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GROWTH ROCKS THE RECORD INDUSTRY Those Business. Hunches Are More Than Blind Faith Approved For Release 2003/09/10: CIA-RDP96-00788 R001700210012-9 Approved For Release 2003/09/10 : CIA-RDP96-00788R001700210012-9 Executives like David Mahoney and Ray Kroc aren't clairvoyants, but often they "see" ways to solve business problems that defy computer logic. The bottom-line results can be spectacular. by ROY ROWAN The feasibility study is a beauty. The cost inalysis looks right on the money. Even he sales projections, sometimes a little pie-in-the-sky, seem pretty solid. All the ingredients needed for a sound decision ;ay: "Go!" Yet this nagging voice from a mysterious echo chamber deep inside his brain keeps repeating: "No!" "Let's hold off on this one," announces the c.e.o. to his astonished subordinates. We've got enough on our plates for now." Lame excuses like that cannot disguise the fact that most of the chief executives who control the destinies of the biggest corporations are often guided by ill-de- fined gut feelings. The intuitive boss, of course, is a recurring figure in American business. J. P. Morgan (who was known to visit fortune-tellers) and, Cornelius Van- der' 't (who consulted clairvoyants and bHI'd in ghosts) took enormous pride ,o o ? i 'i,rnwnisly profitable hunches. So 0 ie~,csulary contemporaries, with- Jut ~ccking the counsel of mediums. Even today, when the empirical world, of busi- ness is practically paved over with M.B.A.'s who can figure the risk-reward ratio of any decision at the drop of a computer key, the old-fashioned hunch continues to be a managerial tool. When biology feeds back Society's current addiction to psychic advice is hardly what executives mean when they admit to following hunches. Biofeedback, for example, has proved help- ful in the healing process, but most busi- nessmen-and not. businessmen only -would consider it just short of sorcery. Yet a handful of scientists and academi- cians have came up with measurable proof that subconscious elements play a role in the decision-making process. They are con-. vinced that heeding a strong hunch may be a wise move, and even see a correlation between the boss's precognitive ~bility and his co parry's pro tta ility. In any case, th' -)oint out that. it isn't realistic for ex- eces to rely solely on logic to cope with the complexities of modern business. Hudson Institute. "My research is a com- bination of intuition and judgment. I don't know where it comes from. The mind sim- ply puts things together." Precisely how the mind puts things to- gether has never been adequately charted. If only we knew how the human brain con- stantly delves into the subconscious to re- trieve buried fragments of knowledge and experience, which it then instantaneously fuses with all the new information, we might better be able to define the hunch and assess its reliability. Are you fortune's darling? Nevertheless, we do know certain char- acteristics of the hunch. It concerns rela- tionships, involves simultaneous percep- tion of a whole system, and can draw a conclusion (not necessarily correct) with- out proceeding through logical intermedi- ary steps. As Max Gunther points out in The Luck Factor: "The facts on which the hunch is based are stored and processed on some level of awareness just below the conscious level. This is why the hunch comes with that peculiar feeling of almost- but-not-quire knowing." But Gunther, an author of books on human relations, also warns against disregarding those "odd lit- tle hunches that are trying to tell you what you don't want to hear. Never assume you are fortune's darling." Failure to maintain some degree of pessimism, he claims, is to be in a state of peril. There are other caveats that the wily manager should heed: never confuse hope with a hunch, and never regard a hunch as a substitute for first acquiring all known data (laziness usually produces lousy hunches). I-lowever, since management it- self is an inexact science-frequently de- fined as the "art of making decisions with insufficient information"-even the most deliberate c.e.o. may be forced to act pre- maturely on an inner impression. Possibly, then, it is in matters of timing that the business hunch is most critical, as Robert P. Jensen, chairman of General Ca- ble Corp., will testify. Last year, sensing the need for his company to diversify, he Research associate: Jane Coinlon Approved For tLl a~sf rt W C:lX-A 06 "6078SKa01 I Ut~ 1 iy;cic Vh five major c eci Broach these thoughts to a board chair- man or president, and you had better watch your language. To begin with, {lunch is an odious word to the professional man- ager. It's