TORONTO, July 8 (AScribe Newswire) -- Strategic managers, lacking training in how to build their own situational models and reasoning strategies as opposed to "implementing" blueprints and recipes, tend to choose easy problems to make sense of their predicaments and use sub-optimally simplistic methods of framing complex problems, shows new research from the University of Toronto's Rotman School of Management.
"Managerial problems are not given - they are co-created, by the manager and his context, and what the manager's mind does often matters more than other features of the context," says the study's author, Mihnea Moldoveanu, who has articulated a new research field called managerial algorithmics. "This model shows managers systematically avoid certain kinds of problems (logically hard ones) in favour of others (logically simple ones) when they try to make sense of their predicaments." When applied to a vast array of data about the ways in which managers make judgments and solve problems, Moldoveanu's model shows that by and large "managers are logical sloths, even if they are sometimes informational hogs." Managers seem to systematically avoid "deep thought" about the situations they face and rather seek "data," "stories," "frameworks" and "prescriptions" that stand a very good chance of being logically incompatible, he says. However, because they are "logical sloths," this logical incompatibility will go un-noticed.
Take a pricing problem - a staple of "consulting" engagements and exec team meetings. The problem of determining the optimal price given your competitors' pricing strategy is "hard" in a precise sense which Moldoveanu's model defines, because their pricing strategy will depend on their conjectures about your pricing strategies, which in turn will depend ... etc. Rather than work the problem through to its logical conclusions, managers will choose to adopt short cuts, rules of thumb and analogies from past experience that may or may not be relevant to their own predicaments. True to the model's predictions, these are all examples of technically "simple" problems. When simple problems are substituted for hard ones, cash is often left on the table, the research shows. However, even though thinking more deeply will almost always help, acting on the deepest possible logical analysis is not always the optimal course of action: being logically omniscient in an environment of logical sloths could also lead to losses. Moldoveanu's argues that managers need to seek out "adaptive" intelligence, which he defines as "the right level of logical depth given what you know about others' level of logical depth."
Besides offering a general language for analyzing any managerial problem in precise terms, Moldoveanu's model provides a deep explanation for why strategic managers do not engage with social, ethical, moral and environmental issues: they do not pay attention to them because the problems that would include these issues as variables in the problem statement are technically hard. "I know of no manager that would willingly engage in a debate of the relative merits of truth, fairness and efficiency in setting objectives in an open-ended manner," Moldoveanu says. "Throw in the natural human tendency to discount the deep future, the deep past and everything that is socially and spatially far away, and you have a good picture of the phenomenon."
Business schools, rather than training students in superficial, off-the-shelf frameworks and recipes, need to teach students how to build their own strategies to fit the predicaments they face, says Moldoveanu, who is the Desautels Professor of Integrative Thinking and also heads up the Rotman School's Desautels Centre for Integrative Thinking. "Most schools provide students with a lot of buzzwords, vacuous truisms and prescriptions, backed by stories and anecdotes that seem to support them, which go by the name of case studies, instead of showing them how to create their own models and frameworks and to think 'from scratch,'" he says. "The solution entails realizing that the education process is not just about giving people knowledge; it's about giving people reasoning skills." Accordingly, he is designing the foundational courses in Integrative Thinking at the Rotman School towards core model-building, model-testing and adaptive reasoning skill development. "This is what sets Rotman apart from all other schools, even those that have traditionally stressed 'analytics' in the past. That is because business analytics has become a lot less about thinking, and a lot more about applying other people's thoughts to spreadsheet-format data."
The complete study is available at: http://www.rotman.utoronto.ca/newthinking/strategicthinking.pdf .
For the latest thinking on business, management and economics from the Rotman School of Management, visit http://www.rotman.utoronto.ca/NewThinking .
The Rotman School of Management at the University of Toronto is redesigning business education for the 21st century with a curriculum based on Integrative Thinking. Located in the world's most diverse city, the Rotman School fosters a new way to think that enables the design of creative business solutions. The School is currently raising $200 million to ensure Canada has the world-class business school it deserves. For more information, visit http://www.rotman.utoronto.ca .
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CONTACT: Ken McGuffin, Manager, Rotman School of Management Media Relations, University of Toronto, 416-946-3818, mcguffin@rotman.utoronto.ca
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