Business is a mystery, not a puzzle – information overload and judgment

Photo by Jorge Franganillo


Umair Haque, a fascinating writer (which I quoted in my No More Rules! Presentation), wrote a captivating piece in the other day. He discussed the famous Efficient Market Hypothesis (definition from Investopeida):

An investment theory that states it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

Haque, who constantly writes about the need for a new economy based on value creation instead of the old one that was consternated on creating money for itself, offers a new idea:

I’d like to advance a hypothesis. Call it the Efficient Community Hypothesis. It says: where efficient markets incorporate “all known information,” efficient communities incorporate “the best known information.” An efficient market is a tool for sorting the largest quantity of info. But an efficient community is a tool for sorting the highest quality info. On its own, the EMH is simply about informational efficiency: that prices incorporate “all known information.” Where it falls down is in terms of informational productivity: whether prices incorporate accurate, valid, and reliable information — high quality knowledge, instead of low-quality noise. Incorporating all known information doesn’t mean incorporating good information.

Haque deals with a very important point. Let’s assume for a minute that when the EMH was originally hypothesized it was correct (even though there is a debate about that). Well, there is no doubt today that the world has changed dramatically. Just think about the differences in quantities between the information that was available, let’s say, 30 years ago, and the quantities available today. There must be a law of diminishing returns at work here. At some point, the more information we put in, the less we gain from it. And sometimes when we abundance of information happens, just as Malcolm Gladwell tries to convince us in Blink: The Power of Thinking Without Thinking, decisions become worse, not better.

But it is even deeper than that. The EMH assumes that information is the only thing we need in order to interpret the market. If we only have all the information, we can come with the right answer – the price. It is kind of a puzzle. Give me all the information and I will give you the answer. But the stock market represents companies that work in the real world. And the real world is, well, uncertain. And yes, it is also more uncertain then it used to be 30 years ago. Even if you do give me all the information, I still need to use judgment in order to give you an answer. And it might be right, but it might not. In an article called “Open Secrets”, that is now part of his book, What the Dog Saw, Gladwell writes:

The national-security expert Gregory Treverton has famously made a distinction between puzzles and mysteries. Osama bin Laden’s whereabouts are a puzzle. We can’t find him because we don’t have enough information. The key to the puzzle will probably come from someone close to bin Laden, and until we can find that source bin Laden will remain at large.

The problem of what would happen in Iraq after the toppling of Saddam Hussein was, by contrast, a mystery. It wasn’t a question that had a simple, factual answer. Mysteries require judgments and the assessment of uncertainty, and the hard part is not that we have too little information but that we have too much.

So what Haque rightly calls for is judgment and trust and expertise on a more common basis. Knowing that we have a lot of information, that a lot of it is irrelevant and that the future is unpredictable, we need two things. First, just like in the case of the doctors described in Blink trying to decide if a patient is a risk for a heart attack, simplify our decision making process. As Gladwell says, they are swimming in knowledge, but lacking in understanding. The simplification helps their judgment. Second, we need people with more practical wisdom, ability to infer judgment and to make decisions that accept the uncertainty.

And that second issue throws me back to my point about rules. In my presentation, No More Rules! I claim that the wide spread use of rules is killing people’s practical wisdom. It is killing their judgment. Just when we have more information than ever and when we need simple good judgment more than ever, we are creating cogs that follow automated rules and formulas that treat the world like a puzzle. Life and business, is mystery, isn’t it time we face up to it?



Standardizing feelings and relationships

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This is the fifth post in a series of posts I am writing after reading Blink: The Power of Thinking Without Thinking by Malcolm Gladwell (for former post see 1, 2, 3, 4).

In the fourth post about Blink I wrote about the Love Lab:

In the book Gladwll describes what he calls the love lab. It is a long experiment conducted by John Gottman from the University of Washington. Since the 1980s Gottman has been watching married couples in a small room after telling them to have a normal conversation around everyday issues. He then videotapes them and examines the conversations. He developed a system, almost like a Morse Code to interpret the real undercurrent emotions of the marriage and he is able to predict, with amazing success rate, if a couple is going to survive or divorce.

