Contradictions

Photo by Sebi

This post will be different than usual. I don’t really have a point. Just a philosophical question. In the last few weeks in my MBA I have felt like I am under constant attack of mixed messages.

One of the main things you learn in the MBA is that no company is invincible. So many companies have failed because they were reluctant to understand that their current advantage is what might bring them down. They relied too much on the past and did not consider the possibility, that the future will be quite different. And our professors keep ramming this idea into us.  ”Past profitability is a poor indicator of future profitability” says our Strategy course slides.

But at the same time, one thing you keep learning and studying is how to try to forecast: future sales, future demands, and future trends. Half of our assignments deal with some kind of forecast of the future. The same strategy class talked about the fact the historically, some industries were less profitable than others.

Two thoughts on this:

In his novel “1984″, George Orwell’s descries the notion of Doublethink: the act of simultaneously accepting as correct two mutually contradictory beliefs. This is I have been feeling lately. They say that the ability to Doublethink is a trait of great people. I am trying to be great.

Maybe the answer lies in the middle. Understanding that both the past and the future are not reliable. The past is something we should study carefully. But we should not trust it blindly. The future is something we should try to forecast. But we should accept that we can’t.

Elad

Live long and prosper in horse manure

Photo by Rikki_

My friend Jonathan sent me a link to an article writing in the subject of the email: “long, physiologic and fascinating”.  The article, from “The Atlantic Online”, bears the very promising headline: “What makes us happy?“. Although I don’t think it actually answers this question, it sure does give you a very interesting journey of trying to understand it.

In a nut shell, the article describes the writer impressions from spending one month in the file room of the Harvard Study of Adult Development, one of the longest running – and probably the most exhaustive – longitudinal studies of mental and physical well-being in history. It begun in 1937 as a study of healthy, well adjusted Harvard sophomores (all males) and it has followed these subjects for more than 70 years. I will leave the work of reading the article and answering the question “what makes us happy?” to you, but I do want to quote and comment shortly on two quotes I liked in particular.

The first quote is a very short story the manager of the research, Dr. George Vaillant, gives as an answer to one of the questions:

… [T]he story of a father who on Christmas Eve puts into one son’s stocking a fine gold watch, and into another son, a pile of horse manure. The next morning, the first boy comes to his father and says glumly, “Dad, I just don’t know what I’ll do with this watch. It’s do fragile, it could break.” The other boy runs to him and says, “Daddy! Daddy! Santa left me a pony, if only I can just find it!”

We always hear the importance of looking on the part of the glass that is half full, and not the one that is half empty (link in Hebrew). As I mention in my e-book, In Randy Pausch ’s last lecture he said: “We cannot change the cards we are dealt, just how we play the hand“. When is the last time you woke up to see horse manure on your table and thought to yourself – this is an opportunity. They say that times of depression are times when people get rich. It is the people who can see the opportunity in the horse manure. The following thought is self evident. When you are assembling your team – are you looking for people who opportunities in horse manure?

This is the second quote:

In fact, Vaillant went on, positive emotions make us more vulnerable than negative ones. One reason is that they’re future-oriented. Fear and sadness have immediate payoffs – protecting us from attack or attracting resources at times of distress. Gratitude and joy, over time, will yield better health and deeper connections – but in the short term actually put us at risk. That’s because, while negative emotions tend to be insulating, positive emotions expose us to the common elements of rejection and heartbreak

I talk a lot about short-term versus long-term thinking in this blog. And about the fact that short-term thinking is to be blamed for a lot of the problems this world is facing.  Actually, my last post was about this subject. I also mentioned, a couple of times, that I believe the most important challenge of a leader is the dissipate people fear’s about the future. This outlook on the subject, gives another explanation, why long term view is so important and why it is so hard to reach. This also explains why the talent of leadership is so important and why we need to create processes that help us overcome out behavioural tendencies 

Elad

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

Photo by SAN_DRINO

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