The optimal amount of framework wrongness
updated:
If you like systems thinking, you’ll probably have heard that the optimal amount of fraud is non-zero.Footnote 1Patrick McKenzie, “The optimal amount of fraud is non-zero” (opens in new tab) (archived Jul 2026). The argument is that at a certain point, the cost of eliminating the next dollar of fraud costs more than the dollar saved, and businesses naturally land here because they already internalize fraud loss.
Where else might the optimal amount of a bad thing be non-zero? Strategy frameworks look like a good candidate, but the way they actually operate is different from what you might expect.
Inverting frameworks
In a previous post I talked about the strategic value of interrogating the metaphors you live by to identify where they’re most distorted. My suggestion was to imagine the strengths, weaknesses, and conditions of possibility that arise from the logical inverse of your situation. Now I’d like to test this idea against management strategy itself, which is its own kind of metaphor and is therefore susceptible to lensing effects.
Let’s start with core competencies.As a framework this has largely been superseded, probably because it can only be applied retrospectively. But the term seems to have lived on in the popular imagination, so it’s fair game here. In “The Core Competence of the Corporation”, Prahalad and Hamel frame success as a coordination problem by asking what a firm does well uniquely, not necessarily within a business line but across lines. To the authors, competencies boil down to providing broad potential market access, contributing to perceived customer benefits, and being difficult to imitate.
This is the standard reading. But what if we flip this conception of the org on its head? Imagine an organization with literally no core competencies, proficient only in common, easily copied areas. Surely such a firm would utterly fail to differentiate itself. But there’s actually a trivial counterexample that interrupts the metaphor. Picture an organization that has access to no markets beyond its own and that is trivially easy to imitate. This sounds a lot like a public utility! Your energy utility does precisely one thing, is entirely uninterested in competing in other areas, isn’t directly downstream of most market incentives, and probably does things that most industry competitors could match on a technical and operational level.
You may protest the fairness of this point, since utilities exist due to statutory fiat, not because they’re necessarily any good at the job. But that causal logic is actually backwards: the mandate creates the need to provide a good enough service, and in this context even a mundane service is unintuitively valuable.It’s almost strictly better than the alternative, where you must drink exclusively bottled water, my love of Perrier notwithstanding. Your water utility serves you a plentiful resource in a completely imitable way, but the plenitude of water is precisely what makes it valuable to provide at cost and at scale.
You might also object that this inversion suggests only that entrepreneurs shouldn’t try to start a business that supplies a town with water. And that’s probably true!Maybe less so for my UK readers, but my cursory research suggests this is the only significant national exception to the broader rule. But again, our real point is that the inverse of a traditionally “successful” business can be consistent with success too — it just depends on how you define your market. And this illustrates the real underlying condition, that the core competency model rests on a shaky assumption about your boundary conditions. Success can be selected for by political factors, not just economic factors.
Flow asymmetry
So frameworks are a bounded metaphor for organizational success, but we shouldn’t exchange meaning between metaphor and analysis.If you do, your bank might resurrect a 2008-era value-at-risk model or your shoe company might start selling AI compute. This line of reasoning suggests that frameworks are unhelpful, or more charitably, that they’re overused in strategic contexts. But I’d like to argue in favour of suboptimal frameworks — or at least explain why they exist at your natural equilibrium point.
The obvious reason why you might want to use a bad framework analogizes McKenzie’s fraud case: better frameworks impose a coordination tax that could exceed the marginal increase in strategic value. Let’s take VRIO (opens in new tab): on some level it doesn’t matter that this framework produces “wrong” intuitions about utilities if you can’t agree with your colleagues about how to improve upon it. What parts of VRIO still work — can we just apply VIO, or is it RIO, or maybe one-half of each? If you need to write an HBR article just to figure out which fractions of a framework to use, then you’ve wasted everyone’s time. So agreeing on someone’s VRIO analysis — no matter how much we might privately question the framework’s fitness for purpose — saves us the tax by maximizing the surface area of our shared assumptions.
But this is only true to a first approximation.Not surprisingly, “vague is actually good” is a tough sell for a systems thinking blog. Early in law school, I questioned the value of adopting Driedger’s rule (opens in new tab) or the purposive interpretation approach on the basis that it papers over language that’s essentially contestable. And why would anyone prefer incrementalist, judge-made common law when the neatly mathematical and dispute-preempting civil law exists? To some extent, these objections are valid! While precision has a cost that my common-law-advocating readers may point to — maintaining a civil code requires heavy machinery”Pump station” may be a better descriptor given the section header. — it also confers significant benefits. And the cost of that precision is displaced onto two substantially resourced branches of government. This is a structurally neat solution because the population that would otherwise bear the cost of vague laws actually elects the legislature, which closes the accountability feedback loop.
Things are a bit worse in your organization. There are the coordination-tax costs to precision that we discussed above, sure. But more importantly there are costs to vagueness, and they’re systemically trickier to solve because of flow asymmetry. When strategists make a vaguely articulated decision, your operational teams scramble and your analysts write a post-hoc justification for the play. But the strategists don’t feel any of this; at their level, vague language retains optionality and can be reinterpreted without cost as consultancy,Whence many of the suboptimal management strategy frameworks we’ve been discussing. whereas a more precise framework provides no such direct benefit.There are certainly second-order benefits to clearly articulating your strategy à la civil code, but it’s unclear if they offset the loss of the first-order optionality that the vaguer strategy unlocks, at least in this scenario. But as we’ll see later, formalizing the second-order effects may be a better play. And unlike in the civil law, there’s no accountability loop to speak of, because an institution that bears the precision cost actually shifts it back onto those who set the framework. The suboptimal framework calcifies due to the asymmetry of cost and benefit flows; that’s unsurprising when you imagine the benefit flow trying to fight against gravity — of course the suboptimal-framework sediment accretes.
