Compared to What? (Pt.2)

In one organisation I have been working with, a number of staff complained that they were suffering from 'sinusitis' following a change in the air-conditioning contractor.

Sick leave statistics were requested from the HR department and sure enough the number of days lost to 'sinusitis' had increased significantly over the number of days lost to sick leave for the same reason in the previous year. So it seems like an open and shut case, right?

Wrong! Sinusitis can easily be confused with the common cold, hay-fever, influenza or certain kinds of headache by the layman, and most of these cases were not medically diagnosed. Even where the person sees a doctor the chances are that if the patient claims that it is down to the air-conditioning, this will influence the diagnosis, especially in the absence of any medical tests.

So what was the actual situation? A business analyst (himself a regular suffer of sinusitis since childhood) took another look at the data and found two interesting anomalies:

• firstly, the total time taken for sick leave from all causes had not increased since the previous year
• secondly, the number of cases of cold and influenza had significantly dropped over the previous year and
• finally, the seasonal pattern of the 'sinusitis' in the current year was remarkably similar to the season pattern of influenza in the previous year.

What this suggested was that the number of actual cases of sinusitis had not increased, but that staff had changed their definition of what constituted 'sinusitis'. In epidemiology, this is known as a classification error. What may have happened is that staff may have seen something on TV about sinusitis or their doctors may have changed what they classed as sinusitis. In any case, what this pointed to was that the apparent increase was an artifact of the change in classification.

The general principle we can derived from this is that you can't look at things in isolation. You need to look at the larger picture and where you notice anomalies see how those anomalies relate to the event or situation which prompted the initial investigation.

In the case above, it seemed reasonable to compare the current year cases of what staff were calling 'sinusitis' with the previous year. In some situations, it does make sense to compare like with like. But where an apparent change bucks a trend then it requires investigation. Where a totality hasn't changed, the only way a part of that totality can increase is for another part to decrease and where the part which has increased is easily confused with the part that has decreased, you may be facing a classification error.

In this instance, accepting the initial data at face value could have led to corrective measures that weren't necessary. Because someone looked beneath the surface, this didn't happen.

You can't hitch a rooster to a wagon...

...well you can but it would have to be a little wagon and it would be more as a joke than to get any useful work done! A horse and a rooster are excellent animals in and of themselves, but you wouldn't want a horse in a henhouse or to try and saddle up a rooster, it would just be silly.

Yet we sometimes do the same thing when we come across new ideas. In one organisation I know, the flavour of the month is Behavioral Insights. Now this is a useful concept in itself and has the potential to work well where it is applicable.

But in this organisation, it has become an end in itself and without really understanding its scope of application, one of the managers is trying to apply it where it doesn't really work. It isn't that the manager has seen an opportunity to exploit, but rather that they have fallen in love with a new tool which they don't really understand and they are itching to use it. Of course, they can't point to how it can be used, but that isn't their problem: they have delegated it to someone else who is tearing their hair out trying to see its relevance.

In an episode of the Canadian sitcom "Corner Gas", Brent and his father are having an argument about whether Brent should rent videos out of the gas station. Brent appeals to his mother for support "Ma, Dad doesn't know what he's talking about" and his father responds "I don't want to know what I'm talking about". Sometimes this is what happens in management: a manager is so keen to apply an idea that they don't take the time to "know what they are talking about."

And that is the take home: without looking at and understanding the full context of a technique or process, you can generate a lot of wasteful action, but not much progress. Understand first then investigate where or if it can be applied.

Otherwise, you will end up with a rooster trying to pull a very big wagon, and unless the rooster is Foghorn Leghorn, getting nowhere.

The power of 'other' - paving the paths your customers prefer

In Universal Principles of Design, a desire line (or design path) is a trace of use or wear that indicates "preferred methods of interaction with an object or environment". On the face of it, a very esoteric concept but in practice it is quite simple.

Many years ago, I read of a case where a new college campus was built and there was a central grassed area. Instead of laying down cement paths, the area was left for a year without marked paths. At the end of that time, paths had been worn by pedestrians taking their most preferred paths across the grass. After that it was a simple matter to lay paths over those already worn by the pedestrians. These paths, of course, perfectly matched the needs of the pedestrians.

However, the principle is not limited to physical settings. A recent example I am aware of was where a new web-based system was put in place for customers to submit a form on-line. In designing the form, the company only wanted the customers to choose a reason for submitting the form from a limited number of options preferred by the company. In order to force this, there was no 'Other' option. This was done in the belief that the customers would just select from the available options. Instead about 30% of customers couldn't find the option they wanted and so just chose a random option and then put their real reason in the text box provided. In effect, they worked around the constraints imposed by the system and in the process made it more difficult for the company to analyse the reasons why customers were submitting the form (which had flow on effects for training and work allocation.)

