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It is Time to Strike Gold

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Tom Morgan was a smart guy.  He was a plainspoken partner at Price Waterhouse who influenced me in many ways.  For instance, he once (better than 30 years ago) told me that (both ours and our clients) actions should be driven by “facts and logic”.  This made good sense to me and I have spent the intervening years refining my understanding of that simple thought.

Tom’s philosophy (and I am doing a little educated guessing here) was born out of his background building systems that processed large (for the time) volumes of data to support complex operational decision-making.  The “facts” were the data input into the program and the logic describes the procedural programming languages that processed the input data and drove decision-making.  The systems were deterministic, i.e. for given inputs, you could count on a specific output.  Facts and logic.

Things have not changed since Tom left me with his thought about facts and logic—except maybe for the scale of the data used and the technology available to process it😊

  • The volume of data collected and available to decision-makers has exploded.  In the early 1980s when I started my consulting career, big data was denominated in megabytes (10242 bytes, i.e. 1,048,576 bytes).  Today big data is measured in Zettabytes (10247) or Yottabytes (10248).  And a Yottabyte is 1,208,925,819,614,629,174,706,176 bytes.  By the way, a byte is generally 8 bits and corresponds to a character, symbol or numerical digit.
  • Processing power has increased too.  In 1983 a Cray supercomputer was capable of 713.00 MFLOPS (106 floating point operations/second).  In 2022 its descendant, a HPE Cray was capable of 1.102 EFLOPS (1018 floating point operations).
  • Technologies (database, data warehousing, analytics, AI, etc.) are thriving on the exponential growth in computing power and data capacity.

These changes have made data even more valuable.  This post is about one very important discipline associated with exploiting data, Data Science.  Data science is the study of extracting value from data:

—value in the form of insights and conclusions.

—value in the form of insights and beneficial outcomes.

—value in the form of insights and actionable conclusions.

—value in the form of realizations and actionable conclusions.

—value in the form of realizations and beneficial outcomes.

The bolded text is a quote out of the book (Data Science in Context: Foundations, Challenges, Opportunities) that motivated me to write this post.  The other four iterations were my attempt to improve upon it.  I kind of like the last iteration, but it is at best a marginal improvement.

That said, I found the book, as a whole, to be exceptional.  And that one sentence inspired an aha movement.   It basically summarized what I spent the better part of my career doing:  taking data and using that data as a foundation upon which good decision can be made.  The data I refer to is the output generated in the course of large scale transaction processing for both clients and one notable company that I worked for.

Whether you generate it yourself (like Amazon) or capture it providing services, like Google or Facebook, data provides the granular input to the DIKW model that explains data’s role in intelligent decision making.  The origins of the DIKW pyramid go back a long way, to the 1920s when Clarence Barron is credited with speaking about the “Knowledge, Intelligence and Wisdom” hierarchy.

DIKW Pyramid (Wikipedia: https://en.wikipedia.org/wiki/DIKW_pyramid )

  • Data—facts, i.e. that which is known (or firmly believed) to be real or true; what has actually happened or is the case; truth attested by direct observation or inference.  Data is the documentation of the facts as captured in numbers, text, icons etc.
  • Information—data in context of a problem.  By providing context, e.g. number and kinds of car accidents at an intersection, you identify and provide the structure against which the data can have meaning.
  • Knowledge—information that is carefully vetted/considered to ensure that it is useful/actionable for the purpose at hand.  Knowledge (the frequency and kinds of car accidents) can be applied to decision-making— with other inputs, like the kinds of remedies that are effective given what has been discovered about the dynamics of the intersection based on the information available about accidents.
  • Wisdom—knowledge applied to generate good (or to a lower bar, desired) outcomes. In the example I have been using this would be the implementation of appropriate, effective methods designed to mitigate the issue.

I would note that my description of the components of the DIKW pyramid are a bit unorthodox but have provided a solid conceptual structure for me as a practitioner.  A more formal definition and references to refereed sources can be found in Wikipedia— https://en.wikipedia.org/wiki/DIKW_pyramid

I could end here, but that clearly isn’t me.  I am going to describe how data gets transformed into wisdom.  Let’s start by assuming that one can collect payment data and put it into a database.  And, that data is related to the payment lifecycle of an industry that is important to the U.S. economy, i.e. with this context it is now information.

The database contains both history and data that is entered in anticipation of work that will begin in the next three to six months.  Furthermore, this data can be analyzed in the context of U.S. economic data.  And, it turns out that the data we have been discussing is highly correlated to the performance of the economy as a whole.  This means that we have “wisdom” that can be applied to making sound (and potentially profitable) predictions about future economic performance.  Why? Because we have data—the information stored in our database by contractors who are preparing to do work over the next three to six months.  And that data is expected to be correlated to the performance of the U.S. economy as a whole.

Having a reliable three-to-six-month prognostication as to the health of the economy could be quite valuable to businesses (banks, manufactures or service providers) that are making their plans for ongoing operations and investments for future growth.

By the way, the scenario I sketched out above is not a hypothetical.  I provided anonymized payment data to the Chicago Federal Reserve Bank and their economists, using pretty standard econometric tools, analyzed what I gave them and produced the paper at the other end of this link: https://www.chicagofed.org/publications/chicago-fed-letter/2016/366

So, what are your take-aways?

