In yesterday’s post, I discussed the difference between uncertainty and risk and how the distinction can give us better analytic tools. Today, let’s focus on what to do when uncertainty is certain and you just don’t know how “the world will behave tomorrow.” Here are some tips:
Revisit your assumptions – you assume things because you want to simplify the world and convert uncertainty into risk. If you assume that there are three possible outcomes, for instance, you can start assigning probabilities to each and treat them as risks. But what if there’s a fourth outcome that you assumed just couldn’t happen? That’s where the problem lies. It helps to list your assumptions and share them with others. Do they agree that your assumptions cover all the bases?
Study history – A few days ago I read an article about the coal industry in the United States. In 2008 and 2009, many American coal companies assumed that China’s appetite for coal was insatiable. These companies invested heavily in coal production and went bankrupt when their assumption proved wrong. Studying examples like this can help us understand our own assumptions and where our blind spots are.
Slow down – speed is the enemy of good decision-making. Step back, look around, consult with diverse analysts, and maybe even do a little yoga to relax. You won’t make good decisions when you’re hurried and stressed.
Recognize randomness – we love to make up stories to explain why things happened the way they did. Michael Mauboussin calls our desire to explain things an itch that must be scratched. Resist the temptation to scratch it. Recognizing randomness will help you expand your assumptions and deal more effectively with a wide range of possibilities.
Sharpen your observational skills – we jump to conclusions far too often because we don’t pay close attention to indicators and signals in the environment. Observation is a skill like any other – we can practice it and improve it. Here are some tips on how to do just that.
Include observers with fluid intelligence – those of us with some years of experience on our resumé have a lot of crystallized intelligence. We think we know what’s going to happen because we’ve seen it all before. We grow overconfident in our ability to predict the future. It’s a good idea to include on your team people who have more fluid intelligence. They haven’t seen it all before and, therefore, they make fewer assumptions. They don’t know that they don’t know which makes them more acute observers.
Invest in information – Nathan Bennett and James Lemoine summarize the situation in their article on VUCA: “Invest in information – collect, interpret, and share it. This works best in conjunction with structural changes, such as adding information analysis networks, that can reduce ongoing uncertainty.”
Here’s a simple cause-and-effect question. Does an increase in self-esteem lead to greater success in life? Or is it the other way round: an increase in success leads to greater self-esteem? It’s one of those tricky questions that can guide – or misguide – our public policy.
Nathaniel Branden did more than anyone else to popularize the idea that improving one’s self-esteem can lead to greater success. Pump up the self-esteem and everything else works better. Branden launched the idea when he published his book, The Psychology of Self-Esteem in 1969. (Branden had been Ayn Rand’s acolyte and lover; he broke with Rand in 1968 and published his new thinking a year later).
Branden’s work seemed to explain a lot and the self-esteem movement grew quickly. Educators – especially at the primary and secondary levels – adopted it enthusiastically. Unfortunately, it didn’t work.
In 2005, Roy Baumeister and his co-authors published a paper titled, “Exploding the Self-Esteem Myth”. The authors studied over 200 research papers and concluded “… self-esteem belongs on the same shelf as miracle diet pills.”
In 2009, Po Bronson and Ashley Merryman published Nurture Shock – New Thinking About Children, which – among many other things – assessed 15,000 studies on self-esteem. They concluded that, “… high self-esteem doesn’t improve grades, reduce anti-social behavior, deter alcohol drinking or do much of anything good for kids. In fact, telling kids how smart they are can be counterproductive.”
Self-esteem seems to be yet another thing that we’ve gotten backwards. We’ve confused cause with effect.
So, what’s replacing self-esteem? The emerging consensus focuses on self-control. And one of the authors leading the way is Roy Baumeister. In a recent article in Scientific American, Baumeister writes that, “People with good control over their thought processes, emotions and behaviors not only flourish in school and in their jobs but are also healthier, wealthier and more popular.”
Similarly, David Brooks recently wrote about “The Moral Bucket List” in the New York Times. He notes that there are resumé virtues and eulogy virtues. We all know that eulogy virtues are more important than resumé virtues, but we spend our time developing the latter rather than the former.
Baumeister refers to self-control and willpower. Brooks uses a more traditional moral language and focuses on character. But the concepts overlap extensively. So, how does one build self-control, willpower, and character?
To begin with, Baumeister argues, we need to recognize that willpower is analogous, in many ways, to muscle power. Just as a muscle tires after exertion, so willpower can tire after we exercise it. Baumeister calls it ego depletion – if you use your willpower to resist Temptation X, you’ll have less left over to resist Temptation Y.
