In this edition of Author Talks, McKinsey Global Publishing’s Jermey Matthews chats with Amar Bhidé, professor of health policy and management at Columbia University Medical Center and professor emeritus of Business at Tufts University, about his upcoming book, Uncertainty and Enterprise: Venturing Beyond the Known (Oxford University Press, December 2024).
Bhidé shares how uncertainty shapes business decisions and argues that contextual judgment remains crucial for entrepreneurship and innovation. He explains why successful ventures require leaders who can navigate uncertainty through narrative reasoning.
An edited version of the conversation follows, and you can also watch the full video at the end of this page.
How did your experience in consulting prepare you for a career in academia?
My McKinsey experience was profoundly formative. It shaped me in a number of ways, which I did not realize at the time. It shaped three elements: the kinds of problems I wanted to work on, how I worked on them, and how I communicated.
On the one hand, it made my academic journey an uphill struggle. On the other hand, the path took me to perches and overlooks that were different from where everyone else was headed.
McKinsey focused on problems of considerable importance to top management. At the time, they did not work on small technical issues, such as statistical or mathematical problems. Top-management challenges demand a type of reasoning that is suited to the contextual [big-picture issues], which I refer to as one-offs. You cannot apply statistics to obtain a cogent or a reasonable answer to a one-off challenge or to a unique situation. You must pay a great deal of attention to context.
Academics and the natural sciences are seeking general solutions and general explanations; they’re looking at how things work broadly. They prioritize quantitative statistical data above contextual data. The mode of communication tends to be statistical, and narrative mode is not the preferred method of communicating our findings.
Uncertainty is a mental state. It’s a condition of doubt about what is or could be.
How does this book build on your previous work?
My first book on entrepreneurship1 was a study of 100 entrepreneurs, in which I reviewed their stories in minute detail. Then I told their stories and interpreted them in narrative mode. There was some data, as well as some statistics, yet it was not a mathematical analysis. The numbers served as auxiliaries to my story of these entrepreneurs.
Uncertainty was at the forefront of my view of these issues. Modern economics and many of the other social sciences shy away from the kind of uncertainty that deals with one-offs, because it is not treatable statistically.
In another of my books, one on finance, I explicitly criticized financial systems that had lost track of context. I criticized those who did not look at individual borrowers based on what they individually could or could not do. Instead, the borrowers were treated as statistics. In some cases—as in deciding to extend credit, for example—this is an efficient way. But it can lead you astray.
This had serious systemic consequences, which I have pointed out in this book. Now, with greater perspective, I aim to highlight the method itself. My goal is to draw attention to what it means to take context seriously and to consider uncertainty, which I define quite simply as doubts about what is or what could be.
Frank Knight plays a central role in your book. Why have his ideas about uncertainty become a relic?
Frank Knight was quite eccentric. He wrote a book entitled Risk, Uncertainty, and Profit. In his book, he made a distinction between uncertainty and risk. He differentiated between uncertainty that arises in one-off situations—which, per his perspective, cannot be reduced to a statistical distribution—and risk, which can be defined and described as a statistical distribution.
He said, “Where you have risk, where what may happen can be described by a probability distribution, you cannot have profit.” That concept is an intuitively obvious account of what makes entrepreneurial ventures profitable or unprofitable.
Entrepreneurs are dealing with situations that cannot be reduced to statistics. In modern finance, you might call that “excess profit.” But he called it “profit” or “excess returns.” He went on to become the “father of Chicago economics,” the old Chicago economics.
I have simplified and modernized Knight. For example, I write, “Uncertainty is a mental state. It’s a condition of doubt about what is or could be.” An example of this is: “Do I have COVID, or do I have a cold?” Uncertainty can also cast doubt about what could be, where things haven’t happened yet, but could happen this way or in some other way.
There is a belief that routines are bad and bureaucracy is bad. But routines and bureaucracy of a certain sort are invaluable to the dynamic functioning of the large modern enterprise.
Reasonable people and organizations, when faced with one-off situations where they cannot calculate doubt, what do they do and what should they do? I use this framework to demonstrate that thinking about this problem leads you to see many possible outcomes that you would not ordinarily see if you put on your standard economics hat.
You see, for example, why there is a difference between large, well-established companies and small entrepreneurs. You also begin to understand the value of routines. There is a belief that routines are bad and bureaucracy is bad. But routines and bureaucracy of a certain sort are invaluable to the dynamic functioning of the large modern enterprise.
You also begin to see the value of imaginative discourse, because no one can undertake a venture on his or her own. You must secure the support of other people. I cannot prove to you [what is the right course of action] by statistics. But I could try to persuade you, through narrative-mode reasoning, that what I am proposing is plausible. And if plausible, it could lead to a better outcome than if you took a different course.
What is the link between uncertainty and judgment? How does judgment influence decision making in business?
Uncertainty can arise from various situations. Where there’s no clear answer, all you have is an inference to a plausible conclusion. But that’s not the only way you can proceed reasonably from the facts. By adding in some imagination and relying on analogies which you have relied on in the past, that whole combination one could call judgment.
Uncertainty is a prerequisite for the kind of judgment that I refer to in my book. Judgment, in turn, is an incredibly productive way for people in organizations to deal with uncertainty in a manner that is inspiring, inclusive, and builds collective commitment to a particular path of action.
What are the takeaways for company executives?
Primarily, pay attention to routines. Does the optimal design offer a decision-making routine that demands evidence but not so much evidence and proof that it is immobilizing? Finally, respect the role and value of imagination, as long as imagination is well-grounded in some reality or in some set of beliefs that have been exposed to a reasonable group of people.
Watch the full interview