  • If you are in business and that business collects data as part your normal business processing, you should take a careful look at it.  It might be valuable.  And, it might provide insights that will both improve your legacy business operations; and suggest new highly profitable revenue streams.
  • You don’t have to be Google or Amazon to do this.  I had neither the expertise (in econometrics) nor the tools (statistical software) to analyze the Textura data, so I outsourced it.  This worked out well for me (I got confirmation of my hypothesis that Textura payment data could be used to predict economic activity) and for the Chicago Fed (they got a research paper out of it).
  • You don’t necessarily need a lot of data.  It just needs to be the “right” data.  The analysis I referred to above used a database that was just several hundred megabytes.
  • While AI is getting all of the press right now, there is gold in data (other than large language models) out there just waiting to be mined.

Data science is a broad field.  In this post I focused on a narrow slice of the discipline.  A slice that is both well tested and understood.  And like Tom Morgan, the techniques I used are not flashy, but an investment in it can provide an outsized return.

Copyright 2023 Howard Niden

— you can find this (days earlier) and other posts at www.niden.com.

       And, if you like this post: 1) please let me know; and 2) pass on your “find” to others.

How to Kill a Business– Slowly

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There is a joke going around:  How do you make a small fortune in Bitcoin?  Answer—Start off with a big one!  There is parallel line of thought that applies to companies:  How do you make a small, unprofitable company?  Answer—Start off with a big one and don’t invest in it.

As is always the case it is not that simple.  Not investing is the result of one or both of the following:

  • Lack of imagination; or
  • Lack of understanding about the business.

It is often hard to tell which of these is at play, but it seems to me it is almost always a combination of the two.  Let me give you an example.  This comes from the cable industry as I believe that they are an exemplar for both issues.

I recently contacted my cable provider, Spectrum (Charter Communications), for the 4th time this year.  There are multiple issues:

  • Quality of service, e.g. they only provide a 1080p service.  This is well behind what can be had from other sources;
  • Management of their customer service organization.  Their technicians are not given the provisions, tools or training to properly do their job;
  • UI/UX.  It is embarrassing.  It doesn’t deliver a clean complete or consistent user interface or experience.
  • And the reason I called—their software is buggy.

Further they do not seem to be making investments to solve these issues:

  • The hardware they are using is at least 6 years old.  This was based on being told that I had the most up to date hardware and a quick check of the FCC registration database on the unit in my possession.  That is ancient by technology standards;
  • They are letting bugs go unresolved for a year or more.  That is how long I have been experiencing a situation where I schedule recordings which are then unviewable.  After replacing the hardware (twice), I was told it was a “known issue”;
  • I have not seen a significant software update in the year I have been subscribing to their service;
  • Their service offering has not accounted for changes (like streaming) to how their customers are now consuming content; and
  • They have not developed a vision that would keep them relevant, i.e. figure out how to provide a seamless set of services (a content delivery platform) that would delight their customers and provide a long term competitive advantage.  My apologies if they have, but there is no evidence of it.

The description provided above is not unique to Spectrum.  It applies to all the big players: AT&T, Cox, Comcast, Dish, etc.  I would note that AT&T took an expensive detour into content (a business they had no experience or expertise in) with the purchase and subsequent divestiture of Time Warner.  And they wonder why they are losing subscribers. 

The streaming providers have similar problems.  Users like the idea of streaming, but the big streaming players (Netflix, Amazon, Disney+ etc.) have not recognized the shortcomings in their products and customers are tiring of the deficiencies and have been losing interest in that model too, as far as it has matured, and are showing signs of abandoning these services too.

Content may be king, but as both Google and Amazon have proven if you do a better job of helping your customers discover, manage and access the prodigious volumes of content (i.e, what they are looking for), the profits will follow.  Further, Roon has proven that people are willing to pay for products that help the user discover, organize and enjoy content (in their case music) that comes from a variety of sources, not Roon.  The folks at Roon provide a comprehensive (in terms of functionality) platform that encourages and enhances the enjoyment of music thereby delighting its customers.

Given the revenue the players in video delivery industry, both the linear (traditional cable) and streaming varieties generate, there is no excuse for the state of their offerings.  With just a small allocation (relative to revenue) these players would have state of the art offerings that would redefine how media is consumed and would not only be delighting their customers, but also growing their businesses and margins.

The large retailers (Sears. JC Penny, Macy’s, etc.) have already been through this process and the same lack of imagination and understanding of their business (as it is and will be rather than what it was) provides a cautionary tale for both the cable companies and any other business that forgets how to innovate and keep their business fresh and vital.  They had large prosperous businesses, now…

Copyright 2022 Howard Niden

— you can find this (days earlier) and other posts at www.niden.com.

       And, if you like this post: 1) please let me know; and 2) pass on your “find” to others.

Shocks to the System– how do they motivate radical change?

