Solving Complex Problems

Tim begins by giving a brief summary of what "Adapt" is about.

Tim Harford: Well, it’s a book about how complex problems are solved, whether they are business problems or social problems, whether we are talking about war in Iraq or climate change, promoting new technology or more everyday things. I interviewed a lot of people for the book. I spoke to serving officers in Iraq, I spoke to scientists, I spoke to would be astronauts, poker players and the same ideas kept coming up again and again. And the basic idea here is, the world is an extremely complex place. That sounds obvious, but we underestimate quite how complex it is and we overestimate our ability to just think really hard and be smart and just fix problems from a desk effectively. If you get a smart enough person with enough resources, they will be able to figure out a solution.

And the argument in the book is that’s never how these problems are solved. They are always solved through trial and error, which is a tremendously powerful problem-solving device. However, we are not very comfortable with trial and error. We don’t like it as voters. We don’t like our politicians to use it. It is awkward to use it in the hierarchy in business. We are uncomfortable with the risk of failure in everyday life. And so, while a lot of people will say, the basic message, try things out, fail faster, learn from your mistakes, it turns out that this advice is actually very difficult to take.

Female interviewer: And thinking more specifically, what are some of the key issues that you seek to address in the book?

Tim Harford: So, let’s start with the war in Iraq. The reason that that interested me was because this was a case study of an organisation that was failing with really tragic consequences. It had absolutely the wrong strategy and we can argue that they should never have been in Iraq in the first place, but leaving that aside, given the situation they were in, they were using totally the wrong strategy. And it was a perfect case study in top-down failure.

And what happened in Iraq was not the story that we seem to accept, which was well we just replaced the bad leaders with good leaders and the good leaders, who are General David Petraeus, fixed the problem. That’s not what happened.

What happened was, some very brave colonels and majors, much further down the hierarchy, on the ground, saw what was going wrong, experimented with their own approaches, communicated with each other about what was working and what wasn’t working. And basically, at tremendous risk to their own careers, waged, sort of, insurgency inside the US Army. And David Petraeus’ great strength was that he was aware of this insurgency going on, he was aware of these ideas, he supported them, he campaigned for them, he helped them spread, so at the point where he actually took over and had formal authority, he had already through informal channels really helped this strategic change to take place.

So that’s one example and that’s a, sort of, case study of organisational change. How an organisation changes when it makes mistakes.

Another example in the book, I look at how we support innovations that really matter. I argue, well we are very good at .com style innovations, very good at small innovations, twitter, Google, the kind of thing you can create in a student dorm room and then grow. We are not so good at experimenting when serious amounts of money are at stake. So clean energy. We have not really made enough progress there.

I flew to America for a book tour a couple of weeks ago. I flew on a plane that had been designed in the late 1960s. I mean, this is not a lot of progress. We were promised an HIV Aids vaccine in 1984. It was going to take a couple of years. It is late. So, I talk about how we can harness the forces of trial and error to innovate more successfully. And there are many other examples in the book.

Female interviewer: And Tim, can you give me a flavour of how the new book really moves on from your previous titles "The Undercover Economist" and "The Logic of Life"?

Tim Harford: It felt very different to write. So "The Undercover Economist" was basically me just blurting out all the cool economics I could think of. I hardly read anything. I hardly spoke to anybody about the book. It was just I had all these economic ideas and we had encountered them in everyday life and I just wanted to communicate them. And I think people absolutely responded to the, almost, the naivety of that.

"The Logic of Life" was a book where I said, ‘Okay, I want to explain how economists think about non-economic subjects.’ So there I was reading a lot of research papers and I was trying to convey all the interesting ideas on anything from racial discrimination to marriage or dating, you know, what have economists got to say about this? That was a book written from the point of view of an economist.

"Adapt" is a book written in a different way. I started with the problems and then said, ‘Well, what is it that we have got that can solve these problems?’ So start by looking at wars, start by looking at climate change, start by looking at innovation, the financial crisis. And rather than saying, ‘What has economics got to say?’, start with the problem and see, you know, whether the solution lies in economics or the solution lies in psychology or engineering or maybe everyday common sense. So it is a book that was written in a totally different way and actually I loved writing the book; I learnt so much while I was doing it.

