Wait and re-evaluate

Photo by QueenNeveen

This post is the second post in a series of posts I am writing about lessons about managing people from the book Predictably Irrational, by Dan Ariely (for the first post in the series, see here). This time I want discuss chapter 5.

Chapter 5 is called the influence of arousal – why hot is much hotter than we realize. In short, it describes the effect that feelings and extreme emotions have on our decision making processes. It is like each and every one of us contains a Dr. Jekyll and Mr. Hyde. A rational, calculating persona and an emotional, less sophisticated side. And it happens to us all the time even we are not aware of the effects. And when you are dealing and managing people, you are prone to a constant state of varying emotions.

For me, I think the most important lesson from reading this chapter is a two part lesson – wait and re-evaluate

Wait – Let’s say something happens. For example, a peer or an employee makes a mistake or sends you an e-mail that you feel is wrong (to use the nice term). You are angry and you want to instantly write back to him an angry e-mail. You write a wonderful e-mail explaining his entire family history and how it pertains to the current situation. And you hit send. And then, a few minutes after that, you calm down. And you think about it. Actually, he is right. He might not entirely accurate, but if you think about it from his perspective, you can understand why he said what he said. And after the apologies (assuming he forgives you) you talk to him and understand that the problem was in how you explained things to begin with.

Have you been there? I have. The solution – if something in your everyday work makes you feel a particular emotion, just stop. Wait a few minutes. Wait a few hours. Re-examine the situation and then make the decision.

Re-evaluate – there are some decisions that we know are important. And still, we make them in different states of emotions. This rule is not practical in all situations, but if you have the opportunity, make the decision twice. I first came across the advice while reading Paul B. Carroll and Chunka Mui book Billion Dollar Lessons and manifesto Let’s Get Persian:

Herodotus, the Greek historian, reported that the ancient Persians always made important decisions twice—first when they were drunk, and then again when they were sober. Only if the Persians reached the same decision, drunk and sober, would they act on that decision. The approach apparently worked—the Persians dominated the much of the Middle East and Central Asia for three centuries.

They talk about it in terms of how to create dissent and overcome groupthink, but I think it is applicable to inter-personal communication as well.

Ariely mentions in his book that “Looking from one emotional state to another is difficult”. To use his analogy even further, Dr. Jekyll and Mr. Hyde don’t really communicate. The decision Mr. Hyde makes under the enhanced state of emotions seems completely rational to him. But when Dr. Jekyll re-evaluates the same decision, he will understand how irrational it is. We need to create this communication between the sides and allow them to discuss the rationality. Sometimes, the decision would not change. Sometimes it will. But at least you will have some kind of assurance that it was made (hopefully) more rationally and that it will be fairer to your peers or employees.

Elad

Intuitive Vs. Analytical

I was watching Mae Jemison’s TED talk today about the connection between science and art. In this interesting talk she explains why she thinks the perception of many people that science is analytical while art is intuitive is wrong. Actually, she claims, they are both a manifestation of the same idea. You can find analytical thinking in art and you can find intuitiveness in science.

That made me think. This debate is relevant to business as well. How should businesses be run? According to intuition or analysis? The answer, of course, is both.

 In the last few weeks I have been preparing for interviews with management consulting firms. One thing you understand when you practice solving business cases and reading about how these firms operate, is that there is a tremendous importance to analytics. You are expected to be structured in the way you approach each problem, you are expected to think about all the problems while at the same time paying attention to the little details. But at the same time you see how important intuition in their work and thinking process is. You are also expected to hypostasise and prioritise. Go with your basic logic, gut feeling and intuition.

I heard many people in the past say: “I am a numbers guy” or “I am a big picture – go with my gut – kind of guy”. Hell, I said it myself a few times. And I think knowing what you are is an important part of success. At the same time, it is also important to understand that the fact that you have a certain point of view, a bias if you will, does not make the other way wrong. It means that we should actively try to seek out the other way.

It seems to me that success, in art, science or business, comes out from integrating intuition and analytics. That is one of the reasons diverse teams have trouble working in the short term (they speak different languages – one of intuition while the other analytics) but in the long term, they tend to outperform homogeneous teams (which do not take the full picture).

