General Management – Page 15

May 18, 2005

Analogy Between Entrepreneurship and Optimization Problems

Having both a business and engineering background, I have tendencies to try to think things out in advance very carefully. Perform strategic analyses, competitive assessments, comprehensive/near-exhaustive engineering analyses, etc. Although I’m exaggerating slightly, there’s a lot said for thinking "globally". Why be trained to think any other way?

But thinking globally can be overdone and is just one paradigm. Another option is to think more "locally", to see what is around you, to react to market demand, to see what positive and negative responses one gets when packaging products, and to be opportunistic and experimental. These latter two characteristics are very entrepreneurial in spirit.

To get a little deep and techie for a moment, in engineering disciplines such as signal processing, data compression, and neural networks, there are a variety of optimization problems where things like training a digital machine to make predictions about what type of audio sound signal to send out through set of speakers (say to cancel out road noise within the interior of a car but not the CD music coming out of the speakers) are achieved in a large part by measuring the error in the results and providing feedback to the digital machine (which is trying to learn to achieve its task). The scope of error can be thought of as a "surface", much like the terrain in mountainous areas like the western region of the US. Sometimes the digital machine will make an error that is higher or lower depending on what is going into the machine.

There are at least two ways for these machines to adapt, and these are like the global and local concepts I referred to at the beginning of this post.

A global engineering technique to updating the machine could be analogous to flying over the terrain of western region of the US and getting a look at the low spots. Since we are trying to minimize the "error" by finding the lowest spot possible, this more global view has the benefit of looking at all of the data. Renting a helicopter can be expensive though. Additionally, a global look may not always be a GLOBAL look. There could be lower spots on the other side of a mountain right in front of you. Additionally because one is so far from the surface, it is possible that perspective you hold is distorted – you cannot actually see the true contour of the terrain by being so high up (to use an often used business phrase … "to be at the 50,000 foot-level").

A local engineering technique (one case being called a "gradient descent algorithm") is where you start in one spot (say at the top of the mountain or at a randomized point) and you look for the steepest slope downward. You then walk a little bit in that direction. If you walk too fast, you can wipe out and the situation becomes unstable. Although this technique may result in a local minimum (i.e., not the lowest spot on the terrain), it can be an effective technique for moving forward. Other techniques (cheaper than renting a helicopter) to finding low spots may be to have multiple people dropped off in different spots and communicating via walkie talkie. Hybrid global and local techniques also work.

In any case, I am all for global thinking, but often it is refreshing to think about things more locally. For one thing, you are well grounded in reality and have a structured method for moving forward. As long as one can step back from time to time and look out at the horizon and to see whether the global goals are being met, it is another way of achieving some balance.

Update (5/18/05): Speaking of optimization problems and neural nets, if you haven’t tried this neural net based site for the game twenty questions, it is pretty remarkable. Quite a body of knowledge captured within. More info also here at Marginal Revolution.

Update (5/22/05): And in honor of Darth Vadar … try the Sith version …

April 20, 2005

Dream Interpretation As It Applies To Business

An increased amount of attention has been brought back to
the decision-making field of research with the release of Malcolm Gladwell’s book,
“Blink”. Gladwell’s book focuses on the power of the subconscious and tacit
knowledge in decision-making processes (while conscious). The book is available here at the bookstore at the business school at INSEAD, and his other book, "The Tipping Point" is part of the reading material for one of the courses on organizations (similar to how positioned at the University of Chicago business school to my understanding).

Completing the "Blink" book made me remember a book I read many
years ago on dream interpretation (note Gladwell’s book did not cover deep sleep dreaming, daydreaming, nor spontaneous thoughts that appear during the day). A key motivator for the book was this … wouldn’t it be powerful if one could gain additional benefits
from the activity that we spend one-third of our lives doing, i.e., sleeping?

The book was not Freud-style dream interpretation, where
Freud advocates (to my understanding) literal
interpretation of dreams. Instead, the book I read offers up the notion to the
effect of that each person has their own
data dictionary – dreams are a way of the subconscious communicating with
the conscious mind using images. The meaning of images in a dream (which are frequently
severely exaggerated) can best be understood by reflecting upon the dream as a
whole and the feelings the dream imparts and then determining what feels right
and comfortable as an explanation.