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I had not until recently considered (in any kind of structured way) how significant shocks to the system, like the pandemic, motivate radical change.  An article in the August 2021 issue of IEEE Spectrum, What We Learned from the Pandemic—Most of all it taught us how to adapt under pressure, got “the little grey cells” agitated—in a good way.  The authors outlined a taxonomy for thinking about how disasters can promote radical change.  They laid out four change agents:

  • Habit Disruption— this happens when a significant change in the environment causes one to rethink how they do something.  A disaster can do this, but the introduction of new technology can too.  When we founded Textura, we leveraged several new technologies (especially software as a service, but also electronic signature) to change the way that commercial construction companies pay their subcontractors.  The introduction of the Construction Payment Management (CPM) software significantly improved the efficiency of the payment process and made it difficult (if not impossible) not to move to electronic payments.  I note that Textura recently crossed the $1 trillion mark in payments made thought the system.
  • Selection— this happens when companies will not (or cannot) adapt.  There is a weeding out process where these companies (or individuals) are no longer able to compete because the world has changed, and they have not.  Sometimes this is voluntary (please notice, I did not say smart), like when U.S. chip makers decided to focus on design and not fabricating, and sometimes it is not, as has happened to so many companies in the auto industry over the past 120 years.  The companies that survive do so because they have adapted and can compete, i.e. have made the changes necessary to thrive in and support the new environment.
  • Weakening of Inertia— this is another way of saying that the forces that maintain the status quo are overcome by even stronger pressure for change.  I would argue that the remote working movement, which had been slowly gaining momentum over the past decade, was supercharged by the pandemic.  There is a notion by leaders in my generation that work needs to be done at work.   And there was/is an imperative, driven by COVID, that was even stronger and motivated companies that might have waited years (or longer) to implement remote work. 

With regard to remote working, I would note:

  • That the pandemic motivated companies to jump on board, but technology enabled it.
    • The last word has not been written (even in the short term) on what remote work means and what forms it will take.
  • Coordination— I see this as suggesting that the “establishment” becomes motivated to get behind change because they see it as necessary to maintain their position in world.  The Federal Government’s decision to make domestic chip production a priority combined with Intel’s recent decision to invest in two new U.S.-based Fabs (manufacturing facilities) is an example of two “establishment” players getting behind an initiative (caused by concerns about the availability of chips) to make things happen.

After reading the Spectrum article and digesting the taxonomy that I restate/rework above, it struck me that the world would change for the better if we could institutionalize (within companies, and society as whole) these change agents into the fabric of our thinking and replace the more prevalent predisposition to look back to the past and maintain the status quo at all costs.

I spent the better part of my career working with companies that desperately needed to change.  During the portion of that career where I worked at PwC (and its predecessors), we used a process that we referred to as “change management” to help our clients understand the need for change.  Many of the principles that were embedded in that methodology are incorporated into the four points that I outlined above.  And I would have been very pleased had I had such a clear and concise set of statements to use to communicate with my clients and support me in my actions.

In closing I would note that the authors of the article that prompted this post might not agree with my “summarization” of their ideas, so I encourage you to read the article and draw your own conclusions.

Copyright 2021 Howard Niden

— you can find this (days earlier) and other posts at www.niden.com.

       And, if you like this post: 1) please let me know; and 2) pass on your “find” to others.

Is the Equal Sign Overrated? Mathematicians Hash It Out

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A good friend (I am reconsidering that assessment after reading the article) sent me the link, below– With Category Theory, Mathematics Escapes From Equality, Wired Magazine. While the some of the ideas were hard for me to grasp, it is interesting on several levels:

  • The article describes the dynamics around Lurie’s work as having some of the characteristics of The Structure of Scientific Revolutions or The Microbe Hunters in that it talks about the difficulties involved in introducing a new paradigm;
  • It made me think that E.F. Codd might have jumped several generations (relational, object oriented and NoSQL) of database theory had he the tools that Lurie has developed. While Codd’s work (e.g., A Relational Model of Large Shared Data Banks; Communications of the ACM, 1970) focused on the structure of data (using set theory) and how manage (select, add, change, delete) data, Lurie’s modifications/extensions to set theory would seem to add a semantic dimension (based on information that seems to me would be implied by Lurie’s thinking) to both the entities and relationships defined in the database;
  • But that would have assumed not only that Lurie’s work existed but also that it was as well understood as set theory. I say this because Codd’s work was pretty obtuse even though the theory behind it was pretty well understood. I imagine that work based on Lurie’s efforts would be impenetrable because the underlying theory is poorly understood (i.e. not accessible to most mortals) as Lurie’s work appears to be today;
  • That said, I can imagine (and I don’t understand Lurie’s work on anything by a rank novices’ level) that his work could be the basis for some important breakthroughs in how we think about data.

Those are the reasons I thought you might find this introduction to Lurie’s work interesting.

www.wired.com/story/is-the-equal-sign-overrated-mathematicians-hash-it-out/ 

Weak Links in Blockchain– You Decide

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My last post was a visceral reaction to a cautionary tale about blockchain.  The article that I referenced reinforced my notion that there are many challenges blockchain (or any distributed ledger technology) will have as it attempts to move into the mainstream.  It did not, however, provide anywhere near a complete and well-defined summary of these challenges.  This post attempts to remedy that situation—providing a somewhat more rigorous argument for your consideration.

Introduction

I start this post by stating three things:

  • I have been following the blockchain phenomenon for several years now. It initially interested me because I was in the payments business and it provided the potential basis for disruption in our market, i.e. a possible replacement for the technology we were using to process payments in the construction industry.  My ongoing interest has been focused on trying to determine if there is anything to the technology and to find real opportunities to justify its implementation and possibly create some real value;
  • I further believe that Bitcoin (the product that introduced many of us to blockchain) and other blockchain-based products were a legitimate attempt to provide an alternative to traditional trusted 3rd party ledger mechanisms in the wake of the 2007 financial crisis. Further, I believe that much of the allure of the technology is a natural reaction to the greed and general intemperance that precipitated that crisis but not necessarily, by itself, an objective reason for thinking that a distributed ledger is superior to the trusted 3rd party; and
  • Finally, I have come to believe that there are good reasons to be very skeptical about the competitive advantages of distributed ledger solutions (as exemplified by blockchain) relative to more traditional trusted 3rd party implementations. I believe that any perceived advantage of a distributed ledger needs to consider the challenges I have outlined below.

