Tuesday, January 22, 2008

Strategic Intuition: Why Businesses Succeed and Foreign Aid Fails

A few weeks ago, I listened to an podcast with Russ Roberts and William Duggan on Duggan's new book, Strategic Intuition. In the podcast, Duggan discussed what causes the creative spark in human acheivement:

Perhaps the best way to understand this new model of the brain is to think of a giant warehouse. Your brain is the greatest inventory system on earth. It constantly takes in information, breaks it down, and puts in on its warehouse shelves—that’s analysis. Your brain then compares the new information with other items on other shelves. When it finds a match, it pulls those items off the shelves and puts them together in a flash of intuition. The combination of analysis and intuition becomes “creative insight,” which is “the ability to take existing pieces of information and combine them in novel ways that lead to greater understanding and suggest new behaviors and responses.”

Here is a review of the book by Bill Easterly that uses this insight to explain why businesses succeed and foregin aid fails:

Set big goals. Do whatever it takes to reach them. These muscular sentences form the core of commencement addresses, business-advice books, political movements and even the United Nations approach to global poverty. In "Strategic Intuition," a concise and entertaining treatise on human achievement, William Duggan says that such pronouncements are not only banal but wrong.

Mr. Duggan, who teaches strategy at Columbia Business School, argues that the commonplace formula has it backward. Instead of setting goals first, he says, it is better to watch for opportunities with large payoffs at low costs and only then set your goals. That is what innovators throughout history have done, as Mr. Duggan shows in a deliriously fast-paced tour of history.

One of the insights of "Strategic Intuition" is that business makes progress by following the opportunistic innovation model, while governments and international-aid agencies aim repetitively at rigid social goals. Such rigidity happens partly for a reason that Mr. Duggan is too polite to mention -- bureaucrats, by nature, rarely give off a creative spark. Mr. Duggan prefers to emphasize a structural cause: The public demands solutions to problems of great social importance; thus bureaucrats get stuck with fixed objectives. Yet Mr. Duggan also shows that social progress often happens by emulating the opportunism of business. Among the most powerful of his examples is Muhammad Yunus's invention of microcredit.

Despite such success stories, official aid agencies persist in the bull-headed approach. In a caricature of everything Mr. Duggan says not to do, the U.N. and the World Bank have been pushing a campaign called the Millennium Development Goals. It sets quantitative targets for every conceivable problem of the poor. It then tries to raise whatever it takes in aid money to reach them. This approach has succeeded as a fund-raising strategy but not as a problem-solving one -- it is already clear that most of the goals, if not all, will be missed for Africa, where the problems of the poor are most dire.

Here's a video of Duggan explaining more:

Read the first chapter here.

See also:

And two examples of strategic intuition in mathematics and economics:

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