Analytics Strategy: The Origin of Wealth

The book, The Origin of Wealth, Evolution, Complexity and the Radical Remaking of Economics, is probably the most enjoyable read of the three that frame my thoughts on Analytics Strategy. It’s my second favorite book, right after Nineteen Eighty-Four.

Complexity Economics is about:

• “Dynamics: Open, dynamic, nonlinear systems far from equilibrium.”

• “Agents: Modeled individually; use inductive rules of thumb to make decisions; have incomplete information, are subject to errors and biases; learn and adapt over time.”

• “Networks: Explicitly model interactions between individual agents; networks of relationships change over time.

• “Emergence: No distinction between micro- and macroeconomics; macro patterns are emergent result of micro-level behaviors and interactions.”

• “Evolution: The evolutionary process of differentiation, selection and amplification provides the system with novelty and is responsible for its growth in order and complexity.” (pp. 97)

To sum it up – Eric D. Beinhocker holds that economics is an evolutionary system – and, to make better predictions about the future, economists have to adjust their models accordingly.

I’m an outlier in my network about such a system of thought. And, there’s good reason to be cautious. After all, didn’t geography, medicine, and politics go all wrong when it became all Darwinist? Fear and Godwin’s law aside, the really interesting bit, as it pertains to strategy, has to do with business plans.

Part II, Chapter 10, “How Evolution Creates Wealth”, starts off talking about design spaces. Eric assumes that any competent management team would be able to read a business plan and execute it. That, in effect, management is a machine that executes instructions described in a business plan.

Then he goes one step further:

“..let’s imagine a larger-tan astronomical library that contained every possible Business Pan that could ever be written in a 500-page volume…thus, instead of shelves of literature, we would have shelves…of Business Plans stretching across vast reaches of the universe….If we searched the shelves of the Library of Smith, we would find the Business Plan for setting up a one-man shoe-shine stand in Times Square, a Business Plan that perfectly describes IBM’s Strategy today, the Business Plan for General Electric in 1952…and for a company that manufactures and markets supernano neutral-blastule tubes, even though supernano blastule tubes won’t be invented until 2023.” (pp. 236).

And to the point:

“The economy evolves as evolution searches for fit designs in the Library of Smith.” (pp. 237).

A given strategy isn’t a special snowflake. And, given the organized anarchy we know happens within the nucleus of every company, is it any wonder that random mutations in the core strategy emerge over time? In this light, strategy is

Advantages:

• Key Trends, Industry Forces, Macroeconomic Forces, and Market Forces are factored into (endogenous) to the model.

• Treats business plans (strategy) as design.

• Dynamic.

Disadvantages:

• Assumes that management structures are not made of people behaving like people.

• Assessment criteria are rooted in survival, not optimization.

• Too many degrees of freedom, to the point where unreadable plans can exist.

The book is well worth your attention.

Have you ever watched a strategy deck come together? Does it ever seem like mutations spontaneously appear?

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I’m Christopher Berry.
I tweet about analytics @cjpberry
I write at christopherberry.ca