The book “Built to Last,” by James Collins and Scott Porras explores trends of business approaches and strategies that have been historically undertaken by eighteen “highly visionary companies.” It discusses the “Tyranny of the OR” and describes it as a restrictive approach to decision-making that dictates a solitary choice between one of two seemingly contradictory strategies or outcomes — facilitating the necessary exclusion of the other. While frequently embraced by even billion-dollar corporations, this confining, restrictive approach is a tyrannical method of decision-making that can be avoided by individuals and companies alike.
It seems that the energy industry is struggling with this on almost all fronts, especially when it comes to engaging today’s energy customers.
The next time someone offers you or your management team a choice with the word “or” in it, stop and substitute the word “and” and see if it doesn’t indeed improve the choice. After all, why bet on one horse in a race? Why have only one power plant design in your portfolio?
And, for those of you with statistical training on portfolio management, remember that the advantage of portfolios ONLY exists when the members are negatively correlated to each other. They have to be contrary to offer risk envelope benefits. If they are positively correlated, you get no protection at all!
Portfolio theory is not something easily explained in a blog, but those of you familiar with it are all nodding your heads here in agreement.
You also might enjoy Jim Collins’ latest book as well … “Why the Mighty Fall.” Pretty chilling.