Uses for Blockchain

As background, I note that there are a several kinds of transactions (and associated recordkeeping) that are currently managed by third parties for which blockchain enabled solutions are being proffered.  They include:

  • Electronically facilitating payments (moving value from one party to another) that are recorded on a blockchain. This is like the service EFT, ACH and credit card companies provide, except that the transaction is recorded on a secure distributed ledger (Bitcoin, Ethereum) instead of being processed by a trusted third party, i.e. NACHA, Visa or Mastercard;
  • Journaling of transactions—tracking Movement of Assets (real estate titles, automobile titles, equities, or tracking products) between owners or through a supply chain. These transactions, need to be accurately and durably recorded on a ledger and that recordkeeping is currently facilitated by trusted 3rd parties; and
  • Smart Contracts—by tying payment to the execution of agreements that are executed electronically when one party completes their commitment (e.g. provides the agreed product or service) and the other accepts that the commitment has been delivered thereby automatically releasing payment. Textura, the construction payment company that I co-founded, is a trusted 3rd party that facilitates payments based on the completion of contracted services and might be disintermediated by blockchain-based smart contracts.

The Challenges

There are five challenges to blockchain’s adoption as a mainstream technology as outlined above:

  • Flawed Implementations— This is a problem in any system. In fact, many of the issues with the security of databases maintained by trusted 3rd parties are the result of flawed implementations and blockchain systems have exactly the same risks of being poorly implemented as trusted 3rd party implementations.

I organize the possibilities for flawed implementations into two categories:  1) defects in the system’s design; and 2) issues with the operation and maintenance of the systems.  Make no mistake, these are complex systems and the same issues that plague the systems that trusted 3rd parties use will find their way into blockchain implementations.  This isn’t a reason not to build blockchain systems, it just levels the playing field when comparing them to those that are being used by trusted 3rd parties.

  • Insider Malfeasance—This is a problem with the people who operate/manage the services being delivered through a blockchain implementation. The players in the article I referenced in my last blog post are great examples of folks who shouldn’t be trusted to operate a financial institution.  They don’t appear to have been criminals, but they were not competent in all the skillsets that are necessary to operate what is essentially a financial institution.  There is an important lesson here:  There are a variety of skills that are needed to operate a technology-driven business and tech savvy is only one of them.  That said, given the complexity of these systems it would not be hard for insiders (if the operation isn’t properly managed) to (through either operational manipulation or defects in the code that run the systems) corrupt the processing of transactions or even impair the integrity of the blockchain itself.  It could be done, and it wouldn’t be difficult. 
  • User Error—blockchain implementations have not attained the intuitive interface of an iPhone. For instance, most people don’t understand how Bitcoin actually works.  I am not talking about how the underlying technology works, but mechanically how you hold and spend your Bitcoins.  How many of you can honestly say you understand why you might want a Bitcoin wallet and how to choose the best one for you?

And, the picture doesn’t get that much better when you move into the commercial realm.  The technology is complicated.  And, the implementations have not in many cases been developed in ways that minimize the complexity that those managing the technology or using the applications built upon the technology must deal with.  And, everyone knows that complexity drives errors.

  • Weakest Link—When faced with a formidable security measure (such as are implemented in blockchain), smart adversaries look for ways around the hardened locks. Have you ever wondered why carjacking became the preferred method for stealing a car?  It was a result of improved security which made it nearly impossible to steal a car without the key.  So, people who want to steal cars don’t even try to work around the car’s locking mechanisms; they just take the key from the owner.

By similar reasoning, it is unlikely that someone will try a direct assault on blockchain, i.e. try a brute force attack on a blockchain.  They are more likely to either try to corrupt information that is being encoded on the blockchain or go after the wallets that contain the encryption keys that prove ownership. 

Let me give you an example.  When I worked for PricewaterhouseCoopers, one of the auditors told me that he was going to a refinery to test and make sure that there was oil in the tanks at a refinery that we were auditing.  Embezzlers had learned that it was easier to fill the tanks with water (with just a little oil on top) than to change to accounting ledgers.  So, they made sure that the information going into the ledger was corrupted (by making the oil tanks appear to be full of oil, which would get recorded on the ledger, when they clearly were not) before it got there.  Anyone who thinks that auditors are going to be made obsolete by blockchain are sorely mistaken.

  • Cost of Verification—Blockchain was conceived to ensure the integrity of transactions that will be posted to the ledger. Blockchain uses a technique known as “proof of work” to require that enough effort must be expended to ensure that it isn’t feasible to hack a blockchain and be able to change the contents.  Blockchain is generally accepted as being virtually incorruptible, but at a cost.

“The mining of a single bitcoin block—a block of transaction data on the bitcoin network—consumes enough energy to power more than 28 U.S. homes for a day”.1   In aggregate Bitcoin mining alone consumes the same power as Ireland. 

And the problem gets worse. The algorithm is designed to make the proof of work more difficult as the processors become more powerful.  This direct positive relationship between the difficulty of the proof of work and the power of the processer is an essential attribute of “proof of work”, i.e. it must be difficult (lots of effort must be necessary to encrypt the links in the chain) to ensure the integrity of the ledger.  So, substituting quicker processors might allow one to more quickly (than their less capable competitors) perform their proof of work (winning the race and the associated reward), but it will only increase the amount of effort (energy) required to solve mine coin.

