Book review: Practical Wisdom by Barry Schwartz and Kenneth Sharpe

Photo by Amazon

A few days ago I finished reading Barry Schwartz and Kenneth Sharpe’s new book Practical Wisdom: The Right Way to Do the Right Thing. I love reading and the thought process that comes with the process of reading. As a result I tend to recommend a lot of books. However, usually my recommendations are not universal but specific. Once in a while I come across a book that I think everybody must read. Practical Wisdom is at the top of that list.

The authors have a few basic claims. We need more wisdom in our lives. Not the wisdom of sages or scholars but practical everyday wisdom that will help us live better lives and make better decisions. Wisdom is the act of performing a particular social practice well—being a good friend or parent or doctor or soldier or citizen or statesman—and that means figuring out the right way to do the right thing in a particular circumstance, with a particular person, at a particular time.

Wisdom, however, is not about intelligence or intellectual capacity. Because we are all born to be wise. The problem is this wisdom needs to be nurtured, cultivated and encouraged. It requires mentioned, coaching, modeling and time to develop. We, as a society, are doing just the opposite of that. We are waging a war against wisdom. Because of different societal process our society has turned more and more to rules, incentives and standardization. As the authors put it:

The assumption behind carefully constructed rules and procedures, with close oversight, is that even if people do want to do the right thing, they need to be told what that is. And the assumption underlying incentives is that people will not be motivated to do the right thing unless they have an incentive to do so. Rules and incentives. Sticks and carrots. What else is there?

While these tools are sometimes useful, they are usually effective only in the short-term and have unintended consequences. They are unable to provide for the changing complex needs of the environment in which people operate in, and thus, lead to unwanted results:

Rules and incentives may improve the behavior of those who don’t care, though they won’t make them wiser. But in focusing on the people who don’t care—the targets of our rules and incentives—we miss those who do care. We miss those who want to do the right things but lack the practical wisdom to do them well. Rules and incentives won’t teach these people the moral skill and will they need. Even worse, rules can kill skill and incentives can kill will.

Rules are aids, allies, guides, and checks. But too much reliance on rules can squeeze out the judgment that is necessary to do our work well. When general principles morph into detailed instructions, formulas, unbending commands—wisdom substitutes—the important nuances of context are squeezed out. Better to minimize the number of rules, give up trying to cover every particular circumstance, and instead do more training to encourage skill at practical reasoning and intuition.

More than that, this reliance on rules and incentives is eroding our ability to develop wisdom and makes people who go into professions like medicine, law and education with a desire to influence and do good, hate their jobs or act in ways that are contrary to what they wanted to do when they decided to join the profession.

The challenge is to find a way to enable people to earn their livelihoods and create a viable organization without having payoffs completely control what people do—without having payoffs demoralize both the people and the practices in which they engage.

The book is a wonderfully written call to stop treating people like cogs. A call to stop measuring things just because we can and then leading our lives according to these measurements. It is an attempt to point out that there is more about being alive and working, than just thinking about outcomes, money and bottom line measurable results. It try to challenge the assumption of “one right way” and “top-down” control that is like a cancer in our societies. It is an attempt to point out to the Obliquity of our business and work. It is a praise to human judgment and ability to do good. It describes the world I want to live in and the kind of work life I want to lead. It is the book I wish I could have written. Read it. Today.

Elad

A theory of justice, conflict resolution and collaboration

Photo by wjarrettc

In this interesting post on the MIX (management innovation exchange), Leigh Weiss discusses the concept of collaboration and what an important part conflict plays in it. I found this example to be particularly fascinating:

Some groups use a visual symbol – a yellow card, for example – in meetings as a way for individuals to signal that they have an objection or that they feel their view (or someone else’s) is being overlooked. Bob Sutton and other management researchers have noted the tendency for senior people to dominate conversation within meetings. Raising the yellow card signals that the objector is acting within the group-defined agreement of behavior and serves as a cue to remind the others that the group has agreed on the necessity and value of conflicting opinions and debate

Similarly, Larry Prusak writes in HBR.org about the lessons NASA learned from its failures to embrace dissent in the past, which include, among other things:

  • Bringing many and varied experts and interested parties together in one room, where they could listen to one another and discuss their findings and opinions.
  • Conducting widespread, “democratic” polls (rather than, say, providing information to a few senior managers who would make the decision themselves).

