… do you?

You may be one of thousands of people who finished a vocational university degree (engineering, law, accounting etc.) and thought, “I need to get some professional experience to my name … and then I’ll branch out and do what I love!”  Two years later and you are still an engineer/accountant/lawyer.  You’ve learnt a lot and met some interesting people, but it wasn’t meant to be this way.  You have dreams of success and personal fulfillment!  Is now the right time to switch?  Is the economy strong enough or should you wait? There is no right time to stand up and go after what you’ve always wanted, but just don’t wait too long!

I Love My Job

I love my job, I love the pay.
I love it more and more each day.
I love my boss; he/she is the best.
I love his boss and all the rest.
I love my office and its location.
I hate to have to go on vacation.
I love my furniture, drab and gray,
And the paper that piles up every day.

I love my chair in my padded cell.
There’s nothing else I love so well.
I love to work among my peers.
I love their leers and jeers and sneers.

I love my computer and its software;
I hug it often though it don’t care.
I love each program and every file,
I try to understand once in a while.

I’m happy to be here, I am, I am;
I’m the happiest slave of my Uncle Sam.
I love this work; I love these chores.
I love the meetings with deadly bores.

I love my job-I’ll say it again.
I even love these friendly men,
These men who’ve come to visit today
In lovely white coats to take me away.

(source unknown)

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People are motivated to succeed in business for different reasons. Some people want to change the world and some just want to make money. If you go to business school or listen to CEOs speak at annual meetings you’ll hear a lot of talk about money: how much money, made by whom, from which activities, and what is the plan to make even more next year.

The drive by individuals and corporations to make more money seems so normal that few people stop to ask the obvious question, why acquire more money?  What is the purpose?  Why go to so much trouble?

To quote Al Pacino’s character Tony Montana from the 1983 film Scarface:

In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the women.

If money is merely a means to acquire power then it makes sense to consider power.  Is the acquisition of power a worthwhile goal?  How can power be acquired and maintained?

The 1998 bestselling book written by Robert Greene and Joost Elffers entitled “The 48 Laws of Power“ goes a long way towards answering the second question. The 48 Laws of Power are quite telling, if not a little Machiavellian, and provide a good explanation of the principles by which power can be acquired and maintained:

Law 1 – Never Outshine The Master - Always make those above you feel comfortably superior.

Law 2 – Never Put Too Much Trust In Friends, Learn How To Use Enemies

Law 3 – Conceal Your Intentions - Keep people off-balance by never revealing your purpose. Guide them in the wrong direction and by the time they realise what you’re up to, it will be too late.

Law 4 – Always Say Less Than Necessary - When you are trying to impress people with words, say as little as possible. The more you say, the more likely you are to say something foolish.

Law 5 – Reputation – Guard It With Your Life - Reputation is the cornerstone of power because once it slips you are vulnerable to attack. You can attack your enemies by destroying their reputation and allowing public opinion to hang them.

Law 6 – Seek Attention - Never let yourself get lost in the crowd. Stand out and attract attention.

Law 7 – Use the Good Work of Others – Use the good work of others to your advantage. Their assistance will save you time and energy, and give you an aura of godlike efficiency. In the end your helpers will be forgotten and you will be remembered.

Law 8 – Make Other People Come To You - When you force the other person to act, you are the one in control.

Law 9 – Win Through Actions - Any victory gained through argument is a Pyrrhic victory.  People hate to be defeated and victory through argument means nothing because “a man convinced against his will is of the same opinion still”. It is more powerful to win the agreement of others through your actions, without saying a word.

Law 10 – Avoid Infection – Emotional states are infectious. The unfortunate can draw misfortune not only on themselves but also on you. Associate only with happy and fortunate people.

Law 11 – Keep People Dependent On You – If people value you or need what you have then they will be willing to give you more freedom and make exceptions for you.

Law 12 – Use Honesty To Disarm People – One honest action can cover dozens of dishonest ones. You can use selective honesty to bring down people’s guard . Once their defenses are down, you can manipulate them.

Law 13 – Appeal To People’s Self-Interest - If you need help from someone don’t remind the person of your past helpfulness, they will find a way to ignore you. Instead, appeal to the person’s self-interest by finding something in your request that will benefit them.

Law 14 – Pose As A Friend, Work As A Spy – Information is power. Gathering information about rivals allows you to destroy them. Pose as a friend and work as a spy.

Law 15 – Crush Your Enemy Completely - A feared enemy must be crushed completely. If you give your enemy a chance to recover they will seek revenge.

Law 16 – Create Value Through Scarcity – The more you are seen, the more common you appear. If you are already established in a group, temporarily withdraw from it. This will  make you more talked about and even more admired.

Law 17 – Cultivate An Air Of Unpredictability - Humans are creatures of habit with an insatiable need to see familiarity in other people’s actions. Your predictability gives them a sense of control.

Law 18 – Isolation Is Dangerous - The world is dangerous and enemies are everywhere so you need to protect yourself. Isolation exposes you to more dangers than it protects you from. Mingling amongst the people gives you access to information and avoids making you a conspicuous target.

Law 19 – Know Who You’re Dealing With - There are many different kinds of people in the world, and you can never assume that everyone will react to your strategies in the same way. Deceive the wrong person and they will spend the rest of their lives seeking revenge.