We’ve all experienced muscle fatigue from time to time and we can probably grasp the concept of willpower fatigue. But we also know that we can build our muscle strength through exercise. Does the same hold true for willpower? Apparently so.
Baumeister reports on a study that asked students to clean up their language (no cursing) and/or straighten up their posture for a period of two weeks. At the end of the period, researchers tested the students’ self-control ability. They “performed significantly better than a control group.”
Moving into Brooks’ territory, Baumeister goes on to say, “It has occurred to us from these studies that the Victorian notion of “building character” seems to have some scientific validity.”
So how does one build character and improve willpower? More on that in upcoming articles.
Germany is poised to join the 30 Percent Club. Beginning in 2016, women must hold at least 30 percent of board seats at large, public companies. Germany will join other countries like Norway, France, Spain and the Netherlands in mandating female representation on boards of directors.
Will it work? It depends on what the goal is. Norway began the trend in 2006, mandating 40% representation. As The Economist puts it, “…[the] law has not been the disaster some predicted.” Not exactly a ringing endorsement but the magazine suggests that the real benefit may be a change in attitude.
The Financial Times appears a bit more optimistic: “Early analysis appears to show that quotas work and have been highly successful across Europe.” Fortune appears less sanguine, “a close look at the results of these quotas – and of Norway’s in particular, which have been in effect the longest – shows that the results might not be all that their backers intend.” Fast Company is more positive.
The articles I’ve cited here seem to have different views of what success means. If success is defined as:
Unfortunately, none of the articles discuss why boards with women might perform better. I’ve found two different reasons in the literature that suggest that women can bring important qualitative differences to board discussions and decisions.
First, women appear to make better decisions about risk, especially under stress. The research comes from Mara Mather and Nicole Lighthall who study the effects of stress on decision-making. They found that stress changes the way we select alternatives and accentuates differences between men and women. Bottom line: “…stress amplifies gender differences in strategies during risky decisions, with males taking more risk and females less risk under stress.”
Why would that be? Writing in the New York Times, Therese Huston argues that it may be empathy. We generally view women as more empathetic than men. Under stress, Huston writes, women “… actually found it easier than usual to empathize and take the other person’s perspective. Just the opposite happened for the stressed men — they became more egocentric.”
The second major reason stems from the impact of women on group behavior and effectiveness. MIT reports that the “tendency to cooperate effectively is linked to the number of women in a group.” In The Atlantic, Derek Thompson writes that group intelligence is similar to general intelligence in an individual. General intelligence suggests that an individual who is good at one thing is likely to be good at other things as well. Similarly, a group that’s good at one thing is likely to be good at other things, too. This is dubbed collective intelligence, which varies from group to group.
What factors contribute to collective intelligence? It’s not the average intelligence of the people in the group. Nor is it the intelligence of the smartest person. Thompson notes that we can rule out many other things as well, including motivation, cohesion, and employee satisfaction.
So what makes a group collectively intelligent? Average social sensitivity. It’s the ability to read between the lines and understand what someone is really saying. Thompson writes, “social sensitivity is a kind of literacy, and it turns out that women are naturally more fluent in the language of tone and faces than the other half of their species.”
So women make better decisions in stressful situations. Boards have to deal with high levels of stress. Women also make groups more effective. Boards, of course, are groups of people trying to reach effective decisions. The debate on women on boards was generally framed by the question: Why would we put women on boards? With our new understanding, the proper question is: why wouldn’t we?
(The New York Times also has an interesting on group effectiveness and female participation. Click here.)
I’ve just passed a major birthday, which qualifies me for a number of government benefits, including social security and health care. While I appreciate the benefits, I also have to wonder: why do so many government benefits go to old people as opposed to young people?
The benefit system helps people – like me – who have already had plenty of opportunities. I’ve had years to work and save money for my retirement. I know that not everyone has had the same opportunities. I worked hard but I also got lucky. I know that many other people weren’t so lucky.
And that’s my point. Instead of paying people after they’ve retired, let’s invert the benefits ladder and invest in people from the beginning. Here’s an analogy – we’re all given small boats at birth. By chance, I got a boat that’s well built and seaworthy. My friend, Chuck, on the other hand, got an unstable, leaky boat. Chuck’s out at sea when his boat starts to sink. That’s OK – as long as he can swim to shore, we’ll give him a pension that will keep him alive.
Wouldn’t it be better to spend the money up front and get Chuck a boat that’s as seaworthy as mine? Note that this doesn’t ensure that Chuck will be successful. He might still get swamped. Luck will still play a role in Chuck’s life. But we’ve shifted the odds. Chuck has a better chance to succeed but he still needs to work hard.
