New series- tools, models, analogies, heuristics

I’m preparing a series of classes for SMU related to what do I need to do to have a successful Asian business.

I’m thinking a critical element in creating a successful business is not about having the right answer to everything, but what’s more important are you asking the right questions.

Last week,  I’ll discussed the 5 critical questions one needs to answer to create a successful business. But having got the right question, where do you look for answers?

I believe to be successful a manager or leader needs to be conversant with a group of tools, or models, or analogies or heuristics to enable them to craft answers to the questions their businesses throw up. 

The latticework of mental tools puts them in a useable form to analyze a wide variety of situations and enables us to make better decisions and reach better answers. And when big ideas from multiple disciplines all point towards the same conclusion, we can begin to conclude that we’ve hit on an important insight.

The idea for building such a latticework comes from Charlie Munger, Vice Chairman of Berkshire Hathaway.  Here, Charlie Munger explains his approach to worldly wisdom:

Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.

You’ve got to have models in your head. And you’ve got to array your experience both vicarious and direct on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.

What are the models? Well, the first rule is that you’ve got to have multiple models because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does…

It’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” 

A core principle of the mental tools approach is that you must have lots of them.

Ideally, all the ones you need to solve the problem you have at hand. As with physical tools, lacking a mental tool at the crucial moment can lead to a bad result.  This may seem obvious, but it’s not a natural way to think. Without the right training, your brain says : Which models do I already know and am familiar with, and how can I apply them here?  Its like the proverbial man with a hammer, to him everything looks like a nail. Such narrow-minded thinking feels entirely natural to us, but it leads to far too many misjudgments.

OK so over the next few weeks I’ll be introducing to you the mental tools that I have used to answer the critical questions of business.