Law 20 – Do Not Commit To Anyone - Do not commit to any cause but yourself. By maintaining your independence you become the master of others.

Law 21 – Seem Dumber Than You Are - No one likes to feel stupider than the next person. The trick is to make people feel smart – and not just smart, but smarter than you are. Once convinced of this, they will never suspect that you may have ulterior motives.

Law 22 – Surrender When Weak - When you are weak, choose to surrender. Surrender gives you time to recover, and time to wait for their power to wane. By turning the other cheek you infuriate and unsettle your enemy.

Law 23 – Concentrate Your Forces - Conserve your energies and concentrate them at their strongest point. You gain more by finding one rich client, than by having a dozen poor ones.

Law 24 – Play The Perfect Courtier -The perfect courtier woos people and thrives in a world where everything revolves around power and political dexterity.

Law 25 – Re-Create Yourself – Do not accept the roles that society chooses for you. Create a new identity and be the master of your own image rather than letting others define it for you.

Law 26 – Keep Your Hands Clean - You must not be associated with common actions, inefficiency or mistakes.

Law 27 – Play On People’s Need To Believe - People have an overwhelming desire to believe in something. Become the focal point of such desire by offering them something to follow. Keep your words vague but full of promise; emphasize enthusiasm over rationality and clear thinking.

Law 28 – Act With Boldness - If you are unsure of a course of action, do not attempt it. Your doubts and hesitations will infect your execution. When you act, act with boldness. Any mistakes you commit through audacity are easily corrected with more audacity.

Law 29 – Think Long Term, Plan Carefully – Take a long term view and plan all the way to the end, taking into account all the possible consequences and obstacles. By planning to the end you will not be overwhelmed by circumstances and you will know when to stop. Guide fortune and help determine the future by thinking far ahead.

Law 30 – Make Your Accomplishments Seem Effortless - When you act, act effortlessly, as if you could do much more. Avoid the temptation of revealing how hard you work. Teach no one your tricks or they will be used against you.

Law 31 – Control the Options – The best deceptions are the ones that seem to give the other person a choice. Give people options that come out in your favor whichever one they choose. Force them to make choices between the lesser of two evils, both of which serve your purpose.

Law 32 – Play To People’s Fantasies – Never appeal to truth and reality unless you are prepared for the anger that comes from disenchantment. Life is so harsh and distressing that people are drawn to those who can manufacture romance or fantasy.

Law 33 – Find Each Man’s Achilles Heel - Everyone has a weakness: an insecurity, an uncontrollable emotion or need, or a small secret pleasure. Once found, you can turn it to your advantage.

Law 34 – Beware The Tickets You Put On Yourself - The way you carry yourself will often determine how you are treated.  In the long run, people will treat you at your self-estimation.

Law 35 – Master The Art of Timing - Never seem to be in a hurry – hurrying betrays a lack of control. Always seem patient, as if you know that everything will come to you eventually.

Law 36 – Disdain Things You Cannot Have - If there is something you want but cannot have, show contempt for it. The less interest you reveal, the more superior you seem.

Law 37 – Create Compelling Spectacles - Striking imagery and grand gestures create the aura of power – everyone responds to them. Stage spectacles for those around you.

Law 38 – Behave Like Others - If you make a show of going against the times and flaunting your unconventional ideas, people will find a way to punish you for making them feel inferior. It is far safer to blend in and nurture the common touch. Share your originality only with close and tolerant friends.

Law 39 – Be Calm - Anger and emotion are strategically counterproductive. You must always stay calm and objective but if you can make your enemies angry while staying calm yourself, you gain the advantage.

Law 40 – There Is No Free Lunch – Anything offered for free is dangerous as it usually involves either a trick or hidden obligation. Anything of value is worth paying for and by paying the full price you stay clear of deception, financial indebtedness and moral indebtedness. Be generous with your money, for generosity is a sign of power.

Law 41 – Avoid Stepping Into A Great Man’s Shoes - What happens first always appears better and more original than what comes after. Establish your own name and identity and distinguish yourself as unique from the great men who have come before you.

Law 42 – Strike The Shepherd And The Sheep Will Scatter - Trouble can often be traced to a single strong individual. Do not wait for the trouble to arise, do not try to negotiate with them. Neutralize their influence by isolating or banishing them.

Law 43 – Work On Hearts And Minds – If you use coercion people will eventually react against you. You need to seduce people so that they willingly move in your direction. The way to seduce others is to operate on their individual psychologies and weaknesses.

Law 44 – Disarm Others With The Mirror Effect – The Mirror Effect involves doing exactly as the other person does.  The Mirror Effect can be used to seduce others by making them believe you share their values. It also means they cannot figure out your strategy.

Law 45 – Preach The Need For Change, But Reform Slowly - Everyone understands the need for change, but people are creatures of habit. If you are new to a position of power, show respect for tradition. If change is necessary, make it feel like a gentle improvement.

Law 46 – Never Appear Too Perfect - Appearing better than others is dangerous and envy creates silent enemies. It is smart to occasionally display defects, and admit to harmless vices, in order to deflect envy and appear more human. Only gods and the dead can appear perfect with impunity.