None of these, by themselves (or together for that matter) would be reason to pass on blockchain.  They should however be considered when looking at it as an alternative, because doing blockchain right will be (in terms of engineering and operations) very expensive which is one of the primary reasons provided for preferring a distributed ledger over a trusted 3rd party implementations.

This blog post is a challenge to those supporting blockchain-based products to respond and prove me wrong.  This would require that your (proposed) offerings be objectively compared to the trusted 3rd party alternatives using the criteria I have outlined above, in addition to those that you are already using.

 

1Why Cryptocurrencies Use So Much Energy—and What to Do About It Communications of the ACM, July 2018

 

Copyright 2018 Howard Niden

— you can find this (days earlier) and other posts at www.niden.com

       and if you like this post: 1) please let me know; and 2) pass on your “find” to others.

 

 

AT&T Spent Hundreds Of Billions On Mergers And All It Got Was A Big Pile Of Cord Cutters

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This doesn’t surprise me– see link below.   Any company that thinks it can succeed by reducing costs always fails.  The idea of the mergers was to get economies of scale, i.e reduce  costs by spreading them across a bigger set of customers.  

My recent interactions with AT&T (Mobile, U-verse and DirecTV) have been awful.  The customer service experience is uniformly terrible.  While I get it, new technologies are intruding on their ability to retain customers, people like me (who were basically an annuity) are rushing for the door because AT&T’s philosophy seems to be charge a premium price, deliver inferior product and then provide exceptionally bad customer service.  And, I really think they don’t understand that they are killing their own business.  I have ditched Mobile and am very close to chucking the rest.

They are trying to squeeze every cent out of their products and the support systems that deliver them.  The result is a clear acceleration of trends that they should have been getting ahead of rather than focusing on cost reduction.  But, that is what happens when you let the bean counters run the business.  No imagination, no new products and a company that depends on reducing costs rather than delighting your customers by innovating with new products and properly caring for your customers after the sale.

https://www.techdirt.com/articles/20171016/11235538413/att-spent-hundreds-billions-mergers-all-it-got-was-big-pile-cord-cutters.shtml 

“Small is Beautiful”– with apologies to E. F. Schumacher

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In my previous post, I outlined the reasons that “small” is the word to focus on as you grow your company.  This post focuses on strategies and tactics to help your growing (large) business keep the best attributes a high performing small business.

  • Develop a robust culture.  A large company that wants to act (agile, innovative, quick) like a small one needs to have a well-defined culture that ensures that its participants live the values of the company without the need to be constantly supervised.
    • Ethics—every employee needs to understand the difference between right and wrong and fully appreciate the need for the highest ethical standards.  This may seem gratuitous, but let me assure you it is not.  Throughout my career, I have seen good people who have gotten caught up doing things that they shouldn’t have.  Sometimes, it was a mistake an inch at a time and others it was the lack of thinking through the consequences of actions that they ultimately took.

And, acting ethically relates to how they do their jobs (interact with the company and fellow employees) and how they treat their clients, whether internal or external.  The more time spent on policing employee’s actions (unproductive effort), the less time spent on making the business successful.

Pat Allin has always maintained that people know “the rules” and that they don’t need to be written down and he ran Textura very successfully without an “Employee Handbook”.  While I generally agree with him, I would probably be more inclined to provide an outline of “How we Expect our Employees to Behave”, but it would be based on articulating principles rather than laying out rules.

    • Respect for all the players—it is extremely difficult to both excel and innovate without a diverse workforce.  The best ideas are identified and developed when multiple points of view are considered.  Dealing in a diverse environment is, by definition, not always comfortable.  It takes strength of character to consider and possibly accept other points of view and shows a real lack of respect not to acknowledge that there might be other viable ways of thinking.  Yet we see, again and again, situations where intolerance of differences in the way people approach their work (often driven by who they are and how/where they were raised) poisons what might otherwise be successful organizations.

You might wonder about my somewhat unconventional articulation of the need for showing respect to others, but I am arguing that respect is easy in a homogeneous environment but only really becomes an issue when people need to deal with others whose point of view is different than theirs.

I close this section by reminding you of F. Scott Fitzgerald’s quote:  “The test of a first rate intelligence is the ability to hold to opposing ideas in mind at the same time and still retain the ability to function”.

    • An obsession with your clients— the clients pay the bills.  This dimension of culture has several facets; 1) you need to understand your clients.  Unless you understand there is no way that you will be able to produce products or deliver services that delight them; 2) you need to be prepared to understand the difference between what the client “wants” and what they “need”.  And, when necessary, you need to be skilled enough to convince them that what they need is more important than what they want; and 3) the obsession must be from a distance.  While it is essential that you understand you clients, you must maintain an objectivity that allows you to see your clients as they are so that you can see their flaws, appreciate the opportunities the future offers (both what might be and should be), prepare them for it (sometimes called change management) and help them to wholeheartedly embrace it as they move towards it.  It doesn’t matter whether you are providing a service or a product, the same rules apply.
    • Teamwork— teams can achieve so much more than individuals.  And, businesses that deploy and use teams effectively are more productive, innovative and therefore successful.  And, one of the miracles of small companies is how well a small group of individuals can work together to literally change the world. 
    • Do the right things/Do things right—While some might have liked me to put this under the ethics umbrella, I believe that it is important enough to have its own category.  Doing the right things are so important.  It touches every aspect of the business from how you treat your fellow workers, to how you deal with your clients and how you deal with your employees.  I am reminded of Pat Allin’s decision, when Textura went public, to make substantial grants to employees who had stuck with Textura through the lean times and help in so many important ways to make Textura successful.  Pat didn’t need to do that.  No one would have noticed if he hadn’t and it took some effort to make happen, but he did it—and he did it because it was the right thing to do.

