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Disrupting the Bankers

Typical banker.

Typical banker.

When I need a ride, I no longer call a dispatcher. Rather, I call a driver directly, using a service like Lyft or Uber. When I want to watch a TV show, I no longer tune in to a local TV station and wait for them to show it. Instead, I just stream it to my computer.

In short, I’ve eliminated the middleman. The process is called disintermediation – I’ve eliminated the intermediary. We see it happening in publishing, lodging, ride sharing, television, even in adultery.

So what about banking?

Traditionally, banks are trusted intermediaries that allow us to conduct business with strangers. You buy something from me and I want to be paid. You give me some token of value. Can I trust you? Maybe not. So I turn to the banking system. Your bank can verify that you have the necessary funds on deposit. My bank can verify that your bank will actually transfer those funds to my account. It’s a valuable service and banks charge a significant fee for it.

As intermediaries, banks are subject to disintermediation. If we can eliminate them, we can create a simpler, cheaper, more efficient system. That’s the promise of Bitcoin, which uses an encrypted blockchain to enforce trust through software.

To date, Bitcoin’s fans include hipsters, drug dealers, terrorists, and libertarians — people who prefer anonymity and cash rather than credit. The fan club has given Bitcoin a seedy reputation. Mainstream financial institutions might well ask, With friends like those, who needs Bitcoin?

The short answer is: Anyone who can’t access a trustworthy banking system. As Jeremy Millar points out, that includes much of the third world. If you’re trying to run a business in, say, Greece or Argentina, you’ll encounter an array of financial obstacles, including currency controls and cross-border payment limitations. Your suppliers can’t trust that you will pay them promptly. Nor can you trust that your customers will. Since the banking system can’t supply a trusted intermediary, you turn to Bitcoin. According to Millar, Bitcoin will find a niche in the third world and expand from there. (If so, Bitcoin will closely follow Clayton Christensen’s model of disruptive innovation: 1) find a niche; 2) mature; 3) disrupt).

And who else might need Bitcoin? Well, the banks themselves. Bankers realize that they are likely to be disrupted. So why not disrupt themselves rather than waiting for someone else to do it for them?

That appears to be exactly what a Wall Street startup named R3 is planning to do. R3 doesn’t use Bitcoin per se but rather the cryptographic technology that underpins Bitcoin. In addition to the blockchain that identifies transactions, R3’s system uses distributed ledgers in a peer-to-peer (P2P) network. The system consists of many nodes that replicate information. (It’s similar to Napster). Since information is distributed across many nodes, there is no single point of failure. Since the nodes can be scattered around the world, no single government can control it. Since transactions are copied to multiple nodes, it’s also very hard to cook the books. The system builds trust through replication and encryption.

According to its latest press release, R3 has now signed up 42 major financial institutions. The list includes some very heavy hitters, including Banco Santander, Deutsche Bank, J.P. Morgan, Goldman Sachs, HSBC, Royal Bank of Canada, and SEB. The consortium is now building a technology platform that will allow members (and presumably non-members) to build global applications.

In essence, R3 plans to bring us a version of Bitcoin run by professional financiers rather than wild-eyed technology radicals. That’s not such a bad idea. But there’s also a darker side. If R3-like platforms succeed, the world’s financial system will be controlled by bankers rather than by governments. So we come back to a question of trust. Whom do you trust to run the global financial system: bankers or governments?

New York, The NORC

Share my NORC with me.

Share my NORC with me.

A lot of our friends are downsizing. The kids have moved out, they don’t need the big house anymore, and they’d rather live in a smaller place and free up some of their funds for travel … or maybe for the grandkids.

Some of our friends are moving into naturally occurring retirement communities or NORCs. These communities were not designed for older people but, over time, have evolved into place where seniors like to congregate.

One of the communities is not far from us. It’s one of the first gated communities in Denver (and still one of the very few). Designed in the 70s, it consists mainly of semi-detached, single story homes. It’s close to a main street but not on it. There’s very little traffic. It’s also a level area, so it’s easy to walk around. There’s a small community center, with a pool. Maintenance workers will help you maintain your place.

The development wasn’t designed as a retirement community. But all the features and amenities make it congenial to older people. There’s also a network effect. As older people move in, they attract other older people (and, perhaps, make it less attractive to younger people).

Some cities have become NORCs in their own right. Tucson and Phoenix come to mind in the west. Miami probably serves a similar function in the east. A number of our friends have homes in Tucson. Some live there year round; others just escape cold northern winters for six months or so. When we visit our friends, we mainly see an older demographic.