A better alternative would have been to provide a limited range of the most common reasons expected but also to provide 'Other' as an option. This would have allowed the 'Other' options to be analysed to see if they yielded a further set of explicit options to add. In effect, adding the 'Other' option would have allowed the customers to wear their own 'desire path' which could have then been 'paved over' by providing the additional options they desired.

Too often our preconceptions about customers blind us to what they really want. The power of 'Other' is that it gives your customers the opportunity to tell you!

As Tim Halbur puts it:

...the human element is going to find its own way.... The people who disobey the beautiful logic of smart growth and urban design are trying to tell us something, and we need to watch and listen. We need to go back to the places we create and see how they work in real life. We need to plan for opening day, but make sure we’re also there a month, a year, five years later to adapt and refine based on how people actually use the built environment. The desire paths are there for the finding, if your eyes are open

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If we let our customers wear their own preferred paths and we then build over them, they are happier and we end up with more efficient systems.

It may not be what you think

Here is a story from Raymond Smullyan's book "This Book Needs No Title":

Once upon a time there was a man. This man had a dog. This dog had fleas. The fleas infected the entire household. So the man had to get rid of them. At first he tried to get rid of them individually using a fly swatter. This proved highly inefficient. Then he tried a flea swatter. This was also inefficient. Then he suddenly recalled: "There is such a thing as science. Science is efficient. With the modern American equivalent, I should have no trouble at all!" So he purchased a can of toxic material guaranteed to "kill all fleas," and he sprayed the entire house. Sure enough, after three days all the fleas were dead. So he joyously exclaimed, "This flea spray is marvellous! This flea spray is efficient!" 

But the man was wrong. The flea spray was totally inefficient. What really happened was this: Although the spray was inefficient, it was highly odiferous. Hence he had to open all the windows and doors to ventilate. As a result, all the cold air came in, and the poor fleas caught cold and died.
 

Another story, this time from my own experience:

A manager is worried about the backlog of work that is piling up. An employee looks back over the previous three years, does some analysis which shows that there is a regular pattern of workload every year and that the current year matches that pattern. They show this to the manager. The manager still pushes staff to get more done even though it is a proven fact that the workload will drop without any additional effort. If the backlog reduces, does the manager think:

a. The backlog has dropped because I pushed everyone to work harder
b. The backlog dropped because it always drops at this time of year

A third story:

Many years ago when I was studying epidemiology, we were given a hypothetical study to analyse in which test subjects who were suffering from a particular illness were put on a diet where they had to eat 200gms of chocolate a day. When I did my analysis I raised the following point: whatever was to happen from such a study, the result would not necessarily be because they ingested the chocolate. The result could equally have been what they had stopped eating as a result of having to eat the chocolate. Without knowing what their eating habits were prior to the study you can't determine what if anything was eliminated from their diet that could have caused the improvement in their health.

These stories illustrate three points:

• Sometimes an improvement doesn't come from an action you deliberately took, but is due to an unnoticed side-effect.
• Sometimes an improvement would have happened even if you had done nothing.
• Sometimes it isn't what you have started doing but what you have stopped doing that has resulted in an improvement.

Managers often think that they have to DO something to improve a situation. But sometimes things will improve if they simply let the situation be or STOP doing something that is causing the problem.

 

Should you trust the experts?

With the volatility in world economics over the past few years, it is worth asking whether 'experts' can be trusted to provide any worthwhile guidance to protecting your financial future.

My personal view is that economics as a 'science' has about as much validity as astrology, especially given the demonstrably false assumptions on which most contemporary economic thinking is based. In The Sages, Charles Morris points to a 2008 survey by the Wall Street Journal which ranked 51 economic forecasters and found that of 102 separate forecasts, 101 were wrong and in the same direction. And since then economists have made repeated predictions which have failed to materialise.

So what do we do?

My own approach is to watch the news and to look at world events and draw my own conclusions about what is likely to happen. I watch a variety of different news programs from different countries in order to try and get a balanced view. Based on what I could see happening back in May ( the Eurozone crisis (particularly the uncertainties surrounding the Greek election), the continued debt problems and dysfunctional political conflicts in the USA), I switched all of my investments into Australian Fixed Interest investments, on the assumption that all of these changes would lead to decreased investor confidence and increased volatility in the share market. Sure enough the stock market fell. The Australian economy is still strong without the level of sovereign debt of Europe, the USA and Japan and is riding on the back of a mining boom that is expected to last at least into next year (though the boom could bust if the Chinese economy significantly slows.)

