Thursday, February 1, 2018

Better Decisions - In 3 Steps

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We can all be wise in hindsight. How about being wise looking into the future?
Managers make decisions every day, often several times a day. Have you ever thought how you could significantly improve the quality of your decisions? HBR editor Walter Frick has some sage advice – in three simple steps.
1.   Be less certain – make no mistake – while confidence is a desirable, indeed necessary characteristic, overconfidence is a killer. We tend to think that failure is due to incompetence. While sustained incompetence can lead to failure, by itself incompetence is a correctable deficiency. You can acquire new skills, seek a mentor, or turn to colleagues for help. If you are overconfident, you are in a league of your own. Consider this example:
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Jimmy Cayne was the CEO of Bear Stearns and considered to be among the brightest fund managers in the world. When the first signs of trouble appeared in 2007, you would think that Cayne would be keen to address the problem. What did he do? He flew by helicopter to play a round of golf. When more trouble appeared, he went to a prestigious Bridge tournament where the rules did not permit any communication devices. For over a week, he was cut off from the world while his company was imploding. When he returned and realized that a collapse was imminent, he went to the then Governor of the Federal Reserve of New York, Timothy Geithner seeking a new line of credit. Geithner promptly declined leading to the bankruptcy of Bear Stearns.
In hindsight, you would think that Jimmy Cayne would be humble in admitting his mistake. You would be wrong. Please read William Cohan’s brilliant book “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street” to understand the audacity with which Cayne uses expletives to describe Geithner – a classic example of overconfidence and its consequences. In fact, the entire financial meltdown of 2007- 2008 has been attributed by many scholars to overconfidence and hubris – the illusion of control.
The next time you are about to decide, and are supremely confident of your infallibility, please think again. There are many quizzes online to determine whether you are confident or overconfident. Try one of them before your next big decision.

2.   Ask “How Often Does This Typically Happen?” One of the best points of take-off toward better decisions is to look at history. How often has something similar happened? For example, there is a raft of evidence to suggest that acquisitions rarely add value. Yet, large companies are fond of acquisitions because CEOs are fond of telling their board they are firmly in control and growing. Think about Microsoft’s acquisition of Nokia and its subsequent decision to write off over $7 billion tacitly admitting that the acquisition was a failure. In fact, if you look a little deeper, you can find a laundry list of failed acquisitions. We are talking about just one company. Think of the cascading effect of all the acquisitions of the last decade and the consequent value dissipation. If only we have the patience to look at data, we would find that very few (as a percent of the total) projects are executed on time, at the desired level of quality, and within budget, the three key components of any project. Yet, day after day, you come across launch dates and deadlines that are routinely missed. Nobel laureate Daniel Kahneman reveals a stunning fact – a focus group tasked with preparing a text book predicts that the project would be completed in 18 months. No such project had ever been completed in less than 7 years. The project in question took over 7 years and was never implemented. Don’t we want to learn anything from events that have occurred and thus we have precedents?
It is much easier to identify a minefield when you observe others wandering into it than when you are about to do so - Daniel Kahneman.
3.   Think probabilistically – and learn some basic probability: You can adopt the first two principles straight away – after all, both represent a mindset. The third one may take a little time. There are no certainties in the real world (except death and taxes) but there are probabilities. For example, the probability of the earth being hit by a meteor is much less than the probability of a person being killed in a road accident. The probability of dying in a flying accident is much less than the probability of dying in a motor vehicle accident. Yet, it is the air crash that makes the headlines, not the hundreds of motor vehicle accidents that occur every day. The ability to assign probabilities to the actions that you are about to take, and their possible outcomes can significantly mitigate the effects of cognitive bias. If you think it is all too easy, try these two problems:
A.   What is the probability of getting five Mondays in a 31-day month?

B.   What is the probability of choosing the correct answer at random from the options below:
                     i.        ¼
                   ii.        ½
                  iii.        1
                  iv.        ¼
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If you can get both answers right without any help, you have understood the concept of probability sufficiently to start applying them to your work.

Obviously, the three steps have the greatest impact when they are used together than when they are used separately

For better decisions, tamp down your overconfidence, look for precedents, and assign probabilities.

