Essay on Decision Loops – Part 2
Post the end Vietnam War and the entrance of America in the 1970s, it seemed that America had lost their way. The mathematicians and hard science was again in decline and the philosophical and social sciences came to the fore. It would be in the 1990s, that hard science and mathematics would once again gain a dominant position in thought leadership. Out of the counterforce debacle in Vietnam and the dominance of defense and public policy by neoclassical theories, emerged John Boyd who developed a philosophy and process that formulates strategy based on all data and uses dynamic analytics to continuously evolve strategy to achieve objectives. This is not a game theory strategy that mathematically outlines various outcomes based on strategies employed. It is not a precise mathematical formula that defines risk. Boyd believed that strategy is an ever evolving and highly iterative process designed to achieve victory. It requires assumptions of risk with constant analytics of the operating environment. Boyd believed that the real target was your enemy’s perception for it is enemy who decides when they are defeated – not you. Keynes would describe this as the participants in the financial market who decide when you have won or lost – it is the not the companies. In the business market it is the companies competing for market share who decide when they have lost.
It is Boyd’s hypothesis that the enemy perception was the real target and it is in this belief we find the failure of counterforce. Counterforce assumed that by striking at the enemy’s ability to wage war, the enemy would be left with only one choice. This fallacy of this thinking is that we cannot predict human actions. Humans are irrational and often unpredictable. Humans make decisions based on facts and emotions that we may not even know they were considering. The thought leadership around defense strategies post the Second World War through the close of the Vietnam War was dominated by wining an atomic war. While a great deal of thought was going into military strategies, the real battle of the Cold War was happening on the economic and ideological front. Reagan was not playing to defeat the Soviet Union by military force – Reagan was playing a game that Keynes would know well. Reagan was speculating that the Soviet Union could not match his rate of investment and in turn would be forced to withdraw from the Cold War, thus providing a favorable change in the conventional basis of valuation and power. “Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an American to invest, as many Englishmen still do, “for income”; and he will not readily purchase an investment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator. Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism — which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object,” [see Keynes, page 159].
In our time, there was a military theorist who has greatly influenced the evolution of military theory. His theories are eminently applicable to business, yet his contributions toil in relative obscurity to Clausewitz, Sun Tzu, Mushashi, and Jomini. He is still considered a controversial figure inside the United States military community. His name was John R. Boyd. Above all military theorists to come to the fore post the Treaty of Paris, May 30, 1814, Colonel Boyd’s concepts of warfare as a rapid succession of decision making cycles has dramatically affected the strategies of the United States military in the post Vietnam era. His theories are not widely published and yet they were the foundation of U.S. strategy during Gulf War One, Afghanistan, and Gulf War Two.
Colonel Boyd had a long, distinguished and controversial career in the United States Air Force. At one time he was considered one of finest pilots in the United States Air Force; some people would argue that he was best the pilot ever to fly in the U.S. Air Force. After his flying days, he spent the remaining years of his career in a variety of postings that eventually led to positions in the Pentagon. He is credited as the father the of the F-16 airplane concept, which for a twenty-year plus period has been the finest multi-mission aircraft in the world and the backbone aircraft for the air forces of twenty-four nation-states. During the later years of Colonel Boyd’s career, he began to develop a synthesized model for understanding modern combat based on his own studies of military history from the age of Alexander the Great through Vietnam. The results of Boyd’s studies are too numerous to detail in this essay, but we can extract several important tenants from his model and theories.
Understanding the essential elements of Boyd’s theories begins with the eight fundamental tenants that he used to develop his model for understanding human warfare. An interesting component of Boyd’s model is that it can be used to understand any form of competitive human endeavor. It can be applied to business as well as the ultimate human competition – warfare. Boyd’s model is important to our analysis because we defined business as warfare by other means. The basis of Boyd’s model is based on eight important tenants that he developed from his study of military history. These tenants are:
- Knowledge of the strategic environment is important and this is achieved by being observant and aware of the environment in which operations (i.e. business) are conducted [see The Essential Boyd, Hammond]. This is Boyd’s way of describing the need for market intelligence. Market intelligence is not a one-time event. Market intelligence is a constant activity. To guard against stationarity, strategies, and tactics must be updated continuously. Never lose sight of the ultimate objective by allowing tactics and strategies to be governed by a false analysis of the environment and the impact of actions on the outcome. Information does have a negative value [see Price, Value and Risk]. When companies or people disclose information, it is typically the information they want you to know. The more sophisticated competitors seek the information that their competitors do not want them to know.
- Appropriately, interact with your environment through a combination of rapidity, variety, harmony, and initiative [see The Essential Boyd, Hammond]. One must be able to act in a manner that fosters the ability to survive, prosper, and succeed by shaping the environment where possible to suit your objectives. Businesses must be profitable and sustainable. Rapid decision-making based in near real time is becoming possible through technology.
