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Decision Theater

And what does the devil’s advocate have to say?

In major corporate decisions, a devil’s advocate can serve an invaluable function. The advocate can help stress test an idea and point out cognitive biases that others might miss. The big idea is put on trial. Executives who proposed the idea serve as defense attorneys. The devil’s advocate is essentially the prosecutor. She looks for weaknesses in the other side’s case and serves up an alternative narrative. She also helps the team protect against the down side. The advocate helps us make the decision right — using a balanced process that tends to dampen major biases.

All too often, however, the process devolves into “decision theater”. We’re just playing roles that don’t improve the decision process but do make us feel better about it. Here’s how I’ve seen it play out in various software companies:

  • Only a small number of people play the devil’s advocate (DA) role. They do it voluntarily and they get little or no support in terms of resources or even encouragement. Each time we had a meeting about a big decision, the same people  spoke up to say, “Well … let me be a devil’s advocate here …” I admired these people but I also wondered, Why do so few people step forward in this role? How could the company promote this role as a regular part of the decision process?
  • In these meetings, the devil’s advocate’s objections were always “handled”. In other words, the leader of the meeting (often the CEO) would thank the devil’s advocate for the input and then give a breezy statement that effectively dismissed the input.  We all felt better because we had “considered” the other side. But had we really?
  • Prior to the meeting, the devil’s advocate had very few resources to develop a coherent position. The DA didn’t have any staff to gather information or budget to hire consultants, etc. The DA’s position might be very thoughtful .. but it wasn’t well developed with evidence to back it up. It could easily be dismissed.
  • This is what I call “decision theater.” We believe we’re contributing to a good decision process, but we’re really just acting out roles.

I certainly respect people who play the devil’s advocate role. To make this more than theater however, the organization needs to change the process. How? Well, let’s look at the history of the devil’s advocate.

The Catholic church originated the role of the devil’s advocate in 1587. The advocate plays a key role in the process of canonization — determining whether a person should be declared a saint. The process includes a trial, with one side arguing that the person does indeed deserve sainthood. The other side — led by the devil’s advocate — argues the opposite. The devil’s advocate aims to poke holes in the other side’s argument, For instance, the advocate might claim that the miracles attributed to the person were actually frauds.

From my perspective, the most important element was that the church gave the advocate resources and respect to fulfill the role effectively. The devil’s advocate had resources — time, money, staff — to call on. This differs greatly from devil’s advocates in today’s corporate world, who may speak up but are not institutionally supported. A corporation that wants to debias its decision processes should do what the Catholic church did — institutionalize the role and provide enough support to make it serious.

Talking To Toddlers

Don’t talk down to me!

My friends who have kids sometimes ask if the lessons I teach in my Persuasion classes also apply to little tykes. Can we apply classic rules of rhetoric to convince kids to do (or not do) things? Can we apply Cicero’s five canons of rhetoric to five-year-olds? Truth be told, I haven’t studied it in detail. But, as a father, and now grandfather, I do have some thoughts. I might even claim to have good ethos (in the Ciceronian sense). Here are some thoughts:

  • Nobody likes to be talked down to — as a speaker or writer, you should never imply that you are smarter than your audience. If you want to degrade an opponent’s ethos, tell the audience that the opponent thinks he’s better than they are. (This technique is known as attributed belittlement). The same concept applies to kids — only it’s more literal. You’re taller than they are. Get down to their level. Speak to them face to face. They don’t like to be talked down to.
  • Pathos trumps logos — we know that adults make decisions more based on emotion than on logic. Doubly true for kids. Start by recognizing, and validating, their emotions.
  • Concession-and-shift — the best way to disagree is to begin by agreeing. If a kid is throwing a tantrum, start by conceding that she’s right. I call it the “ain’t it awful” maneuver. First you get down to their level and say something like, “I just hate it when my ice cream falls in the sand box and I don’t get to eat it. Ain’t it awful?” You may need to repeat it several times. Pretty soon, they’ll realize that you’re agreeing with them. Then (and only then) you can start talking about next steps.
  • Decorum is the art of meeting expectations – what does your kid expect from you? If you don’t fulfill these expectations, you create cognitive dissonance. Your kid’s not sure he can trust what you’re saying. You can talk about anything but, first, you have to act like your kid expects you to act. You can change your kid’s expectations, but it takes time. Don’t try it in the middle of a meltdown.
  • Social proof is incredibly important — how do you get a kid to eat broccoli? Not by logic. Not by lying — “You’ll grow up big and strong”. Put him with other kids who like broccoli. When another kid says, “Can I have your broccoli?”, your kid will say, “No, that’s mine!” By the way, as an adult, your value as social proof to a kid is approximately zero.
  • Speak to their commonplaces — a commonplace is simply a shared belief. Conservative commonplaces tend to revolve around liberty. Liberal commonplaces tend to revolve around justice. Kids’ commonplaces tend to revolve around … well, you know your kid. What does she believe? Speak to that, not to what you believe. As Will Rogers said, “When you go fishing, you bait the hook with what the fish likes. Not with what you like.”