In another part of the book Gladwell describes the science of micro-expressions. This field is the inspiration of the series Lie to Me. The idea is that everyone in the world has the same facial expression when they experience certain emotions. These micro-expressions last for a very short time and are easy to miss by the untrained eye. But, when you spot them (for example, by filming and watching in slow-motion) they reveal a lot about the feelings of the person.

That made me think. Shouldn’t we train all people (and especially managers) in both these methods? Can’t we analyze a managerial situation using these tools and predict who is going to be a good manager or which people fit to work together? Today, there are many people who are promoted to being managers even though they don’t have the skills (or the desire) to manage people – wouldn’t it be great if we can know that in advance and in some cases train them to be better managers?

I am not sure we can even fully standardize feelings and relationships. I am not sure we want to. But to a certain extent, we sure can use help in these fields that are such a big part of our lives.


A deliberate management out-of-body experience

Photo by AndYaDontStop


This is the fourth post in a series of post I am writing after reading Blink: The Power of Thinking Without Thinking by Malcolm Gladwell (for former post see 1, 2, 3).

In the book Gladwll describes what he calls the love lab. It is a long experiment conducted by John Gottman from the University of Washington. Since the 1980s Gottman has been watching married couples in a small room after telling them to have a normal conversation around everyday issues. He then videotapes them and examines the conversations. He developed a system, almost like a Morse Code to interpret the real undercurrent emotions of the marriage and he is able to predict, with amazing success rate, if a couple is going to survive or divorce.

There are a lot of interesting things about this experiment. Here is one of the things that struck him as particularly interesting:

What people say about themselves could also be very confusing, for the simple reason that most of us aren’t very objective about ourselves… that’s also why Gottman doesn’t waste any time asking husbands and wives point-blank questions about the state of their marriage. They might lie or feel awkward or, more important, they might now know the truth… “Couples simply aren’t aware of how they sound,” says Sybil Carrere. “They have this discussion, which we videotape and then play back to them. In one of the studies we did recently, we interviews couples about what they learned from the study, and a remarkable number of them – I would say a majority of them – said they were surprised to find either what they looked like during conflict discussion or what they communicated during conflict discussion.”

Conflict discussions, positive or negative, are something we have at work places every day. How aware are people about the way they look or what they communicate during these everyday interactions? If the workplaces is in any way similar to the relationship between married couples – and in many ways I believe it is – the answer is not very much.

However, let us take this another level. How aware are you to the way you look or what you communicate as a manager every day? What kind of body language do you use? What is your choice of language? Your tone of voice? How much do you let your employees talk? When do you interfere?

There is a lot to be gained from taking an outside objective look at how we behave. The objective videotaping is a great idea and I am sure it could also be used in the managerial space. Have you ever thought about recording a meeting and then asking all the employees, including yourself, to watch it and come up with suggestions and feedback?

But  using a videotape, while a great idea by itself, is just a tool that represents an approach. When is the last time you tried to get an outside view, objectively, on your business, your processes, your strategy, the way you interact with other people?

This is what I wrote a while back that I think connects perfectly to this idea of seeing ourselves from the outside:

It is quite clear (or is it?) that if we want to understand our customers, we need to act like customers – try to acquire a service or a product from our own company. However, the same could be said about you as a manager. Can you put yourself in your employees’ shoes and try to “acquire” feedback, recognition or just time with you.

Yes, I know, the comparison is not complete and you cannot disguise yourself as a mystery shopper in order to obtain feedback from… well, you. This line of thinking might only manifest itself as a mental exercise. But, if you think about it carefully, I am sure that you can come up with ways to actually try to acquire management services from yourself (start by examining you schedule and how much of it is dedicated to being with your employees, and which ones).

However, what is more important is the frame of mind. The understanding that as managers, we are there for our people and to help them excel, we need to try and see things from their perspective.

It turns out that seeing things from other people perspective is really mind-blowing. So maybe managers should proactively instigate, for themselves and for their employees, a deliberate out-of-body experiences.