Thus, if we are unable to use both (and most people will struggle doing it consistently) we need to complete our own biased point of view, with the opposite point of view. Or just remind ourselves to re-check the other point of view every once in a while.

So, how do you integrate both intuition and analytics in your everyday work?

Elad

Setting your priorities straight

Photo by ➨ Redvers

When I was an instructor in the Israeli Air-force I used to give a workshop about time-management. The concept “time-management” is a little misleading. It gives us the illusion that time can actually be managed, when in fact, it can’t. Time is given. It will pass if we want it or not. And it will do it at the same pace it always did, no matter what will do. So, we need to manage our decisions given that time.

Every time I gave that workshop there was a least one person who would come up to me and tell me: “Look, I am swamped. I just have too many things to do and not enough time”. I always gave those people the same response: “You don’t have a time problem, you have a priorities problem”.

Because time-management is about choosing your priorities, being consistent with them over time and accepting that this process will inherently include some tradeoffs. There will be things you will not be able to do. But until you get your priorities straight you will face problems.

I like to take principals like the time-management-priorities one and see where I can apply them in other facets of life. Now, after almost completing two session of my MBA program, I think that I can confidently say that “getting your priorities straight” is the key concept that describes my learning this session. Because all the courses I studied this session, had this one concept in common. You have to make choices. And you have to be consistent about them. Or in other words, you have to set your priorities straight.

In finance you can see it in the choice between risks and returns. Do you want higher risk or higher possible returns? What is the level of returns you are seeking for? You have to make a choice. And until you set your priorities, your goals, your preferences, be them as they may, you cannot make the right choice. And in order to deliver real value, you need to make consistent decision over time.

Operations management – does my company need to cooperate with others in the supply chain or not? Do I need a pull or a push based production line? Is responsiveness or effectiveness more important? Well, it depends on your priorities. But whatever you do – you have to make sure, that all other parts of your organization and even you suppliers and buyers, are in tune with the same priorities and are consistent with the same decision.

How do you determine your IMC (integrated marketing communication)? Or how do you decide if you are going to concentrate on growth or retaining current customers? You guessed it – decide what your priorities are and make consistent decisions about them. And most importantly – as in time-management – you make choices that lead to tradeoffs that are inherent to the decision making process.

Finally strategy, the mother of all priory decision disciplines. To quote our strategy professor:

“Strategy is Making choices… since you have limited resources, you cannot do everything (and expect to do them well)… that are genuine… ‘real choices’ that are ‘difficult’ and consistent. A ’set of choices’ that different elements strengthen and reinforce each other”

And for me, all of this is the essence of another great idea I believe in. The idea of the comparative advantage. Because comparative advantage is not only about actual competition, but it is more about recognizing what is more important, where can I make the biggest contribution – to myself and to society – and going with it all the way. That is why I try, once in a while, to assess what my priorities are and what my comparative advantage is.

When is the last time you sat with yourself and asked your self – in a personal or professional setting – what are your priorities?

Elad

Which do your prefer – happiness or trust?

Photo by yewenyi

Today in our marketing class we talked about customer’s happiness and trust. If you create a simple 2 by 2 matrix you can allocate your customers to 4 groups. Then you need to think about how you treat each group and what the reasons for the existence and size of each group are.

And that got me thinking about transferring the same kind of measurement and thinking process to other arenas. Let’s think about politics. If you are a president or a prime minster, what is more important – that the citizens trust you or that they are happy with what you are doing? Or think about being a manager – do you want your employees to trust you or do you want them to be happy?

I know that trust and happiness are interrelated. I also know that the definitions are not completely clear. But life (and leadership and management) is about making decisions in a scarce and uncertain environment. And when your resources are limited you are faced with the choice of what to concertante on.

If I was a marketer, I think I will concentrate mainly on happiness. But as a leader and a manager of people, I would go with trust every time. In the marketplace of the consumers – happiness will generally lead to trust. In the leadership sense, happiness is important – but doing the right things and making the right decisions is a way that will lead to trust, is even more important. The trust will lead to happiness.

