Mike Lehr's Blog

Wow! I’m excited about my 200^th post. More and more people have entered my life – real and virtual – for whom I am thankful. This post is longer than my norm, need to tap into the power of thank you’s.

I continue to be thankful for those I mentioned in my 100^th post, including my wife, Kathy, who even as I write this is adjusting her schedule so I can keep my deadlines.

The second hundred had a more public feel for me than the first hundred did. Yes, some is due to substantially more visitors, but that is the smallest part of this story.

I’m thankful to the #usguys (Twitter) and 12Most families. Jeannette Marshall (Blog: optioneerJM) introduced me to the first and Daniel Newman the latter. Daniel “discovered” me on Twitter and Skyped me. Consequently, I ended up with three posts on 12Most, one drawing fairly heavy traffic (and controversy on Goggle+ ).

I’ve thoroughly enjoyed the international aspect of the second hundred. I’m extremely thankful for Sandra Semjonova from Latvia. Anybody who follows me on Twitter knows she is a huge supporter. This world would be better by a factor of ten if it had just a few more Sandra’s. There’s also Vanina Santana-Sweeney from Australia who tracks me on several social media sites. Finally, there are cities like Marrakech, Belgrade, Pelotas, Melbourne, Manila, Bangalore containing regular readers. It’s reassuring to know we have commonalities; maybe those world problems aren’t so daunting after all!

Still, my biggest surprise has been locally. I’m thankful to those who meet me like Eric Mann and Tammy Wilson who then follow up by visiting here and wanting to know more. Or those, like Tom Wyatt who want to just meet to see if I’m for real. Then there are some high school classmates who wonder if I’m the same person they knew.

Moreover, locally, I’m extremely thankful for ProSource Solutions, LLC. A great client who requests much of my time but encourages the flexibility I need to grow this effort. Its Managing Directors, Lowell Messner and Jeff Welch, are extremely supportive of my ideas and work.  Additionally, their many employees make it all very enjoyable and rewarding. If you have IT-related skills, you should definitely look into them.

Finally, there are many unknown and unmentionable readers for whom I am thankful. I might only know some from their obscure towns. Others, for various reasons, including censorship in their communities, need to remain unmentioned. However, even if unknown and unmentionable, they certainly aren’t unappreciated.

With that, thank you – again – and I look forward to your continued inspiration. Now, I must close the door on the second hundred and open the one in front of me for the third hundred. Fortunately, you have given me the key. I promise to use it wisely . . . and, of course, intuitively.

Have a good one!

Referenced posts from 12Most.com:

• 12 Most Important Unspoken Truths about Experts
• 12 Most Effective Morale Builders That Don’t Cost a Cent
• 12 Most Crucial Business Lessons Learned from Battle

Even though writing down the problem can help us solve it, it’s also a form of defining the problem. Thus, we will tend to define problems according to a nomenclature that we typically use. Since problems don’t care how we define them, our problem-solving approach problem will tend to be clunky and segregated rather than smooth and integrated.

For example, below is a schematic. On the left is a typical functional perspective of business. On the right how a problem has no regard for those functional boundaries.

While obvious, we easily forget. For instance, if we define a problem as, “We need to generate more sales,” we will automatically tend to view it initially as a Sales & Marketing problem. In actuality though, many aspects such as pricing, delivery, servicing, management and technology could exist.

Therefore, in solving problems, it’s best that we assume the solution is an integrated rather than a segregated one. In other words, rather than ask something such as:

• Is this part of the problem?
• Does the problem affect this?

We should ask whether we can prove without a doubt that:

• This isn’t a part of the problem?
• The problem doesn’t affect this?

Thus, returning to the above example, rather than start from the premise that it’s a sales and marketing problem and then see if any other area is affected, start from the assumption it’s a business-wide, integrated problem and eliminate areas as we conclusively prove that they aren’t involved.

