THOSE BUSINESS HUNCHES ARE MORE THAN BLIND FAITH (FORTUNE - APRIL 23, 1979)

• Document Type: CREST
• Collection: STARGATE
• Document Number (FOIA) /ESDN (CREST): CIA-RDP96-00788R001700210012-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: November 4, 2016
• Document Release Date: December 4, 1998
• Sequence Number: 12
• Publication Date: April 23, 1984
• Content Type: NSPR

GROWTH ROCKS
THE RECORD INDUSTRY
 Those Business. Hunches
Are More
Than Blind Faith
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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-
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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
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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
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