Leaders and managers need to make tough choices even though their followers will not always like it. In a book I am currently reading called: “The last argument of kings” one of the characters uses the phrase: “One cannot be a great leader without a certain … Ruthlessness”. I believe this is true. First create trust in your vision, in your cause, in your decision making. First create respect. Happiness will come.

What do you think is more important? Happiness or trust?

Elad

Will the future be like the past? Probably not. So, what are you going to do about it?

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Many businesses make their decision on some form of prediction of the future. This prediction, usually, is made of some kind of reliance of the past. In fact, I just spent the last few weeks in my AGSM MBA studying about ways to predict the future, based on the past.

Today, I was reading a manifesto titled: “Ending the Illusion of Control [Let’s Kick This Bad Forecasting Habit]“. In it, the writers claim that the reliance people and businesses have on predictions in general and specifically economic predictions could be destructive. They present a list of empirical evidence collected through many studies replicated by others, regarding the use of forecasting and then, they present three pieces of advice:

1. Dispel the illusion of our ability to produce accurate forecasts.
2. Concentrate on uncertainty.
3. Evaluate forecasters, and hold them responsible.

All of this is sound advice and should be followed. But, I am afraid there is one problem. Some of them are just not practical. Like many other phenomena we hear about lately, people reliance on predictions stems from their irrationality. And that irrationally is not because people are stupid or incompetent. It is because they are people. Like the writers of “Billion Dollar Lessons” repeat again and again in their book: awareness is not enough. Just saying that we should: “accept that uncertainty exists” is not enough. Even if we explain to people, rationally, what the problems with ignoring uncertainty is, they will probably won’t be able to take it into their calculations. It is just the way their brain works.

So, what can be the solution? I think part of the solution can be found in the process. If we create processes that take irrationality into account, and makes people, for example, acknowledge the existence of uncertainty as part of the decision process, we can maybe overcome this problem.

Or take for example two points from the list of evidence presented in the manifesto: 1. “Forecasts made by experts are no more accurate than those of knowledgeable individuals”. 2. “Averaging the predictions of several individuals usually improves forecasting accuracy”. This is a well known fact from an abundance of research. But still, the advice of experts is sought after and is the base for many business decisions. But, if the decision making process will enforce taking into account a number of estimates in addition to that of the expert, by forcing people to bring more estimates, maybe we can start to overcome this problem.

So, how do the processes in your company, take into account the problem of reliance on predictions?

Elad

The process of doubting

photo by ktylerconk

“I doubt, therefore I am” René Descartes

Today, I was part of a practice debate. The subject of the debate was: “that executives’ bonuses should be slashed”. I was part of the negative team that is supposed to argue that the claim is wrong. The positive team, which is the first to argue, started by claiming that they do not think that bonuses, which they defined as stock options and monetary compensation, should be totally slashed, but they should be taken down to a reasonable level. Now, I can talk about the subject itself (which I guess I pretty hot in today’s economy), the arguments (who determines what is reasonable?) and about the experience (I recommended it) but I want to talk about something else. Why didn’t they claim that bonuses are ineffective?

I admit that I did not think about this straight away. Like the positive team and without any relation to what my team was supposed to argue, I also took it for granted, that such bonuses are effective in creating productivity and results. I thought about this question later when I was reading an article called “Evidence Based Management” by Jeffery Pfeffer and Robert I. Sutton. In it, the writers claim that managers often take decisions without considering relevant and available evidence. One of the examples they give is the following:

There is, in fact, little evidence that equity incentives of any kind, including stock options, enhance organizational performance. A recent review of more than 220 studies complied by Indiana University’s Dan R. Dalton and colleagues concluded that equity ownership had not consistent effects on financial performance

In this blog I write from time to time about the fact that there are conventional wisdoms of management which are just wrong. As times goes by, I am surprised to see how many are there and how widespread they are. I don’t know if the incentive idea is wrong or right. It might be that the inconsistency is part of the fact that there isn’t one way to create motivation. But the fact remains the same. I think most of the managers you will ask will say it is a good idea. It is a conventional wisdom.

