“Business thinking starts with an intuitive choice of assumptions. Its progress as analysis is intertwined with intuition. The final choice is almost always intuitive. If that were not true, all problems would be solved by mathematicians.” So starts a provocative and seminal essay by Bruce Henderson in 1977, the year after I joined his Boston Consulting Group.
Intuition, says Bruce, is enormously powerful – “it is the subconscious integration of all the experiences, conditioning, and knowledge of a lifetime, including the emotional and cultural biases of that lifetime.”
Intuition is great, but not enough
But, he continues, “intuition alone is never enough. Alone, it can be disastrously wrong.” Analysis is also necessary to check that the intuition is correct – facts need to be gathered, data checked, assumptions tested, new views developed. Yet the relationship between analysis and intuition is subtle, interactive, and continuous. Intuition is necessary to decide what analysis is necessary – “don’t go to the library,” Bruce says, “and read all the books before you know what you want to learn.” This requires selectivity driven by intuitive insight – “analysis, too, can be disastrously wrong. Analysis requires keeping the required data to manageable proportions. Thus analysis by its very nature requires initial oversimplification and intuitive choice of starting assumptions. All of these choices are intuitive. A mistake in any one can be fatal to the analysis.”
Yet there is a problem here. There are too opposite dangers with analysis. One is that all it does is to confirm the intuition, which adds little to where we started – “when the results of analysis and intuition coincide, there is little gained except confidence.” Counter-intuitive answers from the analysis are potentially helpful, and need to be checked carefully to see whether they are correct and why, relative to the starting assumptions. “But in nearly all problem solving there is a universe of alternative choices, most of which must be discarded without more than cursory attention. To do otherwise is to incur costs beyond the value of any solution,” leading to what we now call “analysis paralysis”.
Intuition, Analysis, and the Missing Ingredient
Therefore, Bruce announces, pulling his rabbit from the hat, “A frame of reference is needed to screen the intuitive selection of assumptions, relevance of data, methodology, and implicit value judgments. That frame of reference is the concept.”
“Conceptual thinking,” he continues, “is the skeleton or framework on which all the other choices are sorted out. A concept is by its very nature an oversimplification. Yet its fundamental relationships are so powerful and important that they will tend to override all except the most extreme exceptions.”
All my working life I have striven to find concepts that can guide us and be the framework for both intuition and analysis. Concepts tell us where to look, what to check, how to isolate what is most valuable, how to save time, how to acquire life- or business-changing confidence, how to make money, and how to find peace of mind. Concepts are like the radar guiding a plane, the engine and fuel powering a car, or the brain directing our bodies.
And the truth about concepts is, of course, that they are subject to the 80/20 principle. Most concepts are not very useful, or positively harmful. A few are useful. A very small proportion of concepts are so useful that they can transform our business or our life.
A Few Business-Changing Concepts
Bruce was pretty coy about this in his essay, but the real motor behind the Boston Consulting Group in its first two or three decades – and the power behind its rival firms, such as Bain & Company, and the firm I co-founded, LEK – was its concepts. There were just three that were extremely powerful:
In addition, I think there are three other concepts relevant to business (and to our personal lives) that are incredibly powerful:
The Golden Triangle
Concepts are valuable because they give you the hypotheses for what likely answers may be, enabling both intuition and analysis to be well directed. Concepts can also save a lot of time and energy by eliminating the majority of options from consideration. To give a couple of important examples:
The chart here shows how concepts can increase the accuracy and value of both intuition and analysis:
An excellent concept invites us to use our intuition and find new applications for the concept. Intuition then leads to hypotheses. Analysis then tests the hypotheses. If confirmed, action results. If the analysis reveals a more complex picture, it can act as a further spur to intuition, to devise a better set of hypotheses. And so on, until there is something worth testing in the marketplace.
Have the relative value of concepts, intuition & analysis changed?
Bruce was writing when the “analysis industry” in consulting, industry, and finance was just getting into its stride. BCG did not sell experience, relying on the intuition of clients. BCG sold concepts allied to analysis. Before long, though, analysis increasingly took precedence. Today analysis – usually undertaken to “prove” intuitive decisions – seems completely dominant. Often the managers concerned are unaware that they are making intuitive decisions, and that the analysis is effectively rigged by the assumptions made. The test is the one implicit in Bruce Henderson’s essay – if analysis rarely reveals counter-intuitive results, the analysis is worthless.
Because concepts are largely in abeyance, and intuition is mainly imprisoned within conventional wisdom, the hegemony of analysis is trivial or harmful. It is time for a comeback of unconventional intuition, guided by the few great concepts.
Next week, I will consider a few concepts which are most helpful in making us happy and useful as individuals.
Bruce Henderson’s essay on Business Thinking can be found on pages 260-3 of “Perspectives on Strategy from The Boston Consulting Group”, edited by Carl W Stern and George Stalk Jr. It is well worth reading and pondering.