Looking ahead, the issues with the US debt ceiling are likely to rear their ugly heads again in September or October 2012 when US government spending bumps against the debt ceiling agreed last year and the Obama administration will need to seek a further increase. Given the coming US election it seems to me that this will be just as bloody as last years negotiations, if not worse and none of the options available to the US government ( increase debt, default on debt, print more money, adopt a more sensible taxation regime) is likely to bode well for the world economy. In Europe, the last debate in the German Parliament regarding the Spanish bailout made in clear that Germany is losing patience with bailing out the rest of Europe's economic mismanagement, which foreshadows future problems in the Eurozone. Based on all of this, my best judgement for my personal finances has been to keep my money in low risk, capital preserving investments with moderate yields.

I'm not saying that everyone (or even anyone) should follow my example. My background is in mathematics and statistics, not finance. However, I think it is open to anyone to look at the news and judge for themselves what is likely to happen in the world economy and invest accordingly.

I did try read a few different books which purported to provide good advice on defensive investing. However, as is usually the case with economic experts, their advice was contradictory, some predicting inflation in the US economy, while other predicting deflation. I investigated investing in gold bullion, however after looking at annual average gold prices since 1979, I've come to the conclusion that gold is likely to be the next bubble to burst. I base this on the fact that from 1979 to 2004, the average gold price was relatively flat, oscillating around $500 an ounce, but since 2004 it has tripled in price, showing the typical pattern of a bubble with greed and fear driving up the price beyond any reasonable value. Some of the books I have read claim that gold could rise to $10000 an ounce. But my gut feeling is that this is just another example of irrational exuberance. So if I invest in gold at all, I intend waiting till it drops back to less than $600 an ounce.

Investment experts will tell you that the stock market always rises in the long term. However, I believe that we have reached a point in history where the economic balance is shifting towards emerging economies and that the past record of the Western stock markets cannot be a reasonable guide to the future. You can't just look at graphs of stock markets over the past 100 years and extrapolate the upward trend; you need to also consider the changing realities that impact on the values of companies traded in these stock markets, realities which do not necessarily bode well for Europe and the USA.

So in a world of uncertainty and volatility, both economic and political, I think the prudent thing is to protect and preserve what you have, batten down the hatches and whether the storm. Once the fallout of the US election and the Eurozone crisis have settled, then it will be time to reassess the best way to invest.

As I said, I am not an investment expert and what I have discussed is purely my approach to protecting my own finances. Listening to experts who get it badly wrong more often than not is not an option. So it is up to each person to use their own judgement and assess what is best for them.

B.O.W. (Based on what?)

At a meeting of a number of related organisations a question came up about what effect a recent change in legislation would have on the number of people wanting to contest matters in court.

• one group believed that it would make no difference because, based on their experience, most people didn't realise that the law hadn't always been as under the changed legislation.
• one group didn't care since it had no impact on them.
• one group stated that they hadn't collected any figures that would lead them to a reasonable estimate

And then the CEO of a fourth group spoke up and said "Another 20,000 cases a year".

The question you would need to ask is "Based on what?". While any of the other three organisations could be considered to have taken a somewhat reasonable position, conjuring a figure out of thin air doesn't seem very reasonable. What makes it even less reasonable was that the types of cases that were likely to be affected by the change in the law only accounted for about 10% of those going to court and the total going to court numbered less than 20,000 per year in total. So the CEO of the fourth organisation was surmising a ten-fold increase in the number of those kinds of cases going to court, from 2,000 to 20,000.

When you see things like that happening, you have to wonder how they came up with the figure and why they felt obliged to come up with any figure at all, especially in an area in which they were clearly unfamiliar.

In some organisation you see this happening all the time. A CEO tells employees that business is going to double in the next 2-3 years, based on a naive confidence that a business that they supply is going to meet its growth targets even though the other business has consistently failed to meet its targets in the past and even though there is likely to be a change in owners within a year.

There are times when you need to articulate your assumptions and then make a realistic estimate as to how likely it is that those assumptions hold true. Once you spell them out in black-and-white then it becomes clearer whether what you suppose to be the case is based on anything at all, whether it is based on shaky assumptions or wishful thinking. And when assumptions are surfaced, you can provide the opportunity for other people to question them and possibly gain new information of which you were previously unaware. This in turn can shape a re-estimate of how things are likely to turn out.