By assuming the problem is bigger and more integrated than we initially perceive it, we expand our field of potential solutions and success. Moreover, since we aren’t omniscient, it’s often better to assume the problem is more involved than it initially seems.

Classical business literature emphasizes focus: set goals, plan, and then focus on execution. However, it’s relatively void of focus’ downside: obliviousness to peripheral threats and opportunities.

In the mid-1900’s, when conditions didn’t change as dynamically as today’s, extensive research, planning and focus worked. Today, most research is outdated upon completion. Consequently, situational awareness (SA) becomes more important as part of an adaptive business strategy.

SA is the degree to which a person or company can be aware of surrounding conditions while focused on a task or plan. Ironically, SA came of age with aerial combat; you need to know where you are in the sky while focused on engaging enemy aircraft. If not, you could crash your plane from flying too low or from enemy fire simply because you were oblivious to those factors.

Context strongly influences our planning; however, if conditions forming that context are dynamically changing, that means our plan – the object of our focus – might become invalid by new threats and opportunities, and our focus and poor SA might cause us to overlook them. Psychological influences such as anchoring and optimistic planning will create additional pressures to keep us focused and ignorant.

These will also influence our assessment of talent by tending to make it too static and historical. Rather than basing it on people’s potential within new conditions, we will tend to base it on performances under old conditions. We will tend to believe that successes and failures transfer rather than assess actual skills and actual aptitudes within a new set of actual conditions. More simply, this is pigeonholing.

Technology and the internet strongly influence today’s dynamic conditions. Our focus shouldn’t blind us. SA will help us see the many threats, opportunities and talents that will influence our success.

Figure 2: Holes (Unknowns)

Figure 1: Emotional Driver

Leadership is about people, and management about things. Management will tend to objectify people as resources (i.e. human resources) and rely more heavily on authority from the organization. Thus, management manages all resources given to it by the organization not just people.

We cannot make a similar connection between these things and leadership since leadership is an emotional connection that the member has for the leader. Things can’t have emotional connections to managers.

By delving deeper into this connection, we can more easily see how leadership differs from management. Figure 1 shows the emotional driver a member will have for the leader on a subconscious level. The member and leader are different people as denoted by the different colors. However, no member can ever know a leader completely, so holes in a member’s knowledge of the leader will exist as Figure 2 shows.

Figure 4: Blend (Perception)

Figure 3: Fill (Member’s Likes)

These “holes” produce emotional vacuums that need filling. If the member likes the leader, he will imbue the leader with qualities he likes (Figure 3). These qualities blend with the ones the member knows to produce Figure 4, which is essentially the member’s perception of the leader.

Consequently, what motivates the member is not the leader but his perception of the leader. From the leader’s perspective, she is really two people: the one she knows as herself and the other that the member knows. Every member will have a slightly different perception. Thus, the leader must not only manage herself, but also manage the perception others have of her.

In essence then, leadership is the interpersonal aspect of management. Since we do not need to be managers to be leaders, leadership becomes the interpersonal aspect of any job. Therefore, tapping the power of personality is more the domain of leadership than management.

Other links in this series:

• Leadership vs. Management: The Difference
• Leadership vs. Management: The Difference (Part II)
• Leadership vs. Management: The Difference (Part IV)
• Leadership vs. Management: The Difference (Part V)
• Leadership vs. Management: The Difference (Part VI)

I ran across a good article by Malcom Gladwell in the February 14 & 21 issue of The New Yorker titled, “The Order of Things.” The detail with which he explores rankings of colleges, hospitals and cars demonstrates the immense subjective potential rankings have. What is even more astounding is Gladwell’s discovery of the degree to which many organizations hold their leaders accountable for their place in these rankings.

From an intuitive perspective, people tend to have an emotional connection to statistics; they satisfy feelings for certainty, clarity and knowledgeableness. Thus, when we express arguments statistically, they tend to carry more weight than if we simply express them in words. Rankings clearly define for us what is best, better and good. However, they are more akin to magic where reality is but a trick. Thus, the feelings we receive from rankings (certainty, clarity, knowledgeableness) are satisfied because we want to believe their magic is real.

