Creating Great Choices

by Jennifer Riel

  Cause-and-Effect Relationships

  Why are we so interested in exploring cause-and-effect forces when it comes to integrative thinking? In part, it is because understanding causation has predictive power; if you can see the causal forces in action, you can better predict outcomes when those forces are present. But thinking through causation also helps you explore alternative ways of producing outcomes. Thus, building causal diagrams of highly valued benefits can yield insights into potential new answers.

  We encourage teams to sketch the causal forces on paper. When our models of causality remain implicit, we tend to oversimplify the nature of the relationships we see in the world. Drawing a causal diagram can be a messy process, but it often helps groups align their views of what is happening in the system. For instance, a group of medical students in one of our courses decided to tackle the daunting challenge of treating patients who are both homeless and mentally ill. Their opposing models were (1) to lead with medical treatment, focusing on the disease as primary and considering all the other factors (the so-called social determinants of health) to be outside the scope of treatment or (2) to focus on the social determinants (in this case, housing) rather than on treatment of the illness itself. The second model made the group highly uncomfortable, but it forged ahead.

  An important moment of insight for the group came from the creation of a complex causal diagram of effective treatment, which highlighted issues of stigma, motivation, access, reliable income, stress, and independence. The group came to focus on stability as a key leverage point, both socially and medically. They asked, How might we design a system that provides stability both in treatment (which often can be haphazard and acute) and in social support (which can be bureaucratic and complex)? Creating a causal map shifted their thinking about the role of physicians in the broader health-care system in a way that we believe will serve them well now that they have graduated from medical school.

  Try This

  Still working on your own challenge, ask yourself, What are the most important benefits, and how are they produced now? Build a causal model of at least one critical benefit. Then consider how you might intervene in the system to produce a different outcome or to produce the same outcome in a different way.

  TAKING A STEP BACK

  When you’re examining models, it is easy to transition to problem solving. Don’t do this too quickly, or you will short-circuit the questioning of your thinking that is essential to the process. If new answers start to appear, note them, but don’t abandon your exploration of tensions, assumptions, and causality too early. Give yourself time to examine your thinking. Then, before you shift explicitly to the next phase, pause to reconsider the problem you’re trying to solve.

  Returning to the problem at this stage can do two helpful things.

  It can help you ground the rest of the discussion in the problem space, making sure that the group isn’t brainstorming for generally good ideas but rather for answers to a specific problem. Remember for the film festival, it wasn’t a matter of being a better film festival generally; it was about being a more sustainable one.

  It can be an opportunity to reframe the problem based on new thinking. Often, this reframing is a refinement of the original problem (from “How might we make TIFF more sustainable?” to “How might we use inclusivity to get the buzz that will make us sustainable?”). In other cases, the reframing can be a more dramatic shift, when you discover that the problem you thought you were solving is less meaningful or important than one you’ve discovered by examining the models. If that is the case, you may need to go back through the process with different opposing models. Don’t get discouraged if that happens. Often, a significant reframe is the key to creating a truly great answer.

  The most powerful reframing of a problem we’ve encountered came from a group of high school students. The students were consulting to a local food bank that shared space in their school. The problem as presented to the students was how best to structure the operations of the organization. With very little in the way of room and resources, the staff of the food bank were inclined to organize and distribute the food in the manner that was most efficient in time and space. But the staff had gotten requests from users of the food bank that suggested a different approach. Customers wanted a structure that would take more time and space but would allow the customers to shop according to their needs (for instance, by creating sections for halal, kosher, or vegetarian foods).

  The students struggled when it came to articulating what they valued about the two models. For the existing, efficient model, the students so empathized with the staff that it was easy to fall in love and to value everything about efficiency; they could easily see why it was important to maximize resources and minimize waste. In fact, the group struggled to imagine how the food bank could meet the requests of its patrons even if it wanted to do so; there was only so much space and time available, after all.

  The group spent several classes grappling with the question of what it most valued from the “organize the food bank as the users want it” model. The more they examined the model, the less they valued it. The user-led model didn’t seem attractive to them at all; they couldn’t see how it would be terribly beneficial even for those users who were most strongly advocating for the change. In the students’ minds, the user-led model had the potential to make using the food bank harder and more expensive. The group was pretty much ready to choose the food bank’s existing efficiency model and call it a day.

  The turning point came when one of the students, Collin, told a story of going to a food bank with his own mom when they had moved to Canada. He remembered how ashamed she had seemed to him. Normally, she was proud, strong, fearless. At the food bank, though, she kept her head down and did not make eye contact with anyone.

  As he told the story, Collin’s group fell silent, pondering. Then one of his teammates piped up: “What if it is really about dignity?” She went on to expand on the idea: maybe the users wanted a different way to organize the food because it was a way to demonstrate that they, the users, mattered and were people worthy of respect. What if the problem to be solved was, How might we best provide efficient service while helping our clients retain their dignity? That, the group agreed, was their new problem worth solving. It was their final step in examining the models, and this reframing set them up to generate a slew of new possibilities for the food bank and its users.