a stock-market plunger's term, rife with imprecision and unpredictability. Psychic and precognitive are just as bad, since they smack of the occult. Self-pro- claimed psychics pop up all over the place, insisting they can bend metal, project pho- tographic images, or remove diseased or- gans by using nothing more than intense mental concentration. The business leader understandably shrinks from the thought of being associated with such kooks. But suggest to this same executive that he might indeed possess certain intuitive powers, which could be of real assistance in generating ideas, choosing alternative courses of action, and picking people, and you'll elicit some interested responses: ^ "The chief executive officer is not sup- posed to say, 'I feel: He's supposed to say, 'I know,"' asserts David Mahoney, chair- man of Norton Simon. "So we deify the word instinct by calling it judgment. But any attempt to deny instinct is to deny identity. It's the most current thing. It's me -in everything from picking a wife to picking a company for acquisition." ^ "Intuition helps you read between .the lines," says John Fetzer, owner of the De- troit Tigers and chairman of Fetzer Broad- castingCo. "Or walk through an office, and intuition tells you if things are going well." A staunch believer in mind over matter, Fetzer explains that he woo never sug- gest to star pitcher Mark Fidrych that he stop talking aloud to the baseball and tell- ing it where to go. ^ "Ina business that depends entirely on people and not machinery," says Robert Bernstein, chairman of Random House, "only intuition can protect you against the most dangerous individual of all-the ar- ticulate incompetent. That's what frightens me about business schools. They train their students to souund wonderful. But it's nec- essary to find out if there's judgment be- hind the language." ^ "Physics is all hunches and intuition," admits Herman Kahn, a trained physicist- FORTUNE Arx03, 1n7') 111 Approved For Release 2003/09/10 : CIA-RDP96-00788R001700210012-9 y/ sions that involved $300 million in sell-offs and acquisitions. "On each decision," says Jensen, "the mathematical analysis only got me to the point where my intuition had to take over"-as was the case with the $106-million cash purchase of Automation Industries. General Cable's strategic-plan- ning department had come up with a pur- chase price based on Automation's future sales. "It's not that the numbers weren't ac- curate," Jensen recalls. '.'But were the un- derlying assumptions correct?" An engineer not given to precipitate de- cisions, he calls "patience" crucial to the in- tuitive process. "It's easy to step in and say I have a feeling we ought to do this or that. But then you haven't let your managers weigh in with their feelings first." At the same time, he warns that the perfectionist who keeps waiting for new information never gets anything done. :JuLtLtionis picking the right moment for making your >ove~ adds Jensen, who spent three years as a tight end for the Baltimore Colts. Reveling in "calculated chaos" There is, in fact, considerable evidence that the wholly analytical creature pictured at the corporate pinnacle is so much folk- lore. That, anyway, is the view of Profes- sor Henry Mintzberg of the McGill University Faculty of Management, who has been dissecting and writing about the executive animal for a dozen years. According to Mintzberg, the c.e.o. pays lip service to systematic long-range plan- ning, elaborate tables of organization, and reliance on computers and esoteric quan- titative techniques (more folklore). In re- ality he's a "holistic, intuitive thinker who revels in a climate of calculated chaos." Mintzberg portrays the c.e.o. as working at an unrelenting pace, jumping from top- ic to topic, disposing of items in ten min- utes or less, and "constantly relying on hunches to cope with problems far too complex for rational analysis." No criticism intended. The puckish thir- ty-nine-year-old professor has immense admiration for the c.e.o.'s innate sense of direction, which he claims is much more reliable than that of the analytical consul tant who is forever devising inflexible guidance systems for unmapped business terrain. "After all," says Mintzberg, "the intuitive Eskimo crosses the ice cap with- out a compass." The intuitive executive, he explains, solves problems in four interre- lated stages set forth in Gestalt psychology: preparation ("creativity favors the pre- pared mind"), incubation ("letting the sub- conscious do the work"), illumination ("waking up in the middle of the night and shouting, 'Eureka, I've got it!"'), and veri- fication ("then working it all out linearly"). In performing all of his