At a fist glance the yellow card or the “democratic” polls seem like trivial ideas. Why do we need a sign? People can just raise their hands and talk! Why do we need a “democratic” (which probably means secret) poll? If people have objections they will just say them out loud.

However, in case of conflict, there is a lot of power to be found in pre-agreed upon resolution mechanisms. In the heat of an argument or a content-based conflict there it is difficult for the parties abandon their standpoints in order to agree on how to agree. When done in advance, it would be easier for the parties to think of it as fair, as it is not connected in their minds to the current debate. It is similar to the ideas proposed by John Rawls in his book A Theory of Justice:

Specifically, Rawls develops what he claims are principles of justice through the use of an entirely and deliberately artificial device he calls the Original position in which everyone decides principles of justice from behind a veil of ignorance. This “veil” is one that essentially blinds people to all facts about themselves that might cloud what notion of justice is

If you are a team leader it might be wise to develop pre-agreed upon mechanisms to settle conflicts. These mechanisms should be decided by the team before hand, when people are ignorant to their side of the conflict and to their interests in it. When people perceive these mechanisms as fair in advance it would be hard for them to argue against them in real-time, which will enable better conflict management that will lead to the needed collaboration.

What are your mechanisms for conflict resolution? Are they determined before or during a conflict?

Elad

Do other people know what you want?

Photo by Pink Sherbet Photography

Just yesterday I asked “Will middle managers join the dinosaurs?” after reading Lynda Gratton’s Future of Work blog post. Today in HBR.org John T. Landry gives a different approach:

…[W]e’re better off accepting command-and-control as the default for organizational life. A few companies or industries may be able to achieve true empowerment and collaboration for a while, mostly because their fast-changing markets leave them little choice. For every other organization, let’s lower our sights and focus on softening the edges of hierarchy.

Interesting. But I am more interested in a different part of the post where Landry describes an interview given by Bob Brennan CEO of Iron Mountain. Here is how Landry describes what Brennan says:

Brennan starts by saying that business is going through a transformation and top-down leadership no longer works well for companies. But he believes that too many of his managers still operate in a “command-and-control reflex.” They’re a lot like he was earlier in his career: good at holding subordinates accountable but bad at setting clear expectations. When subordinates aren’t sure what the boss really wants to accomplish, they don’t feel safe, and true delegation is impossible. Instead of acting autonomously, they hang around the boss and try to do whatever pleases him at the moment.

Fascinating. It reminded me of something I wrote long ago in a post called “What will your employees do when you leave for a vacation?”:

Imagine. You leave for a month of an overdue vacation. The catch is, it is on a deserted island, which has no way of communicating with the outside world. What will happen to your employees when you are gone? Will everything continue as usual? Will they be able to ask themselves, at every decision intersection they face – what does my manager would like to me to do, and answer that question? Correctly?

In one of the forums on Linkedin there is a current discussion about the difference between leaders and managers. While I have my own answer for this question, I found it interesting that a large part of the discussion was devoted to the question of vision and whether it is a necessary ingredient in the success of a company.  Well, maybe vision is a big word that frightens people and makes them think about historical figures or CEO of multi-million dollar companies. But actually it is much simpler. A manager needs to ask – will my employees be able to make decisions when I am not here. The decisions might be right or wrong in retrospect, but that is less important. What is important is whether these decisions align with your guidelines and attitude?

So, do the people around you know what you want even when you are not there?

Elad

Shorts: Amar Bhidé on the deference of human judgment in favor of computer models.

Today, I heard HBR.org Ideacast titled Bringing Judgment Back to Finance where Amar Bhidé, author of a recent HBR article The Judgment Deficit and of a book titled A Call for Judgment: Sensible Finance for a Dynamic Economy was interviewed about the ideas in his article and book.

It is a fascinating cast and I would let you listen to it. I wanted to point to what in my view was the main idea. Over-reliance on computer models, both in finance and in other areas of life, is dangerous. While computer models and arithmetic based rules are important, they should not replace human judgment.

I must admit that when I prepared my No More Rules! presentation and wrote the MIX hack under the same title, I haven’t even considered cases where the rules are no man-made, but computer made. This, of course, leads to a different set of complexities (Hey, this is what the computer says). I think however, that the message is the same. We need people who think, how develop skill, judgment and practical wisdom. Rules, guidelines and arithmetic models are tools that should help human make decision, not replace them.

Interesting stuff!

Elad

Share

Did we fire anybody?