Female interviewer: I wanted to go back to the beginning of the book because it begins with quite an interesting story about a student who tries very hard to build his own toaster from scratch and I wondered if you could tell me about the relevance of this to the rest of the book as a whole and the kind of lessons that can be drawn from this experiment?

Tim Harford: So, yes this guy is called Thomas Thwaites and his project was, he was going to build a toaster to rival the awesome might of a toaster he bought at Argos for £3.99 and his vision was, you know, just by himself he was going to build a toaster from raw material. So he took apart the Argos toaster to see how it worked. He discovered it contained over 400 different components andsub-components, many, many different materials because there was plastic, copper, nickel, iron, mica which is a slate-like material you wrap the heating element around. It’s a tremendously sophisticated object.

And Thwaites went through all these adventures and, you know, he tried to persuade BT to finance an oil rig so he could get oil and turn it into plastic, he tried to smelt iron in a microwave, he made plastic from potato starch, and it got eaten by snails. I mean he had all these adventures and disasters and, in the end, produced this object that looks like, you know, the most drunk pastry chef in the world made a cake in the shape of a toaster. I mean, it was just a ridiculous object, which of course didn’t work.

And the point is, this, you know, this toaster is this miraculous object. We can get one so cheaply, so simply, and it’s produced by this incredibly sophisticated economy and if you try and replicate what that economy did, you will fail. And it is not just the toaster; there are probably ten billion products and services in the British economy, by which I mean if you sort of tried to check them all through one cash till, you would need ten billion distinct bar codes to distinguish one from another. So, this is an economy that is tremendously sophisticated.

Now if I was the naïve me of five years ago writing "Undercover Economist" had just left it at that and said, ’Isn’t it amazing the market is an incredibly sophisticated system that produces great things?’ I wasn’t willing to leave it at that with Adapt because while that’s true, you then say to yourself, ‘Well, okay, great, so the market produces these amazing things, is the world perfect?’ No, of course the world isn’t perfect. Do we have big problems? Well, yes we do. We have got the financial crisis, innovation slow down, climate change. We have got lots of problems. Okay, fine, well, if you want to solve these problems you need to interfere with that system. And that system is tremendously complicated, tremendously sophisticated and we don’t really understand how it works. So the toaster is not just a symbol of how sophisticated the market economy is, it is also a symbol of the obstacles that lie in wait for people who want to change things and make them better.

So that was how the book started. And I go on to explain how the toaster and other products in the market are actually developed by trial and error. It’s not the brilliance of business people. It’s not the power of the profit motive. It’s trial and error, not so much of ideas, you know, you set up a stuffed puppy shop and it turns out people don’t want to buy stuffed puppies, so you go out of business and that frees up the staff and it frees up the capital, it frees up the, you know, the shop front for somebody with a better business idea. So there is this constant process of trial and error in markets and that’s where the argument of the book goes to say, well other institutions that are trying to solve our other problems, they should learn that this trial and error process is very, very powerful, very effective. I am not saying we should just privatise everything and the market should take over everywhere, but I am saying, let’s learn from this effective trial and error process and try and put it into our political institutions.

Female interviewer: Now, as I think you touched upon earlier Tim, you draw upon the war in Iraq to really illustrate how top down leadership and the refusal by some quite senior military personnel to listen to views and feedback from the ground, resulted in some quite significant problems and unfortunately tragic consequences as well, and I wondered if you could tell me more about this and perhaps how the lessons learned in Iraq can be really applied more widely?

Tim Harford: Well, I have described how there was this internal rebellion in the US Army, so I have described the bottom up process. These were very, very brave men, taking risks not only with their lives and the lives of their men, but also risks to their careers, profound risks to their careers, and they did suffer consequences as a result. One of them, H R McMaster, who is really the hero of this chapter in the book, was repeatedly passed over for promotion, told he was out of line, denied reinforcements, despite the fact that he was basically single-handedly reinventing US strategy in Iraq and turning it from a failure into a success.