Here’s how an inverted plan might work. When a child is born – let’s call her Susie — she automatically gets a bank account. Each year, the government puts, oh say, $10,000 in it. No one can touch the money until Susie turns 18. She then has $180,000, which she can use to start a business, go to college, learn a trade, or be a ski bum. It’s up to her. She can ask her parents for advice or not – it’s her money.
The government then says, in effect, “OK Susie, we helped you get off to a good start – now it’s up to you.” The government might offer some savings plans – somewhat like social security – but they’re voluntary. Susie is now launched. She has to make her own choices and take responsibility for her own welfare. She has every incentive to work hard and invest wisely.
I’m attracted to an inverted plan because it touches on so many American values. We say that all men (and women) are created equal. The inverted plan gets us all off on equal footing regardless of the accidents of birth. We’re also an individualistic culture and admire people who pull themselves up by their own bootstraps. The inverted plan gives people better bootstraps and the incentive to pull hard.
The plan also helps us resolve difficult issues about who deserves help. We’re a generous country. Indeed, according to the World Giving Index, America is the most charitable country in the world. But we like to give to those who are deserving. Deciding who deserves help is a thorny question that gets tangled up in questions of age, gender, social class, geography, ethnicity and so on. It also leads to never-ending debates about the “safety net” that may or may not have turned into a “…hammock that lulls able-bodied people to lives of dependency and complacency…”
My plan resolves the questions of the “deserving poor” – we simply agree that all children are deserving. Grown-ups, on the other hand, can take care of themselves. All we need to do is to protect them against the failure to launch.
So, I suggest that we consider an inverted plan. Let me know what you think. In the meantime, I’ll be lying in a hammock enjoying my government benefits.
When I worked for Lawson in Sweden, we ran a leadership development program called the Greenhouse (or Växthuset in Swedish). Students participated in yearlong projects that stretched their skills and got them out of their comfort zones. They swapped roles, did stints in different departments, and spent a lot of time with customers, including some disgruntled ones.
The students were overwhelming positive about the program. But I always wondered if it was effective. After all, it’s not so hard to get good evaluations from students.
Did we really develop better leaders? Or did we just select natural leaders and show them a good time for a year? And, if they were better leaders, what were they better at? Were they better, for instance, at acquiring and integrating other companies (which was part of our strategy)? Or did they improve their ability to promote innovation? Or did they improve their ability to implement financial controls during economic turbulence? Or what?
Could they really be better at all these things? Which ones were most important? I thought about all this as I read a recent McKinsey report, titled “Why Leadership Development Programs Fail”. According to McKinsey, they fail for four reasons. Let’s look at each.
1) Overlooking context – McKinsey calls it context but I call it strategy. Many leadership programs are decoupled from company strategies. McKinsey notes, for instance, that programs often “…rest on the assumption that one size fits all…” and consist of “…a long list of leadership standards…” and “…corporate values statements.”
McKinsey suggests that managers ask a simple question, “What, precisely, is this program for?” For instance, one of Lawson’s strategies was to target specific verticals (and ignore others). So the Greenhouse curriculum helped students understand how to identify and develop verticals. On the other hand, we probably didn’t give enough emphasis to acquisitions, another part of our strategy.
The key is to ask what skills are needed to execute the strategy successfully. There may be only two or three. Make sure the students work specifically on those behaviors.
2) Decoupling reflection from real work – retreats are nice but they don’t change behaviors. Indeed, McKinsey estimates that adults retain only 10% of what they learn in lectures. Instead of lectures, focus on workshops, collaborative projects, and exercises that require students to learn by doing.
We created fictional exercises for the Greenhouse. The students, for instance, had to “sell” a major contract to a “customer” who was using a competitor’s software. That’s not bad but, of course, real projects are better.
3) Underestimating mind-sets – to become good leaders, students will often need to learn new skills and change their behavior. Yet, changing behavior is one of the most difficult teaching objectives imaginable.
Let’s say, for instance, that your strategy is to decentralize authority and push decision-making outward and downward. Your leadership program should reflect this. But, if the student’s mind-set is I have to be in control at all times, you’ll need to change the mind-set before you can change the behavior.
How do you change mind-sets? Remember the broccoli tip. If you can convince a kid to eat broccoli, you can convince a manager to delegate effectively.
4) Failing to measure results – leadership development programs are often exciting (and even fun) and so they get high marks from the participants. But that’s not the point. More importantly, what happens to the participants after they leave the program? Do they rise in the ranks? Do they depart for other companies?
You’ll still have the selection versus value-added conundrum. Did the program actually add value or did you simply select natural leaders to include in the program? The only way to sort his out is to put a few randomly selected in the mix and see how they fare.
I have a lot of faith in leadership development programs. The bottom line: tailor the program to your strategy. If you don’t have a strategy, work on that first.