As an example, a woman described a dream where she was
murdering her husband by bludgeoning him over the head with a vacuum cleaner.
Also noteworthy was the fact that the husband appeared as an animal in the
dream – specifically a pig.

Freud might argue the dream literally – that the woman was
at risk of murdering her husband. Reminds me of the Tom Cruise movie, “Minority
Report”.

The book I read offered a different explanation. The
exaggerated nature of the dream was simply an artifact of dreams trying to
communicate with us. Here, the woman had some hard feelings toward her husband
because she felt he was restricting her in the home. The vacuum cleaner
represented “domesticity,” and the pig reflected feelings towards the husband
as a “chauvinist pig”. Murdering only meant that there were strong feelings
that the woman and husband should try to resolve (before things got out of hand).

When working with the executive team at my prior employer to
bring in a corporate venture capital round, I recall many tense discussions
surrounding negotiating terms for the new investor class with respect to angel
investors. I would dream about some of the issues during my sleep, and I would
wake up with the tenuous items popping into my head. Sometimes these cues would
trigger me to go back and talk with an angel investor or founder on specific
points. At other times, dreams simply reflected anxiety or feelings of
happiness as to how a client project for me was going. Much like a subconscious
reminder that pops into one’s head during the day that you should call someone
you haven’t talked to in awhile, pursue someone for a job opportunity or
project, etc., I would sometimes find subconscious cues important to
prioritizing personal action items, raising my sensitivity to other parties, and
recognizing my own feelings better.

April 13, 2005

Examples Of Both The Power and Pitfalls Of Storytelling In Management

The following has been cross-posted at The CIO Weblog.

I’ve been catching up on my marketing reading over the past few weeks, and what’s great about some of the material is the use of storytelling. In fact, storytelling and the use of analogies are a great thing to use not only in marketing but also in areas like IT and general management. Storytelling can be used to get people motivated and on the bandwagon.

A Computerworld interview with Harvard Business School’s Professor Jan Rivkin, captures an excellent condition where analogies and storytelling work in the IT area:

Why is analogical reasoning so useful in a field like IT?
Analogies are most powerful in settings where there’s not enough
clarity to use deductive reasoning nor so much ambiguity that you have
to go for trial and error. Many pockets of IT have this middle ground
that’s familiar enough to make links to more familiar settings but not
clear enough to identify cause and effect. In that middle ground,
analogies may be the only options we’ve got.

What I like about the Computerworld article, however, is that it also explicitly touches on some aspects of organizational behavior (OB) and decision making. The OB field is something that I am particularly sensitive to and is something that is not covered by all business schools as a course in of itself. Here are examples of two OB biases addressed in the article (brackets added by me to clarify original text snipped out of context):

[A] potential problem [with using analogies] is the anchoring effect. Can you explain?
People get attached intellectually and emotionally to their analogies,
and it’s very hard to shake. If you look at Sun, Scott McNealy often
uses analogies drawn from the auto business. He argues that buyers
should be interested in the whole package, not the components, because
when they buy a car, they care about the whole car, not where the
carburetor comes from. But you have to question how dispassionately he
can assess that analogy. His father worked for years in the auto
business, and his sons are named for auto models: Maverick, Scout, Colt
and Dakota.

Tell me about confirmation bias. It appears that human
beings tend strongly to seek out data that confirms their beliefs and
invest too little in seeking out disconfirming data. We like to be
right. If analogies come into our heads, we can always find elements of
reality to confirm our belief in them.

I also have to give a positive plug for the warning on confirmation biases. This is a key thing taught Day 1 at many management consulting firms to test and mitigate biases for, but it is something which operating company employees seem to be less aware of (based on my anecdotal experiences). Not sure why this is so, but to be fair, management consultants also have tendencies for certain blindspots as compared to operating company employees.

But I digress. In any case, by all means use storytelling in management, especially when trying to establish some ground in a complex business area, but be aware of the pitfalls because anchors can be hard to shake and because stories should not be taken as universal truths.

March 21, 2005

In Search of Better Ways to Make Sure Interviewing Is Not a “Sip Test”

My better half reports from assignment at the business school at INSEAD that Dr. Jack Soll made a clever analogy likening most interviewing processes to the Pepsi Challenge "Sip Test". I should be somewhat careful here to note that I’m not sure how far the analogy went, and I want to be careful here because academics live based on being rigorous in approach and analysis. Suffice it to say that my wife and I had the initial impression that Jack’s analogy was very clever (and pretty darn good too).

