Practical analysis for investment professionals
18 May 2021

Dan Heath: Three Barriers to Upstream Thinking

“Every system is perfectly designed to get the results it gets.” — Attributed to Paul Batalden

Dan Heath credits the inspiration for his latest book, Upstream, to a single parable ascribed to the sociologist Irving Zola.

“It goes like this,” Heath, a bestselling author and senior fellow at Duke University’s CASE center, explained at the Alpha Summit by CFA Institute:

“You and a friend are having a picnic beside a river and you just laid out your picnic blanket, you’re preparing to have a feast, when all of a sudden, you hear a shout from the direction of the river. You look back and there’s a child thrashing around apparently drowning.”

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Instinctively, both you and the friend jump in and swim out to rescue the child. But after you bring the child safely back to shore and just as your pulse starts to return to normal, you hear another child call for help.

“So, back in you go,” Heath said. “You fish out that child. No sooner have you done that, you hear two shouts. Now it’s two kids in the river. And so begins this kind of revolving door of rescue.”

Just as exhaustion sets in, Heath said, you notice your friend swimming back to shore, emerging from the water, and walking upriver.

“You say, ‘Hey, where are you going, I can’t do all this work by myself.’ And your friend says, ‘I’m going upstream to tackle the guy who’s throwing all these kids in the river.’”

The story resonated with Heath because it reflects a problem we all deal with in every facet of our lives, in finance and beyond, what he calls “the trap of reaction.”

“We’re always chasing emergencies, we’re always putting out fires,” he said. “We respond after the bad thing has happened. And we so rarely make the time and devote the resources that we need to get upstream and solve these problems at their root.”

But to take an upstream approach, we first have to understand what keeps us in that reactive, downstream crouch. What makes the one picnicker in the parable keep jumping back in and the other go tackle the problem at its source? Heath identified three principal obstacles and described how we can recognize and overcome them.

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1. Blindness

“You can’t fix a problem if you can’t see it.”

Some problems are so ubiquitous and ingrained, they fade into the landscape or are assumed to be inevitable, the price of doing business.

Heath used the example of hamstring injuries in the National Football League (NFL). When there are 11 players on each side of the football crashing into each other at full speed, some are bound to suffer hamstring injuries.

For the New England Patriots, that added up to 22 such injuries in a single season. It was too many for them to remain competitive. They needed a new perspective and a fresh approach, so they hired Marcus Elliott, MD, to assess the issue.

Elliott saw things differently. These ailments were not “inevitable,” but the result of poor training and muscle imbalance. In hindsight, that was obvious. Linemen weighing 300 pounds went through similar offseason training regimens as wiry wide receivers. That needed to change.

But Elliott went further than that. Not only did different positions require different protocols, but each individual player needed a unique personalized approach. “Some human beings are going to have quads that are so strong they actually disrupt the functioning of the system,” Heath said. “Other wide receivers are going to have one hamstring a bit stronger than the other one and that creates an imbalance.”

As Elliott sought to implement his new system, he was greeted with considerable skepticism. His approach went against football orthodoxy. But the season after Elliott’s innovations were adopted, the number of hamstring injuries suffered by the Patriots went from 22 to three.

“The proof was in the pudding,” Heath said. “And that created a lot of believers.”

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2. Tunneling

“In a tunnel, there’s only one direction to go, assuming you don’t want to go backward: You just have to make your way forward.”

When we’re figuratively tending to injured football players or fishing a stream of drowning children out of a river all day, it’s hard to take a step back and embrace a systemic outlook. Heath calls this tunneling, a term he borrowed from the psychology book, Scarcity.

“In the tunnel there’s no broad macrovision, you just have to keep charging forward,” he said. “There’s no question of strategy. There are no forks in the road.”

And once we’re in that tunnel, it’s hard to get out. One problem leads to another and another and we spend all our time desperately putting out fires. “You get to the end of the day,” Heath said, “and you wonder, ‘Have I done anything to actually advance my work or have I just chased problems all day?’”

We become so focused on moving forward that our first reaction to an obstacle is not to address it, to solve it, but to detour around it.

“It takes so much of our energy, so much of our bandwidth, just to contend with problems, just to work around them,” he said, “that we starve ourselves of the very resources that would have been needed to prevent those problems in the future. ”

This almost guarantees that the problem will resurface again and again.