Under the do things right category is less of an admonishment (regarding the tendency of businesses to take shortcuts) than a suggestion that if you are going to make cutting corners (knowing that there are times it has to be done) as painful a process as you possibly can.  This is not permission to cut corners, but a suggestion that you really understand the implications when you HAVE to make the decision to cut them.  And, only to cut corners when there really is no other choice.

Embracing these attributes enables the growing and already large company to work effectively and efficiently without the need for multiple layers of management.  That goes a long way towards the goal of keeping that small company feeling.  This along with the other attributes that I outline promote a company that thinks small but leverages the

  • Run your business in a way that rigorously requires that  “authority”, “responsibility”, and “accountability” are words to live by—the is one of the foundational elements of any organization that intends to empower its employees and let them work independently towards a common goal.  If you are going to run your large business like a small one, you must give your managers the authority to achieve the goals and objectives you set for them.  If you don’t, they will spend too much time getting “upper management buy-in” and too little time getting the job done.

If you are going to give people authority, you make them responsible for their actions.  If they are not responsible for the actions they take, you can’t hold them accountable.  And, accountability is key.  Accountability means not only penalizing failure, but also rewarding success.  Without the three legs stood up in this bullet point, it is nearly impossible to get a large organization to act like a small one.

  • Decide what each part of the organization is going to do—central vs. local—this is so important. Large organizations exist for a number of reasons.
    • Economies of scale;
    • Ability to invest in big ideas;
    • Market coverage;
    • Brand building and recognition.

But, they by definition have many parts and understanding what is going to be done locally and what is going to be done centrally helps everyone know what they should be concentrating on (because they are best positioned for those tasks) and what other will take care of—because they are best equipped to handle them.

Generally, delivery oriented tasks (things that are close to the customer) should be handled locally.  And, things that can effectively be leveraged across many local operating units should be done centrally.  At Price Waterhouse, the local units delivered services to the customers.  PW’s market strategy and the methodologies that supported delivery of the strategy were developed centrally with plenty of input from the field.  This meant that the local operating units could play way above their weight  because they could concentrate on delivery while counting on the larger organization to provide them with the resources (leveraging the thought leadership, methodologies and marketing that was done centrally) necessary to delivery complex solutions to their clients.

  • Set up clear objectives regarding what the organization is going to do and how they are going to do it— large organizations are there for a reason.  With size come certain capabilities that small organizations just can effectively deliver.  But, if the large organization is going to be successful as one that operates like a small business (agile, innovative and quick) everyone in the organization must be (and this is critical) willing and able to leverage the resources of the larger organization.  That means that the participants (as individuals and members of teams that constitute the larger organization) must be marching to the same drummer.  And, this only happens when:
    • The goals and objectives make sense;
    • They are well communicated;
    • The participants have the requisite training to understand and execute on the business plan as laid out in the goals and objectives;
    • There are consequences for doing a good or bad job.
  • Keep the organization flat— I probably shouldn’t even have to say this, but multilayer, hierarchical organizations are anathema to the idea of working small.  Multilayer hierarchical organizations imply top down management where ideas and permission to act need to move up and down the hierarchy which is just the opposite of what we are trying to achieve with the principles I have outlined above.

So, it is vitally important that the organizations culture nurtures behaviors like the ones outlined above and have the training and experience to execute in a way that is consistent with these principles.  I have run considerably over the limit I set for myself for these posts and still feel that I haven’t done the subject justice.  But, it is a start and it does (at a survey level) cover the ground.

I am likely to cover some of the subjects outlined above in future posts, so stay tuned.

 

Copyright 2017 Howard Niden

— you can find this (days earlier) and other posts at www.niden.com

Failure comes in inches– Post III: What we need to do!

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I generally try to stay away from politics in my LinkedIn posts.  As a rule, I try to keep it strictly business.  This set of recommendations deviates from that rule in this post because businesses live in the context of the society (governed by political systems) that they operate.  It is my opinion that the theme I have laid out in the previous two posts has its roots and solutions both at a societal level and in the microenvironment that is a business.  So these recommendations are not only focused on reinforcing and in some cases changing both behaviors and the beliefs that support them.  And these recommendations are relevant to both business leaders, and also our political leaders:

 

  1. Be better listeners— listening, really listening can be a wonderful first step toward working together toward common goals and eventually success.  I was taught (by a wonderful coach named Peter Hawkins) that listening is more than just understanding the message that a person is trying to convey to you, it has a lot to do with empathy.  Empathy brings a whole new dimension (an understanding of the motivations of the person you are listening to) to a conversation.  Better listeners are more likely to walk away with an agreement that makes both parties happy and that is enduring.

