In June 2002 Roger Urwin and I were the first two colleagues in the newly formed Thinking Ahead Group, a small research and development team within Watson Wyatt’s investment consulting business. There is a real danger of a 20-year retrospective slipping into self-indulgence. I will try to avoid crossing that line but sailing close to the wind can often be fun.
From static to dynamic maps
As the team has moved through time it has gathered a number of phrases that brought and carried meaning. The earliest days were about ‘maps’ – representations of our understanding of the world and how the components connected to each other. We were keen students eager to expand our individual and collective maps. The phrase ‘here be dragons’ kept us humble by forcing an acknowledgement that there were vast stretches we knew nothing about.
The next phrase – ‘the interconnectedness of all things’ (from a Douglas Adams novel) – is still in occasional use and, in retrospect, can be seen as aiding our transition from static ‘maps’ to an understanding of the world as dynamic and evolving. We were introduced to the Santa Fe Institute, the birthplace of complexity science, in 2006 leading to the circulation of ‘complex adaptive systems ’ for a good while. We now talk of ‘systems thinking ’.
What can you learn in 20 years?
Given the above, we believe we know a good deal more about systems now than we did then. But it is also true that the more you know, the more you realise how much you do not know. Twenty years ago I believed I had a fighting chance of reading around 90% of the important material relating to institutional investment. Now my estimate would be closer to 1%. The rate of production of knowledge has grown exponentially. At best, my rate of acquisition of knowledge has grown linearly. In any event, the gap is now huge and widening.
This is interesting both conceptually and practically. How should an individual direct their own learning? And how should an organisation attempt to organise its expanding human capital? Our answers started with ‘T-shapedness’ (adding breadth of knowledge to deep knowledge in a narrow domain), embraced cognitive diversity, and now reside within ‘superteams’ and a deliberately-managed culture.
It is worth pausing here for a moment, because it is here that my biggest personal learnings lie.
- It really is all about the team. No matter how smart the individual, cognitive diversity allows the collective to be smarter than the components.
- It is about the team’s (and organisation’s) culture. Teams can and will operate sub-cultures, but there is a limit to how these can stray from the mother culture without causing problems. Culture can, and should be, managed, and it requires commonality of values. In Thinking Ahead we value curiosity (hopefully not a surprise!), caring and collaboration.
- Collaboration allows a team to fill out its T-shapedness, and collaboration between organisations allows things to get done that would be impossible if acting alone. I will also squeeze in a comment about multiple disciplines, although it also links to cognitive diversity. The different insights brought by different academic fields allow such a richer analysis, and can sometimes prompt looking for solutions in an unexpected place.
- Much of the soft stuff is actually the hard stuff. Yes, it is hard as in ‘difficult’, but it is also hard as in ‘foundational’. If we can get the soft stuff right, we create bedrock on which everything else can be built with confidence.
From these foundations, Thinking Ahead has been able to launch itself at some of the big, hairy issues. In many cases progress has been more about finding the best question to ask, rather than finding answers to the first question posed.
What can you produce in 20 years ?
Even a small team can produce a phenomenal amount in 20 years. Certain things can be quantified, such as the number of papers produced, thought pieces written, events held and so on.
But arguably the more important things cannot be quantified. Did any of that output have any material impact? To answer that question we decided to measure ourselves as best we could. Our approach was to create a ‘heatmap’, shown in our integrated reports. Each year we would add rows for any new topics we had worked on, and we would add a new column for the year just gone. Then, for each cell in that column we would assign a colour for the degree of impact we (believed we) had had – from very pale for insignificant, to bold and vibrant for very significant. This is, admittedly, highly subjective and so we committed to being fully transparent as to how we had graded ourselves.
As you would expect, new topics start with very pale colours. The hope is that the colour darkens with the passing of time – but not always. Little by little the heatmap builds, and after 20 years you could end up with around 40 rows (it depends on how you choose to separate out topics), some of which have only just appeared, while others have ‘long track records’. On average, for those topics which amount to anything, it takes around five years to go from initial thoughts to significance.
From our pre-Institute days we would claim the topics of absolute return, beliefs, diversity (of return drivers, as opposed to diversification), governance, risk budgeting and smart beta as all achieving a significant impact. Ironically, given its prominence today, the uptake of smart beta was an outlier on the slow side. We worked on the topic for eight years before we felt we could claim significant impact.
In our Institute form, we only have a seven-year track record, and here we would claim that two areas have reached significant impact – culture and leadership (in its sixth year), and sustainable investing (fifth year). A number of other topics are close, including beliefs (version 2!), climate investing, organisational effectiveness, purpose and value creation, systems thinking, and universal ownership.
Does tenure bring wisdom?
It is not for me, or us, to judge whether Thinking Ahead for 20 years can offer any wisdom to the world. We believe we were innately systems thinkers from the start, and we stuck at our craft for 20 years. It is reasonable to expect our understanding to be deeper now than it was. It seems fitting to close out with another team phrase – one that is only a matter of weeks old at the time of writing. The phrase is ‘heroic incrementalism’. There is much talk of transformational change – and we have talked of it ourselves – but arguably there is little delivery of it. When we started thinking ahead, the war on terror and the war in Afghanistan were a year old. This year we have seen war in Europe. Conflict appears to be a constant. In the past 20 years we have seen a global financial crisis, the Paris agreement, sustainable development goals, social crises (#metoo, the death of George Floyd etc), and multiple extreme weather records. The impacts of all these transformational events played out, and will continue to play out, incrementally over time.
The work of the Thinking Ahead Institute has adapted accordingly. We aimed in the first five years at changing the investment industry for the benefit of the end saver. As we entered our second five-year stretch, we reasoned that the best way to serve the end saver was to ensure their returns were sustainable. Our aim is therefore to mobilise capital for a sustainable tomorrow.
Securing that sustainable tomorrow implies that the work of Thinking Ahead is not done. Arguably, this is when the tools and lessons learned in the past are most valuable. It seems clear to us that a significant transition lies ahead. We will either transition the global economy to a net-zero carbon state, or we will fail to do so and the climate will transition instead. In reality, it is likely to be some combination of the two. It will involve navigating the surprises thrown up by multiple nested, and interacting, complex systems. This will not only require our best and most flexible thinking, but we will need to find new and innovative ways to implement it.
While it is tempting to wish for a transformational change given the urgency of the situation, I suggest the better approach is heroic incrementalism. We do today what we can, with the resources we have. And we commit to repeating that tomorrow. A lot can change in 20 years, if we are willing to stick at it – together.