However, if you fail to bring assumptions into the light of day where they can be questioned, if you fail to ask yourself "Based on what?" then you are setting yourself and your organisation up for failure. You may invest resources where they are not needed and raise the costs of your business without any corresponding gain. And you may lose the confidence of employees as to whether you have sound judgement, if you repeatedly make claims which fail to materialise.

A similar question is: What makes you think that? I find this question useful when a colleague makes a judgement about someone else in my organisation, especially when the judgement surprises me. I want to know if there is something useful my colleague knows that I don't. What I tend to find is a mixture of fact and interpretation and when I make a few tentative interpretations of my own I begin to draw out the information on which their judgment is based, whether it comes from a credible source and whether the judgment is reasonable or whether there may be a more charitable interpretation. In some cases, I can add things that I know that shed light on the situation, so that we both emerge with greater clarity.

The lesson here is that judgments don't exist in a vacuum. They are underpinned by:

• biases,
• blindspots
• assumptions,
• interpretations 
• limited knowledge
• ignorance
• failure to effectively use the knowledge you do have
• believing something which is in fact not true
• not adequately weighting the reliability of different information sources
• believing a situation is stable but which is actually in a state of flux (or vice versa)
• overconfidence in your own infallibility.

When you are surprised that something didn't pan out the way you expected it is a signal to re-evaluate your assumptions and to learn how you went wrong. The situation may have changed in a way that could not have been predicted. But equally, it could have changed in a way that was foreseeable given the facts you had at your disposal. It is an opportunity to learn about your particular weaknesses in judgement so that you can correct them or so at least in future you can ask yourself: "Am I making the same mistake again? What am I missing?".

At least then a momentary failure can sow the seeds of better judgments in the future.

How favoritism undermines businesses

If you run your own business then it is in your interests to get the best person for the job and to promote people based on the value they add to your business. However, if you choose to do otherwise, such as hiring and promoting your friends or relatives or people you like, then ultimately that is your choice: it's your money and if you lose out as a result of your decision then that is your prerogative.

However, if you are a manager in a government organisation or a publicly traded company, then basing decisions on factors other than what the person adds to the business effectively means that you are stealing from the "owners" (i.e. taxpayers or shareholders). In effect, you would be deliberately creating a sub-optimal outcome for reasons that have nothing to do with the success of the business, aiming instead to benefit your "favourites".

And this effect doesn't just stop at sub-par work being performed by your favorites. Let's look at some of these consequences.

Firstly, you undermine confidence in the competence of those so favoured. Generally, the feeling among employees who see what is happening is that if the favourites were all that good then they would be able to compete on their own merits. So the fact that they had to be given the opportunity rather than earn it suggests that they are less competent than others who might have competed for the opportunity. It also suggests that the person playing favourites is aware of this and has deliberately short-circuited any competitive process for that very reason. In some ways being the favorite is a double-edged sword: on the one hand you are being given the benefit of an opportunity, but on the other hand, even if you would have won the opportunity on merit in a competitive process, your reputation as competent in your own right is being undermined. And that can have consequences later on if your "protector" leaves the business or is moved elsewhere within the business.

Secondly, the person loses the confidence of the workers. If they are prepared to act with so little integrity in this matter then what else may they be doing? Can they be trusted? Who may they be undermining behind the scenes without that persons knowledge? Where there is a lack of transparency, workers may fill in the blanks themselves and draw their own conclusions, tinged with a justifiable paranoia.

Thirdly, such favoritism demotivates other workers: if promotion is based on being the boss's favourite then what is the point in doing a good job? Or, they may continue to do a good job just so that they get a good recommendation when they apply for jobs in other, fairer organisations.

Fourthly, it undermines co-operation within the workplace. You can end up with an environment were people do the least they can do without getting fired and where change is a struggle because disaffected workers withdraw their participation in change measures. Where rewards are not based on merit, passive resistance becomes the strategy of choice.

Finally, you fail to recognise and fully deploy the skills and knowledge of other employees who may have a greater claim to the opportunities on offer.

In summary, if you are a manager working in a business you don't own, then by playing favourites you are not only failing to act with fairness or integrity but aren't even earning your own salary since you are sowing the seeds of problems and dissension within the business instead of moving it optimally in the direction of its objectives.

I've painted a pretty grim picture. But unfortunately it is a reality in many organisations today when managers get it into their heads that they are in charge of their own little fiefdoms and lose sight of why they were hired in the first place.