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MARK-2-MARKET: Lateral thinking

Mark Carnegie

Published 6:00 AM, 30 Jul 2010 Last update 10:08 AM, 30 Jul 2010


How people get things done is a fascinating subject in business and finance. Every day you see people trying really hard and failing miserably. Other people, with what looks like no effort at all, get huge amounts accomplished.

John Kay, the pre-eminent economist and one of my heroes, has just written a book about this. It is called Obliquity: why our goals are best achieved indirectly. The central thesis is that "Paradoxical as it may sound, many goals are more likely to be achieved when pursued indirectly…" and the book outlines the case for "why oblique approaches are so often the most successful – and how understanding this leads to better decision-making." It is a lesson we all need to learn and remember.

The book examines how to use an oblique approach successfully in areas of human endeavour ranging from the pursuit of happiness to the management of bushfires. His book makes a compelling case that the direct and much-lauded focus by modern management theory on shareholder wealth maximisation, time and again, fails to achieve its goal of higher share prices and greater dividends.

Obliquity shows that, in stark contrast, a focus on building a great business that creates great products, serves its customers well and makes its employees feel proud of the company they work for, delivers for shareholders. The numerous examples he finds in support of both the use of obliquity and the abuse of the ‘shareholder value above all else’ mantra are striking.

However, I would criticise one glaring omission in the book, where the indirect approach is clearly superior but he does not mention it. He doesn’t consider the role of obliquity in a successful higher education, preparing you for the world and your career.

I find student after student coming to me seeking advice on how to pursue a career in finance and expecting me to encourage them, as so many other people do, to pursue a commerce and finance degree at university. They want to hear that the direct approach of a commerce degree will guarantee they get rich. It will not, and nothing else will, except a constant will to learn and improve and strive to succeed.

My career was one of obliquity writ large. I ended up in the finance industry because I failed as a marine biologist. After three years of a zoology degree, I could see I would never succeed in my ambition of becoming the next Jacques Cousteau. The direct approach to marine biology failed. However, failure in zoology led to eventual success in finance. I wanted to succeed in my chosen career and realised my brain was just not wired to be a successful research scientist. I moved on to jurisprudence because a law degree looked like it would be practical but took virtually all the philosophy options I could and studied ‘law of the sea’ in preference to commercial law. Again, I followed what I was interested in, not what was directly applicable.

I ended up in finance by taking a series of summer jobs where the obvious point was to explore what type of job I would like, and finding one where I really liked the people. That led me to learning accounting from a textbook and corporate finance by schooling in the office. This was an on-the-job approach to the technical aspects of my chosen career. For me, higher education was about getting the widest possible education; the workplace was about my career. My only regret about this approach was that I did not take it far enough and study some history and literature along the way. I would have been far less effective if I had tried to use my higher education as a direct route to anything.

However, having to learn accounting and corporate finance by guided self-teaching gave me a habit of reading to continue learning on-the-job, which has allowed me to be open to new ideas as they have completely disrupted industries I have been an investor in.

Our most valuable resource is the minds of the young and talented individuals who will work at solving the world’s problems and making great new things as we grow old and incontinent. The most important application of obliquity is to prepare those minds for the world we found ourselves in where the ‘clock speed’ of change increases every year. Young people need obliquity in higher education to help them support us in our retirement. We need our universities to return to being institutions that provide an education, not trade schools that narrow students’ focus to the point of myopia.

There are a series of building blocks that need to be a part of a school education and, if anything, the teaching of practical life skills should comprise more of a high school education than it does. By contrast, for students who choose to spend another three or four years of their lives on educating themselves after school, the path to broadening their minds rather than narrowing it seems to me to be central to the remit of universities. I know the debate rages around University of Melbourne’s decisions about their undergraduate degrees. I do not want to enter into the academic debate so much as to say that I see the trade school model as neither serving the students nor their prospective employers well in the long run.

Having the broadest range of mental models to draw on is what solves problems. Having developed the habits of mind to be hard-working and curious when in pursuit of the answer to a problem is far more important for a student than leaving university remembering a formula for solving the value of an annuity or determining the volatility of a share option.

As Kay says, "in general, oblique approaches recognise that complex objectives tend to be imprecisely defined and contain many elements that are not necessarily or obviously compatible with each other, and we learn about the nature of the objectives and the means of achieving them during a process of experiment and discovery." A university education that allows people to internalise that fact and carry it around with them will be far more valuable to any employer than having a new employee that has spent three or four years remembering a series of facts and figures that anyone can pay $50 to get from a textbook. The textbook also takes up far less space.

Another hero of mine, Charlie Munger, advocates an education that allows you to have absorbed the most important mental models from all the various disciplines in the world, be they mathematics, biology, psychology or history. He says building a mental latticework of the models connected in a descending order according to their analytical rigour, from mathematics onwards, is the most powerful thing you can get from an education if you want to get rich. The other thing he advocates is constant reading to absorb yet more information, and a process (like Darwin had) of always looking for the example that will prove what you believe to be false rather than clinging to the examples that let you retain your preconceptions.

