This is part of a series providing insights aimed at corporate strategists seeking competitive advantage through better and more accurate decision-making. The full series is available at our special section on Decision Intelligence. Members are also invited to discuss this topic at the OODA Member Forum on Slack.

This post reviews the mental models we recommend all business and government decision makers master, focused on those models which can help improve your ability to make decisions and drive optimal business outcomes.

Background:

Perhaps the most famous advocate for the study of mental models in business is Charlie Munger, the Vice Chairman of Berkshire Hathaway. He viewed mental models as mechanisms to enable the dismantling and solving of difficult problems. He suggested all business leaders be familiar with a “broad latticework of mental models” that can be selected from to allow new approaches to be applied to problems as needed. In speeches on the topic Munger frequently warned that leaders must know multiple models or risk failing disastrously.

Retired Air Force Colonel John Boyd was an early advocate for the study of mental models in competitive environments. In 1976 he published a paper titled Destruction and Creation which explored how to develop mental models for dynamic/chaotic environments. His later articulation of the OODA Loop flowed from this pioneering work on mental models and is further discussed below.

As a site and a community named as an homage to this model obviously it is a key one on our list. But as both Boyd and Munger would tell us, decision makers in competitive environments should be able to draw upon many models to ensure success. We also believe Boyd would have really appreciated the member feedback we received on an earlier version of this review which reminded us that another reason for leaders to be able to draw from multiple models is so adversaries have a harder time predicting what the leader will do. This also brings to mind the old admonition that “he who only has a hammer thinks everything is a nail”. This remains an important reminder to have multiple mental tools ready to apply.

What follows is a review of the top models we recommend modern leaders master.

 

Mental Models For Leadership In The Modern Age

OODA Loop:

• In competitive situations, decision-makers should act both smart and fast. The Observe-Orient-Decide-Act model takes this into account and emphasizes that operations should proceed at a tempo that is inside the adversary’s OODA Loop.
• Operating inside the adversary’s OODA Loop will improve chances of success because of the better faster decisions. This can also generate confusion and disorder among adversaries since their decision making cannot keep up. If this occurs they will be unable to gain the situational awareness needed to fuel their decisions.
• Boyd always emphasized the most important stage of the OODA Loop was the Orient phase, which includes rapid assessment of which cognitive processes should be used. This means any relevant cognitive model, including those below, is compatible with an OODA approach.
• The OODA Loop was founded on study of military history and operations, but relevant to most competitive business situations as well as operational cyber security.

HACKthink:

• HACKthink is applying the hacker’s mindset to solving complex problems or finding innovative solutions.
• Modes of HACKthink include seeing the landscape from a perspective of an adversary or competitor, time-shifting thinking to take a longer term approach, deferred thinking to mitigate the biases of time pressured decisions, chaos thinking to draw from unassociated domains to find solutions, and signal thinking, which focuses on the inputs that can best be consumed to inform decisions.

Black Swan Preparedness:

• Nassim Nicolas Taleb described Black Swans as unpredictable events that are beyond what is expected and have potentially severe consequences. As a mental model it serves to underscore that predicting unforeseeable events does not make sense, but they can be prepared for.
• Prepare by ensuring agile decision-making systems, not over optimizing, investing in resilience, retaining dry powder for future investments.

Avoiding Gray Rhinos:

• Michele Wucker introduced the term Gray Rhino to describe events we should all see coming but overlook because we don’t take them seriously enough. A Gray Rhino is a highly probable, high impact, yet neglected threat.
• Ignoring obvious threats is, unfortunately, part of human nature. Government policy makers and business leaders both need to put processes in place to mitigate this human bias to ignore certain dangers.

Ambiguity, Secrets, Mysteries and Scenario Planning:

• One of the key drivers of Boyd’s work on mental models including the OODA Loop was recognition that decision-makers in competitive environments must act even when faced with uncertainty and ambiguity. The OODA model can work at strategic levels but is not optimal for situations where there are no competitors or where it is impossible to know the situation, like in planning for the future.
• Since all methods of predicting the future are flawed, Scenario Planning is a model for considering multiple realistic potential futures and assessing the risks and opportunities of each scenario. This can lead to better positioning today for an uncertain future.