So one of the lessons is that pioneers need to be very brave, need to be very stubborn. Actually every chapter in the book has its own hero, whether it’s a Scottish epidemiologist or an Italian biochemical researcher, these are really brave people taking risks on behalf of the rest of us.

That’s one lesson. It is also interesting to look at what was going on at the top of the US Military. Donald Rumsfeld at the time was ruthlessly suppressing dissent. He refused even to allow his senior military officers to use the word ‘insurgency’ to describe an insurgency. So you were not even allowed to describe the problem that you are facing. And I think that’s a particularly extreme example.

But it turns out that this is a big problem. Look at John F Kennedy’s difficulties with the Bay of Pigs, which was a total fiasco and you’ve studied the research on the decision-making process there. Kennedy thought he was encouraging discussion and healthy disagreement but in fact there was no, there was discussion but there was no real disagreement. And it is not enough just to ask people to tell you what they think, you really need to try quite hard to foster dissent and later on Kennedy will break up his decision-making teams and force them to confer separately in smaller sub-groups, come and report back, actually he would bring in external experts with a brief to specifically disagree with people. And it turns out that’s tremendously important. If you are going to make robust decisions, you need a robust discussion and you need dissent.

I discussed some of the psychological research, absolutely fascinating. Research by Solomon Asch was so famous where Solomon Asch, the psychologist, demonstrates that he can basically get people to say things they are pretty sure are not true simply because everybody else in the room is saying that the untrue thing, he has got a bunch of actors, they are all saying something that’s not true and the last guy agrees with them. And one of the fascinating things about the Solomon Asch experiment is, if one of the actors is a dissenter and one of the actors disagrees with everybody else, the person who is being experimented on is also willing to disagree. And this was absolutely missing in decision-making processes both in Vietnam and in Iraq.

Female interviewer: In the book you argue that we need to become much more experimental rather than relying on a kind of, fixed plan of action or strategy. Now, our audience is primarily leaders and senior managers in organisations, and I wondered if you could offer them some practical advice to help them really become more experimental and maybe move away from top down traditional leadership towards more, kind of, trial and error processes to improve their organisation’s performance?

Tim Harford: Sure. Absolutely. And of course, you know, we can’t all be Google. I mean, Google can throw out 80% of its products and call them failures and stick with the 20%. It’s in a very special situation. So, you know, different degrees of experimentation will suit different companies. A nuclear power operator should not be experimenting on a regular basis and in fact I discuss nuclear power in the book as a proxy for finance. So, you know, it is going to vary from organisation to organisation.

But the general principle, I think you can break it down into three things.

One is, you need to try a lot of stuff. If you are branching out, you’re trying these things, a lot of them are going to fail. So you need to try lots of different things.

The second thing is, these need to be small experiments where a failure is not going to finish off your business. We have a tendency when we take a risk often to make it a big risk. We, sort of, make a full commitment. You know, we quit our jobs and leave our partner and, you know, move to a different city all at once. You know, everything sort of changes at once. And the psychological research shows, we are disproportionately afraid even of quite small risks and we need to relax a bit about small risks and take small risks, you know, with a possible big upside.

So number one, take a lot of experiments, try a lot of new things. Number two: make sure the new things won’t finish off your business. And number three, make sure you have some process for deciding what’s working and what’s not, which of these experiments are actually working out. One of the problems in finance is people were being rewarded for taking risks on the presumption that the risks would eventually prove to be successful and later they turned out to be failures, so it was like being paid by the bookie before the race has been run. So very bizarre.

So, those are the three things. Try new things. Make sure the new things are, the new experiments are small and make sure you know what is working and what’s not.

Now how an individual business manages that is going to vary from business to business, but it is clearly partly about encouraging a culture of experimentation, explaining to more junior staff it is okay if they try new things out as long as they have got a proper case for why they tried it and, you know, why they thought there was a possible upside, and not punishing people for failures which I think you could call good failures or constructive failures. It is partly about creating that sort of management culture.

