Saturday, November 16, 2013

Probabilistic future- learning from the past?

It is interesting to think about the implications 
that assumptions have on the way people behave. Many of the paradigms with which we evaluate the world are full of our own experiences and conclusions, cloaked in the illusion of objectivity, which scientific education purports. Beyond the hard data, any interpretation of the information that can be obtained is inevitably subject to the investigator. The first five sessions of this Advanced Strategic Management course have allowed me to continue analyzing this, and have added to the intuitive appreciation of this subjectivity which engulfs organizations, appreciation I have had the chance of experiencing in all previous organizational roles I have had the opportunity of fulfilling.
The definite role chance plays in all decision outcomes,business or otherwise, can be unsettling to many, who naturally expect that the accumulated knowledge that can be derived from the documented experience of past endeavors should lead us to decisions which eventually converge to achieving the required outcomes. This might be perceived to be the case if the media concentrates on the cases of success (which in itself might have a series of reasons, normally economic). However upon careful analysis, time and again we see this is not true. If anything, the opposite holds.
The fair comparison
Why is this, that the future will not subject to our increasing loads of information, models and case studies? One of my beliefs, is that maybe through the process we have chosen, which is to learn from past experiences, we are not making a fair comparison. At a point on my life I acquired the concept (probably learnt from my family) that future and past can be somehow “compared” through experience. This comparison I believe has mainly stayed in a first basic, visual level of understating the factual things that happened, and the learnings have been understood as identifying these visible “signs” and to apply the corresponding recipe that worked in the past. Upon reflection, this might help with short term decisions of recurring activities (how to do a task, how to get from one place to another, etc.), but fails to be useful as the decisions become medium or long term. A great deal of the business books I have read, engaged with medium/long termdecisions, deal with strategy in this way, and a great deal of them are destined to become just another management flavor that will most probably be proven wrong or taken off its highlighted status by an even more convincing and attractive new theory.
Just as a message has a literal meaning and a deeper, transcendent implication, the analysis of past experiences also has a first level of events, but at the same time, a deeper transcendent implication, which I believe is more difficult to grasp. The reasons I have found for this added difficulty, lie in the fact that the implications will be understood from experience, and in this point, every single person is a completely different world.
The unfairness of a past-future comparison also lies in the nature of these concepts. Past is deterministic while Future is probabilistic. What I mean with this is that there is only one past, events that can be recounted and researched up to the required detail, relived, retold and reinterpreted. The future is a bundle of different alternatives subject to chance, which may very well stand for an as-yet unknown causality.
The Probabilistic future
In order to face the probabilistic future, where any of a different set of circumstances might develop, as limited organizations we must either, influence the probabilities or prepare ourselves with a range of skills and capabilities of rearranging these skills, this is, flexibility, to better face whatever future presents itself.
The influencing of the probabilities concept starts from a concept known as path dependence. Through this probabilistic concept, the future probabilities are affected by the present outcome. This is, future does not cease to be probabilistic, but the probabilities as so to say "skewed" by what already happened. A simple thought experiment can picture this more clearly. Suppose you have a box with two balls, one red and one white, and you are instructed to draw one ball without looking into the contents of the box. The probability of choosing either color is 50%. Now, depending on the color chosen, ne next step is restoring the chosen ball to the box, but adding an additional ball of the same color as the one chosen last. This means that on our next blind choice, one of the colors will have a 66% chance of being chosen and the other one a 33% chance. If we happen to then choose a ball of the color not chosen first, following the same procedure of restoring the chosen ball as well an additional ball of the color last chosen, the probabilities would return to 50% for each color.
However, if in the second round, a ball is chosen of the same color as the one chosen in the first round, at the end of the second round the box would contain 3 balls of one color and 1 of the other color, raising the probability ratio to 75% to 25%. This can be easily simulated in Excel, which would result in eventually the series converging to one of the colors being dominant in the box. Iterations of the same process will mostly show a convergence towards one of the colors, which means that in a system with random probabilities,behaviors can be observed which tend towards a specific outcome.
Several iterations show that this tendency can go to either color (analysis equivalent to looking at several futures), yet if we analyze the past, only one of these tendencies will be seen and analyzed. This contrast for me pictures clearly our false assumption that past and future can be somehow be compared.
Facing an uncertain future
How can then a random future be effectively faced, and what is the use of strategy then if the future is of a random nature? These two questions require a relevant answer, to which I will contribute next with my personal outlook.
If we assume that the future is random all we can do is to prepare a set of skills (e.g. toolbox) that will allow us to deploy the required skills depending on the situation that we face. These set of skills need not (and probably will not) lie completely in one person, but be disseminated in a group of people. Organizations that are able to communicateeffectively and trigger action upon specified circumstances not only derive solutions that may not only counter, but take advantage of the changes, but will also stimulate the members of the organization, as change and novelty is a sensory biological requirement of living beings.
To illustrate this last point, humans become insensitive to known information in order to concentrate resources in the new inputs, phenomenon known as sensory adaptation. This is a natural process, which we do not determine and even control. For example, we don’t detect smells after a while if we are normally exposed to them, the same case with recurring noises. I have many a time asked an external eye to look at problems, or look for stuff I had been looking for a long time, as I has become insensitive for looking at it so many times.
The use of strategy, then, if we assume a random environment, is to align organizations towards a common set of skills, allowing ideally for an informed risk-taking within a healthy organization, and sense of purpose within a healthy team of motivated individuals, crucial to the maintaining the hope that deep down drives our everyday decisions. We have a natural attraction to stories, our proverbial attraction to gathering around the fire to listen to stories.
Lessons for now
Stories of success, such as Crown, Cork & Seal or the events that came to pass during the Cuban Missile Crisis, more than telling us about the actual decisions taken, leave me with a sense of having had organizations that could rearrange their resources for rapidly adapting to the changing environment, and were thus favored by chance on having a successful outcome (similar to the balls being chosen out of the box at the beginning of the exercise, this is, with similar probabilities for success or failure), and which have later molded circumstances so as to have increasing chances of new successes (equivalent to a box with colored balls already subject to path dependence, this is, with more balls of one color than the other).
The presence of uncertainty in our lives can be interpreted as a source of anxiety and/or humbleness, this is, it is our choice to face the future from an outlook of threat and impending catastrophe, or from an outlook of humbleness and communication building and empathy for our own or other’s failures.
Self-knowledge of limitations and assumptions, as well as network building and constant communication within those networks, are therefore important lessons to remember, so that within an uncertain world, we may not only navigate it effectively, but also enjoy the ride.

No comments:

Post a Comment