Photo by Mykl Roventine

[tweetmeme]

I never bought anything from Zappos. I actually haven’t heard about it until last year. I came to learn more about it when it was bought by Amazon a while ago and we had an interesting debate among my classmates at AGSM MBA 2010 class about whether it was a smart move or not. But the more I hear about the company (and I wrote about it before: 1, 2) the more I come to appreciate it.

It turns out that a few days ago, Zappos had a little problem with pricing in one of their sister websites. The pricing issue meant that many products were sold for a small percentage of their original price for about six hours. This meant a loss of … wait for it… $1.6 million (gasp!).

Now, mistakes happen. Even big ones. The question is as managers and leaders, how do we cope with mistakes and prevent them in the future. Look what Zappos CEO, Tony Hsieh, writes about the incident:

To those of you asking if anybody was fired, the answer is no, nobody was fired – this was a learning experience for all of us. Even though our terms and conditions state that we do not need to fulfill orders that are placed due to pricing mistakes, and even though this mistake cost us over $1.6 million, we felt that the right thing to do for our customers was to eat the loss and fulfill all the orders that had been placed before we discovered the problem.

I see two amazing things here. First, a company that understands that values and a belief in something means difficult tradeoffs. Zappos is built around customer service and customer satisfaction. It is not always about going with the letter of the law or the contract. It is about acting right according to the principles that the company is built upon. They decided to fulfill the orders basically saying to the customers – “good for you!”

Second, they decided not to play the blaming game. Yes, there was a mistake. Somebody made it. Maybe even a number of people were responsible. But, that is in the past. The question is what do we do in the future. Susan Scott writes in Fierce Leadership that people should Model accountability and hold people able:

… Accountability begins (and in this case, ends) with you. You being accountable in front of everybody else. Not talking about it, not bragging about it, just modeling it. Doing what you said you’d do. Taking responsibility for disappointing results. Focusing on taking action. Asking, given this result what will I do about it? And if things go wrong with others, asking the same question. Given this result what are you going to do? And you must give up blaming.

Zappos decided to look at this as a learning opportunity. I am sure this kind of mistake will never happen again. Will we never see other mistakes? Not likely. And I ask you, what does that do to the confidence of employees? To their willingness and ability to take risks? And their willingness to make sure nothing like this ever happens. To go the extra mile to make share it will never happened. I think it will be a lot bigger than if heads would have rolled. Not only because it is the right and human thing to do. But also because it fits so well with the entire culture of Zappos.

Employee engagement does not start over night. It is about being consistent with every action and decision. Especially the hard ones. I agree with every word Paul Hebert writes about this:

The company decided that the process was the problem – not the people. From what I can read into this they started by deciding the people were competent, the people didn’t do this because they were stupid, lazy, disengaged, or malicious. They started with a positive view of the people.

I’ll ask you this… in your organization would this happen?  Would a $1.6 million error be handled the same way? That my dear readers is a quality organization.  If you want to know what a role model looks like – this is a role model.

Elad

Like This!

Shorts: Brandon Sanderson on people

[tweetmeme]

A few days ago I finished reading Warbreaker by Brandon Sanderson. An inspiring Epic Fantasy book. I found some parts of it so insightful about people, that I decided to quote some of them here.

Motivation

What I’m trying to say is that you don’t understand a man until you understand what makes him do what he does. Everyman is a hero in his own story, princess. Murderers don’t believe that they’re to blame for what they do. Thieves, they thing they deserve the money they take. Dictators, they believe they have the right – for the safety of their people and the good of the nation – to do whatever they wish.

About our judgment of other people

She’d been wrong about him. She was almost certain of that now. She had to stop judjing people. But was that possible? Wasn’t interaction based, in part, on judgments? A person’s background and attitudes influenced how she responded to them. Her answer, then, wasn’t to stop judging. It was to hold those judgments as mutable.

Failure

But Hallandren had repeatedly proved that she was flawed. And now that she’d tried and failed so often, she found it hard to act. By choosing to act, she might fail – and that was so daunting that doing nothing seemed preferable.

You want to be competent? She thought. You want to learn to be in control of what goes on around you, rather than just being pushed around? They you’ll have to learn to deal with failure.

Elad

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

Photo by Jorge Franganillo

[tweetmeme]

Umair Haque, a fascinating writer (which I quoted in my No More Rules! Presentation), wrote a captivating piece in HBR.org 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?

Elad