Business strategy by Balloon and Beinhocker

Given complexity economics, Balloon Kenya’s approach to business makes total sense. This much is clear. I want to nail down here a little more on how Beinhocker’s conception of strategy parallels Balloon’s thinking, and how they seem about right.

Some basics on strategy: it has two key characteristics: it’s forward looking; and it’s about creating a plan and committing a course of action specified by that plan. That means if it’s an easily reversible decision, it’s not really strategy, because there’s no real commitment.

Moving on to Balloon vs. Beinhocker, I want to pick out threepoints of comparison:

1) The ‘traditional,’ planning approach is barking up the wrong tree.

Balloon and Beinhocker both take aim at the traditional/old/straw man guide to strategy, based on planning and essentially predicting the future. Both recognise the (crippling) difficulty of this, Beinhocker in particular highlighting that there is a near-infinite number of possible future states of the economy, and which branch is taken depends on a series of impossible-to-predict frozen accidents. The Balloon curriculum is full of quotes and one captures this point brilliantly: Ken Olson, President of Digital Equipment Corp., 1977: “There is no reason anyone would want a computer in their home”. Yeah.

2) Learning is the key

Given this “inherent uncertainty of the future,” we need to “emphasize learning and adapting over predicting and planning” (Beinhocker). This could practically be taken out of the Balloon textbook, which states: “start-ups in their early stage don’t execute. They search”. ‘Searchers’ vs. ‘planners’ takes us to Bill Easterly and so we complete the loop back to complexity-compatible thinking. The basic idea that both Balloon and Beinhocker are hitting on is that the knowledge required for success in the economy is not to be found in the heads of clever people, but out there with customers.

3) How do you learn? Test.

Testing for Balloon is the means of converting guesses into facts. Whether by talking to people, building a prototype or just trying to make some sales, it’s the crucial step between the ‘building’ of a product and the ‘learning’ that we’re all here for. Beinhocker has the requisite pithy phrase: strategy for him is simply “a portfolio of experiments”. He gives the example of Microsoft in the 80s, which kept a population of competing business plans within the organisation (many irons in the fire), each with tight feedback loops, to give the best chance of success. Some are going to fail – there’s got to be a tolerance of risk – but as long as those failures are small, who cares?

So there we are: three crucial ways in which Balloon and Beinhocker are peas in a pod. To flog this dead horse one more time, the correct mindset is “highly pragmatic. It values tangible facts about today more than guesses about tomorrow, doesn’t expect that everything will work out as planned, and prefers lots of small failures to big ones”. Quote from Balloon? Beinhocker? It doesn’t matter.