  The questions and steps in examining the models are not meant to be a checklist. It is not about going through each question, one by one, so that you can tick a box. Rather, the questions are intended to spur conversation and challenge your thinking. If the first stage of the integrative thinking process is about capturing your thinking, then the second stage is about questioning it. Both are metacognitive tasks, but it is in this second stage that you truly lay the groundwork for the creative task that follows: finding a superior integrative solution to the tension between your existing models.

  It isn’t likely that every question in this stage will produce a blinding insight, but each is designed to help you and your team dive deeper into the models and understand how you think about them. Each aims to help you push past your existing biases about the way the world is, and into considering the way the world could be.

  TEMPLATES

  Figure 6-5 gives you a template to guide you in exploring the similarities, differences, and most-valued benefits of your models. Figure 6-6 is a template you can use to delineate the tensions between your models. Figure 6-7 is a template that covers the core assumptions of each model. Finally, figure 6-8 is a template for reflecting on and depicting critical causal relationships.

  Figure 6-5. Template: Similarities, Differences, and What You Value Most

  Figure 6-6. Template: Tensions

  Figure 6-7. Template: Assumptions

  Figure 6-8. Template: Causal Relationships

  Chapter 7

  Generating Possibilities

  You can’t use u
p creativity. The more you use, the more you have. It is our shame and our loss when we discourage people from being creative. Too often creativity is smothered rather than nurtured. There has to be a climate in which new ways of thinking, perceiving, questioning are encouraged.

  —MAYA ANGELOU

  It’s hard to find many individuals who have had a greater impact on the way the world invests than Jack Bogle. Founder and former CEO of The Vanguard Group, an investment firm with more than $3.5 trillion in assets under management, Bogle dramatically changed his industry. He brought a new focus on costs to an industry obsessed with returns. He introduced the first index fund. He pioneered the no-load mutual fund. He was named by Fortune one of four investment giants of the twentieth century (along with Warren Buffett, Peter Lynch, and George Soros).

  But before all that, Bogle was fired.

  While still in his thirties, he had become the head of Wellington Management Company, which was then a leader in the business of managing and selling balanced mutual funds. These balanced funds, as their name suggests, had a broad portfolio of holdings, including largely conservative stocks and investment-grade bonds. When Bogle became CEO, Wellington Management was facing a crisis: with the emergence of more speculative (read: higher risk, higher return) equity funds, investors were losing their taste for stodgy, traditional balanced funds.

  Bogle recalled this time in an essay marking his sixty-fifth anniversary in the mutual fund industry: “We could only watch helplessly as the balanced fund share of industry sales fell from a high of 40% in 1955 to 17% in 1965 to 5% by 1970.”1 Pressured to embrace the “go-go” philosophy of the era, Bogle arranged a merger with Thorndike, Doran, Paine and Lewis, a small Boston firm. Bogle agreed to give his new partners the largest share of Wellington’s voting control in exchange for an aggressive equity fund. The idea was to build a broader, stronger foundation for growth. Bogle was named CEO of the combined firm.

  By 1974, the great bear market had taken its toll on the aggressive speculative funds. The go-go funds fell faster and further than the S&P 500, which itself was down almost 50 percent.2 Wellington Management was hit hard: assets fell from $2.6 billion to $1.4 billion, the stock price dropped from $50 per share in 1968 to less than $10 at the beginning of 1974. Finally, the aggressive money managers Bogle had brought into the firm had him fired as CEO of Wellington Management on January 23, 1974.

  By chance, Bogle had a meeting the next morning with the board of the Wellington funds. A complex organizational structure meant that management and oversight of the funds were separate from management and oversight of the management company. Bogle had been CEO of both Wellington Management and the Wellington funds. He had been fired from the management company. He remained, at least overnight, the CEO of the funds. Exhausted and more than a little angry, Bogle made a last-ditch effort to stay on as CEO of the Wellington funds. His initial proposal—that the funds acquire all of the mutual fund activities from the management company—proved a touch too radical for that day. But he was kept on as CEO of the Wellington funds and was able to convince the board to create a new subsidiary, owned by the funds and solely responsible for their administration.