Law 47 – Learn When To Stop - The moment of victory is often the moment of greatest danger. In the heat of victory you risk pushing past your goal. Set a goal, and when you reach it, stop.

Law 48 – Assume Formlessness - By having a predictable plan, you open yourself to attack. Nothing is certain and the best way to protect yourself is to be flexible and change often.

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Productivity is important.  Every organisation wants to produce more with less.

The difficulty is though, that “productivity” is a nebulous term.  Who is responsible for this “productivity” you speak of?

Assigning direct responsibility for productivity improvement to a specific individual or team makes it much more likely that initiatives to measure productivity and strategies for improving productivity will be undertaken.

Telstra’s recently released productivity report, which is based on a survey of 300 private sector and government enterprises, provides clear evidence to support this view.  The graph below shows that there is a clear link between assigning personal responsibility for productivity improvement and the likelihood that steps will be taken to measure productivity and set a specific target.

Productivity, make it personal.

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I recently listened to a talk by Alan Weiss, and it got me thinking.

The people in your organisation are your assets. Each person has unique talents that can be put to work to make your organisation a more successful one.

The question is though, where is that talent focused?  Is it focused on your products, your services, your relationship with the customer? Or is it focused internally: people are unhappy with the compensation system, you got that job and I didn’t.

If you take 100% of your people’s talents, what’s the percentage?  What’s the breakdown?

If 30% of your people’s effort is focused on internal affairs and you can redirect it so that only 10% of people’s effort is focused internally, then that is a major boost in productivity.

Focus on what matters.  Focus on the customer.

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[78 places left]

I just read Seth Godin’s post on Dunbar’s Number.

Dunbar’s Number is thought to be around 150, and represents the number of people that we humans can place in a group before stable social relationships begin to break down.  The thinking is that we simply lose track of new people when the group gets bigger than this.

Last week I created a Facebook group for people who are interested in business and investment strategy.  Members are able to create discussions, share ideas, and post interesting links, photos and videos.  I am hoping this new group will be a good learning experience for everyone involved.

The group is called “Dunbar’s Strategy Group“, and when it grows to a size of 150 it will be closed to new members.

If this sounds like a group you would like to be a part of, please consider joining.

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Mismatch between what science knows and what business does

Daniel Pink puts forward the idea that there is currently a mismatch between what science knows and what business does.

Pink presents the Candle Problem, an experiment invented in 1945 by Karl Duncker. The experiment works as follows: I bring you into a room and give you a candle, a box of tacks, and some matches. Your job is to attach the candle to the wall so that the wax doesn’t drip onto the table. This is a seemingly simple problem, but the problem is difficult to solve because of the difficulty of overcoming something known as “functional fixedness”. The items are presented in such a way that there is a “mental block against using [them] in a new way that is required to solve a problem” (Duncker 1945). Watch the video to see a good explanation of the Candle Problem.

Now here is the interesting thing. At Princeton University, an experiment was conducted using the Candle Problem to look at the power of incentives. Two groups of people were taken and the first group were offered individual monetary rewards if they solved the Candle Problem quickly. The control group were not offered an incentive. The result was amazing, the incentivised group performed significantly worse than the control group … external incentives reduced performance.

Pink makes a number of insightful points on motivation, in summary:

• As long as a task requires only mechanical skill, bonuses work as they would be expected – the higher the pay, the better the performance.
• Once a task calls for even a rudimentary amount of cognitive skill, a larger reward often leads to poorer performance.
• Extrinsic motivators, which Pink refers to as “if-then” rewards, often destroy creativity.
• In early 2009, economists at LSE looked at pay for performance schemes and concluded that “financial incentives … can result in a negative impact on overall performance.”
• The secret to high performance isn’t rewards and punishment but rather that unseen intrinsic drive, the drive to do things for their own sake, the drive to do things because they matter.

Autonomy, mastery and purpose

The solution to achieving high performance in business in the 21st century will be based on intrinsic motivation, on the desire to do things because they matter, because they are interesting, and because they are important. Pink argues that this new operating system for business is to be based around 3 elements:

1. Autonomy – the urge to direct our own lives;
2. Mastery – the desire to get better and better at something that matters; and
3. Purpose – the yearning to do what we do in the service of something larger than ourselves.

As Pink argues, if we can repair the mismatch between what science knows and what business does, and bring our notions of motivation into the 21st century, we can strengthen our businesses, solve a lot of those Candle Problems … and maybe even change the world.

Book version of this speech

I wrote Dan an email to thank him for this great speech.  He informs me that the book versionof the speech will be released in the US in December and in Australia around April or May.  If the book is even half as insightful as the speech, I think it will be well worth reading.

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In an article entitled “Strategy and the Internet” published in the March 2001 edition of the Harvard Business Review, Michael Porter outlined six principles that he believes companies need to follow if they want to establish and maintain a distinctive strategic position in the market place.

Since the internet is a business platform with low barriers to entry, these six strategic principles are particularly relevant to any company that wants to be profitable online:

1. Stand for something

In order for a company to develop unique skills, build the right assets, and establish a strong reputation it is important to define what the company stands for so that the company will have continuity of direction.