Should We Think For Ourselves?

Thinking is hard.

I’ve just read two articles (here and here) that point out that fake news is a problem of readership rather than of technology. Astute readers who are armed with reasonably good thinking skills should be able to spot (or at least suspect) fake news items. So why don’t we? Perhaps we no longer wish to think for ourselves. Indeed, perhaps we never did.

When we say, “Thinking is hard”, we’re referring to conscious, logical thinking. We draw a problem into our conscious minds and consider its meaning, subtleties, and ramifications. In today’s neuro-vocabulary, we call this System 2 thinking.  It’s hard work.

But we do much of our thinking below the level of consciousness in what is now known as System 1. Systems 1 is so easy, we don’t even realize that it’s going on. It’s fast and efficient and uses far fewer calories than System 2. System 1 is often right but, when it’s wrong, it’s wrong in predictable ways. System 1 is akin to making an agreement with a friend – it’s informal and easy. System 2 is more like concluding a formal contract that is vetted by a roomful of lawyers. 

It’s easy to fool System 1. In fact, it happens all the time. Many of the jokes we tell are funny because they prey on the unconscious assumptions of System 1. If we examined the structure of the joke in System 2, we might well spot the assumption or double meaning well before the punch line. It wouldn’t be funny.

Fake news is like a joke – it depends on System 1 to work effectively. If we call the news into our conscious minds – aka System 2 – we’re much more likely to spot the flaw. We’re most likely to spot the flaw if System 2 is well prepared. So, what is a well-prepared System 2? In my opinion, it’s aware of: 

How are schools doing at turning out good thinkers who can spot fake news? Based on my sample of students: not so well. Over the last decade, I’ve taught approximately 500 students in my critical thinking classes. All of them have at least a bachelor’s degree. Almost all of them have said things like: “Gosh, I’ve never thought of this before.” We teach people how to play soccer, or chess, or piano. Perhaps we should also teach them how to think.

Can Zara Stop Globalization?

Maybe not.

For several decades, I’ve assumed that globalization is more-or-less inevitable.  As communication and transportation costs decline, manufacturers find it ever easier to take advantage of lower labor costs in developing countries (a process known as labor arbitrage). But recent developments may result in a new phenomenon, often described as glocalization – a worldwide trend toward local production and consumption. Three trends stand out as especially important: fast fashion, changing labor content, and the rise of a global middle class.

Fast is fashionable – based in Galicia, Spain, Zara SA pioneered the concept of fast fashion. The idea is simple – take newly spotted fashion trends from concept to deliverable in a matter of days, rather than weeks or months. Most apparel retailers introduce four to six clothing collections per year. Zara introduces as many as 20. Such speed has propelled Inditex, the group that owns Zara, to the “world’s largest apparel retailer”.

To move quickly, Zara and other fast fashion retailers, have to shrink their supply chains. They can’t wait weeks for shipments from faraway suppliers. The retailers have come to depend on local – or even hyperlocal – suppliers.

What’s next in fast fashion? Clothing-as-a-service. Most of my readers are not clothes horses, but we all have items in our closest that we will never wear again. So, why buy when you can rent? Rent The Runway is a subscription fashion service that will happily send you the latest fashions to use for a few days. Rent The Runway is even faster than Zara and even more dependent on hyperlocal suppliers.

By themselves, Zara and Rent The Runway won’t change our global supply chains. But other manufacturers are likely to adopt their business models. The “as-a-service” model is especially attractive. Uber and Lyft provide transportation as a service. Quip provides toothbrushing as a service. Salesforce provides software as a service. Google provides email as a service. And let’s not forget that libraries provide books as a service. As the “as-a-service” model proliferates, we’ll own less and use shorter, more localized supply chains.

Changing Labor Content – labor arbitrage works best under two conditions: 1) different countries – those that supply manufactured goods and those that consume them – have widely different pay scales; 2) the item being manufactured requires a lot of labor. The second variable – labor content – has been shrinking rapidly as factory automation proliferates. Today, a fully automated factory in say, Viet Nam is not appreciably cheaper than a similar factory in say, Nebraska. Moving production offshore is less appealing when the bulk of the value in a manufactured item comes from services other than labor.

Changing labor content affects services as well as goods. Many companies, for instance, have offshored their customer call centers to take advantage of lower labor costs in other countries. But artificial intelligence and improved voice recognition may soon change the economics of such decisions. When we can talk to a robot without realizing it (which will happen soon), it makes more sense to staff call centers with robots than with low-wage foreign workers.

The Rising Global Middle Class – recent estimates suggest that some 42% of the world’s population – roughly 3.2 billion people – are now in the middle class. Global poverty is shrinking, and global buying power is increasing. This does two things: First, the wage differential between developing and developed countries is shrinking rapidly. This shifts the first variable in the labor arbitrage equation. Second, and more subtly, it shifts the demand location. More people in developing countries can now afford to buy locally produced goods and services. Rather than shipping goods overseas, local manufacturers now have a growing local market for their products.