  The subsidiary was directed not to engage in investment management, marketing, and distribution; Wellington Management would continue to perform those tasks. It was an absurd arrangement. “I was very honest with myself; there’s no point in starting an administrative company that doesn’t control investment management or distribution. Yet we had an understanding that I would not do either. But I figured we could work around that,” he says with a chuckle.3

  First, Bogle had to come to grips with his situation. He did not want to run a hamstrung, administration-only shell of a firm, and he knew he could not simply ignore the terms of the agreement to engage in traditional fund management. He needed a new solution, and part of reaching it was to address a fundamental tension he saw at the heart of the investment industry: a choice between operating on behalf of the management company’s shareholders (as most firms did, charging high fees regardless of return) and operating on behalf of the fund’s customers (which Peter Drucker had noted was the only appropriate reason for a company to exist). This tension is not unique to Bogle’s context; it is a tension that pervades the modern corporate world and that Roger wrote about at length in his 2011 book Fixing the Game.4

  Bogle had long loved the notion that the mutual fund customer should be the driving force of the industry. In his senior thesis as a Princeton undergraduate, he wrote that mutual funds should “serve their [customers] in the most efficient, honest and economical way possible.”5 But he recognized that in the prevailing construct, the mutual fund customer was often a pawn. The management company’s shareholders held all the power. Through the investment management and distribution fees it charged the fund, the management company earned a sizable portion of a fund’s investment return. The returns went to shareholders of the management company rather than to customers of the funds.

  In his new subsidiary, Bogle decided to double down on the customer model, making the customer more central than ever before. He did so by changing the structure of ownership. Rather than accept the prevailing structure of shareholders and customers, he used mutualization to turn his fund customers into the ultimate owners of his firm. (For those not familiar with the term, mutualization is a process by which a company previously owned by shareholders changes its legal form to become a mutual company or cooperative in which the majority of the stock is owned by customers.)

  Bogle mutualized his subsidiary and then stripped down the management apparatus and fees to ensure that he could maximize the total benefit to customers. He did so, he says, because “I’d been concerned about the industry structure for a long, long time . . . No man can serve two masters.” Bogle picked the master he wanted to serve—the fund customer—and created a structure that would allow him to do so.

  THE BIRTH OF THE INDEX FUND

  The key leverage point in Bogle’s solution, it turned out, was the index fund. Remember, Bogle’s new entity was prohibited from actually managing funds. Luckily, as he happily notes, “[An index] fund isn’t managed!” As you may know, an index fund holds stocks in the exact proportion of a major stock market index, most typically the broad-based S&P 500. If constructed properly, the index fund simply mimics how that part of the market performs, with no active management required. An index fund, Bogle says, would maximize value to the fund’s customers, because it could be run at a very low cost. It was, he says, “a problem of simple arithmetic: gross return minus cost equals net return.” An index fund could deliver great net returns.

  An index fund also had an important second advantage. Bogle explains: “I could see that the Achilles heel of the fund industry was having funds whose performance went way up and way down. And performance that varies a lot from the market wreaks havoc . . . Investors put money in when the fund is performing well, and they take it out when it’s performing ill. That’s the reason fund investors are so far behind even the inadequate investment returns earned by nearly all funds.” By trying to predict and time their investments to future fund outcomes, investors put themselves behind in terms of real returns. What an index fund provides, Bogle argues, is a focus on the long term, complete diversification, rock-bottom costs, and relative predictability, in a way that can enable significant risk mitigation and accumulation of wealth by investors.

  Index fund investors don’t have to fret about whether they’ve made the right choice of funds; all broad-market index funds track the market index. If the index fund is up, it is because the market is up, and not because the investor chose the right fund. If the index fund is down, it is because the market is down, and not because the investor chose the wrong fund. The prescription is to buy, hold, and wait, rather than shift from one managed fund to the next managed fund in search of the hottest manager and the greatest return.

  Bogle’s first index fund was greeted with shrugs in some quarters and l
oud protests in others. Some even called it un-American. Yet it has proven to be remarkably successful. By 2016, it was estimated that as much as 20 percent of total US investment dollars were in index funds of some form, and Bogle’s little subsidiary, which he called Vanguard, is now the world’s largest mutual fund company—all this, thanks to Bogle’s willingness to take a leap on a creative new solution to a particular challenge in his industry (and some fast thinking on the night he was fired). To Bogle, looking back, the integrative answer was obvious. “I’m not talking about anything but common sense,” he demurs. That may well be true, but as Voltaire pointed out, “Common sense is not so common.”

  THREE PATHWAYS TO RESOLVE TENSION

  Bogle’s approach to resolving the tension between prevailing models has much in common with the approach taken by Piers Handling at the Festival of Festivals. Each man used his rich understanding of the causal forces at play in his industry to think through a better answer, to integrate the model he loved with a key benefit of the opposing model. This, it turns out, is one of three pathways to integration that can help resolve the tension of opposing models.

  We worked out these three pathways in response to our own frustration. In the early days of teaching integrative thinking, after encouraging practitioners to articulate opposing models and then deeply examine them, we had little in the way of advice for the next stage. Although we had lots of general tips about brainstorming and setting up the conditions for creativity, when it came to the process of actually creating a superior answer, we didn’t have much to say. Mainly we told practitioners to think hard until they found an integrative answer. If this was unsatisfying to us, you can imagine how our students felt about it.