2. Focus on profitability

This point seems obvious, however many internet based companies have instead focused on “unique visitors” and “page views” as measures of performance. At the end of the day, sustainable profits will only be possible where goods or services can be provided at a price which exceeds the cost of production.

3. Offer consumers a unique set of benefits

Good strategy involves being able to provide a distinct set of benefits to a particular group of consumers. Trying to please every consumer will not give a company a sustainable competitive advantage.

4. Perform core activities differently

If a company is able to establish a distinctive value chain by performing key activities differently from its competitors, then this will help the company establish a sustainable competitive advantage.

5. Specialise

There is no competitive advantage to being a jack of all trades and a master of none. Porter recommends making trade-offs.  By focusing on certain activities, services or products at the expense of others a company can establish a unique strategic position.

6. Ensure that all activities reinforce the company’s strategy

All of a company’s activities are interdependent and, as a result, they must be coordinated so as to reinforce the company’s overall strategy. A company’s product design, for example, will affect the manufacturing process and the way that products are marketed. By coordinating all of its activities, a company makes it harder for competitors to imitate its strategy.

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On 1 August 2009, at the opening of its new global headquarters in Yokohama, Nissan launched its first fully electric vehicle, the Nissan Leaf EV.

Nissan appears to have made a long term strategic commitment to electric vehicles. According to one source, Nissan has been busy developing electric vehicles since 1992.

Nissan, with alliance partner Renault, has bold ambitions. Toyota and Honda have both produced fuel-electric hybrids, but Nissan is the first car maker with plans to mass produce a fully electric vehicle.  The Nissan Leaf EV will be able to run 160km (100 miles) on a single charge which, according to Nissan, would make it suitable for the daily driving needs of over 80% of Americans.

Fully electric cars are not a new idea but, up until now, there have been a number of factors preventing mass market introduction, including:

1. limited battery life;
2. the high cost of battery technology;
3. inconvenience of lengthy battery charging times; and
4. lack of supporting infrastructure.

Carlos Ghosn, CEO of Nissan, has responded to these consumer concerns about affordability and convenience.   The Nissan Leaf EV will incorporate two clever innovations:

1. Battery leasing: Electric cars have traditionally been more expensive than petrol cars, due mainly to battery costs.  Battery costs will most likely fall with mass production. However, Nissan’s key innovation is their plan to lease batteries to customers rather than sell the car at an inflated price. As a result, the Nissan Leaf EV is expected to cost no more than a petrol car.
2. Quick charge: The batteries will have fast charge capabilities, with a 10 minute quick charge providing an extra 50km of range.

Will cities around the world commit to building the necessary infrastructure to support these new electric vehicles?  If so, the Nissan Leaf EV could be the bright spark we’ve been waiting for.

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In these troubled economic times it may be difficult to obtain an offer of employment.  There are lots of skilled people competing for a small number of jobs.

Be bold, stand up for yourself, and don’t take no for an answer!

Dear Employer,

Thank you for your letter rejecting my application for employment with
your firm.

I have received rejections from an unusually large number of well
qualified organisations. With such a varied and promising spectrum of
rejections from which to select, it is impossible for me to consider
them all. After careful deliberation, then, and because a number of
firms have found me more unsuitable, I regret to inform you that I am
unable to accept your rejection.

Despite your company’s outstanding qualifications and previous
experience in rejecting applicants, I find that your rejection does
not meet with my requirements at this time. As a result, I will be
starting employment with your firm on the first of the month.

Circumstances change and one can never know when new demands for
rejection arise. Accordingly, I will keep your letter on file in case
my requirements for rejection change.

Please do not regard this letter as a criticism of your qualifications
in attempting to refuse me employment. I wish you the best of luck in
rejecting future candidates.

Sincerely,

Tom Spencer

(Source unknown)

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The ability to find and retain talented employees is vital to sustained business success.

Attractive remuneration, stock options plans, medical benefits, and other incentives are attractive enticements for any employee. But what factors are important in attracting, focusing and retaining the most productive and talented workers?

Marcus Buckingham and Curt Coffman, in their international bestselling book “First Break all the Rules”, present the fascinating results from two Gallup studies conducted over a 25 year period. The studies searched for those questions that would elicit positive responses from only the most loyal and talented employees.

As it turns out, the key factors for attracting and retaining the most talented workers can be captured by 12 simple questions.  The more questions that an employee can answer in the affirmative, the more likely they are to be a productive and talented worker:

1. Do I know what is expected of me at work?
2. Do I have the materials and equipment I need to do my work right?
3. At work, do I have the opportunity to do what I do best every day?
4. In the last seven days, have I received recognition or praise for good work?
5. Does my supervisor, or someone at work, seem to care about me as a person?
6. Is there someone at work who encourages my development?
7. At work, do my opinions seem to count?
8. Does the mission/purpose of my company make me feel like my work is important?
9. Are my co-workers committed to doing quality work?
10. Do I have a best friend at work?
11. In the last six months, have I talked with someone about my progress?
12. At work, have I had opportunities to learn and grow?

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Business Mutualism

Mutualism, a concept from biology, refers to a relationship between two species or organisms in which both benefit from the association.

Following on from the ideas put forward in a recent talk by Robert Full, we can apply this idea to the world of business by considering the idea of “Business Mutualism”.