As McKinsey and Co. point out, this trend reduces trade intensity – the proportion of goods that are produced in one country and sold in another. In 2007, for instance, China exported 17% of what it produced. By 2017, this figure declined to 9%.

What’s it all mean? Perhaps it means that our nascent trade wars are not necessary. Populist governments are trying to stop globalization through tariffs and other punitive measures. The tools are crude and outcomes uncertain. But the problem they’re trying to solve has already morphed into something different. Rather than solving yesterday’s problem through political means, it may well be better to just let the market trends play out.

The goal now is to take advantage of glocalization rather than to stop globalization. Trade intensity and labor arbitrage are both falling. We’re moving toward shorter rather than longer supply chains. Exports of manufactured goods are growing in absolute terms but shrinking relative to service exports and local consumption. We may see some decoupling of established international supply chains. Is glocalization good news? In many ways it is. The shift from global to local production will probably create local jobs and even greater personalization. As always, there are risks as well. Ed Luce, writing in the Financial Times, quotes an old saying, “When countries stop trading goods, they start trading blows.”

Whom Do You Trust? America or Facebook?

Do we need it anymore?

The promise of cryptocurrencies is that we can create a widely-acceptable medium of exchange without having to trust anyone.  Cryptocurrencies have no central authority, no government agency to vouch for them. We don’t need to trust a government or a bank or a stock exchange. Elites can’t cheapen our currency because no elites are involved. Indeed, no one is involved. The currency is distributed across multiple computers and multiple networks. To manipulate the currency, one would need to control all the computers in the world – a seemingly impossible task.

In the original conception, the value of a cryptocurrency is based on nothing more than supply-and demand. Value is not linked to any physical asset like gold or oil or even paper currencies like dollars. Since there is no asset behind the currency, no one can manipulate the value of the currency by manipulating the underlying asset. Rather than trusting a government or an agency or a bank, we place our trust in an algorithm distributed around the world.

(The distributed nature of cryptocurrencies also makes them quite slow. Speeding up transactions is a major challenge for blockchain researchers. The most promising solution seems to be “sharding” – a technology worth keeping an eye on.)

Traditionally, we’ve trusted governments to create and maintain the value of national currencies. That’s been a pretty good bet in the United States, less so in Venezuela. But, really, do we need a nation to create a widely acceptable currency? Cryptocurrencies suggest that the answer is “no”.

But there’s a not-so-subtle problem with cryptocurrencies. The elephant in the room is that many people (myself included) view cryptocurrencies as a new version of the Wild West – a territory populated by libertarians, wild-eyed visionaries, snake oil salesmen, drug dealers, scam artists, and terrorists. And, by the way, some person created the algorithm and could potentially manipulate it for illicit purposes. Simply put, the current cryptocurrency scene does not inspire trust.

To fill the trust gap, several “trusted” agencies have stepped forward to offer cryptocurrencies based on a trusted brand and/or on physical assets. Case in point: J.P. Morgan Chase’s “JPM Coin”. Announced earlier this year, (click here, here, and here) JPM Coin is backed by a major bank and based on a physical asset: the U.S. dollar. The company touts JPM Coin as a simpler, faster way to make and clear payments.

This past week, of course, another “trusted” organization – Facebook – announced that it will introduce a new digital currency called Libra next year. (Click here and here). Facebook wraps its announcement in humanitarian gauze – it’s simply providing an effective payment service to the world’s unbanked citizens. As Evgeny Morozov points out, however, Facebook is actually doing two things:

  • Preparing to take on China’s social media giants, Tencent and Alibaba, which already combine payments and communications.
  • Positioning itself as a “as a rebel force against mediocre bureaucrats and sluggish corporate incumbents”. It’s doing battle against a coalition of lazy, inept, corrupt – untrustworthy – bankers, bureaucrats, and politicians. Morozov suggests that Facebook is activating its populist supporters to keep regulators at bay. More broadly, it’s a “plan to break the global financial system.”

Could Facebook’s Libra actually become a global currency at the expense of the dollar, yen Euro, and renminbi? Facebook currently has 2.38 billion active users. That number makes even China’s population look small. If a significant portion choose the Libra over existing currencies, then the money we know today could become irrelevant. If a nation’s currency is irrelevant, how relevant is the government?

Given all this, here’s a basic question — whom do you trust more: 1) the American government; or 2) Facebook?

(Note that JPM Coin and Libra are not truly cryptocurrencies, at least not in the original sense of the word. A cryptocurrency has three elements: 1) No central authority, agency, governing body or processor. Clearly J.P. Morgan and Facebook are centralized governing bodies. 2) No physical assets backing the currency. JPM Coin, uses the U.S dollar as its backing asset – it’s a digital currency based on a fiat currency. Facebook says that Libra will be based on physical assets, though it hasn’t quite defined them. 3) Permissionless – you don’t have to ask anyone’s permission to use a cryptocurrency. To use JPM Coin, you need to have an account at J.P. Morgan. To use Libra, you’ll need a Facebook account. Given this, it’s probably best to call JPM Coin and Libra “digital currencies” as opposed to “cryptocurrencies”.)

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