And it is also partly about creating this culture of honest feedback because if something is tried and it is not working, that can kill your business if the people feel they have to, you know, cover that up and put more and more money behind it and hide failure from you at the top. You know, people have got to be able to say, ‘Yes, we tried it, it was a good idea, it turns out it hasn’t worked, we need to kill it now.’ So you need to have that open communication. And again, that’s partly a question of management style.

Female interviewer: That’s great advice. Thank you. Now the strapline of the book is ‘Why Success Always Starts with Failure’ and I wondered if you could perhaps pick out a couple of examples that highlight some really inspiring leaders from the business world who have had major failures but who have yet managed to reverse the fortunes of their organisations despite this?

Tim Harford: One person who immediately springs to mind is Sir Richard Branson, and what’s interesting about Branson is that he, you remember a moment ago I talked about these three systems, you need to try lots of things, they need to be experiments that will not ruin your business and you need this open line of communication. So, Branson, very self-consciously, when he has a new business idea, designs it so that failure is acceptable. So, when he set up Virgin Cola to take on Coca Cola, he failed. I mean, I think Virgin Cola still exists, but he basically failed, and he will admit that he failed. The point was the business was structured so Virgin Cola stood alone, didn’t bring down Virgin Records, didn’t bring down Virgin Megastores, Virgin Trains, it was a stand alone business, with its own managers who had quite a lot of autonomy and when it, you know, when it failed, they pulled the plug and said, ‘It was worth a try, if we have managed to, you know, take a chunk of the soft drink market, it would have been tremendously valuable, but okay fine, it failed, we close it down.’ The rest of the business moves on. And it is quite interesting when you talk to Branson’s lieutenants, most of them have a story of failure. Most of them will tell you, ‘Oh yes, well, I tried this, and it didn’t really work out and then I moved on to something else.’

Female interviewer: And thinking again about kind of what failure means, we live in an increasingly risk averse and failure averse society, yet you are, kind of, saying that we must embrace failure in order to adapt.

However, I think it is fair to say that people can often find it quite hard to admit when they have gone wrong and when they have failed at something and I wondered if you could perhaps outline for me some principles or some advice about how people can really try and embrace failure more positively?

Tim Harford: Sure. So, it is not easy. I mean, we discussed a moment ago the, sort of, three principles for failing productively, so try lots of things, make sure the things, you know, won’t finish you off if they fail, and make sure you are able to distinguish success from failure so you are able to cut off the failing experiments quickly before they drag you down.

But I think more broadly, it is worth understanding some of the psychological processes at work. So one very powerful process is what you might call loss chasing. So as part of writing the book I interviewed a bunch of world championship poker players, and they told me that the moment at the poker table when you are most vulnerable is immediately after a failure. If you have had, either you have had bad luck or you have made a bad decision. Either way you have lost a big bunch of money. The risk there is you do something which poker players call going on tilt and going on tilt basically means pouring more and more money in, taking more and more risks to try to win back what you wrongly perceive as, you know, being your money. Of course, it is not your money anymore. If it was just a, sort of, poker phenomenon, no big deal, but it turns out the same behaviour of stock market investors, it is basically chasing some costs. And it turns small failures into big ones. So we need to avoid loss chasing.

The second thing we need to avoid is denial. We are very, very good at denying that anything ever went wrong. There’s a great book called "Mistakes Were Made But Not by Me" on denial and cognitive dissonance and the title of the book pretty much sums it all up. We are great at, sort of, saying, ‘Well it was someone else’s problem, or it wasn’t really a mistake at all.’

So we need to deal with the loss chasing and the denial if we are to sort of recognise that, you know, actually we did make a mistake, we can learn from it and we can do things better in future.

Female interviewer: Thank you for listening to this interview with Tim Harford, author of "Adapt: Why Success Always Starts with Failure." To find out more about Tim and his work you can visit his website at timharford.com.