Michael Hunt, a professor at the University of Wisconsin, coined the term NORC back in the 80s. According to Wikipedia, there are now three types of NORCS:

  1. Classic NORC – mainly this is a building, or cluster of buildings, filled mainly with older residents. By and large, they’ve aged in place. Also known as a vertical NORC.
  2. Neighborhood NORC – known as a horizontal NORC, this is a small community of single and multi-family homes.
  3. Rural NORC – a rural community, perhaps where the kids have left and older people tend to congregate.

Most of our friends who live in NORCs live in the second type – neighborhoods and gated communities whose amenities — and/or weather — appeal to older people. The gated community near us is definitely a Type 2 NORC.

However, I would argue New York City — which is more of a Type 1 NORC —  is the best NORCtown in America. For one thing, you don’t need to drive. For older people who can no longer driver (or no longer want to), New York is a natural. Then there’s the food. Don’t want to cook anymore? No need to go to the retirement home’s dining hall (where the food is typically awful). You can get almost any food you want delivered to your door.

We might think of New York as a vertical NORC but there’s also a horizontal dimension. Most apartments are on one level – there are no stairs to negotiate. Plus, you have the doormen and supervisors to help you with everything from simple chores to complex maintenance work.

If you want to get a dog to keep you company, you can hire a dog walker to keep it properly exercised. Medical care is widely available and easy to get to. Some docs will even come to your home. And, of course, there’s plenty to do. Everything from Broadway plays to great people watching. Don’t worry – you won’t get bored.

Why isn’t the Big Apple known as the world’s largest NORC? Probably a lack of marketing. But just wait. It won’t belong before Frank Sinatra’s classic voice is remixed to sing New York, The NORC.

The Dreaded iHunch

Now look at your phone.

Now look at your phone.

We know that smart phones are bad for your posture. And we know that posture has a strong influence on mood, attitude, and performance. So, could smart phones be undermining your mood and deflating your performance? Of course they could.

Let’s review what we know about two key ideas:

Smart phones and posture – we know that people tilt their heads forward to read their smart phones. The trendy term for this is iHunch. Anatomists more frequently refer to it as forward head posture in which the ear is “…forward of the shoulder rather than sitting directly over it.” As the authors at What’s Your Posture note, it’s like hanging a bowling ball around your neck and reduces lung capacity by as much as 30%. It’s also associated with “headaches, abnormal functions of the eyes and ears, and psychological and mental disorders.” Yikes!

Posture and performance – the concept of embodied cognition suggests that we think with our bodies as much as our minds. If we smile, our mood will improve. If we stand up straight, our confidence will improve. If we support an idea, we’ll stand up for it. If we want to help someone, we’ll bend over backwards for them. In very literal ways, our posture affects our mood and performance.

As Amy Cuddy pointed out in her popular TED talk, if we adopt a high-power pose for two minutes, our levels of testosterone increase and levels of cortisol decrease. The effect is to increase dominance and reduce stress. We’re more confident and our performance improves.

On the other hand, if we hold a low-power pose for two minutes, testosterone falls and cortisol rises. We’re more stressed and less confident. Our performance suffers.

What does a low-power pose look like? Well, … it looks a lot like the posture we adopt when we look at our smart phones. In a low-power pose, we make ourselves smaller. We draw ourselves in. We take up less space rather than more. In a smart phone posture we’re essentially doing all of those things at once.

As Cuddy pointed out in yesterday’s New York Times, “When we’re sad, we slouch. We also slouch when we feel scared or powerless. Studies have shown that people with clinical depression adopt a posture that eerily resembles the iHunch.” By slouching over our phones, we’re making ourselves sad, fearful, and depressed.

When we look at our smart phones, we absorb new information. That information could be positive or negative. The posture we use, however, increases our stress and reduces our confidence. That tends to undermine the positive news and accentuate the negative news. We stress ourselves through our postures as much as our news sources.

What to do? As my father (a good military man) frequently reminded me, “Stand up straight. Look sharp, be sharp”. As it turns out, Dad was right. Oh… and breathe deeply, hold your head up, and take up more space rather than less. You feel better already, don’t you?

Sending A Memo To Your Future Self

Memo to self...

Memo to self…

We know a lot about the future. We can’t predict it precisely but we can often see the general contours of what’s coming. With a little imagination, we can prepare for it. We just need a structure to hang our imagination on.