As a rule, unless the ranking is comparing very similar things against a single, measurable criterion, it is highly subjective. Therefore, here are some important questions to ask about the ranking to discover how its trick works:

• Is it really comparing similar things?
• Is the ranking based upon multiple criteria?
• How important is each criterion and is it valid?
• How does it weight the criteria?
• Is it using some criteria as proxies for things that are difficult to quantify or research?
• What important criteria are absent because of these difficulties?
• Is the difference between one rank and each of those immediately above and below it that significant?
• How accurate was the data collected for each criterion?
• What problems might have retarded data quality?

Applying these questions will demonstrate that our affinity for rankings is more emotional than pragmatic.

The notion of free will is a byproduct of our conscious, more specifically our ego. It treats emotions as a nuisance which it should control and the unconscious a fantasy which it should  ignore. Yet, these two are fundamental determinants of our personalities which make our choices quite predictable.

In the January 17, 2011 issue of The New Yorker, David Brooks writes in “Social Animal” that “A core finding of this work [cited in the article] is that we are not primarily the products of our conscious thinking.” In other words, we just think we are making choices.

Some people use choice as proof of free will; if we have a choice, we have free will. However, we program computers to make choices all the time. Under one set of criteria, they choose “A,” while under another it’s “B.” They can even make random choices: choosing “A” 65% of the time and “B” 35%. But, do they have free will?

Yes, they are just following coded programs, but we could be following our own program. It’s called personality and is heavily influenced by genetic code. When we understand a computer’s code, we can predict its choices. If it’s too complex, we won’t. The same is true for personality. If we understand it, we can make predictions about a person’s choices. If we don’t, we can’t.

David Brooks describes everyday events that appear choice-filled but are quite predictable. The key is to remember that we are observing a people who 1) believe they have free will and 2) don’t believe they’ve been programmed with a personality.

Related link: Illusion of Free Will Revisited

As I had mentioned in a previous post, who we are (WWA) is different from who we think we are (TWA), an important concept behind intuitive approaches. It can explain many of the contradictions we observe in what people say and do and explain the problems with self-report personality assessments. Awareness of TWA-WWA will help us minimize erroneous conclusions when predicting human behavior.

Who We Are is Different From Who We Think We Are

Whereas TWA resides in our conscious, WWA resides primarily in our subconscious and is much greater. Consequently, TWA only represents the tip of the iceberg in terms of our potential. We often only discover aspects of WWA when we are challenged to learn or face a crisis.

On the downside, TWA holds much of what others (parents, friends, educators, community, etc.) teach us or condition us to believe about the world and us. Consequently, TWA can impede us from doing what we really want to do by causing us to ignore, deny, discount or suppress it. Pragmatically, the TWA-WWA difference will often account for the many errors we find in all kinds of surveys (quality service, market research, etc.). On an interpersonal level, it will account for much of the hypocrisy we see in others.

We learn WWA by listening to what we say, observing what we do and interpreting what we think; we can do the same with others. It works because we cannot consciously control every aspect of what we say, do and think. There are gaps; our subconscious fills them. It’s this “filler” that provides clues to WWA; it’s a matter of learning to read these clues. Many times this can only be done through direct interaction with the person so we can make ancillary observations; something surveys often don’t do.

Emotions drive human decision-making, a key assumption behind the effectiveness of intuitive approaches. However, mainstream economic theory – as represented by neoclassical economics which most of us learned in college and business school – is rooted in the belief that humans arrive at decisions through a rational process incorporating logic and reason.

Recently though, the work of Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School on the momentum effect in financial markets challenges investors’ rationality. Their work reinforces a more contemporary theory, behavioral economics, which incorporates emotions’ in financial decisions.