It is the obliquity framework and mental models from various disciplines that allow one to come to grips with a complex set of problems. What you need from an education is a capacity to think logically and critically. This allows good decisions to be made in an environment of limited and imperfect information and no clarity about the right outcome (ie. in the real world).

Think of the famous discoveries of penicillin and Post Its. They both came from way out of ‘left field’. As the Tipping Point’s Malcolm Gladwell said in his New Yorker piece on cancer drug discovery, the oblique process the scientists were pursuing was constructed so “it provided for serendipity and the history of drug discovery is full of stories of serendipity”. He quotes a researcher as saying “the scientist must constantly seek and hope for surprises”. This real world of messy problems is not an environment that naturally translates into exam questions on which students are graded.

If you have been schooled to answer well-specified problems in the Faculty of Finance (or any other), and that then becomes your career, it is likely to mean that you are prone to suffer from a cognitive bias called false precision. You will try to get on as though life is a long exam and that could easily amount to trying to be precisely wrong in an exam world. What you should be doing is working at the messier job of being approximately right in the real world.

As Cardinal Newman pointed out in his pivotal essay on The Idea of a University, at a university if you promoted a citizenship of mind then everyone would know that the education of the “mind came first, and was the foundation of academical polity; [because] it soon brought along with it, and gathered [to] itself the gifts of fortune and the prizes of life. [People would know that] as time went on, wisdom was not always sentenced to the bare cloak of Cleanthes; but beginning in rags it ended in fine linen.”

An education spent developing a series of broad models of how the world works from the accumulated wisdom of the academic disciplines that exist in higher education is far better than a mind geared to the nit picking analysis of the ideas from just one field. It allows for a broad enough perspective to approach the world and the problems you encounter in it to be approached from an oblique angle and that is, as Kay compellingly shows, the path to success.

Mark Carnegie, head of the Lazard Australian Private Equity business, is an investor in Business Spectator.



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5 Comments


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David Perry wrote:

Most interesting, Mark.

(See MARK-2-MARKET: Lateral thinking, July 30)

I'm an ex-economist and I didn't know of John Kay. A related pertinent observation is that typically when we focus too directly on our own needs, our happiness and contentment diminishes. When we focus more on others (family, community etc), paradoxically from a direct-goal perspective, it usually gets a whole lot better.

30 Jul 2010 12:08 PM

Anthony Element wrote:

Years ago, I worked for a CEO who would be totally focused and intensely involved in all presentations and discussions at the monthly management meeting, save one - the financial controller's report, which used to drive the FC crazy.

But the CEO had a point which he made as often as he could: if every other department performed optimally then the finances would take care of themselves, so why waste time delving into the numbers.

Far better he asserted, to delve in great detail into the non-financial indicators everywhere else in the company, because that's where you could make useful decisions.

He was an inspirational CEO and the business was in excellent shape on his watch.

Funny thing was that the FC was privately convinced the CEO was just pig ignorant about finance.

Turns out, he intuitively understood obliquity.

30 Jul 2010 12:21 PM

Glenn Mabbott wrote:

This is especially true in marketing communications (See MARK-2-MARKET: Lateral thinking, July 30).

Many businesses in the quest for control and predictability spend most of their marketing management on research, modelling, planning and analysis and yet continue to fail to engage on a daily basis with customers and prospects.

The revolution in eCommunications is leaving most brands behind, as consumers seek for themselves information as they need it. Brochures and company vision statements are no longer enough.

30 Jul 2010 12:22 PM

KD D wrote:

Carnegie has written an interesting article. It resonates well with myself but I wonder whether there are other personality types this does not resonate with? (See MARK-2-MARKET: Lateral thinking, July 30)

In finance, as you are looking at diverse industries and business models, I tend to agree that a broad knowledge base is essential. For me, in the absence of basic economics, physics and philosophy how would I analyse an engineering company or understand the drivers to greed and prices?

The University of Western Australia did this reasonably well, advocating problem solving as one the key learning from the course and teaching fundamental theories in addition to practical applications.

2 Aug 2010 10:33 AM

Edwin Trevor-Roberts wrote:

Career planning is a misnomer (See MARK-2-MARKET: Lateral thinking, July 30).

No one can fully plan their careers as the unexpectedness of life cannot be anticipated. Mark is very observant of the fact that obliquity has been evident in careers for a decades.

Only recently have those in the career, coaching and development field started to accommodate 'luck' and synchronicity into their advice to others. John Krumboltz from the US developed a theory called 'planned happenstance' which nicely encapsulates obliquity.

In my own research on career uncertainty through the University of Queensland Business School I found that the meaning that uncertainty holds for people impacts on their career decisions and career trajectory.

The ability to manage and capitalise on uncertainty, through approaches such as obliquity, will become a necessary skill to construct a meaningful, rewarding and fulfilling career in the future.

3 Aug 2010 7:04 PM



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