The roundabout way is the best way

Obliquity: Why Our Goals are Best Achieved Indirectly
John Kay
Profile Books
Rs755
210 pages

Rare is an economist who can write in simple English. British economist John Kay, who writes a popular weekly column in the Financial Times, falls into that breed. In his latest book Obliquity: Why Our Goals are Best Achieved Indirectly, Kay, as the subtitle suggests, writes about why our goals are best achieved indirectly. 

The concept of ‘obliquity’ sounds counterintuitive at first, but makes tremendous sense. Kay explains it through the example of Boeing. He writes, “When I taught strategy at London Business School in the early 1990s, I told students that Boeing’s grip in the civil aviation market made it the most powerful market leader in world business….Yet it took only ten years for Boeing to prove me wrong in asserting that its market position in civil aviation was impregnable.” 

What changed? Boeing was a company that used to “eat, breathe, and sleep the world of aeronautics”. When a new CEO took over, the company changed to a “value based environment where unit cost, return on investment, shareholder return” became the measures of performance. As Kay writes, “directness replaced obliquity.” 

This change hit the company’s performance and the stock took a beating. Kay provides other examples of big global companies like ICI, Merck and Pfizer, who over a period of time changed their goal to profitability. The moral of the story is that profitability as a goal is never profitable. The route to profit is oblique. 

Kay links this insight to the current financial crisis, and to big investment banks on Wall Street going bust. “A corporate culture that extols greed is, in the end, unable to protect itself against its own employees,” writes Kay. Just as the most profitable companies are not the most profit-oriented, the wealthiest men and women are not those who are the most materialistic.

The point Kay tries to make is that approaching any problem directly does not help. Take the case of Le Corbusier, the famous architect whose plan was to raze most of central Paris and build it from scratch as a planned urban environment.

Thankfully, that did not happen. “The notion of urban environment as a designed system was most fully implemented in planned cities such as the designed capitals of Brasilia, Canberra and Chandigarh. But these places are dull…. Their functionality is dysfunctional,” writes Kay. For cities to be functional, they need to continuously adapt and feel our way towards them.

Problems cannot be solved directly because of complexity, incomplete knowledge, interdependence of various parts of a system, and decision-making models being imperfect descriptions of reality.

A good example of a model that did not work is the Value at Risk model that is used by banks to measure risk. Though it should have, it never predicted the coming of the financial crisis. Most such models work on historical data. And of course, “banks, insurance companies and hedge funds…did not go bust in the period from which their historical data is drawn.”

A direct approach also leads to situations where people stick to decisions once they’re made. And this may not always be the best thing to do. Kay points out, “the occupants of the Bush White House, and the men who played senior roles in great banks, not only believed they knew more about the world than they did, but supposed they had more influence on the environment in which they operated than they did.” 

Human beings more often than not move towards their ultimate goals by working on intermediate objectives and constantly adapting. Kay gives the example of a Russian planner who visited United States after the collapse of the Soviet Union. “He (the planner) asked his hosts: ‘Who is in charge of the supply of bread to New York?’” Of course no one was. And even with that the supply of bread was more reliable in New York than it ever was in Moscow.

Obliquity is a great read even for those who do not have much of a background in business and economics, and a worthy addition to the series of pop economics books such as The Undercover Economist and Freakonomics.