In its simplest form, ‘Occums Razor‘ is code for seeking the simplest explanation possible that fits all the facts. In Einstein’s words: “Everything should be made as simple as possible, but not simpler”
Development of Strategy is usually made overly complicated by all sorts of factors that should not really play a role, mostly to do with the status quo, sunk costs, emotional assessments of risk and reward, and the distortions our own psychology makes on what we see and understand.
Strategy is all about making choices about what you will do, and what you will not do, but it is not about the detail of how it will be done, and should always be based as far as possible on facts. Where facts are unavailable or ambiguous, as in new and fast developing markets, there is no substitute for experience and wisdom born of domain knowledge.
No strategy conversation should be immune to discussion of what others may do. You can choose what you do, but you cannot choose what others may do, independently, or perhaps as a result of what you do. This is game theory, and is important in developing your strategy, as no initiative is implemented in a vacuum. In its pure form, game theory is a mathematical set of relationships, used extensively in economic modelling, but in life responses are rarely just logical and predictable, which is why economic modelling is so often seen to be wide of the mark with the benefit of hindsight.
In building strategy, there is a third tool that is extremely useful, but most often ignored: Options theory. This emerged out of work done modelling financial markets, specifically derivative products in an effort to price them to maximise returns, and is now standard practise. In its simplest form, it means that you never take an action until you absolutely have to in order to move to the next step. In the vernacular, it is ‘keeping your options open’ a term we would all have used extensively without necessarily thinking about the implications.
To avoid too much unproductive complication, you can ‘Occum’ scenarios that have elements of both game theory and options theory in your strategy deliberations.
How do you make this mumbo Jumbo work for you?
- Use Occum’s razor to remove all the extraneous factors that are simply not significant to the outcomes. Break everything down into its simplest form. Einstein achieved this monumentally with E=MC2.
- Consider the implications of game theory. ‘When we do this… they will do that’. A word of warning here, it is very easy to see this in a tactical manner, and that would be the wrong thing to do, as it will give you an incomplete big picture.
- Apply Options theory to the steps you are modelling, considering the latest point at which you have to make a decision that determines the direction of later ones.
Do all three together in a collaborative and data rich series of conversations and you will emerge with a robust strategy, at least one that can be articulated simply, and implemented in logical sequence with known performance measures.
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