First I’ll bring readers up-to-date on the "Sip Test", which has been highlighted recently in Malcolm Gladwell’s book, "Blink". Scott Liben gets at it pretty well in a recent article:

I’m more than old enough to remember the commercial campaign a couple
of decades ago called the Pepsi Challenge. It capitalized on what
marketers call a "sip test," in which even committed Coke drinkers
chose Pepsi over their usual cola when they weren’t told which was
which. Even when the makers of Coke conducted their own such tests, a
majority preferred Pepsi. Rattled by the results, they launched New
Coke, a direct product of market research — and one of the most
notorious product flops of all time.

The problem, in short:
The "sip test" or CLT (for Central Location Test) in which Pepsi always
prevailed turned out to have very little in common with the way buyers
of soft drinks actually consume such products on their own. Gladwell
quotes Carol Dollard, of Pepsi’s new-product development department,
who says "Sometimes a sip tastes good and a whole bottle
doesn’t. That’s why home-use tests give you the best information. The
user isn’t in an artificial setting. They are at home, sitting in front
of the TV, and the way they feel in that situation is the most
reflective of how they will behave when the product hits the market."

Now research on how well interviews correlate with actual job performance once a person has been hired has shown that there is "very little" to "some" correlation. A person that did well interviewing may either do well or poorly on the job. The probability of getting it right, is measureably better than a flip of a coin.

So is interviewing for a job basically like a sip test where a 2-hour interview process has little bearing on how well a person will do in the long-run as a hire? Very disheartening. To top that off with the fact that most people are not aware of interviewing biases that may happen between first round and second round interviews with respect to interviews and the use of screening versus selection processes (that is, you need to be part of the crowd and on par in one case but stand out in the other case), the story just gets worse.

The second article I cited above hints that having more structured interviewing processes works better.

In light of that, some tactics that I have used that seem to work well (where each may also have some issues in different contexts [too detailed to go into here though]) are:

establishing an arm-length relationship (a 1099 relationship) first with contract-to-hire terms if all goes well after a period of time
establishing a trial period in an employment agreement (with somewhat higher salary terms in the trial period) to compensate the contractor
having some joint problem solving tasks with the prospective hire, prior to an employment agreement being established

So on the surface, hiring good people matters a lot. Are we certain that our hiring process is not a sip test though?

March 20, 2005

Managerial Decision Making and Spiderman

I completed Malcolm Gladwell’s books, "Blink" and "The Tipping Point", and I plan to read three of Seth Godin’s marketing-oriented books next in order to keep my MBA fresh. My impression and initial investigations to date have me thinking that these books have not penetrated business schools very heavily yet. Perhaps some of these books should be recommended in business schools or parts included in packets. I gave very high-marks to "The Tipping Point". Malcolm Gladwell indicated to me via email that it’s probably too early yet to know if "The Tipping Point" will penetrate the business schools, but he is hoping so.

Having just finished "Blink", I wanted to share some thoughts related to subconscious decision-making and making decisions based on "gut feeling". This is an interesting topic in the management consulting field, which bases its core on fact-based decision making (as I’ve hinted here). Making decisions based on gut feel is generally frowned upon. I suppose this is also true for managers (non-consultants) within operating companies, but I would venture to say that since management consultants are independent third-parties to solving business problems, there is more polarization and social pressure for consultants to rely on facts (just like patients rely on medical doctors to rely on facts).

I’m not aware of any grand unification theory for balancing fact-based decision making with subconscious decision-making, but I’ll offer my working model for handling the balance (it may be more liberal than traditional consultants). I basically use what I call my "spider sense" to balance fact-based decision making.

Spider-sense is based on Stan Lee’s superhero, Spiderman, who gets a tingling sensation when something bad is about to happen to him.

So my general "algorithm" for decision-making (work in progress) is to:

rely on facts
check your gut feel or "spider-sense"
if #1 and #2 are in alignment, great (i.e., the facts and spider-sense agree)
if #1 and #2 are wildly out of alignment (contradict one another), better re-check the facts or re-factor what is going on around you
on the margin (i.e., if #1 and #2 contradict, but they are not wildly out of alignment), if you have above moderate expertise in the subject matter, then weigh "spider-sense" more than the facts. Otherwise, try to seek out an expert (or godfather or mentor) to fill-out the tacit knowledge gap.