As an example, let’s take organizations that are undergoing rapid and/or stressful change. We know a lot about such organizations. We know, for instance, that:

  • Communication suffers – people are distracted and don’t listen well. Bain estimates that only 20% of the information communicated actually gets through. Attention spans get shorter than ever. Tip: don’t give long speeches.
  • Memory becomes less accurate – stress affects memory in odd ways. Even in normal times, different people remember the same event in different ways. It gets worse in stressed out organizations.
  • We hear mixed and contradictory messages – change doesn’t happen smoothly across the organization. Some departments move quickly; others move slowly. When we talk to different people, we’ll hear different messages. It’s hard to tell what’s really going on.
  • We jump to conclusions more urgently — as the Heath brothers point out, we jump to conclusions all the time. Stress makes us even more jumpy. We’re anxious to get a solution and don’t take the time to consider the evidence.
  • Trust withers – it’s hard to trust people when we remember things differently, hear different messages, and jump to different conclusions.

I could go on but you get the picture. We also know that organizational change happens in three phases. At least, that’s what the theorists tell us. Here are four different models of the change process (here, here, here, and here). They use different descriptors but all four describe three distinct phases of change. Note that the middle phase is a trough – that’s where the going gets tough.

The trick to preparing for the future is to start imagining it before we get to the trough. Change managers refer to the trough with words like frustration, depression, resistance, and chaos. It’s not a good time for imagining.

So we start the imagination process in Phase 1. We’re still cool, calm, and collected. We can think more or less clearly – especially if we’ve studied critical thinking. We can think about the future dispassionately and plan how we want to behave.

We sit down in groups and discuss the issues we can anticipate in Phases 2 and 3. We know, for instance, that we’re likely to hear contradictory messages. How do we want to behave when we do? What can we do now to outline “best behaviors” for the stress created by contradictory messages? What can we do to ensure that we actually implement the best behaviors? What else might happen in the trough? How do we want to behave when it happens? We talk, discuss, debate, imagine, and agree.

We then write down what we’ve agreed to. In effect, we’re writing a memo from our current selves to our future selves. From our cool, calm, dispassionate selves to our stressed and anxious future selves. We make clearheaded decisions in Phase 1. When we get to Phase 2, we can refer back to our own wisdom to help govern our actions

I call this process Structured Imagination™. What we know about the future gives us the structure. We use the structure to focus our imaginations. We imagine what will happen and how we’ll behave when it does. This prepares us for the hurly burly of change and also vaccinates us against many of the ill effects of the trough.

Structured Imagination is not a perfect process – the future may still throw us a curve every now and then. However, I’ve used the process with multiple clients and they say that they face the future with greater confidence and clarity. That’s pretty good. If you’d like me to do a Structured Imagination workshop with your organization, just drop me a line.

Surviving The Survivorship Bias

You too can be popular.

You too can be popular.

Here are three articles from respected sources that describe the common traits of innovative companies:

The 10 Things Innovative Companies Do To Stay On Top (Business Insider)

The World’s 10 Most Innovative Companies And How They Do It (Forbes)

Five Ways To Make Your Company More Innovative (Harvard Business School)

The purpose of these articles – as Forbes puts it – is to answer a simple question: “…what makes the difference for successful innovators?” It’s an interesting question and one that I would dearly love to answer clearly.

The implication is that, if your company studies these innovative companies and implements similar practices, well, then … your company will be innovative, too. It’s a nice idea. It’s also completely erroneous.

How do we know the reasoning is erroneous? Because it suffers from the survivorship fallacy. (For a primer on survivorship, click here and here). The companies in these articles are picked because they are viewed as the most innovative or most successful or most progressive or most something. They “survive” the selection process. We study them and abstract out their common practices. We assume that these common practices cause them to be more innovative or successful or whatever.

The fallacy comes from an unbalanced sample. We only study the companies that survive the selection process. There may well be dozens of other companies that use similar practices but don’t get similar results. They do the same things as the innovative companies but they don’t become innovators. Since we only study survivors, we have no basis for comparison. We can’t demonstrate cause and effect. We can’t say how much the common practices actually contribute to innovation. It may be nothing. We just don’t know.

Some years ago, I found a book called How To Be Popular at a used-book store. Written for teenagers, it tells you what the popular kids do. If you do the same things, you too can be popular. It’s cute and fluffy and meaningless. In fact, to someone beyond adolescence, it’s obvious that it’s meaningless. Doing what the popular kids do doesn’t necessarily make your popular. We all know that.

I bought the book as a keepsake and a reminder that the survivorship fallacy can pop up at any moment. It’s obvious when it appears in a fluffy book written for teens. It’s less obvious when it appears in a prestigious business journal. But it’s still a fallacy.

 

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