Improving our listening skills will mitigate against what appears to be a growing inability to be civil and compromise, i.e.  improving our ability to listen will improve our ability to get things done in both government and business.  And, I can say this strongly enough, the government must operate and achieve certain objectives for the country as a whole to be successful.  This idea that gridlocking the government is an effective way to govern is malarkey.  Without an understanding of where the government stands (no ping-ponging between administrations) and timely action on important issues the whole country suffers and over time it erodes our ability to succeed.  We have allowed our political leaders to be lazy for too long.  It is time that we demand that they work together and develop an agenda that we all can buy into!

This applies to business too.  I have personally seen the damage that can be done when people lack the civility and empathy necessary work together and succeed.  The issue is that all too often short term success can be achieved by means of bullying and insisting things be done one way.  This strategy might work in the short term (especially when people need their paycheck), but over time it is corrosive, drives good people away and dulls the performance of those who stay.

  1. Reform our political system— our political system, as has been stated many times, “democracy is the worst form of Government except for all those other forms that have been tried from time to time.” I always smile when I read that Winston Churchill quote, but it is true.  We are very lucky that we live in a democracy, but changes need to be considered and some need to be made.  Instead of making a list here, I will make a single recommendation. 

We need to identify a “blue-ribbon” panel (these would be folks with the intellectual and analytical horsepower to make recommendations that will work) to look at the political system in the context of harmful changes (in terms of gaming the system, e.g. gerrymandering) that have become institutionalized and places where government (and/or the political system) has not kept up with changes to society and technology and make specific recommendations for reforms to address the issues.

I will state unequivocally that the purpose of the reforms is to make our politicians:

  • Be real leaders and be accountable to the constituents for making things happen, not preventing them from happening;
  • Think in terms other than this minute and themselves.  There is too much short term, self-centered thinking going on among politicians and it really has to stop, because greatness is built on (and maintained by) selfish ad-hoc thinking.
  1. Improve education (its depth and its scope)—this is the elephant in the room. Semi-skilled manufacturing jobs are not coming back and we have a severe shortage of skilled technical labor.  We need to make sure that the next generation of Americans have the skills that will be necessary to succeed in the post-industrial age.  And, to the extent possible we need to retrain those who have lost their jobs and lack the skills to participate in today’s economy.  Since there will be dislocation that can’t be fixed in the short term, we also need to figure out how to deal with workers who we are unable to retrain.
  2. Embrace free trade—play on our strength in being competitive, but don’t stand for people who cheat—we need to do a better job making it clear that free trade creates jobs, not eliminates them. The loss of jobs in the US is due to technology replacing workers, not jobs going overseas.  There are many people who have don’t a good job articulating (but obviously not conveying them) the arguments for free trade (just Google “arguments for free trade), so I will not try to improve on what has already been done well.  We just need to all get on the same page and move forward. 
  3. Manage Intellectual Property—Good intellectual property protection is both a balancing act and a good thing (if implemented properly) to do. Managing intellectual property provides incentives for entrepreneurs to make investments and take risks.  When Pat Allin and I were contemplating Textura, we spent a lot of time thinking about competition and what kinds of barriers to entry we might erect to give us a chance to get strong enough to compete.  We didn’t need an infinite time limit on our patents, just a reasonable amount of time and probably wouldn’t have started Textura if we didn’t feel we could get IP protection.

Managing intellectual property doesn’t just mean protecting it, it means rules that ensure that patents (and other forms of intellectual property protection) are not abused.  It also means understanding when to protect intellectual property and when to share it.  The post-industrial society is more about intellectual property than ever before, it is important that we think about how the world has changed and make some holistic changes in the laws governing intellectual property management that make sense in the context of today’s world. This whole process starts with a reassessment and possibly reworking the framework that defines intellectual property management.

  1. Make science great again— Our world is defined by science and I don’t just mean explained by it. Science has been the force that has formed (for better and worse) the world we have today.  There are two issues here:
    1. We are not preparing the next generation of Americans to participate in a science-driven economy. This subject is dealt with in bullet point 3, so I will only say that education needs to include a heavy dose of science and math, they are the basis upon which the modern economy runs.
    2. We need to invest in basic science. Basic science provides the foundation for business innovations and that drives growth and prosperity.

I close this section noting two things:

Science is not perfect because science is practiced by people and people are not perfect. One should not condemn science because of its failings, one should examine scientific findings with the same critical eye that you would any proposition that requires your attention and suggests actions.  Using the periodic failing of scientists to get it right to condemn all science would be like condemning the entire human race because some relatively small percentage of the population is “bad”.

Science doesn’t exist in a vacuum and it shouldn’t be practiced in one either.  Decisions should rarely be made after accepting weighing only one dimension on the decision matrix.  So, other considerations are should always be considered before making decisions.

Lists that get a lot longer than five items are just too hard to focus on.   I had wanted to limit this list to five items.  I just couldn’t do it.  And, I am sure that you are thinking of other items that I should have included.  Please judge me for what I included instead of what I didn’t.  That said, I would be happy to hear from you about other items that you think should be on the list.  But to make it worthwhile, I am going to ask you to tell me what comes off the list for every item that you suggest I add.

Copyright 2017 Howard Niden

 

The Importance of Critical Thinking

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Critical thinking promotes the development of well supported opinions which facilitate making good decisions and taking actions.  Critical thinking is based on a repeatable and reliable (in terms of consistently promoting good outcomes) methodology.  The process should be disciplined, i.e. it must be:

  • Rational— based on reason, facts and logic.
  • Informed/Evidence Driven— based on verifiable facts.
  • Open minded— willing to consider all points of view as inputs to the process.
  • Explainable— if you can’t explain how you reached your conclusions, the process is flawed.
  • Reproducible— other people must be able to go through the same process and get to the same end-point.