Strategic, Operational Tactical:

• US military and intelligence doctrine conceptualizes three levels of warfare, Strategic, Operational, and Tactical. All are related but planning actions for each occur over different timescales.
• Applying this Strategic, Operational and Tactical model to business decisions helps leaders and planners ensure proper preparation for long term growth by always keeping the strategic objective in mind and also ensures appropriate planning for day to day operations and an ability to support those engaged in tactical action.

System 1/System 2 Thinking:

• Research by psychologists Stanovich and West led to descriptions of two key ways of thinking they called System 1 and System 2.
• Daniel Kahneman later popularized these in his book Thinking Fast and Slow. Knowing which style of thinking is relevant to current challenges can help optimize approaches to the problem. Both have strengths to apply and weaknesses to mitigate.
• System 1 thinking is quick and intuitive and is best done by highly experienced practitioners. Optimizing System 1 thinking is possible but it is generally best gained from experience.
• System 2 thinking is more process oriented and is more aligned with deliberate analysis and deep thought. There is a wide range of analytical methods and models and logical assessment techniques that can be taught for system 2 thinking, the most important take away for the executive is that formal training for this type of analysis is available.

Mitigate Cognitive Bias:

• Cognitive Bias and the errors in judgment they produce are seen in every aspect of human decision-making, including in the business world.
• Leaders and organizations that have a better understanding of these cognitive biases can optimize decision making at all levels of the organization, leading to better performance in the market. Companies that ignore the impact these biases have on corporate decision-making put themselves at unnecessary risk.

Models for Mitigating Falsehoods:

• Even valid sources of information have strengths and weaknesses that need to be understood.
• Mitigating Falsehoods is the age of social media and hostile malign influence operations is harder than ever
• But models exist for assessing validity of information and they can be learned and taught and improve decision-making

Finite and Infinite Games:

• In 1986 James Carse introduced a new concept in game theory, describing two types of competitive situations, Finite Games and Infinite Games. Knowing which type of competition you are in is important to optimizing decisions for success.
• Finite games are bounded and have rules. Winners and losers will be known. Examples include individual business deals and anything else where there can be said to be a winner.
• Infinite games are not bounded in time, they seem to have no beginning or end. It may seem like at any one point you are ahead or behind but the game is never over and you must plan accordingly. Examples of infinite games are espionage, cyber operations, competitive business, geopolitics. Although wars are generally finite events, they take place within the infinite game of conflict.

Reasoning From First Principles:

• Reasoning from first principles is a method advocated by Aristotle, Richard Fynman, Charlie Munger and Elon Musk. It is perhaps the best way to reverse-engineer completed problems. The way Aristotle described a first principle was as the “first basis from which a thing is known.” Seeking first principles helps remove assumptions and then allows solutions to be built that address the true issue.
• Reasoning from first principles is also a good way to check why certain solutions are in place. Are they being done because they always have been done that way? Or because some authority said it and it is now assumed it is not to be questioned?
• Elon Musk captures his use of First Principles this way: “I think it is important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. We are doing this because it is like something else that was done or it is like what other people are doing. It is kind of mentaly easier to reason by analogy rather than by first principles. First principles are a kind of a physics way of looking at the world and what that really means is you boil things down to the most fundamental truths and say what are we sure is true and then reason up from there. That takes a lot more mental energy.”

Data As A Weapon:

• In business, like in war, data can be thought of as a weapon. This approach leads to more proactive decisions on how data is used.
• Broadly speaking, a weapon is anything that provides an advantage over an adversary. In this context, data must be defended and also used proactively.

Concluding Context

Now more than ever, executives should cultivate a deep and continuing understanding of actionable mental models. Doing so can improve an organization’s ability to compete and win.

Additional Resources:

A Practitioner’s View of Corporate Intelligence

Optimizing Corporate Intelligence

OODA On Corporate Intelligence In The New Age

Fine Tuning Your Falsehood Detector: Time to update the models you use to screen for deception, dishonesty, corruption, fraud and falsity

The best business leaders are good at spotting falsehoods. Some joke and say the have a “bullshit detector”, but that humorous description does not do service to the way great leaders detect falsehoods. Bullshit is easy to detect. You see it and smell it and if you step in it it is your own fault. In the modern world falsehoods are far more nuanced. Now more than ever, business and government leaders need to ensure their mental models for detecting falsehood are operating in peak condition. For more see: Fine Tuning Your Falsehood Detector: Time to update the models you use to screen for deception, dishonesty, corruption, fraud and falsity