- Mind-Space-Time [see The Essential Boyd, Hammond]. We typically think of our opponents in two dimensions. These dimensions are space and time. To paraphrase, the market or environment in space and time is what our competitors have done (i.e. market share) and are doing (i.e. actions they are undertaking). Boyd expanded this model to include the concept of mind. Mind is the forward-looking element of Boyd’s model. He believed that no effective strategy could be successfully executed without an assumption of what the competitive forces (i.e. companies) are planning to do and how our actions can intercept their planned actions and put them at a disadvantage. An enemy is only defeated in their mind – not your mind.
- Embrace Ambiguity [see The Essential Boyd, Hammond]. We are never sure of the future and we can never have complete and perfect information. We should welcome ambiguity and turn ambiguity to our advantage. We can do this by adapting to our environment and perfecting our ability to deal with incomplete information, thus remaining fluid in our actions. Again, this is the emerging ability to work in near real time as the global market evolves from a push model to a pull model.
- Entropy. “Confusion and disorder are also related to the notion of entropy and the Second Law of Thermodynamics Entropy is a concept that represents the potential for doing work, the capacity for taking action, or the degree of confusion and disorder associated with any physical or information activity. High entropy implies a low potential for doing work, a low capacity for taking action or a high degree of confusion and disorder. Low entropy implies just the opposite. Viewed in this context, the Second Law of Thermodynamics states that all observed natural processes generate entropy. From this law it follows that entropy must increase in any closed system—or, for that matter, in any system that cannot communicate in an ordered fashion with other systems or environments external to itself. Accordingly, whenever we attempt to do work or take action inside such a system—a concept and its match-up with reality—we should anticipate an increase in entropy hence an increase in confusion and disorder. Naturally, this means we cannot determine the character or nature (consistency) of such a system within itself, since the system is moving irreversibly toward a higher, yet unknown, state of confusion and disorder.” [see Boyd, Destruction and Creation]. The concept of entropy is adaptable to business. Using this concept and applying it to market share and productivity, we can create a method for assessing the ability of companies to executive within markets and the change cycle. If we understand how markets are changing and we can understand a company’s ability to successfully execute within the market change cycle, we have then created a model for a two-dimensional analysis.
- It is a matter of connections and choices [see The Essential Boyd, Hammond]. The more we know the more we connect to the environment, to the past, to the future, to the people, to ideas and to our competitors. Brinton’s analysis of revolutions provides a structure for understanding the socio-human element. People act on what is familiar, and social and cultural habits are difficult to change. Fusing Brinton’s understanding of the human change process with the market analysis and Boyd’s entropy concept the two dimensional model can be modified to create a three dimensional model: market-companies-human behavior.
- Real target is your enemy’s perception [see The Essential Boyd, Hammond]. You must know and understand the enemy’s values and aspirations. The enemy decides when they are defeated – not you.
- Moral-Mental-Physical [see The Essential Boyd, Hammond]. Effective strategy works on three levels. The easiest way to lose is to lose the trust that is the basis for social cohesion within and a group, team, company, or army.
A short summary of Boyd with a quote from his paper entitled Destruction and Creation. Boyd stated that, “Studies of human behavior reveal that the actions we undertake as individuals are closely related to survival, more importantly, survival on our own terms. Naturally, such a notion implies that we should be able to act relatively free or independent of any debilitating external influences—otherwise that very survival might be in jeopardy. In viewing the instinct for survival in this manner we imply that a basic aim or goal, as individuals, is to improve our capacity for independent action. The degree to which we cooperate, or compete, with others is driven by the need to satisfy this basic goal. If we believe that it is not possible to satisfy it alone, without help from others, history shows us that we will agree to constraints upon our independent action—in order to collectively pool skills and talents in the form of nations, corporations, labor unions, mafias, etc.—so that obstacles standing in the way of the basic goal can either be removed or overcome. On the other hand, if the group cannot or does not attempt to overcome obstacles deemed important to many (or possibly any) of its individual members, the group must risk losing these alienated members. Under these circumstances, the alienated members may dissolve their relationship and remain independent, form a group of their own, or join another collective body in order to improve their capacity for independent action” [see Boyd, Destruction and Creation]. This quote provides good linkage to our understanding of the process of change. As we will find, within large corporations or within nation-states, revolutionaries are formed from the process of alienation. The strongest companies are the companies that foster a strong internal bond of teamwork based on a fulfillment of objectives (i.e. victory). When companies begin to lose their ability to control and influence market share, a structural weakness is occurring and the one of three boundary conditions required for change has been achieved.