We might think of Business Mutualism as an association between two separate enterprises, or fields of activity, where:

1. each enterprise benefits the other, and
2. collective discoveries emerge beyond those of any single field.

Examples of Business Mutualism

One example of Business Mutualism would be the interaction between the IT and design industries. Information technology has provided designers with a new creative outlet, encouraged innovation through the use of design software and mass collaboration, and allowed designers to reach wider as well as more niche audiences. On the flip side, designers have improved the value of information technology and the internet by improving the aesthetics and usability of programs and websites. The combined efforts of these two industries have created world changing websites, such as TED.

Here are a number of other examples where collaboration between different fields of activity have produced impressive results:

1. the formerly non-existent web-search industry and the traditional system of academic citation have combined to create Google;
2. electronics and automotive industries have combined to make carbon neutral transportation a possibility;
3. aviation and computing have combined to produce unmanned aircraft; and
4. biology and robotics have combined to perfect walking robots.

Implications of Business Mutualism

One of the key implications of Business Mutualism is that we should look to other industries and fields of activity for inspiration. If we want to create market leading companies, we need to constantly innovate and search for alternatives. Keeping our eyes open to the possibilities presented by Business Mutualism is likely to help us sustain a competitive advantage over our rivals.

There are many good ideas already in existence. The question is, how can we combine these ideas with our current expertise to create something revolutionary? How can we change the world?

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I have just completed the CFA Level 1 exam (and I promise to stop talking about it just as soon as I find out that I pass).

One of the take away lessons from the CFA curriculum is that the conventional method of valuing an investment is to determine the present value of expected future cashflows.  One way of doing this would be to use the constant growth dividend discount model, which estimates the value of a stock by assuming that dividends grow at a constant rate … forever.  If the present value of expected cash inflows exceeds the cost of the investment, then we should invest.

I hope this model of investment valuation concerns you. It certainly concerns me. It basically tells us that we should make an investment decision based on the most likely expected future.

If we are happy to agree that (1) it is not possible to predict the future and (2) past performance does not guarantee future performance, then this colour by numbers method of investment valuation leaves much to be desired.

The businesses that will prosper in the Global Financial Crisis are the ones that have flexible business plans. These are the businesses that looked into the future and saw uncertainty. These businesses understood that the state of the world in ten or even one years time is not only uncertain, but unknowable, and planned accordingly.

One company that comes to mind is Microsoft, which has a cash stockpile of some US$25 billion.  In the past, Microsoft has received considerable criticism for failing to either invest its vast cash reserves, or distribute them to shareholders.  Microsoft’s “conservative” approach now puts it in a strong position to acquire competitors who “strategically invested” their cash reserves in more prosperous times.

To quote the McKinsey Quarterly:

Corporate leaders might consider [using] robust business models incorporating some slack and flexibility instead of the models most common today, which aim to optimise value in the most likely future scenario and thus leave companies exposed when conditions change dramatically.

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When posed with a business problem, there is always a temptation to accept the first solution that adequately addresses the problem.

However, the “adequate” solution is usually not the only solution, and often not the best one.

Adopting the first solution that “works” may get us from A to B and, once we have a solution, there is a temptation to stop searching. However, this is just the time to ask more questions:

• Is there a faster way?
• Is there a cheaper option?
• Can we make the journey more comfortable?
• Could we include some entertainment?
• Why are we going from A to B? Would it not be better to go from A to C?

If we are happy not to look for alternatives this means that we are happy not to think.

If we want to make progress, it is important that we continue to think, ask questions and look for alternatives. To quote an old Jewish saying:

If there are two ways of doing something, you should always take the third.

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Given my lack of time lately, I thought that writing a short post on worker productivity would be amusingly appropriate. I am working 10/11 hour days, studying for the CFA, and writing this blog, among other things. Fun times!

I recently stumbled across an idea called the “Hawthorne Effect”, which I thought it would be interesting to share.

1. The Hawthorne Experiments (1924-1933)

The Hawthorne Effect is named after one of the most famous series of experiments in industrial history.

In the 1920′s and early 1930′s Elton Mayo, a professor of Industrial Management at Harvard Business School, led a series of experiments at Western Electric’s factory at Hawthorne, Chicago (the “Hawthorne Experiments“).

The original purpose of the Hawthorne Experiments was to study the effect of physical working conditions on productivity.

Initially interested in the effect of lighting levels on worker productivity, the researchers improved the lighting in the work area for one group of workers (the “Experimental Group”) and kept the lighting levels unchanged for another group of workers. Interestingly, the researchers found that the productivity of workers in the Experimental Group increased significantly.

The Experimental Group’s working conditions were then changed in other ways (e.g. working hours, rest breaks) and, each time a change was made, the Experimental Group’s productivity improved.

Most interestingly, the Experimental Group’s productivity even improved when the lighting was dimmed to its original level.

By the time the Hawthorne Experiments were completed, and the working conditions for the Experimental Group were returned to normal, productivity was at record highs.

Obviously, the improvements in productivity could not be explained by the changes made to working conditions. So, what caused the productivity improvements?

The researchers concluded that the improvements in productivity resulted from the simple fact that the workers felt that they were being attended to and that someone was taking an active interest in their workplace.

