Figure 3-3. The four X-factors of strategic thinking.

      X-factor #2 – Insight. Columbus noticed the pattern of the prevailing winds (east to west off the coast of Africa), which stood in contrast to the westerlies that prevailed on Portugal’s coast. This insight became the basis of his strategic logic, providing a solution to the problem of sailing west and returning.

      Insights are the secret sauce of strategy.

      Insights are the secret sauce of strategy making; they’re a proprietary kind of information that strategists use to their advantage. As I develop a strategic-thinking narrative, I always look for insights and search for their origination. Much of the power of the Moneyball strategy comes from capturing and exploiting insights. I explain insights in more detail in Chapter 9 using the example of IBM’s transformation from a product-centric to a services-centric business.

      X-factor #3 – Chance. Imagine yourself in 1492 watching three small ships leave the harbor in Palos de la Frontera, Spain. You don’t expect to ever see or hear from Columbus again.

      Columbus earned his place in history due to a series of fortunate events, culminating in his excellent luck of bumping into a small island of the Bahamas. Other fortunate events include these: He survived a vicious pirate attack and shipwreck. He lived in the innovation hub of Lisbon. He married the daughter of a middle-class merchant with connections to the royal court. The King and Queen of Spain changed their minds about sponsoring him. Spain’s possession of the Canary Islands was good luck because the winds there are especially favorable for the westward voyage, compared to Portugal’s Madeira Islands and the Azores. He sailed through a dangerous stretch of water at the peak time for hurricane spawning. Had his luck been bad instead of good, another adventurer would have introduced the western hemisphere to Europe.*

      The presence of chance highlights a connection between Pillar III (organization of resources) and Pillar IV (success in the future). The better approach is to configure resources with the intention of favorably tilting the odds. Success is merely a possibility and is not guaranteed.

      Another confirmation of the importance of chance appears in the writing of the book Moneyball. Its author, Michael Lewis, originally planned to write a magazine article on the Oakland A’s. During his reporting Lewis observed a contentious meeting on drafting players. He saw a richness of content that convinced him to write a book rather than a magazine article. Paul DePodesta of the A’s, who was present at that meeting, recalled the meeting as atypical and one of the most drama-filled of his career. Had it been a typical meeting, Michael Lewis may not have written the book. Absent the book, Hollywood wouldn’t have made the movie. Without the film, there would have been little awareness of Moneyball in popular and business culture. We can extend the role of luck even further back. Michael Lewis became a best-selling author because of his talent but also because of his good luck. As a recent college graduate, he attended a dinner party. A woman struck up a conversation with him, asking about his plans. Lewis replied that he didn’t know. The woman promptly introduced Lewis to her husband, an executive in a Wall Street trading firm, and told him to hire Lewis. Lewis was placed on a trading desk, where he observed a fraudulent system at work. He wrote of his experiences, and it became the bestselling book Liar’s Poker.

      One of the first questions I ask in evaluating a strategic-thinking narrative is this: “What is the role of chance in this story? Did the strategy embrace the role of randomness and chance?”

      A theme emerges: history turns on small events that are random, unpredictable, and thus non-linear. The X-factor of chance reinforces this comment from Daniel Kahneman: “Luck plays a large role in every story of success; it is almost always easy to identify a small change in the story that would have turned a remarkable achievement into a mediocre outcome.”

      Chance plays a vital role in every strategy.

      There’s an interesting connection between the X-factor of chance with Pillar II of cognition. Most people tend to attribute their success to their talent. They recall their hard work, and they see that hard work as a cause of the success. That’s a simple and memorable story. The story is strengthened because the same person will overlook the times that she worked hard and failed. Similarly, her mind will neglect the times that she didn’t work hard but had good fortune. She remembers (easily) that hard work leads to success. It requires more mental energy to find counterexamples to the hard-work-leads-to-success narrative.

      It’s no secret and no surprise that managers are overconfident, and this overconfidence can be a reason for many disastrous strategies. People can easily believe themselves to be exceptional, can easily neglect the intentions of rivals, and can easily disregard chance events.

      X-factor #4 – Emergence. Emergence is “the arising of novel and coherent structures, patterns, and properties during the process of self-organization in complex systems.” Consider two examples of emergences associated with the opening of the Americas to Europe. The first is the eventual discovery of new food crops such as corn, cocoa, and potatoes. These new crops offered Europeans many new nutritional possibilities. The second is the introduction of European diseases and enslavement, which profoundly changed the aboriginal societies of the New World.

      You’ve probably heard the speculation that a tornado in North America could have been triggered by the flap of a butterfly’s wing in the Amazon rain forests. That flap established a small wind current, which was further amplified by other forces. The emergence (the tornado) is the result of causes and effects. It theoretically could be modeled.

      However, the occurrence of a tornado is unpredictable. Because a butterfly might spark the emergence of a tornado doesn’t mean that a butterfly has ever caused a tornado. Moreover, it doesn’t mean that a butterfly hasn’t indirectly caused a tornado.

      Those wing flaps are unnoticed weak signals. We can’t predict the emergence of a tornado (or any other given phenomenon). A strategic thinker is ready to notice the weak signals and accept the plausibility of discontinuity and disruption.

      To summarize, the four X-factors provide a guiding message for strategic thinking. You should emphasize:

      • Drive instead of complacency

      • Insight instead of intuition

      • Chance instead of certainty

      • Emergence instead of master planning

      Closing Thoughts: Historical Thinking and the Future

      You can identify a strategic-thinking narrative for any historical person or event and find useful lessons within that narrative. There are conventional accounts of what happened and why, but there are insights to be gathered from reexamining evidence to craft alternative narratives of cause and effect.

      A strategic thinker appreciates the value of historical thinking.

      This pattern is characteristic of a strategic-thinking narrative: a curious individual