The other caveat to this is that one must constantly try to sharpen one’s spider senses. In business, some of this has to be done by focusing on vertical experiences within an industry sector. However, sharpening managerial decision making in a more general way is also important. In some business schools, this is covered in classes on organizational behavior (OB), and schools may have required OB courses to earn the MBA degree. OB training helps one to become more cognizant of biases that people have when processing information and making decisions. Whether biases are good or bad in a particular situation depends. Nevertheless, there are a ton of biases out there and OB classes help to give people a structure for thinking about these kinds of things.

March 14, 2005

Care Matters In Customer Service

I’m a true believer that there are many ways to skin a cat when it comes to solving business problems. Measurements and metrics for operations, however, are something that I’m borderline on being religious about. I was recently hired by a COO to diagnose the breakdown of a customer service operation for a Series C carve-out/venture deal. For this company, I discovered that a big problem throughout the organization was a lack of metrics, an executive dashboard, and time-series view of data. Had headquarters and regional management been looking at the same picture of the business, it would have been much easier to see the decline in service, turnaround time, etc. as it related to other controllable factors in the business (such as introduction of a new, less efficient IT platform). In addition to making recommendations on implementing a new measurements system, I had made the recommendation for the company to look for a new rock star, good lieutenant, and proactive person for running the customer service show, especially coming off a year of service decline. I suggested that numerous managers be involved in placing such a key position, and I also volunteered to interview people for the slot.

In any case, measurements are close to sacred to me. I’ve blogged about it in the past, and I expect I will continue to do so in the future.

Then Seth Godin shows me that there’s another way to look at things and that one can scrap measurements. I hate that, but he’s right.

Note that Seth has also posted links to his top ten posts in 2005. Worth checking out.

Steve Shu
Managing Director, S4 Management Group

March 13, 2005

Outsourcing Innovation – The Final Frontier or The Last Stand?

I imagine this could be a bit of a controversial article (Business Week). The article covers the outsourcing of innovation. We said we’d never do it, but here we are. Key snips from the article for me (bullet format is mine):

… Underlying this trend is a growing consensus that more innovation is
vital — but that current R&D spending isn’t yielding enough bang
for the buck …
… "It is a slippery
slope," says Boston Consulting Group Senior Vice-President Jim Andrew.
"If the innovation starts residing in the suppliers, you could
incrementalize yourself to the point where there isn’t much left." …
… Still, most companies insist they will continue to do most of the
critical design work — and have no plans to take a meat ax to R&D …
… Who will ultimately
profit most from the outsourcing of innovation isn’t clear. The early
evidence suggests that today’s Western titans can remain leaders by
orchestrating global innovation networks. Yet if they lose their
technology edge and their touch with customers, they could be
tomorrow’s great shrinking conglomerates …

I suppose that at the heart of the question is what part of the R&D chain can be outsourced without threatening a company’s ability to appropriate profits (and under what conditions). The Business Week article hints at looking at R&D more comprehensively and that the last line of defense may be having a competence in orchestrating innovation supply chains.

Steve Shu
Managing Director, S4 Management Group

March 4, 2005

How My Clients Can Bypass The MBA

Operations (whether manufacturing, service-oriented, etc.) is one of the most underrated subjects (I have at least two others) in MBA programs. Part of it has to do with that some aspects of operations use mathematics concepts like Little’s Law, statistical significance, queuing theory, etc.

But sometimes lack of enthusiasm for taking operations coursework has to do with how it is presold to students as opposed to how students feel after taking the course. Students generally love the lessons learned from MIT’s Beer Game. It is lesson that you can apparently now try online here.

For those more inclined to read about operations, bypass the mathematics, learn some of the main lessons, yet digest information in a popular, novel-style reading form, I highly recommend the book The Goal by Eliyahu M. Goldratt. The book does not need any endorsements as it has sold millions of copies. I characterize it as a "bridge book on business". It makes complex information accessible to the more general public and business readers. The potential for books on corporate blogging excite me in the same way (although grounding in solid business theory may not be as difficult for the blogging subject as it is for operations).

Steve Shu
Managing Director, S4 Management Group