The catch is that both pressures we’ve discussed — between political and market effects in our utility example, and between precision and the cost of framework maintenance — encode the same accountability mechanism. Business framework developers don’t gain much by controlling for non-market-captured players because public choice theory is a separate domain, for better or worse. And a big-picture strategist doesn’t directly benefit by handing the analysts a more precise playbook. In both cases, the party who’s best placed to improve the framework isn’t accountable to the party who would benefit from the fix.Per Charles Frankel, a decision is only responsible if the decision-maker “answer[s] for it to those who are directly or indirectly affected by it”. That’s what doesn’t happen here. This is exactly the gamed counterweight problem that I wrote about, just in another field. In both cases we’re missing an arm’s-length institution with the right incentive structure to preempt path-dependence toward the bad-strategy equilibrium.
So if the framework owner pays the cost of imprecision, the optimum is zero. If they don’t, the optimum only looks that way. The systems fix has many names — call it foresight or environmental scanning or a strategy red team or a VSM S4Footnote 2Viable system model (opens in new tab) (archived May 2026). — but the name doesn’t matter as much as its placement and what it’s accountable for. Only relocating who pays for framework wrongness can shift the equilibrium toward zero.
Separation of flow powers
Nearly every org has internal audit and strategy and ombuds functions, but mere existence isn’t a free lunch, and indeed in our example the vagueness flows from the strategy group, so that doesn’t help with sufficiency. And what of independence? It helps document what’s happening without perceived bias, but despite what you may have heard about pens and swords, being independent doesn’t always reverse the cost–benefit flow in a way that gets us to zero strategy-wrongness.As I’ve suggested before, being arm’s-length is great, but not if you’re stuck in a 25-square-foot room, or if your arm’s stuck in the elevator door. Again necessary but not sufficient. Instead, the body we’re talking about needs actual cost-imposition power. But not too much! If you grant it excess authority, the costs of its decisions will in turn be borne asymmetrically by others, meaning we’ve just replicated the entire problem one level up. Even if this body’s decisions are strictly less bad than the original, we still have Kenneth Arrow’s problem: “if every decision of A is to be reviewed by B, then all we have really is a shift in the locus of authority from A to B and hence no solution to the original problem”.Footnote 3Kenneth Arrow, The Limits of Organization, 1974, p. 78.
This all sounds like a terribly complicated balancing act, but really we’ve just reinvented a corporate-strategy separation of powers. As I mentioned above, one reason the civil code neatly checks the appeal of vagueness is because the population elects the legislators who make the law. But organizations typically aren’t democracies,Even enwiki, which tends to be run decently by the community despite many of the critiques you’ll find online, has power users that often direct the tenor of key consensus discussions. so if you’re bothered by non-zero framework wrongness, you can’t exactly vote out the leaders. While you and others can choose to work elsewhere and customers may choose to vote with their wallets, and while you may even correctly forecast both of these outcomes well in advance, this does nothing to close the immediate feedback loop. This suggests a problem with the argument.
The obvious solution — writing a constitution — doesn’t work here for a couple reasons, chief among them that such documents merely redirect the framework-wrongness and franchise problems to the constitutional drafting stage. However, constitutions often do create or empower a judiciary to address these issues. Judiciaries resemble the bodies we discussed above in some ways: they’re not electedI’m aware of the counterexamples, but we’re fast approaching nth-order objections, and I only have one row of sidenotes with which to explore them! or generally removable, so they don’t need to worry too much about the job-security consequences of an adverse ruling; and they’re independent, so they can focus on restoring flow symmetry by analyzing where responsibility and costs ought to fall. Judiciaries also invoke standing, which supports decisional certainty and predictability within the org. Standing can also prevent consolidation of unchecked authority, so long as you’re careful to bound how much the judiciary can amend its own standing rules.
Why sign off on a judiciary as the authority-bearer, especially if vague strategy is preferable whenever you don’t already internalize the costs? Well, even the strongest strategists will admit they might be wrong sometimes, especially in a VUCA (opens in new tab) world. You may not accept this feedback from a random working-level analyst,This reminds me of an old Hacker News comment suggesting that in a truly data-driven culture, the org’s most junior employee would be celebrated for telling their CEO they’d made a strategic blunder because a given dashboard suggests the opposite course of action. Since this rarely happens, we should question to what extent “data-driven culture” exists either. but building a predictable feedback delivery mechanism is a safer way to hedge against adverse selection. The independence of central banks is a good example of the kind of feedback I’m talking about here. A slightly different way to view it is that the authority-bearer has purchased a legible course-correction mechanism — after all, they define what kinds of people will sit on the org’s judicial body and what powers they’ll wield — in exchange for some of their present discretion. This permits the thing to exist, which might nudge us out of the nonzero equilibrium state under our cost-imposition conditions.