Although, subsequent analysis has placed some doubt on these conclusions.

2. The Hawthorne Effect

The Hawthorne Effect is the idea that people will alter their behavior in response to being observed. In psychology this phenomenon is referred to as reactivity.

The Hawthorne Effect indicates that productivity in the workplace is reactive and social. The productivity and performance of an employee is influenced in a meaningful way by attention received from management.

Jeffrey Sonnenfeld notes that the Hawthorne Experiments brought to light ideas concerning motivational influences, job satisfaction, resistance to change, group norms, worker participation, and effective leadership. All ground breaking concepts in the 1930′s. (A New Vision, Essay by Professors Michel Anteby and Rakesh Khurana)

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I am in the process of reading “First Break All the Rules” by Marcus Buckingham & Curt Coffman. The book makes the insightful point that great managers understand the difference between skills, knowledge and talent:

1. Skills are abilities that may be acquired by training. For example, a mathematics teacher must be skilled in arithmetic, a secretary must be skilled in typing, and a baker must be skilled in baking bread. A skill may be taught by breaking down the performance of a task into steps, which can then be practiced.
2. Knowledge is simply “what you are aware of”. There are two kinds of knowledge: (1) factual knowledge are things that you know; and (2) experiential knowledge are understandings that you have picked up along the way.
3. Talent is “a recurring pattern of thought, feeling, or behaviour that can be productively applied.” You may have an instinctive ability to remember names, or be in the habit of playing with numbers and equations in your head – both of these are talents. A talent is any behaviour that you find yourself doing often and which can be applied in a productive way.

Skill, knowledge, and talent are all necessary elements to achieve excellent performance, talent being the most important element. Skills and knowledge can be taught relatively easily, however talent is difficult to teach. For example, one of the key talents required to be a great accountant is “love of precision”. Love of precision is not a skill, nor is it knowledge, but this talent is needed to excel at accounting.

The definition of talent is seemingly innocuous but has a powerful implication – excellence requires talent. A great manager understands that to excel in any role requires talent because each role, when performed with excellence, requires certain recurring patterns of thought, feeling, or behaviour.

Understanding the importance of talent, great managers are good at identifying the talents of their people and then allocating each person to a role where they can use their talents most effectively.

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In May 2008 the McKinsey Quarterly spoke to Nobel laureate Daniel Kahneman, notable for his work on behavioural finance and hedonic psychology, about quality control and improving the decision making process.

1. The decision factory

Kahneman says that you can think of an organisation as a factory for producing decisions. The organisation might produce other things, but it produces decisions at all levels. Thinking about decisions as a product is a useful way to think about it, because it immediately raises the issue of quality control. As an organisation, whenever you have a product you take measures to ensure that your product meets certain standards.

2. Improving the quality of decisions

What can be done to improve the quality of decisions that are produced?

Kahneman indicates that quality control of decisions will be organised, in part, by bearing in mind those mistakes that are common and recurrent, and by making a deliberate effort to check whether those mistakes are happening.

Are there ways of eliciting the best information that is available in an organisation? Are the talents of the people that surround the decision maker utilised effectively? In many cases the answer is no. One could do a great deal better in utilising the human resources and information that are available in the process of decision making.

Unfortunately, there is a lot of hostility to the idea of improving decision making processes. Kahneman argues that as there is convergence to a decision, dissent becomes progressively more difficult and costly. Some changes, even though they may be desirable, are not adopted because they threaten the leadership of the organisation too much.  As such, people warning of potential disaster are increasingly set aside, shunned and treated as basically disloyal to the organisation that is committing itself to do something.

3. Pre-Mortem

Given that improving the decision making process is a difficult task, Kahneman presents the idea of the “Pre-Mortem”, an idea that he borrowed from one of his contemporaries, Gary Klein.

The Pre-Mortem is a simple idea, and involves a very straightforward procedure that benefits an organisation by helping to improve the decision making process. When you have a plan that is being formulated, convene your group for a short meeting. The meeting might be led by the person in charge or facilitated by someone else. Either way, the group should be presented with the following scenario: “it is a year from now. We have implemented the plan. It was total a disaster. You have a sheet of paper in front of you, write down a history of the disaster.” After giving everyone some time to write down their ideas you collect the pieces of paper and read them out. The process does not have to involve an extensive discussion.

The beauty of the Pre-Mortem is that it legitimises dissent. In fact, it does more than legitimise dissent. In organisations where the members are competitive, you expect people to think quite hard about the flaws in the idea and what could go wrong. In a room of twenty people you might expect three or four new ideas that can be used to readjust and improve the proposed plan of action.

4. Anchoring

Kahneman identifies anchoring as one of the big sources of mistakes in the process of decision making.

When you think about some quantity, like the amount of time it will take to finish a project, the first number that gets mentioned has an enormous impact on the way that people think.

Kahneman states that the psychology of anchoring is simple and happens automatically. There is nothing we can do about it. You retrieve a biased sample of information and then you evaluate that sample, and then it is already too late.

