Jul

3

Hidden flaws in strategy (part un)

Filed Under business, entrepreneurship, product management, self improvement, strategy, things to remind myself, winds of change | Leave a Comment

The McKinsey Quarterly has an interesting piece titled “Hidden Flaws in Strategy”, authored by Charles Roxburgh. What I like about this article is that it forces one to think about your blind spot, and provide solutions on how to overcome your own bias. A blind spot is well, very self-explanatory, which is why I think that’s just all the more reason why people, especially those who do any kind of strategy, should read this well put together article.

I’ll sum up some of the key takeaways to me, but reading the original piece of McKinsey is highly recommended.

Here are the common strategy flaws.

Flaw 1: Overconfidence

Our brains are naturally wired to make us overconfidence. This can be a good thing, because otherwise no one in their right mind would want to launch a new startup. However, we hurt ourselves when we try to make accurate estimates. Given a test question like “How heavy is a fully laden 747?” where participants are asked to give an answer where they were 90% confident, most people would rather be precisely wrong than be vaguely right.

Lesson learned: Be skeptical of strategies premised on certainty, and (duh) give yourself some wiggle room.

Flaw 2: Mental Accounting

Richard Thaler, a theorist in behavioural finance named the concept of mental accounting, defined as “the inclination to categorize and treat money differently depending on where it comes from, where it is kept, and how it is spent.” Some examples of mental accounting in the boardroom:

  • imposing caps on core business while throwing money at a startup
  • writing off money spent with conveniently created categories such as “revenue-investment spend” or “strategic investment”

Lesson learned: Don’t be so quick to throw away “so what if we throw it away” money. Eval potential investment through the standard scrutiny process, regardless of how the money fell into your lap.

Flaw 3: Status quo bias

An experiment conducted by Samuelson and Zeckhauser discovered that when students were asked how they would invest a hypothetical inheritance of millions of dollars, they adopted a “let’s leave things where they are” approach. That is, if the inheritance was already in high-risk high-yield stocks, it would be left as is. If the inheritence was already in low-risk low-return bonds, it would also be left as is. They opted not to rebalance the allocation in this hypothetical portfolio, even if it wasn’t in accordance to their risk preference.

The explanation is that people are more concerned about the fear of loss more than they are excited by the prospect of getting more. That’s the status quo. That’s what makes entrepreneurs special–they are not the status quo.

The other explanation is the endowment bias. Thaler discovered in an experiment with Cornell students that they wouldn’t pay more than $2.75 for mug with a Cornell imprint, but if they were given one, they wouldn’t sell the same mug away for less than $5.25–did the free market suddenly decide that the same mug has more value when it was already in someone’s possession when the same mug (a brand new one available for purchase) would be worth less? I think not.

While conservatism can be a strategic asset, it is important to distinguish between a status-quo option that is genuinely the right thing to do vs. one that just “feels safe” because of our innate bias.
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May

6

Cognitive Surplus

Filed Under regular reads, things to ponder about, things to remind myself, time management, winds of change | Leave a Comment

If I had to pick the critical technology for the 20th century, .. I’d say it was the sitcom. Starting with the Second World War a whole series of things happened–rising GDP per capita, rising educational attainment, rising life expectancy and, critically, a rising number of people who were working five-day work weeks. For the first time, society forced onto an enormous number of its citizens the requirement to manage something they had never had to manage before–free time.

And what did we do with that free time? Well, mostly we spent it watching TV.

We did that for decades. We watched I Love Lucy. We watched Gilligan’s Island. We watch Malcolm in the Middle. We watch Desperate Housewives. Desperate Housewives essentially functioned as a kind of cognitive heat sink, dissipating thinking that might otherwise have built up and caused society to overheat.

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Sep

17

Third-world stats and myths

Filed Under changing the world, did you know, ideas, microfinance, passion, people i like, things to ponder about, winds of change | Leave a Comment

The following TED video clip is AWESOME. 20 minutes well worth your time, I personally guarantee it.

Key points for myself:

  • It’s better to be healthy first, then wealthy later (vs. the other way around)
  • GDP per capita is tied directly to infant mortality rate
  • We’re moving towards 1 world, 3rd world countries are slowly pushing out of poverty
  • Cookie-cutter approaches don’t always work, 1 size fits all cannot be applied everywhere
  • Some people are unwilling to share data that can help change the world
  • $100 dollar OLPC initiative is truly changing the world

Amazingly cool graphs! Makes me believe even more in why the non-profit microfinance I am helping out with can really make the world a better place. I would love to one day meet Hans Rosling in person.

Aug

19

Winds of Change

Filed Under changing the world, perseverance, self improvement, stanford, strategy, things to remind myself, winds of change | Leave a Comment


* Image courtesy of GIS and AOL’s CDN

Update: Welcome Carnival of Career Intensity readers! Thanks to Dave for including this post in the Labor Day carnival.

I’m adding a new category to my blog, titled “Winds of Change”. I could have just called it “Change”, but that’s no fun ;) (in case you want to know where I got it from, it’s a name of a song I like). Change is inevitable, and I’ve learned a great deal (and still have much to learn), about embracing change instead of fighting to defend the mediocre status quo. Carly Fiorina gave a great talk about change at Stanford 3 months ago, and why sometimes leaders get “carried out on their shields” because change is difficult! I highly recommend listening to her talk, if you don’t have time, make time, I promise you will not regret it :)

So without further ado, I wanted to share a good article I read about change.

Begetting Change: Same Choices, Same Results

Repeated bouts of adversity are an unavoidable aspect of human existence. We battle against our inner struggles or outer world forces, and in many cases, we emerge on the opposite side of struggle stronger and better equipped to cope with the challenges yet to come. However, we can occasionally encounter trials that seem utterly hopeless. We strike at them with all of our creativity and perseverance, hoping desperately to bring about change, only to meet with the same results as always. Our first instinct in such situations is often to push harder against the seemingly immovable obstruction before us, assuming that this time we will be met with a different outcome. But staying power and stamina net us little when the same choices consistently garner the same results. A change in perspective, behavior, or response can do so much more to help us move past points where no amount of effort seems sufficient to overcome the difficulties before us.

Whether our intention is to change ourselves or some element of the world around us, we cannot simply wish for transformation or hope that our lives will be altered through circumstance. If our patterns of thought and behavior remain unchanged, our lives will continue to unfold much as they have previously. Patterns in which fruitless efforts prevail can be overcome with self examination and courage. It is our bravery that allows us to question the choices we have made thus far and to channel our effort into innovation. Asking questions and making small adjustments to your thought processes and behaviors will help you discover what works, so you can leave that which does not work behind you. To break free from those unconscious patterns that have long held sway over your actions and reactions, you will likely have to challenge your assumptions on a most basic level. You must accept once and for all that your beliefs with regard to cause and effect may no longer be in accordance with your needs.

Stagnation is often a sign that great changes are on the horizon. Courting the change you wish to see in yourself and in the world around you is a matter of acknowledging that only change begets change. The results you so ardently want to realize are well within the realm of possibility, and you need only step away from the well-worn circular path to explore the untried paths that lie beyond it.

Great lesson here. Sometimes, brute-force techniques aren’t the most efficient way to solve a problem. It’s always best to remain open to other possible problem solving methods. Acknowledging you have made a mistake (or could have done something better) is the first step, before making incremental adjustments to your course. When you feel growth stalling, then you know you have to actively seek out change, for the same choice will return you the same results. Take charge of your destiny.

What I’ve found true for myself, if you don’t take charge of your life, others will run your life for you. It’s your own responsibility to ensure that you end up where you want to be. If you don’t like where you end up, you only have yourself to blame.