Decision tools

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This is the third post in a series of post I am writing after reading Blink: The Power of Thinking Without Thinking by Malcolm Gladwell (for former post see 1, 2).

One of the sentences that struck me as the most important in Blink comes from the afterword. This is it:

The key to good decision-making is not knowledge. It is understanding. We are swimming in the former. We are desperately lacking the latter.

This sentence is built upon a number of stories in the book (and connects to other writings by Gladwell about the perils of too much information). One of the leading stories it refers to is the story of how Cook County Hospital improved the decision-making of its doctors by telling them to focus only on three pieces of information in the entire sea of details they had about patient in order to make a decision whether he was a risk for heart attack. Even though all doctors felt that this was the wrong way to go, as they were ignoring precious information, it turned out that by focusing only on three issues, doctors made much better decisions that not only saved money, but more importantly, saved lives.

I have written before about the dangers of using the information and measurements we have just because we have them. As we continue to develop in terms of technology, we will have more and more data and information. As Gladwell says in Blink:

We take it, as a given, that the more information decision makers have, the better off they are. If the specialist we are seeing says she needs to do more tests or examine us in more detail, few of us think that’s a bad idea… extra information isn’t actually an advantage at all; that, in fact, you need to know very little to find the underlying signature of a complex phenomenon.

In my mind this connects perfectly with the idea of Vital Signs. This is what I wrote almost a year and a half ago:

I believe the challenge of managers in the next few years, especially in the more subtle fields that are hard to measure will be to create the right vital signs.

I am I the process of reading Switch: How to Change Things When Change Is Hard by the Heath brothers and one of the main concepts of the book is about scripting change. They describe the importance of making people aware of the basic decision principles to guide their specific behavior. They give example of major changes accomplished by ordinary people who harnessed the power of simplifying the decision-making. How? By creating scripted concepts that help decide what is important and what is not.

Reading Blink and Switch just strengthened my understanding of this concept. People are cognitive misers. They are not able and do not want to deal with large amounts of information. As Blink (and Switch) show, when they are faced with so much information it actually affects their judgment, usually in a negative way. The most successful people are not going to be those who can master and absorb large amounts of information. It will be those who will know how to distill this information into a few major signs that help guide decision-making. Thus, our rule as managers is to find the vital signs and make them crystal clear. We need to make sure that we are tackling the right issue. Not lack of information. Lack of decision tools.


No explanation, just gut

Photo by Shawn Allen


This is the second post in a series of post I am writing after reading Blink: The Power of Thinking Without Thinking by Malcolm Gladwell (see the first post here).

As someone who is going to graduate with an MBA from a business school in a few months I respect the power on analysis. I respect the use of data and the importance of facts and figures. I have deep appreciation for forecasting models and analysis models and to rational, structured approach to decision-making and strategy. In God we trust, for everything else we need data.

At the same time, if there is one thing that I learned over the last year and half is that the although modern technology allows us to be exposed to so much data and even sometime turns it into information for us it does not guarantee that data and information will be transmitted into knowledge or even will allow us to make better decisions. Sometimes, we have to trust of judgment and gut feeling. Cause sometimes, the best decisions, those which represented a big risk but were also a big opportunity, cannot be explained rationally with analysis and data.

Gladwell writes in Blink:

When we ask people to explain their thinking – particularly thinking that comes from the unconscious – we need to be careful in how we interpret their answers…when it comes to romance, of course, we understand that. We know we cannot rationally describe the person we will fall in love with: that’s why we go on dates – to test our theories about who attracts us. There are times when we demand an explanation when an explanation really isn’t possible.

And Roger Martin writes a post on called Management by Imagination:

We need to get away from all those old sayings about measurement and management, and in that spirit I’d like to propose a new wisdom: “If you can’t imagine it, you will never create it.” The future is about imagination, not measurement. To imagine a future, one has to look beyond the measurable variables, beyond what can be proven with past data. While Motorola was projecting future sales volumes of “feature phones,” Mike Lazaridis, founder of Research in Motion, was imagining what executive life would be like if you could receive your emails on a handheld device. How compelling would an ordinary phone be if you could have a BlackBerry attached to your belt? He couldn’t “prove” that this would be a good idea. There was no data on the demand patterns for smartphones, because smartphones existed only in his imagination. But a mere 11 years after the launch of the product of his imagination, RIM leads Motorola by an ever-accelerating margin in sales, market share and profitability.