Critical thinking requires that the individual has the competence to understand and interpret the evidence that provides the input to the critical thinking process.  As such critical thinking requires a rigorous approach to:

  • Identifying a situation that merits an investment of one’s time. Not every subject requires or even merits critical thinking.  And, we don’t have the time or energy to spend time on topics that don’t merit the effort;
  • Evaluating the facts. This is often the most time-consuming portion of critical thinking and requires a thorough review of the situation, gathering the information necessary to do a proper evaluation.
  • Understanding of the facts. And a rote understanding is not sufficient.  Understanding the substance and context what we are really looking for.  My favorite example is the Moldboard Plow.  There are interesting engineering characteristics associated with the plow, it has a unique look and it is efficient.  To look at it you wouldn’t realize that it changed the course of human history.  I refer those that are interested in understanding why to William McNeill’s The Rise of the West. 
  • Making a decision or set of decisions. Good decisions rely on good information and a rigorous approach to reviewing, weighing and interpreting the facts in the context of the current (often influenced by a knowledge of the history—more facts!) situation.  I would like to reiterate that it is important that the decision-maker have the competence (either themselves or from trusted advisors) to correctly interpret the facts; and
  • Acting upon them.  I would argue that this last item, which involves taking affirmative action, is the reason for critical thinking, i.e. if you don’t act (or explicitly, based on the first 4 steps outlined above, decide not to) your investment in critical thinking is wasted.

What are the alternatives to critical thought:

  • Heuristics— heuristics can be thought of as rules of thumb. They substitute for critical thinking when one runs into the same situation again and again.  Once a pattern can be discerned, a simple rule substitutes for the more rigorous (time and energy consuming) process associated with critical thought. 
  • Analytical thinking with a Cognitive Bias—this often masquerades as critical thinking. It is driven by a desire to get to a predetermined finding irrespective of the facts.  It often disregards, misinterprets or makes up facts to support its predefined outcome.  And, it may be overly (I say overly, because all thinking is influenced to some extent by emotion) influenced by emotional considerations.
  • Impulsive Decision-making. This has many of the same general characteristics as Analytical thinking with a cognitive bias, but dispenses with the pretense of using facts or analytics.  This approach to decision-making is often referred to as being based on gut instinct.

I outline these alternatives, because, more and more, they are being substituted for critical thinking and understanding their shortcomings helps to reinforce the power of a more rigorous approach to thinking and making good decisions:

  • Heuristics— This approach is effective when it is used appropriately. One must pay attention to ensure that the situation to which it is being applied is the same as the situation for which it was developed.  So, even here some of the attributes of critical thinking must be applied to produce good outcomes.
  • Analytical thinking with a Cognitive Bias— takes facts and consistency, logic out of the decision-making equation. This make decisions potentially inconsistent and fundamentally unpredictable because the practitioner of analytical thinking with a cognitive bias isn’t constrained by having to reconcile their thinking (facts or approach to decision making) across subject areas or time.
  • Impulsive Decision-making—same as above, but with even less constraint on consistency or predictability.

As I think about the last two alternatives (bulleted directly above) to critical thinking I am reminded of a quote by Daniel Patrick Moynihan: “Everyone is entitled to his own opinion, but not his own facts.”

Moving forward.  If you don’t believe that better decisions are made using a rigorous methodology built around facts and logic, learn more about the OODA-loop.  The OODA-loop (Observe, Orient, Decide, Act) was developed by the US Air Force for its fighter pilots.  The methodology is based on taking facts (observe), understanding their meaning (orient), making a decision (decide) and doing something about it (act).

 

And, the fighter pilots who used the OODA-loop performed statistically better than those who didn’t use it.  They also, importantly, achieved a 10 to 1 kill ratio against enemy pilots (who were equipped with more capable jets) who also didn’t use the methodology.

Let me be clear, I know that there are more to decisions than facts and numbers.  Other inputs include one’s judgment, worldview (moral compass, values, etc.), experience and understanding of human nature.  But, having an approach and going through a process which validates the numbers and facts and then carefully applies the subjective mask in the decision-making process provides a let of rigor that provides a level of validation to the decision.

In closing let me make two points:

  • Two people both applying the same critical thinking methodology will not necessarily come to the same conclusion and take the same action. This is because as stated above, not all inputs to a decision are facts.  Opinion, values, experience and how one weights the facts also play a role in decision-making.  So, the use of critical thinking does not result in everyone agreeing on the answers.
  • The likelihood that two individuals who have both used discipline critical thinking to form their opinions (as a prelude to making decisions and taking actions) will be able to easily identify where their differences are and be able to discuss them rationally is much higher than if they had not employed critical thinking. And, this is something that is both very important and (more and more) generally missing from discourse on the most critical of issues that we face.

Once one becomes used to applying the discipline of critical thinking, it becomes a regular part of every decision that one makes, even if one decides not to apply a fully rigorous application of critical thinking to a given situation.  Why is this.  I believe that it feels good to have a support (coming out of a disciplined process) for one’s decision-making.  And, “feels good” is a legitimate reason to do something.  But more than that, being able to provide a rational, well informed reason for an action makes it easier to justify (to yourself or others) if that should become necessary.

Copyright 2017 Howard Niden

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