Foundations of Business

Billing Blunders

2012-05-10T00:40:00.000+01:00

A quick internet search will find any number of billing blunders.

Vodafone to issue mass refunds after billing blunder (Aug 2010)
Npower to pay £70m in refunds after huge billing blunder (October 2010)
TalkTalk pays £2.5 million for billing blunder (Feb 2011)
1,300 customers hit by Northern Ireland Water billing blunder (May 2011)
T-Mobile apologise over billing blunder (May 2011)
Contact Energy named and shamed for billing blunder (June 2011)
Comcast blames Wells Fargo for Billing Blunder (March 2012)

What are the causes of these blunders? Here are some excuses anyway.

Outsourcing - for example, Comcast blames its payment processing vendor
Inaccurate records (NI Water)
Unintended back-office error (Contact Energy)
Complexity - for example "We’re sorry that the complexity of the changes we made caused confusion. We’re now doing all we can to improve our communication with customers." (Npower)

These blunders might be cited as an illustration of organizational stupidity. But when a chief executive says he didn't know exactly what was going on, and tries to pass a dodgy billing scheme off as if it were merely a programming error, I'm not minded to take this apology at face value. Obviously sometimes chief execs are confused and don't know what is going on, but is this really the explanation for dodgy billing?

Complexity is often a strategy for ripping off the customer. If you can keep the customers in a state of confusion, then they are unable to make good decisions, and end up paying more than they need. This follows a standard strategy known as the OODA loop, which is used in military circles to confuse the enemy.

This is how it works. Customers try to optimize their spending, using a technique known as Ninja Shopping, which is a version of the OODA loop - Observe (Prices), Orient, Decide, Act. Companies try to prevent Ninja Shopping by obstructing and obfuscating the orientation phase.

Obviously there is some embarrassment (plus regulatory hassle and compensation) when these so-called blunders are exposed. But if these companies usually get away with (and profit from) using complexity as a weapon, then there is little incentive to simplify.

See my post on Complexity-Based Pricing

Size and Organizational Intelligence

2012-04-25T22:16:00.000+01:00

What’s it like working in an intelligent organization? If you’ve ever worked in a successful start-up, you’ll recognize that there is a real desire to understand what the customers want, and strong commitment to collaborative problem-solving. Meetings are focused on solving real issues, and there is little tolerance for the kind of unproductive games that people play in larger and more established companies. In principle, it should be possible to have this kind of positive experience in any organization: in practice, these aspects of intelligence get rarer as an organization gets larger and older.

It is a popular idea that large organizations should behave like small organizations: one way to achieve this is to look at the way successful small organizations practise organizational intelligence. Let us start by asking whether it is NECESSARY to sacrifice the good things about small organizations to become a big one? And if not, why does it often seem to happen?

Small startup companies often need to mobilize high levels of organizational intelligence. One reason may be a self-reinforcing narrowness of scope that forces a tight focus on essentials; small companies have very limited resources they can't afford to squander. Therefore the founders and early employees scan the environment keenly and solve problems collectively.

As the company grows in size, it may lose some of this keen intelligence. Customer situations recur, and many of the day-to-day problems have been solved, so the challenge becomes simply efficiently repeating known solutions to known problems. Meanwhile, the immediate and intensive communication and coordination enjoyed by small teams gets attenuated as the organization grows. Workers still spend large amounts of time communicating with their colleagues, but the critical flows of information are more indirect and may suffer interruption, distortion and interference.

Because of these factors, large companies often display a number of pathological characteristics. For example: forced diversification to keep growing; geographic expansion and timezone issues; competitors start to see you as a threat; regulators get interested in you; new people join with their own agendas.

...

Extract from new book on Organizational Intelligence by Richard Veruard. Available at http://leanpub.com/orgintelligence/

The consequences of Lean at BP

2011-10-26T15:20:00.000+01:00

In his new book on BP, Tom Bergin blames lean management principles for the Deepwater Horizon disaster. Here is a summary of Bergin's argument, taken from a review by Mattathias Schwartz, LRB 6 October 2011.