As mentioned in the article, Why Newton Was Wrong, published in the January 8, 2011 edition of The Economist, the momentum effect says we can successfully invest in financial markets by looking at a stock’s recent performance. There is little need for fundamental analysis of the company to determine its intrinsic value. That is because stocks that went up in the recent twelve months are likely to continue to go up and vice versa.

The momentum effect challenges conventional wisdom, more specifically the efficient market hypothesis (EMH) which assumes investors are rational. It claims that investors can’t logically gain an advantage by looking at past performances; a stock that is going down is just as likely to go up as one that is already going up.

Emotionally, investors like winners. They believe rising stocks will continue upward. Consequently, they buy more. Their beliefs become reality because many investors do the same. Objective stock value is relatively immaterial compared to momentum. This helps to explain how economic bubbles (i.e. tech stocks, housing) form.

Appreciating the emotions behind investing, helps us realize that efficient markets are nothing more than rational mirages. The same holds true for virtually every human decision.

More detail on the momentum effect: Financial Times article and ABN-AMRO Report (pdf containing charts and graphs)

This past month, I conversed with a resident of a Muslim country. He commented on how many of his fellow citizens couldn’t understand why Americans thought they were free. “They have all these laws directing them. They can’t drive as fast as they want and they even need the government’s permission to drive (licenses).”

Coincidentally, the December 16^th 2010 edition of The Economist reported on driving in Iraq. It’s true, at least there, that Iraq has far fewer driving restrictions than the United States has. It doesn’t even require driving licenses. However, driving there is dangerous. In fact, “the health ministry estimates that six times as many people now die in car accidents as fall victim to political violence.”

I also ran across an article about choice in the same issue. “Too much choice, concluded Sheena Iyengar of Columbia University and Mark Lepper of Stanford, is demotivating.” The article went on to suggest that this is from the anxiety people often feel when making decisions; too much freedom of choice increases anxiety.

There are people who seem to prefer less, and almost no, freedom in their work. They prefer clearly defined directions, rules, policies and procedures dictating their thinking and actions. Why? I have come to learn that this produces a different kind of freedom for some: freedom from responsibility. How can we be responsible for decisions we did not make or regulations we did not write? For some it also produces certainty; they know what the “right” decision is.

As the diagram to the right asks, “When does more freedom become chaos and uncertainty to us?” For each of us, that varies. For some of us, it restricts freedom so much that it might not even seem like freedom anymore. So, is freedom for everybody?

The article, The Case for Behavioral Strategy, (PDF) by Dan Lovallo and Olivier Sibony* from the March 2010 McKinsey Quarterly states:

Once heretical, behavioral economics is now mainstream. . . . Yet very few corporate strategists making important decisions consciously take into account the cognitive biases—systematic tendencies to deviate from rational calculations—revealed by behavioral economics. . . . in strategic decision making leaders need to recognize their own biases.

As I pointed out in my postings regarding the difference between leadership and management and confidence as an indicator of incompetence, advancements in technology and research methodologies are increasingly showing the influence of unconscious biases in our decisions. Our unawareness encourages substandard decisions. Learning our biases and accounting for them is important. Here are a few common biases mentioned in this article:

• Believing good analysis by managers with good judgment will automatically lead to good decisions
• Over-weighting recent or highly memorable events
• Clinging to a formed hypothesis even when there is evidence disproving it
• Taking actions prompted by excessive optimism and overestimation of our abilities
• Endorsing projects proposed by confident advocates over those who identify all the risks and uncertainties
• Over-weighting last year’s numbers in budget reviews
• Feeling losses more intensely than equivalent gains
• Underestimating the influence a person’s self-interest has in his determination of what’s best for the group
• Conforming to the dominant views of the group or its leader

Among the article’s solutions were:

• Establish formal decision making processes
• Take a different perspective and form alternative hypotheses around it
• Examine at least six similar experiences, not just one or two
• Identify uncertainties and unknowns in planning
• Redo budgets from scratch rather than from last year
• Encourage diversity and dissent

*Olivier Sibony is a director in McKinsey’s Brussels office.