Thursday, January 18, 2018

Economics of Talent

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Vikram Bhalla, Susanne Dyrchs and Rainer Strack of the Boston Consulting Group predict a tsunami will hit work as we know it soon.
The projected tsunami takes the form of four megatrends – two affecting the demand for talent and two affecting the supply of talent. Thus, we are back to Economics 101 except that the megatrends will change the very nature of work in ways that are way beyond imagination.
The classic paradigm of management is about to undergo a sea change. Planning, Organizing, Leading, Performing, Recruiting, and Engaging employees will never be the same again. Organizations that are quick to adapt will flourish. Others will perish.
Two large clusters of waves will drive the demand for talent:
1.    Technological and digital productivity – this cluster has automation, big data, advanced analytics, and access to ideas and information as the configuration.
2.    Shifts in the manner of value creation – this cluster has the challenging task of simplifying complexity, agility and innovation, and new customer strategies (the Internet of Things, Design Thinking, and Placing Customers First) as the configuration.
Consider the following:
Automation – nearly half the jobs in the U.S. could be automated by 2050.
Example: A cognitive agent named Amelia can indeed perform several tasks such as customer service, order and procurement processing, and technology support.
Big Data and Analytics – 2.5 quintillion bytes of data are generated every day.
Example: An iPhone 7 has more processing power than what NASA had in 1969.
Access – by 2020 (that is right, just two years away), the world’s 7.6 billion people will use 11.6 billion mobile devices. Ideas may indeed travel faster than thought.
Example: Crowdsourcing companies such as InnoCentive allow companies to “rent” talent without significant investment. Thus, for every project, you can get the best talent with the assurance that the rented talent will deliver on time, within cost, and at great quality. Companies will face the challenge of managing the increasingly blurring distinction between employees and contractors.
Simplifying Complexity – 75% of leaders interviewed said that complexity was rendering their jobs much harder than they ever were. Yet only 17% said that simplification was possible. BCG’s Smart Simplicity helps organizations deal with complexity (I have written about this in an earlier blog).
Agility and Innovation – All the big ideas that have transformed manufacturing right from Kanban to agile to lean to design thinking are sweeping other domains off their feet.
Example: Bosch adopted these techniques to halve the cycle time for calibrating hardware and software.
New Customer Strategies – Boundaries between companies and customers are fading fast as customers gain access to more information and demanding. Customers want personalized offerings and are willing to collaborate with companies to achieve the objective. Customers want companies to go beyond value – they want companies to be socially and environmentally responsible.
Example: Proctor & Gamble has a million volunteers to obtain feedback on shelving and stocking of products.
Like the forces reshaping the demand for talent, two clusters will reshape the supply of talent.
1.    Shifts in resource distribution – a new demographic mix, skill imbalances, and shifting geopolitical and economic power.
2.    Changing workforce values and cultures – diversity and inclusion, individualism and entrepreneurship, and well-being and purpose.
Consider the following:
A New Demographic Mix – The global population is aging. By 2035, one in five people will be 65 or older. BCG projects a global workforce crisis within the next 15 years, with a labor deficit in most of the 15 largest economies, including in three of the BRIC nations. Since the 15 economies constitute 70% of global GDP, the crisis is likely to affect practically every multinational company. Meanwhile, Generation Z digital natives entering the workforce have entirely new expectations, an increasing emphasis on work-life balance, and are much harder to retain. These demographic shifts will place enormous pressure on companies and their ability to attract, hire, train, and retain talent. A key aspect of the pressure will be to motivate older employees to transfer their tacit knowledge to their younger colleagues. Knowledge Management will occupy center-stage in organizations.
Skill Imbalances – A BCG survey indicates that nearly half of US and German companies cite the lack of qualified employees as the biggest constraint for growth. A Gartner study provides the gloomy forecast that a third of technology jobs will go unfilled by 2020. In desperation, some colleges are offering majors that did not exist just five years ago! For many companies, incubating talent internally will be more critical than depending on the market.
Shifting Geopolitical and Economic Power – Talent is more mobile than ever before, yet challenges remain. In technology, for example, talent is concentrated in 60 hot spots. Rising protectionism and anti-immigration sentiment are rendering mobility more and more difficult. Income disparity is increasing. The top 1% today owns half the wealth. This inequality is projected to increase further in the next decade. There is a real danger of the poor being left further behind leading to unpredictable consequences.
Changing Workforce Cultures and Values – There is a growing preference for independent work instead of corporate careers. People are likely to work for multiple companies – and companies may be quite helpless to do anything about it. Diversity and inclusion are no longer “nice to have” attributes but are dire necessities. Independence is fast becoming the primary motivator, particularly among younger people. One study starkly predicts that freelancers will constitute half the workforce by 2020. As organizations start to rent rather than hire talent, they will have to make do with lower levels of commitment. Leaders will need new styles – styles that encourage entrepreneurship and inspire individuals as much as teams. Millennials and Gen-Zers want more from their jobs than mere competitive compensation. 62% of millennials say they want careers that have a social impact, and 53% say they will work harder to achieve that impact. Companies like Sony now have social work as part of their internship. One in five employees say that they would willingly give up 5% of their pay for the freedom of working from home one or two days a week. Companies will have to devise new ways to attract talent by offering a package that goes well beyond compensation and benefits. Organizations will be judged not just by what they make but by who they are – in relation to customers, employees, suppliers, and society.
The new age of work that frantically tries to balance the supply and demand for talent requires organizations to change in ways that are hard to imagine:
1.    The role of the organization is likely to shift from a controller of resources to a facilitator of ecosystems and a conduit for realizing individual aspirations.
2.    Speed and agility will be central to competitiveness. Companies that look for the “perfect” offering will fall by the wayside. Companies that are willing to experiment, develop rapid prototypes, and “sprint” cycles will succeed.
3.    Companies will emphasize on developing and re-developing people. HR policies and programs will give way to problem-solving interactions, with functions and departments losing their pre-eminence.
4.    Investments in digital technologies and training people to harness technology rather than being scared by its impact will be the new mantra for success.
Finally, organizations will find the need to constantly re-invent themselves and to fearlessly adapt to the changing environment. The status-quo will no longer be an option.
In addition, organizations will need to define themselves not in terms of a value proposition or a competitive position, but in terms of a purpose that makes them relevant in a rapidly changing world.
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