tasks, the c.e.o. -as students of intuitive decision-making have noted-must know how to read a lot more than words. He assimilates gestures and moods, and thrives on head-to-head encounters with both colleagues and com- petitors. His own language suggests this hunger for sensory information. He wants to get the "big picture," the "feel of a sit- uation," and "hot gossip" and "cold facts." This ability to absorb all manner of in- formation stems from the fact that chief ex- ecutives seem to be "right-brain dominat- It was long known that the right hemisphere of the brain controls the left side of the body-and vice versa. Only re- cently, however, was it discovered that the two sides of the brain seem to specialize in different activities. Theft appears to haL 111L vilL to ical, linear, verbal The right takes care o t ie enl in- tuitive, s tial functions. sere ore; as in ........... baseball, a savvy boar of directors might pick an intuitive right-brained c.e.o. to pitch for the company: To confirm this application of the right- brain, left-brain theory to business, Rob- ert Doktor, a University of Hawaii business-school professor, wired up a number of c.e.o.'s to an electroencephalo- graph to find out which hemisphere they relied on most. The right hemispheres won hands (or should it be heads?) down. It was only a question of time before word of the right-brained boss would leak out and somebody would develop a market for the "soft information"-gossip, clues, insights, and other intangibles-on which the intuitive mind feeds. Infer-mation, as the Williams Inference Service of New York calls itself, now sells educated hunch- es ("disciplined intuition" is the term it uses) to companies such as Travelers and IU International. "Lead time is the most valuable thing a corporation can have," claims Bennett Goodspeed, marketing chief for Williams. "Yet by the time the numbers are in on any new trend, the change is obvious to ev- eryone." Williams combs hundreds of trade and technical journals for early, iso- lated clues that, when connected, may con- vey an "unintended message." But, as Goodspeed laments, corporations resist change. He points out that of six vacuum- tube manufacturers, only one had the fore- sight to switch to transistors. A masquerade of memories In today's unpredictable environment, it's hard to tell whether even the "best" hunches will work. A c.e.o. may come up with an ingenious concept that he can't sell -leaving him feeling as if he's suspended on a limb after the tree has fallen. Aware that universities were concerned about the "social content of their investments," Howard Stein, chairman of Dreyfus Corp., launched a special mutual fund in 1972 composed only of companies that strictly complied with environmental safeguards and fair-employment practices. "Ironical- ly, this Third Century Fund has outper- formed most others," reports Stein, "but the colleges called it a 'do-good attempt' and stuck to traditional investments." In addition, William F. May, chairman of American Can Co., warns that "you have to be alert not to let bad memories mas- querade as intuition." He cites his compa- ny's experience with the two-quart milk container, which failed miserably when it was first introduced in 1934. The compa- ny revived the idea in 1955 in the belief continued 112 FORTUNE AprilApiTeoved For Release 2003/09/10 : CIA-RDP96-00788R001700210012-9 Approved For Release 2003/09/10 : CIA-RDP96-00788R001700210012-9 that its time had come. "Our executives turned it down," says May ruefully. Today, American Can's competitors have two- quart containers in every dairy case. One area where the hunch player has re- peatedly scored is in figuring out the fickle American appetite. Confronted in 1960 with what his lawyer called a bad, deal -$2.7 million for the McDonald name -Ray Kroc says: "I closed my office door, cussed up and down, threw things out of the window, called my lawyer back, and said: 'Take it!' I felt in my funny bone it was a sure thing." Last year, system-wide sales of Kroc's hamburger. chain exceeded $4.5 billion. Precognition and profits This ability to decipher the telltale signs of the future puts an enormous premium on what the parapsychologists (ESP spe- cialists) call "precognition." Almost two decades of testing executives have uncov- ered a close link between a c.e.o.'s precog- nitive and profit-making abilities. In research conducted at the New Jersey In- stitute of Technology, engineer John Mi- halasky and parapsychologist E. Douglas Dean found that more than 80 percent of c.e.o.'s who had doubled their company's profits within a five-year period proved to have above-average precognitive Powers. (The executives had to predict a 