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3. Lack of Ownership

“Who will pay for what does not happen?”

We all know what to do when our home is on fire: call the fire department.

“It’s amazing how often the lines of ownership are crystal clear for emergencies, right?” Heath observed.

But the answer is a bit less clear when we ask, Whose responsibility is it to keep our home from catching fire?

As the home’s inhabitants, we’re first in line. But we’re not alone. What about who came up with the building codes? Or selected the construction materials? And our neighbors and neighborhoods play a role too.

The more complex and diffuse a problem becomes, Heath said, the less likely it is to have a clear line of ownership.

“When no one owns a problem,” he said, “it probably won’t get solved.”

And this brings us back to the reaction trap:

“There’s an emergency, and then we respond to it, and then we become inert,” Heath said. “We don’t act anymore until the point where there’s another emergency and repeat that cycle.”

And this cycle is often incentivized by economics. Where there’s an emergency, there’s economic activity and financial reward.

“Someone breaks a hip, and they go and they have surgery. The surgeon gets paid, the hospital gets paid,” Heath said. “But who gets paid for preventing a hip breaking?”

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Breaking the Cycle: “Maintain, Maintain, Maintain”

“What upstream thinking demands of us is to take a new lens, a new view, of the way that organizations function.”

To return to the opening quote, systems are designed for efficiency, and whenever systems deliver consistent outputs, whether good or bad, according to Heath, we treat those systems as though delivering those outputs were their core purpose.

“How do we get a big job done?” he asked. “We break it into parts. And then we measure each of those parts on their success. Often in optimizing the part, we neglect the whole.”

If our job is pulling kids from a river or treating hamstring injuries, we’ll find ways to improve our performance. But we won’t address the problem at its origin.

The reaction trap exacerbates this sort of downstream thinking.

“Often in designing for efficiency in reaction,” he observed, “we actually slow ourselves in the process of eliminating the problems that are being reacted to.”

In the river story, Heath explained, there are only two locations: downstream, where we’re perennially saving children from drowning, and upstream, where our friend is incapacitating the cause of the problem once and for all.

“We should push beyond that,” he said. “It’s actually a lot easier and more practical to think about downstream and upstream as a spectrum, an almost endless spectrum.”

To explain, he pointed to the YMCA as a real-life parallel of Zola’s parable. Millions of children swim at YMCAs every year. Emergencies are inevitable. But the YMCA didn’t take an upstream or downstream approach, it took an all-stream approach. They moved the lifeguard chairs to avoid blindspots. They developed a colored wristband system to indicate a child’s swimming ability. And they attacked the problem at its source.

“The YMCA is the nation’s leading provider of swim lessons,” Heath said, “which is a pretty good way, if you think about it, to prevent downstream accidents entirely.”

And that approach goes to the core of upstream thinking.

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“Any problem that is immediate enough and important enough to try to prevent almost necessitates layers of defense,” he said. “The fundamental trap really has nothing to do with how far upstream you go. The trap is that in the real world we spend 95% of our time down here, reacting to problems.”

We need to retire that downstream mindset, according to Heath.

“We need a generation of upstream heroes,” he said, “people who don’t rush in to save the day, but people who keep the day from needing to be saved.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
Paul McCaffrey

Paul McCaffrey is the editor of Enterprising Investor at CFA Institute. Previously he served as an editor at the H.W. Wilson Company. His writing has appeared in Financial Planning and On Wall Street, among other publications. He is a graduate of Vassar College and the Craig Newmark Graduate School of Journalism at CUNY.

1 thought on “Dan Heath: Three Barriers to Upstream Thinking”

  1. Norbert Mittwollen says:

    “We need to retire that downstream mindset, according to Heath.”

    I do not understand this concluding quote after you quoted the much smarter all-stream approach of YMCA. Can you please explain.

    The prime real world problem is a lack of ambidextrous minds. They are able to do both. I.e., saving every single day to survive it, and preparing for worse things to happen in the future to benefit from them, as Nassim Taleb preaches.

    He also provides his antifragile approach for developing this ability: “How do you innovate? First, try to get in trouble.” Thus, solving problems comes first. Only if you master that, you are able to move upstream. This is necessary to avoid becoming an IYI, lecturing birds, how to fly.

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