By: John Kay

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Happiness is not achieved through the pursuit of happiness. The most profitable businesses are not the most profit-oriented. The wealthiest people are not those most assertive in the pursuit of wealth. The greatest paintings are not the most accurate representations of their subjects.

The consequences of our actions depend on the responses of other people, and these responses spring not just from our actions but from their perceptions of our motives for undertaking these actions. The economist and Financial Times columnist John Kay tells us the best approach is “Obliquity: Why Our Goals are Best Achieved Indirectly”.

Lesson 1: The Principle of Obliquity: Goals are often best achieved without intending them

In obliquity there are no predictable connections between intentions and outcomes. Oblique problem solvers do not evaluate all available alternatives: they make successive choices from a narrow range of options.

Good decision makers are eclectic and tend to regard consistency as a mark of stubbornness, or ideological blindness, rather than a virtue.

For example, Boeing created the most commercially successful aircraft company, not through love of profit, but through love of planes. Their oblique approach to profitability delivered spectacular results.

But the oblique approach did not meet the approval of the executive who decreed the company’s previous preoccupation with meeting ‘technological challenges of supreme magnitude’ would have to change. Directness would displace obliquity, ‘We are going into a value based environment where unit cost, return on investment and shareholder return are the measures by which you’ll be judged”, they said.

Consequently, Boeing’s civil order book fell behind that of Airbus, the European consortium and competitor (Note: the aims of Airbus were not initially commercial but, by oblique chance, Europe’s champion became a profitable business).

What was the market’s verdict of Boeing’s strategy and performance in terms of unit cost, return on investment and shareholder return? Their stock value dropped significantly. Fortunately, Boeing took note and successive executives once again emphasised the civil aviation focus.

By 2008, Boeing had regained its leading position in commercial aviation from Airbus and the share price returned to its earlier value. Shareholder value was most effectively created when sought obliquely.

Lesson 2: Greed is NOT Good.

Even among Wall Street traders and investment bankers, regularly identified as exemplars of greed, bonuses come to matter as much for the kudos they confer as the cash they generate. Why else would they be so obsessed by the sums paid to their colleagues and competitors?

But the direct pursuit of wealth, whether as an end in itself or for the possessions it brings, tends to damage both the individuals and organisations that seek it.

The popular TV show “The Apprentice” encourages its participants to engage in self-interested displays that in most contexts – including most business contexts – are not only offensive but counter-productive. Good TV, but not oblique.

We all know the famous quote of Gordon Gekko, the anti-hero of Oliver Stone’s 1987 film Wall Street: ‘Greed is good.’

Gekko was partly based on Ivan Boesky, a notorious corporate raider of the 1980s, who Kay explains, was reported as telling a class at Columbia: ‘I want you to know that I think greed is healthy. You can be greedy and still feel good about yourself.’ Soon after, Boesky went to prison, convicted of insider trading.

Nearly all failures of the recent economic downturn have involved corporate and financial sector greed – Citigroup, RBS, Bear Stearns and Lehman. The common feature of every one of these companies is that very large amounts of money were made by individuals while the business itself ultimately failed. A corporate culture that extols greed is, in the end, unable to protect itself against its own employees.

The motives that make for success in business are oblique : commitment to, and passion for, business, which is not at all the same as love of money – a lesson that we need to learn.

Lesson 3: Muddling Through

We might set out a plan for ourselves, setting out how actions and goals contribute to our objectives. But often we do better to approach the issue obliquely.

In 1959, Charles Lindblom Sterling Professor of Political Science and Economics at Yale University described ‘The Science of “Muddling Through”’. He contrasted two modes of decision making. The root, rational, comprehensive method was direct and involved a single comprehensive evaluation of all options in the light of defined objectives. The oblique approach - ‘Muddling through’ - was a process of ‘initially building out from the current situation, step-by-step and by small degrees’.

Lindblom’s thesis was that practical decision making is oblique. Such an approach, he says, involves no distinction between means and ends and limits analysis paralysis by problem simplification and ignoring many alternative options. We’ve all experienced frustration and delay caused by countless meetings and committees over analysing “what-ifs”. The oblique approach is an answer.

Kay suggests Picasso, Sam Walton, Warren Buffett each ‘muddled through’, in Lindblom’s sense. None relied on a root analysis of defined objectives. Each improvised, constantly. Each pursued a combination of high-level objectives, intermediate goals and basic actions. Each drastically limited the alternatives that were reviewed and relied on successive limited comparison rather than a comprehensive evaluation of all available options.

The creation of a sustainable business – a high-level objective – calls for achieving a variety of intermediate goals – profitability, good products, motivated employees, customer satisfaction. In turn, these goals require a series of actions – cost reduction, pricing policies, product launches.