And this is what I wrote a few months back:

It seems to me that success, in art, science or business, comes from integrating intuition and analysis. 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 analysis) 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.

Reading Blink in many ways just made me realize that it is not only that intuition is important; it is many times much more powerful than the other methods. The problem, obviously, is that we don’t know when that is. It is easier for us to think that rational thinking is always superior. That more information, more facts, more analysis, more questions will lead to better results. Blink, and many other examples, reminds us, that this is not true. And that is a lesson that we need to teach that rational part of our brain again and again.

Maybe trust is not only for God.


The unlimiting rules of process

Photo by Eliza[beth] Grace


I just finished reading Blink: The Power of Thinking Without Thinking by Malcolm Gladwell. I know it has already become a cliché to like one of Gladwell’s books, especially for someone like me that has Gladwell’s name as one of the bigger tags for this blog. However, I found the book so thought-provoking and compelling that I really do not care if it is a cliché. I am going to devote a  number of posts contemplating some of the issues discussed in the book.

Lately, as those of you who follow this blog know, I wrote about rules in the world of management and even made a  video presentation about it. One of the things I advocate for in my presentation is that if we do use rules, we need to use rules that are unlimiting instead of limiting. Design, by definition is limiting, however, we all know and feel when the design frees us up and helps us achieve things instead of limit us. I wrote in the past about the idea of lack of friction, an idea I borrowed from Bob Sutton’s blog where he wrote:

It is one of those phrases that applies to all sorts of things, great customer experiences where good things happen and your feel no friction, organizational practices that are seamless and painless, and even government services that seem designed to reduce the burden on you.

One of the stories Gladwell tells made think about that. He tells the story of Improv Theater. The whole idea of Improv Theater is that there are no scripts and no rules. People go out on stage and do whatever the audience suggests and whatever the other actors lead them to. Without any rules, wonderful things are created. It seems random and chaotic and utterly irrelevant to business and management but when Gladwell dwells deeper into the theater and the method he finds that there are rules and it is not chaotic.

In fact, the people of the theater spend a lot of time not only training but also giving feedback to each other and dissecting each others’ performances. Because if we do want to rely on human judgment to make common sense decisions and employ practical wisdom, we need them to be able to train and to give them feedback and ample opportunity to reflect on their performance.

But what was even more interesting is the rules themselves. Because it is a great example of what I call a rule about process and not about content. Gladwell explains that one of the most important rules in the Improv Theater business is that of acceptance. The actors must agree to every suggestion, crazy as it may sound, the other actors make. This is the heart of what makes Improv Theater so entreating and compelling (and you have to read the book for examples, I don’t want to ruin it for you). But this is just it. The rule does not try to regulate the content the actors are dealing with or where they take the ideas, it just regulates the process. You have to agree to everything and flow with it. How? That is your judgment to make. This is how Gladwell describes it:

Do you have to be particularly quick-witted or clever or light on your feet to play that scene? Not really. It’s a perfectly straightforward conversation. The humor arises entirely out of how steadfastly the participants adhere to the rule that no suggestion can be denied. If you can create the right framework, all of a sudden, engaging in the kind of fluid, effortless, spur-of-the-moment dialogue that makes good Improv Theater becomes a lot easier…. He created successful spontaneity.

And I ask you – how much of the work you or your employees do is Improv Theater? Is it customer service? Is it sales? Is it teaching or working with the client of standing up in court and talking? There is no script in life. What is people’s reaction to the fact that there is no script? They try to write a script. But when you write a script, you will have the same show every day or you will need to write one every day. That is very hard as the world is changing and you have better things to do. Instead of writing a script (rules about content) why don’t we try to create a rule of accepting (rules about process) and an environment or framework that allows people, with the proper training and reflection ,to shine out there in the stage of life?