If you want to understand what a Cognitive Enterprise is, look no farther than the OODA loop.
OODA stands for:
- Observe: Look around you to see what’s going on that might affect you.
- Orient: Interpret what you observe, recognize how your own biases affect your interpretation, and determine the implications of your observations for your current situation.
- Decide: Choose the course of action that will give you maximum advantage … or that will put an opponent at maximum disadvantage.
- Act: Do whatever you decided to do, skillfully and without hesitation.
It’s a loop because every time you Act, you then Observe the result and take it from there.
The OODA loop differs from other negative-feedback-loop-based mechanisms popular in business circles … PDCA (Plan, Do, Check, Act) comes to mind … in that these other loops all have an inward focus. They’re about monitoring, stabilizing, and improving internal functions.
This is why OODA matters much more than PDCA when it comes to making an enterprise cognitive.
When businesses engage in PDCA or one of its equivalents, they’ve decided what they’re going to do for a living. Their customers can either adapt to it or take their business elsewhere.
When businesses make use of OODA loops, in contrast, in most cases they should first decide which competitor or competitors they want to beat. And in fact, when my colleagues and I engage a client at the strategy level, this is often our first order of business: Choosing the right competitor. Once that’s done, it’s OODA all the way.
To understand why choosing the right competitor matters so much, consider the sad case of Best Buy. Back in the early 2000s, it focused its competitive tactics on winning customers from Circuit City — a goal it succeeded at in spectacular fashion, driving Circuit City clean out of business.
Its success was the source of its failure: It was by choosing Circuit City as its competitor to beat that Best Buy turned itself into Amazon’s showroom.
OODA isn’t, by the way, limited to competitions — it’s useful in any situation where understanding your situation and acting to achieve a better one is a good way to go about things.
OODA is, when you get right down to it, a pretty good model for what it means to be cognitive. Whether a wolf, human or business, any entity that’s aware of its situation (it observes), understands it and its implications (orients), uses that understanding to choose a course of action (decides), and then actually does something about it (acts) can with considerable justice be said to think.
Which is why OODA has such strong ties to enterprise cognition. Or, to be accurate, vice versa. OODA came first, and strongly shaped our ideas about the need for enterprises to be more cognitive. OODA is a model for enterprise cognition; cognitive enterprises build their plans around OODA loops.
While OODA isn’t limited to competitive situations, in competitive situations OODA loops have a fascinating property: Whoever has the shorter loops generally wins. Why is this? The answer is a thing o’ beauty: whichever side acts first changes the situation of both competitors. This makes the other side’s observations, orientation and decisions obsolete, forcing it to start over.
To the side with faster loops, the slower side becomes completely predictable, while to the slower side, the faster side becomes completely unpredictable.
Understand, this doesn’t mean OODA is good and PDCA is bad. Not at all: When an entity acts, its actual actions should be as close to its intended actions as possible. PDCA and similar feedback-driven improvement mechanisms are what make this possible.
So PDCA isn’t inferior to OODA. It’s subordinate to OODA.
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Want more? Two colleagues and I authored a Dell white paper on the subject, “Winning with Digital Velocity.” It explores OODA in more depth, illustrating its possibilities using examples from Amazon, Apple, and ESPN.
You’ll find it here. And don’t worry about it having “Digital” in the title. While speed has particular significance for businesses engaging in so-called digital transformations, it’s just as important for businesses pursuing more traditional strategies.