Just today, Seth Godin, in his post, writes about another example of a conventional wisdom: bigger and not better. A short quote:

You’re at a conference, talking to someone who matters to you. Over their shoulder, you see a new, bigger, better networking possibility. So you scamper away. It’s about getting bigger. Compared to what? You’re never going to be the biggest, so it seems like being better is a reasonable alternative.

So, why does this happen? I don’t know. But from my limited experience and according to Pfeffer and Sutton’s article, it happens all the time. So, as managers, what can we do? My answer? Doubt. We need to cast doubt all the time.

The problem is it is harder than it sounds. Besides all the regular hurdles, like pride, the sense that we know better, our preference to our own experience over others experience and more, new brain research actually shows that our brain is such a lazy machine, that it does everything it can not to think about new ideas and concepts. This means we have to make it. We have to create processes that will make us cast doubt. All the time.

So, as managers, we should create processes that facilitate the casting of doubt on a regular basis. I am sure you know better than I do how to do it at your place of work. The question is when is the last time you cast doubt on what you take for granted?

Elad

It does not depend!

Photo by Roo Reynolds

If you can say that there is one thing common to all MBA classes, I think it is this: there is one answer you hear from all the professors: it depends.

Accounting, economics, and organizational behaviour… in all of these classes I have been hearing the same tune: it depends. It varies by professor. Some never say what they actually think or what they will actually do if they were presented with a certain situation, only present the various options. Some, hint to what they actually think. You know what? When you think about it, this might even be a good thing. after all, a good manager should be able to see all sides of an issue before he makes a decision, right?

But still, sometime I feel there is misalignment here. That the teachings err on the side of caution. That the fear to say something concrete and get it wrong just overwhelms all other considerations. Because in real life, after weighing all the evidence, a manger has to make a decision.  Even if it is the wrong one. Even if there is still uncertainty involved. And a manager needs to be able to back his decision and explain its merits, even if the data he is partial.

This week I attended a conversation on photovoltaic with David Jordan, Director of Business Development for the UNSW Engineering Faculty. He used to work for BP and told us that when they presented a project in order to get funding as part of the capital investment process, they were not allowed to use the word “contingent”. In some of the courses I covered in the MBA so far, that has been to number one used word.

It depends is a good answer. It is just not good enough.

Elad

Ripple effects and business decisions

 

photo by Sukanto Debnath

Causality is a know phenomenon. Every one of us has seen something in his life that answered to the simple law of cause and effect. I think that we think and talk under the basic assumption that this rule almost always applies. And some cases, it does. But life, in most cases, and especially in the business context, is much more complicated than that.

I guess that if you would ask most people whether more money would make them happier, their instinctive answer will be yes. They seem to think about it in a cause and effect, linear fashion. But does it really work like that? We know that people who won the lottery don’t, after a certain time, report increased levels of happiness.

Because every effect that a cause creates, has ripples. And, our mind, which is a very lazy machine that looks for effective ways not to waste energy, makes a shortcut and assumes causality without the ripple effects.

Take this example I read about in Rita Mcgrath’s article in the Harvard business review blog, titled:  ”A better way to cut costs“:

Beware the hidden dependencies among different parts of your operations when you are evaluating areas to cut. In the Home Depot case, a huge part of their value proposition was the experienced and helpful nature of their long-employed staff. These were people who had been professional carpenters, plumbers and electricians, in many cases, and they could help a neophyte tackle do-it-yourself projects with confidence. Firing them and replacing them with part-timers and inexperienced people looked good on the bottom line for a while, but ultimately undermined the Home Depot’s fundamental value proposition to its customers. Other cuts resulted in long checkout lines, out-of-stock items and a general undermining of customer loyalty

A business setting is a place where many parts are dependent, in various ways, on other parts. Their unique synergy is what makes the business what it is for good and bad. And many times our decisions ignore theses dependencies. This happens, for example when an organization is going through structural changes. The changes are built, and might work, with the specific people that the organization has at the moment. But as people change, it ceases to work. I saw this process happen a couple of times.

Newton’s third law of motion states that: “for every action has an equal and opposite reaction”. In business, there are many times opposite reactions, but they are far from equal.

So, do you consider the ripple effects when you make decision about your organization?

Elad