Kahneman provides a simple explanation of anchoring. Imagine you have a group of people. You ask them to write down the last four digits of their social security number, and then to consider a question, is the number of physicians in Manhattan higher or lower than the number you just wrote down? Now you ask the group, what is your best guess about the number of physicians in Manhattan? Kahneman suggests that what you are going to find is a difference of roughly 30% in the size of the estimates between the people with high social security numbers and the people with lower social security numbers.

When there is a particular number that is critical to a decision, try to trace down where the number came from, who brought it up first, and what information was used to support that number initially. Tracing down the history of a number is an example of something that is not too hard to do and, Kahneman believes, is almost guaranteed to improve things.

One implication of anchoring is that, if you are the leader and want to have an honest discussion about a number, you shouldn’t start with a number.

5. Opinions on paper, pre-discussion

Making discussions more fruitful and productive is something that we should think about. Kahneman provides one suggestion of how this might be done.

Before initiating a discussion solicit the opinions from each member of the group on paper. If you are going to generate an estimate of a number, for example what price is to be offered for a particular project, then getting opinions from the group on a slip of paper is going to improve the quality of the discussion.

This approach will help to draw out dissenting points of view. Once the discussion has begun, some group members may choose not to voice their dissenting opinion or may silently acquiesce to the prevailing view. Obtaining everyone’s starting position before the discussion ensues avoids this from happening.

In some cases, soliciting individual opinions before you discuss can make the discussion unnecessary. Kahneman gives an example of his involvement in an academic committee where he implemented this idea. In deciding whether to fund particular grants, the academics discovered that they loved to discuss, at great length, grants on which they all agreed. Soliciting individual opinions prior to discussion resulted in a significant reduction in the amount of time wasted on discussion.

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I have spent a lot of time writing about preparing for consulting interviews. The aim of performing well in the interview is to obtain an offer of employment. Imagine you have obtained an offer of employment from the consulting firm of your choice and you now want to negotiate the terms of the offer. Can you negotiate the terms of your offer of employment and, if so, where do you start?

1. Use your bargaining power

Your ability to negotiate the terms of your offer depends on how much bargaining power you have. As a graduate looking for a consulting job your bargaining power will depend, to a large extent, on the current balance of power in the job market. In the late 1990s, the job market was an employee’s market and companies would add extra benefits like an increased signing bonus or an extra week of annual leave in order to sign employees. Today, the job market is more of an employer’s market with a shrinking number of jobs and, one would imagine, less attractive compensation being offered.

Whatever the state of the economy, it is worth considering negotiating the terms of your offer. After you accept your offer of employment you will have virtually no bargaining power, so the time for negotiation is beforehand. If you are friendly and businesslike then negotiating needn’t create a negative impression, on the contrary, it demonstrates that you have a keen business sense and a healthy level of self confidence.

2. Obtain written confirmation

It almost goes without saying, but you need to obtain written confirmation of all of the terms you manage to negotiate.

3. Terms to negotiate

There are a number of offer terms that you might want to negotiate, including:

1. office location;
2. start date;
3. compensation;
4. starting position;
5. annual leave; and
6. offer response deadline.

3.1. Office location

To negotiate a change of office location, a first step might be to explain the reason for your request to HR. If they agree to look into the matter, make sure you agree on a date to follow up on the matter.

If your request is turned down, look for a person in your target office to vouch for the transfer, the more senior they are the better. When you find someone in the target office, explain your situation, describe why you want to work in that office, and ask if there’s anything he or she can do to help you. Offer to fly out to the office and meet with the consultants there in person.

3.2. Start date

Given the weak economy, you are likely to be able to negotiate a later start date. The key selling point is that the firm can start paying your salary later than planned, thus saving them money.

3.3. Salary and bonus

Given the weak economy, it will be difficult to negotiate an improved remuneration package.

The best form of leverage is to have another offer that pays more money. You can say, “I really like your firm; however I have another offer that pays $15,000 more. This is a difficult decision. I’m ready to sign with you if you can make the numbers work. Can you increase the compensation that you are offering?”

It goes without saying that it’s a bad idea to invent a fake job offer in order to provide negotiating leverage.

If you are an MBA or lateral hire and your previous salary was higher this gives you additional leverage. You may be able to convince the employer that you are being undervalued.

3.4. Starting position

If the job offer is for a position at a lower level than you believe is justified given your qualifications and experience you can ask for a shorter review period, e.g. six months instead of a year. This gives you a chance to prove your worth.

3.5. Annual leave

If you don’t like the amount of annual leave days provided, you should try asking for more. If that fails, ask about the firms unpaid leave policy. If the firm doesn’t have one, obtain written confirmation that you will be able to take extra days of unpaid leave.

3.6. Offer response deadline

If you need an extension to the offer deadline, ask for it. It’s a very common thing to get more time to make a decision, so don’t hesitate to ask for it.

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Part 3 of 4 considers the principles developed by Sun Tzu for dealing with business rivals and follows on from part one which looked at qualities of successful leaders, and part two considered the principles for organising your business affairs.

I have summarised Sun Tzu’s principles into four simple categories:

1. Qualities of a successful leader;
2. Organising your business affairs;
3. Dealing with rivals; and
4. Strategies for effective leadership.

