nuance intelligence

I’ve had a 20-year love-hate relationship with McKinsey.  When I was in my late teens, before I knew much about business, I thought I really wanted to do this kind of high-level consulting.  Then I developed a heavy aversion to strategic corporate thinking, especially corporate consultants.  But there are still really smart people there, and they sometimes (often?) produce some good stuff.

Here’s an excerpt from an email I got from them today, which exemplifies the upside:

Special collection: The economics of bad decisions
Most economic theories assume that human beings understand their own interests and act rationally to promote them. But what if even executives making business decisions, which ought to be economically rational if anything is, fall victim to personal weaknesses such as overconfidence, the herd mentality, and false consensus? This special collection on behavioral economics explores the psychological dimensions of strategy.

Learning to let go: Making better exit decisions (Guest passed until July

http://e.mckinseyquarterly.com/W0RH018BFA3137169930C2B45535D0

May 2006

Distortions and deceptions in strategic decisions (Premium)

http://e.mckinseyquarterly.com/W0RH018BFA41B7169930C2B45535D0

February 2007

The human factor in strategic decisions

http://e.mckinseyquarterly.com/W0RH018BFA1077169930C2B45535D0

February 2006

Beating the odds in market entry (Premium)

http://e.mckinseyquarterly.com/W0RH018BFA6027169930C2B45535D0

November 2005

Hidden flaws in strategy (Guest passed until July

http://e.mckinseyquarterly.com/W0RH018BFA60B7169930C2B45535D0

May 2003

What’s the nuance?

Classical economic theory is flawed, which is not a problem in and of itself, but becomes a problem when people treat it as gospel.  McKinsey brings this to light with their collection, above.  Concepts like the ‘invisible hand‘ and ‘ceteris parabus‘ might make sense in the rare air of lofty ivory towers, but fall apart completely when they hit the cold hard ground of the real world.

Given that McKinsey, an organization with a more-than-passing relationship with The Man, is calling the rationality of the market into question simply highlights the disconnect between the classical theory so often trumpeted and the reality of emprical evidence.

If you’re looking for signs that the apocalypse is upon us, well, this oughta fit that view.  But since such perspectives are entirely relative to one’s own viewpoint, it’s not very meaningful.  More importantly, I think, is to take some time to reflect on what the evidence of today’s economy means, and how it informs your strategy moving forward.

I, for one, think the shift is a big one.  From the time we proved able to control fire until about 30-odd years ago, it appeared as though natural resources were infinite, and we planned our world around that belief, economics included.   Today, it’s become clear even to corporate execs with some very serious downside attached to the realization, that natural resources (including the trees’ natural ability to remove carbon dioxide from the air) are finite.

This shift informs much of the revaluation of the stock market, and of assets in general.  Some have made the necessary changes, while others are playing the last cards from their old hand.  Until our economic theory and financial mechanisms reassess the asset value of natural systems and resources, the economy will be uncertain and scary place for everyone from Main St. customers to Wall St. chieftains.