assessment (in terms of asking the right questions and thinking deeply about them) which is itself flawed, the decisions are also likely to be flawed.

What Marshall and his small team did was to create a process in which they asked unusual questions (often before anyone else had even thought there was one to ask), and harnessed inter-disciplinary skills and knowledge to provide an essential perspective for policy makers and those tasked with making strategic decisions, both in terms of threats and opportunities. One could almost argue they were the intellectual equivalent of Lockheed Martin’s Advanced Development Programme- the legendary Skunk Works. It should also be noted that the goal was to produce a net assessment- i.e., a comparison of two or more sides in interaction with each other dynamically, rather than a one-way assessment at a static “point in time”.

If one reviews the processes which businesses use as the basis for strategic decisions, these often involve the creation of complex mathematical models, based upon certain assumptions, which are then overlaid by a further qualitative process. In theory, this is reasonable. However, in practice, such an approach tends to cause framing issues, because the model becomes the basis for the decision- yet models are often notoriously flawed or misleading (with the benefit of hindsight.) In net assessment, the models are simple, and the thinking complex- and that is the point. There is no pre-ordained outcome, but rather a comprehensive and reasoned assessment of factors such as the economic, technological, political, societal and cultural that have and will continue to have a bearing upon the issue being analyzed.

At Awbury, we certainly do not have the resources of the DoD to hand. However, we are constantly seeking to expand the approaches and lenses through which we can undertake not only short term, pragmatic assessments of our environment, but also those which we believe will continue to give us an edge far into the future. Using just “standard” or “accepted” methodologies alone is, in our view, not sufficient in any complex and variable environment over an extended period of time.

Therefore, using Marshall’s framework of a net assessment provides another tool for strategic planning.

The Awbury Team

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