3. Dealing with rivals

3.1 Employ experts and consultants

When operating in a foreign country it is important to seek the advice of local experts so that you can best take advantage of local laws and natural advantages. When operating in an unfamiliar industry, employ consultants to provide specialized knowledge on the industry and the competition.

Know your [competition], know yourself and you can fight a hundred battles without disaster…

3.2 Use spying, deception and bluff

Donald Krause, consultant and author of The Art of War for Executives, believes that people whose scruples do not include spying and appropriate levels of deception will not be very successful in business or politics.

Spies are a most important element in [business], because on them depends a [company]’s ability to [act].

Do not publicly release definite business plans.

The spot where we intend to fight must not be made known for then the enemy will have to prepare against a possible attack at several different points.

Release confusing, incorrect or contradictory reports to the media. Your competitors will not know what you are planning to do, and they will not be able to prepare accordingly.

All [business] is based on deception…when able to [release a new product], we must seem unable; when using [much energy], we must seem inactive…If your [competitor] is of choleric temper, seek to irritate him. Pretend to be weak, that he may grow arrogant.

3.3 Understand the motivation of your allies

We cannot enter into alliance with [other companies] until we are acquainted with their designs.

3.4 Attack your competitor’s reputation

Donald Krause, author of The Art of War for Executives, says “…personal attacks are frequently used in business situations when more logical methods might fail. The person using the personal attack tactic is usually the one operating from the weaker position. Personal attacks are particularly effective in environments where performance is subordinated to personality. … I have found that Sun Tzu’s description of the ideal circumstances for a personal attack, as I interpreted the fire attack section, work excellently in real life.”

3.5 Poach customers and employees

Poaching a highly trained senior employee from one of your competitors is equivalent to training twenty of your own. Some of your juniors will leave you, some will prove useless, and some will be unsuccessful for other reasons. You will need to train ten juniors in order to create one senior employee; your competitor must do the same.

…a wise general makes a point of foraging on the enemy. One cartload of the enemy’s provisions is equivalent to twenty of one’s own, and likewise a single picul of his provender is equivalent to twenty from one’s own store…Because twenty cartloads will be consumed in the process of transporting one cartload to the front.

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Part 2 considers the principles developed by Sun Tzu on organising your business affairs, and follows on from part one which looked at qualities of successful leaders,

I have summarised Sun Tzu’s principles into four simple categories:

1. Qualities of a successful leader;
2. Oranising your business affairs;
3. Dealing with rivals; and
4. Strategies for effective leadership.

2. Organising your business affairs

2.1 Management must be independent of owners

If you are the CEO of a company, you must not take directions from the owner or shareholders in how to run the day to day affairs of the company.

If fighting is sure to result in victory, then you must fight, even though the [owner] forbid it; if fighting will not result in victory, then you must not fight even at the [owner]’s bidding.

2.2 Make preparations

You must constantly plan, prepare and train your employees. If you do not, you will not be in a good position to take advantage of the next exciting business opportunity.

…the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand.

He will win who, prepared himself, waits to take the [competitor] unprepared.

2.3 Make no mistakes

Making no mistakes is what establishes the certainty of victory, for it means conquering [a competitor] that is already defeated.

2.4 Prioritise tasks

Having limited capital and resources at his disposal, an experienced leader must prioritise tasks in order to achieve specific goals.

2.5 Choose your battles

He will win who knows when to fight and when not to fight.

2.6 Work swiftly in short bursts

The chief lesson is the paramount importance in business of rapid action and sudden rushes, “great results can thus be achieved with small forces.”

2.7 Adapt to the circumstances

In business, there are no constant conditions and you must adapt your strategies accordingly.

Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.

2.8 Pay attention to changing market conditions

The rising of birds in their flight is the sign of an ambuscade. “When birds that are flying along in a straight line suddenly shoot upwards, it means that soldiers are in ambush at the spot beneath.

2.9 Adapt your strategy to the size of your organisation

You must adapt your business strategy to the size of the company and its competitors. For example, a large company may be suited to producing commodities; a small company may be better suited to producing highly specialised differentiated products.

He will win who knows how to handle both superior and inferior forces.

2.10 Seize opportunities

Look for gaps in the market.

You can be sure of succeeding in your attacks if you only attack places which are undefended.

Always be ready to seize the next big opportunity, especially when you are facing business difficulties.

If…in the midst of difficulties we are always ready to seize an advantage, we may extricate ourselves from misfortune.

Those who want to make sure of succeeding in their battles and assaults must seize the favourable moments… [w]hat they must not do, and what will prove fatal, is to sit still and simply hold on to the advantages they have got.

2.11 Avoid threats

If you can establish a business that has a natural monopoly, high barriers to entry or some other competitive advantage, this will greatly reduce the competition. For example, eBay has a natural monopoly in the online auction market. Buyers and sellers are naturally drawn to eBay because so many other people already use the site. This makes it easier for sellers to find a buyer and easier for buyers to find a product that takes their fancy.

You can ensure the safety of your defence if you only hold positions that cannot be attacked.

2.12 Obey the rules until the decisive moment arrives

Walk in the path defined by rule, and accommodate yourself to the enemy until you can fight a decisive battle [then] [d]iscard hard and fast rules. Victory is the only thing that matters, and this cannot be achieved by adhering to conventional cannons.

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