100-digit number that would be randomly selected by a computer anywhere from two hours to two years later.) Mihalasky visualizes precognition as a flow of information particles moving for- ward and backward in time. He uses the stock-market crash of 1929 to illustrate his point. For "precognitive" investors, there was strong evidence that it was coming and that there would be violent repercus- sions afterward. "If something goes beyond the logic that we understand," cautions. Mihalasky, "we say forget it." In any case, "the biggest roadblock to intuitive decision-making is not having the guts to follow a good hunch." Although Mihalasky admits that the world is full of "psi-hitters" and "psi- missers," he offers certain recommenda- tions for inducing intuition: (1) Concen- trate on what is unique. (2) Be aware of the gaps in your knowledge. (3) Make con- nections between diverse factors. (4) Avoid becoming overloaded with information. While executives may hide the impor- tance of the hunch, nonbusiness leaders are not so reluctant to acknowledge their in- debtedness to it. Helen Gurley Brown con- fides that she uses "secret personal knowledge" in editing Cosmopolitan. "When I read a manuscript, even if it's not well written, only intuition can say this is truth, readers will like it. Or intuition may tell me that a piece by a Pulitzer prizewin- ner is a phony." Dr. Jonas Salk, discoverer of the polio vaccine, says: "Intuition is something we don't understand the biology of yet. But it is always with excitement that I wake up in the morning wondering what my intu- ition will toss up to me, like gifts from the sea. I work with it, and rely upon it. It's my partner." After tedious experiments seeking ways to immunize against polio, Salk made an intuitive leap to the correct vaccine. R. Buckminster Fuller, creator of the geodesic dome, says: "I call intuition cosmic fishing. You feel a nibble, then you've got to hook the fish." Too many peo- ple, he claims, get a hunch, then light up a cigarette. and forget about it. Artists, certainly, always assumed that creativity doesn't spring from a deductive assault on a problem. Yet there are instanc- es where a melding of the intuitive and de- ductive helped them produce magnificent results. From Leonardo da Vinci's pen came detailed drawings of the first flying machine. Both Robert Fulton, inventor of the steamboat, and Samuel Morse, inven- tor of the telegraph, started out life as art- ists. But intuition led them elsewhere. Today, it is an explorer back from outer space, Edgar Mitchell, who has turned into intuition's most fervent evangelist-and almost a mystic as well. A doctor of science from M.I.T., Navy captain, and the sixth man on the-moon, he believes that "man's potentialknowledlge is snore than the prod- uct of his five senses." Following that journey, Mitchell found- ed the Institute of Noetic Sciences (Greek for.ininifine kruuoiire') in California, and not. long ago became a director of two computer-software companies-Informa- tion Science in West Palm Beach and Fore- cast Systems in Provo, Utah. In all three endeavors, his aim is to help his fellow man-especially the businessman-devel- op intuitive decision-making powers to the point where, as he says, "they can control the scientific beast." Exploring inner space In preparing for a lunar flight, Mitchell explains, "we spent 10 percent of our time studying plans for the mission, and 90 per- cent of our time learning how to react intu- itively to all the 'what if's."' At Forecast Systems, Mitchell and his associates use this same approach to help clients identify potential problem areas. They interview managers, foremen, and workers to uncov- er their fears about all the things that might go wrong. "With a computer printout of the resulting 'fault tree' in front of him, a c.e.o. can almost smell those failures before they occur," says Mitchell, explaining "failure analysis," a space-age spinoff. However methodical, even scientific, Mitchell and other researchers may be, the explanations of intuition and its powers re- main elusive. All of the parts, added up, fall short of making a sum called the hunch. But the businessman like David Mahoney or Ray Kroc who has relied on an occa- sional hunch to solve an important busi- ness problem cares less about analyzing the phenomenon than seeing the results. Often, these can be spectacular. In the future it will probably be sparks thrown off by minds trained in still newer disciplines which produce the best hunch- es: Not that this amorphous, intuitive power will be any more measurable then. Of course, that is simply a hunch. U 114 FORTUNE April ApKoved For Release 2003/09/10 : CIA-RDP96-00788R001700210012-9