The beginnings of the Deepwater Horizon disaster, Bergin argues, can be found in the reorganisation Browne undertook, applying to BP the leaner management principles he learned at Stanford. The company was divided into ‘strategic business units’, independent companies within the company, each of which could allocate its capital and manage projects as it saw fit. Managers were held to short-term ‘performance contracts’ focusing on high production and low cost. Those who could extract the most oil while spending the least money were rewarded with promotions and bonuses. Promising junior executives were shuffled between posts all over the world, rarely staying anywhere long enough to bother replacing outdated equipment or rusting pipelines. ‘Go to the limit,’ Browne told his managers. ‘If we go too far, we can always pull back later.’

Bergin argues persuasively that such practices amounted to ‘moral hazard’, with BP not quite consciously rewarding the senior employees who engaged in the riskiest behaviour. The cost-cutting continued under Hayward, who trimmed BP of drillers, geologists and other specialists, outsourcing technical tasks to contractors and filling the company’s top ranks with traders who knew how to allocate capital and whip subordinates into meeting the next quarter’s targets. The demands for rapid production and low cost grew even more intense as Hayward instituted ‘stretch targets’ whereby the results achieved by one outperforming business unit were touted as company-wide goals.

Much the same sort of thing has been going on elsewhere, in manufacturing and retail in particular, since the late 1990s, when a new wave of Taylorism swept through management theory. Under the banner of euphemisms like ‘accountability’, workers’ earnings and job security were linked to ever rising performance goals. For a retailer like Wal-Mart, there were few upper limits on efficiency targets – impossible goals could be passed down the chain of command until ambitious managers felt compelled to lock their minimum-wage employees in stores overnight. But oil and gas extraction were a special case. At the bottom of the production chain were the implacable realities of geology, whose limits could not safely be breached. ‘Thus began a continuous effort to go beyond what BP’s own engineers considered physically possible,’ Bergin says of the stretch targets. One of the most important measurements was raw speed – how fast project leaders could get a hole drilled – calculated in ‘days per 10,000 feet of drilling’. It was as though BP’s senior executives in London had sent their workers into a room full of flammable gasoline vapours with a box of matches and a live chicken, offered prizes to whoever could produce a cooked chicken fastest, then handed the workers safety manuals, closed the door and turned their backs.

Mattathias Schwartz, LRB 6 October 2011
reviewing

Spills and Spin: The Inside Story of BP by Tom Bergin
A Hole at the Bottom of the Sea: The Race to Kill the BP Oil Gusher by Joel Achenbach

See also my post Black Swans and Complex System Failure.

Philosophy and Entrepreneurship

2011-10-14T10:13:00.001+01:00

Richard Price is a web entrepreneur, the founder and CEO of academia.edu. He is also an academic philosopher, with a fellowship at All Souls College Oxford, and is accustomed to being asked about the connections between philosophy and entrepreneurship. In an article in the latest edition of Oxford Philosophy Magazine (pdf), he offers the following hypothesis.

Some people ask me whether there are any connections between philosophy and entrepreneurship. I think there is at least one connection, which is about attitudes towards problem-finding. Problem-finding comes before problem-solving: you have to find and clearly articulate the problem before you can set about trying to solve it. In everyday life, we often zoom along through logical transitions at such speed that we don’t notice minor glitches in those transitions. I think one thing that philosophers do is try to slow those transitions down, so that we are more sensitive to glitches that may occur. After experiencing a glitch, something that doesn’t feel quite right, instead of marching ahead, philosophers will magnify that sensation of something not feeling quite right, in order to see whether there is an underlying problem in the rational transition.

When looking for business ideas, the analogue is that we often zoom around in life having adapted our behavior so successfully that we don’t often notice the constraints that we are skilfully navigating around. When hunting for business ideas, one has to slow down when one feels that one is navigating around some constraint, and then examine that constraint to see whether it can be removed. This is one of the similarities between philosophy and entrepreneurship for me: in the case of philosophy, one is on the lookout for logical problems with a train of thought, and in the case of entrepreneurship, one is on the lookout for practical problems in a train of activity.

I think this answer implies something about the ability to switch logical levels - to think practically about a business problem, but also to think about how one is thinking about the business problem. Reflexive thinking, we might call it.