Lesson 4: Profit is an oblique benefit

Profit is a fact. Or is it? If you look at a corporate annual report, you will find several different measures of profit. Shareholder value and return on investment are not the same thing, and neither is the same as profit as defined by any standard.

The maximisation of profit is never an item on a boardroom agenda. Board members address the problem of inadequate performance, discuss new products, express concern about the human resources of the business or the disappointing reactions of customers.

The executive manager pursues higher level objectives obliquely, and if successful they secure the continued viability of the business by constantly balancing the wide ranging components of business success.

What made Henry Ford, Walt Disney or Steve Jobs great businessmen was that they modified the rules by which their success, and the success of others in their industry, were measured. They changed our appreciation of what is good and bad in personal transport, in children’s entertainment and in computing. They sold us products we had not imagined.

No one will be buried with the epitaph ‘He maximised profit’. Kay suggests the epitaph of men such as Henry Ford, Walt Disney or Steve Jobs should read instead: ‘He built a great business, which made money for shareholders, gave rewarding employment, and stimulated the development of suppliers and distributors by meeting customers’ needs which they had not known they had before these men developed products to satisfy them.’

Lesson 5: Abstraction and Closure

Kay tells us, “All real problems are incompletely and imperfectly specified, and to tackle them we have to try to close them in some way. Closure means deciding what to bring in and what to leave out.”

Ford – who invented mass production – and Disney – who reinvented the cartoon – closed the problems they faced rather well. Among hundreds of automobile engineers and entrepreneurs, Ford created the product and business model that would be the basis of the greatest new industry of the twentieth century.

Disney demonstrated how the entertainment of children, which had occupied talented adults for centuries, could be turned into a commercial activity of global reach. That is how these men built great businesses and became very rich.

Abstraction is the process of turning complex problems we cannot completely describe into simpler ones that we can. But choosing which simplification is appropriate requires judgement and experience. Our simplifications are often personal and subjective.

The London Underground map is instantly recognisable. A map that is widely, and justifiably, regarded as an inspired piece of graphic design. The map has been reprinted thousands of times and has guided millions of users successfully to their destinations. But as any Londoner will confirm, it doesn’t represent reality. Maps are by design, simplified representations of complexity.

The usual form of abstraction in business is the model. Like maps, models are selective simplifications with associated risk. There is risk derived from the assumptions of the model: the known unknown. There is risk about the appropriateness of the model as a description of the world: the unknown unknown. When new data arrives we always have the problem of whether to treat it as new data about the parameters of the model or new data about the relevance of the model.

Nassim Nicholas Taleb describes how people in business and finance are repeatedly ‘fooled by randomness’, inferring skill from runs of success although neither statistical analysis nor conversation with them reveals evidence of such skill. The mistake is to make inferences about the relationships between outcomes and processes when we cannot observe and do not understand the processes themselves.

Lesson 6: The Hedgehog and the Fox

In a famous essay, Isaiah Berlin adopted Tolstoy’s distinction between the hedgehog – who knows one big thing – and the fox – who knows many little things. Hedgehogs move slowly and directly, while foxes move quickly and obliquely. There are important roles for both kinds of attribute.

Although the foxes perform better in terms of the quality of their judgements, the hedgehogs perform better in terms of public acclaim. Hedgehogs are people who know the answers. Foxes know the limitations of their knowledge. Hedgehogs create headlines for journalists, and their confident certainties attract the attention of politicians and business leaders.

Yet explicit hedgehogs who claim to predict the future will always attract a larger audience than eclectic foxes who acknowledge they can’t, even if the larger audience learns nothing useful from the predictions.

Winston Churchill, the hedgehog, won his place in history by being presciently and ultimately triumphantly right about one big thing – perhaps the biggest thing of the twentieth century. But as historians will tell you, on other matters his judgement was poor, the causes he pursued to the point of failure misconceived: the ill-fated Gallipoli expedition of 1915, his support of the deposed Edward VIII in 1936 and his stubborn resistance to Indian independence being examples.

So how do you recognise obliquity? Are you a fox or a hedgehog? The direct decision maker perceives a direct connection between intentions and outcomes; the oblique decision maker believes that the intention is neither necessary nor sufficient to secure the outcome.

The direct problem solver reviews all possible outcomes; the oblique problem solver chooses from a much more limited set. The direct problem solver assembles all available information; the oblique decision maker recognises the limits of his or her knowledge.

The direct decision maker maximises his or her objectives; the oblique decision maker is continuously adaptive.

The direct problem solver can always find an explanation for his or her choices; the oblique problem solver sometimes just finds the right answer.