Running a business is hard. To understand what’s going on and make effective decisions, you have to be able to wear many different hats, and take into account many different perspectives and types of information. Mental models can help to cut through the clutter and get to the heart of an issue.
Mental models are simplified models of reality that highlight specific aspects of that reality, and the relationships between them. Being deliberate in your use of mental models can be tremendously helpful in making sense of the world and making decisions.
These models can come from any area, and the domain of physics has proven to be a particularly robust source of generalizable concepts. Two such models are that of inertia and entropy.
In physics, inertia refers to an object’s resistance to outside forces. In business, inertia refers to an organization’s unwillingness or inability to adapt to changing circumstances. The larger the inertia, the more force it takes to effect change.
Entropy refers to the second law of thermodynamics, which states that closed systems tend to get more disorderly over time. In business, we see that poorly managed companies become less organized and less focused over time.
Inertia
Richard P. Rummelt, author of Good Strategy/Bad Strategy, identifies three types of inertia.
Inertia of routine
Inertia of routine sets in when a company has gotten too reliant on its routines. In essence, they’re doing something a particular way because “we’ve always done it this way”.
This form of inertia can be address relatively easily, as the only barriers are the perceptions of management. As soon as they realize that new routines are necessary, they can start redesigning internal processes or hiring new people to shake things up.
Cultural inertia
Culture can be a company’s greatest boon, but it can also be incredibly hard to redirect if it gets in the way of change. For example, consider the back-to-office movement. Companies have mostly faired well with WFH and hybrid policies, but many companies are showing a strong cultural pull to get butts back in seats, often to no clear benefit.
Cultural inertia is often deep-rooted, and Rumelt suggests the following four-step plan to address it:
First, take a page out of the Lean handbook and simplify your operations. This makes it easier to identify waste and inefficiencies.
Second, consider breaking up teams to separate bad elements
Third, perform triage on the resulting teams based on both performance and culture
Finally, with your teams in a healthier state, you may want to undo some of the fragmentation you used to break the inertia. You can do this by implementing a new set of coordinating mechanisms between the teams.
Inertia by proxy
Inertia by proxy happens when an organization chooses not to respond to changes in the market, because their existing revenue streams are still profitable. In other words, their customers are showing inertia, and they are simply following along.
This form of inertia is overcome when a company decides the new opportunity is attractive enough to sacrifice some of its existing revenue. If it’s a big company, they may even be able to quickly overtake first movers.
Entropy
Entropy is easy to see in companies, both in the long term and the short term. In the short term, consider the difference between the start of the quarter and the end of the quarter. At the start, everyone is full of energy and enthusiasm, ready to tackle the goals and targets for the quarter. At the end, often some targets have already fallen by the wayside, abandoned in favor of other, shinier pursuits, or simply buried under a never-ending stream of fires that had to be put out.
The same process plays out over the long term. Both structures and strategies slowly erode over time, being taken in increasingly different directions by well-intentioned people.
Entropy, then, is the reason that leaders have to keep a constant focus on maintaining an organization’s purpose, form and methods.
The best way to do this is to regularly review and revise your company’s core elements. For example, companies that use the EOS method do this at their quarterly and annual meetings. They go over everything from their mission, vision and values to their BHAG and target market definition, and more. This way they ensure that the most important things stay top-of-mind, and that everyone hews closely to the agreed upon goals, structures and processes.
Next steps
Here are some next steps you can take if you like what you’ve just read:
- Subscribe to my newsletter to get new essays just like this one straight in your inbox, every two weeks on Tuesday.
- Read Good Strategy/Bad Strategy by Richard Rumelt for a comprehensive look at what makes good strategy good, and bad strategy bad.
- Read Traction to learn more about EOS, and how you can use it in your own company.
- A lot of consulting work boils down to helping leaders undo some of the entropy that’s crept into their company to get things back on track. If you need some support to get started, I can help. Schedule an introductory meeting through my calendly page and let’s see if there’s a fit!