Innovation often depends on people finding new answers to questions that most people thought weren't worth asking. For example, when Bill Gates asks "What is a network?", this could either be interpreted to mean that Bill Gates is stupid or alternatively that he is very clever. (Smart money goes with the second of these two possibilities.) See my post What's the difference between judges and geeks?

Apprenticeship

2011-02-07T10:06:00.000Z

The BBC programme "The Apprentice" gives a highly distorted picture of business and apprenticeship, for the sake of popular entertainment. The programme shows a group of good-looking and confident young men and women being given a series of short tasks by a rather brusque businessman. One candidate is eliminated each week, and the survivor is promised a well-paid but unspecified job by the said businessman. In the BBC version screened in the UK, the role of brusque businessman is played by Lord Sugar, who made a fortune from Amstrad computers and other electronics.

The programme provides a fly-on-the-wall view of the candidates as they tackle the week's tasks, occasionally intercut with wry comments and face-pulling from the consultants who are employed to supervise them. Viewers imagine that they are getting a rounded and authentic picture of the strengths and weaknesses of each candidate, although we tend to see more of the flashes of idiocy and spite, than the solid and intelligent graft that produces real success. When Lord Sugar announces which candidate is to be fired each week, the viewer may then jump to conclusions about the relative importance of the different strengths and weaknesses as seen, not just in Lord Sugar's mind, but in the mind of any equally successful businessman, and this gives an extremely distorted impression of the characteristics that might be valued more generally in the business world.

I saw one programme in which the candidates were sent out to sell cheese, and the game was to see which team sold the most cheese in one day. In the real world, that would be a ridiculous way of assessing a person's business ability. If I were in Lord Sugar's position, the candidate I should want to hire would be the one who didn't necessarily sell much cheese on the first day, but went back and sold more cheese the second day, and continued to improve. Surely persistence and determination are far more important than beginners' luck?

In the present economic climate, there are many bright and ambitious but inexperienced young men and women, who are unable to find jobs that match their abilities and potential. This is a cruel waste. There are also many sectors (fashion, journalism, media, politics) where it seems the only route to a glamorous and well-paid job is to work as an unpaid intern for an extended period. This is unfair (because it tends to favour candidates from affluent families) and open to exploitation (because the interns are donating their labour to already profitable companies with no guarantee of getting anything in return).

The kind of arrangement I'd prefer is something between apprenticeship and internship, where young people can earn something and learn something and add value for themselves and their employers. Let's imagine a dairy businessman who really wants to find new outlets for his cheese. Let's suppose he employs a couple of inexperienced sales representatives, paying them reasonable commission and expenses, and giving them a fair amount of coaching, mentoring and support. This might be a full-time job, or more likely something that occupies the young person several hours a week alongside other less challenging jobs. Alternatively the coaching and mentoring are provided by retired business people on a voluntary basis.

Of course there are already some schemes of this kind, but there should be a lot more. I believe many successful small businesses would be willing and able to support such a scheme, and many young people would be eager to participate in such a scheme, which would undoubtedly enhance not only their CVs but their actual business experience. In a few years time, these young people will then form the backbone of the next generation of entrepreneurs. Lord Sugar cut his own business teeth selling cooked beetroot on a market stall. Where is the 21st century equivalent of this kind of experience?

Psychodynamics of leadership at Microsoft

2010-10-19T10:37:00.003+01:00

This week's news that Ray Ozzie is leaving his role as Chief Software Architect at Microsoft is being interpreted as a personal failure either for Ozzie himself or for the Microsoft CEO Steve Ballmer. Some commentators are saying that Ozzie had not been a satisfactory replacement for Bill Gates (for example suggesting that he couldn't match Gates' ability to bridge business and technology), while others are suggesting that Ballmer is using Ozzie as scapegoat for his own mistakes.

From a systems perspective, we might ask whether any two men or women, however brilliant, could have satisfactorily performed this divided leadership for an extended period. We might recall that Bill Gates performed both roles himself until 2000, so Ballmer and Ozzie were each being asked to replace one half of Gates. (Stepping into Bill's shoes, getting one shoe each.) We might also note that the Microsoft's share price has been relatively flat since 2000, although it would be wrong to draw simplistic conclusions from this. (For what it's worth, Microsoft's share price fell after the announcement of Ozzie's departure.)

Where there are two strong figures at the top of an organization, this can produce certain psychodynamic patterns, both functional and dysfunctional. That doesn't mean that shared leadership can never work, but that it doesn't work in quite the same way that sole leadership works.

Sources

Ballmer email to employees
Microsoft blog @ seattlepi
Joe Wilcox, It's a shame about Ray Ozzie
Roger Strukhoff, Ray Ozzie, Steve Ballmer, Steve Jobs & The Cloud

Experience Curve

2009-12-15T23:06:00.000Z

@RogerBohn complains that The Economist praises a dangerous and obsolete management concept - namely the experience curve or learning curve.

The theory of learning-by-doing was introduced by economists to explain the macroeconomic observation that productivity typically increased during an extended period in which the production processes and technologies remained the same. The theory suggests that these productivity improvements can be related to cumulative production volumes. Economists use the theory to predict that aggregate productivity levels will increase under certain circumstances. However, management consultants have generally used the theory at a microeconomic level, apparently believing that it predicts productivity improvements in specific production units, and that (as Bohn complains) "improvement is inevitable and the same for everyone in an industry".

Bohn points out how productivity in the car manufacturing appears to run entirely counter to the microeconomic interpretation of learning-by-doing. Productivity at Toyota improved far faster than at General Motors, even at a time when it produced (and had cumulatively produced) far fewer cars than GM.

Now here's the twist that may save the theory. Toyota's competitive advantage was in JIT and “The Toyota Production Process,” which Bohn describes as "a system for making more rapid improvement". So Toyota core process wasn't manufacturing-cars, it was improving-manufacturing-cars. Toyota was making improvements at a staggering rate, which left its competitors standing. It's more difficult to count improvements than to count cars (because improvements can be understood in different ways), but it is not hard to believe that Toyota's cumulative number of improvements has been higher than that of GM for a long time now. If we reframe the production system in this way, perhaps the theory of learning-by-doing could apply to this example after all.

But this interpretation of the theory of learning-by-doing is quite different from the conventional interpretation, and would make its use as a predictive tool or as a consultancy tool much more problematic.

Whole Foods

2009-03-02T18:10:00.002Z

Two contrasting descriptions of the same organization crossed my desktop today.

Leah describing WholeFoods as an anarchist organization (The Business Anarchist Is The New Entrepreneur via Tom Graves).

Bruce Schneier describing WholeFoods as a petty-minded legalistic organization (Perverse Security Incentives).

Can these two apparently conflicting descriptions be reconciled? What other descriptions can you find? Do these apparent contradictions represent superficial differences or deep divisions?

From Espresso to Instant

2009-02-18T10:56:00.003Z

Starbucks is changing its business model. Or as CEO Howard Schultz tells the Huffington Post, Staying Real in an Instant. Starbucks will be selling shots of instant coffee, for under a dollar a cup. The UK price is said to be around 60p.

Some people may have thought that "espresso" was the Italian word word for speed. (It isn't - it means "pressed".) So what could be faster than express coffee? Instant coffee!

Of course the word "instant" isn't about getting the coffee more quickly either, it is about doing away with all that fancy machinery, in whose use Starbucks makes such a charade of training its baristas. (A year ago, Schultz ordered all US stores to close for a three-hour training session "as part of an effort to improve coffee quality and revive the chain's flagging fortunes" [Guardian, 26 Feb 2008].)

Shultz now claims to be responding to the increasing mobility of consumers. "Imagine a cup of Starbucks VIA Ready Brew on a mountaintop" he says, as if willing us to imagine millions of Starbucks customers on some remote and implausible trek.

But clearly his real interest is selling mass market coffee. He hopes that the Starbucks instant coffee will be not only better-tasting but also "paradigm-changing" (whatever that means), and hopes "to turn on a whole new set of coffee drinkers to the Starbucks brand". But the obvious risk is that the old set will be turned off. He acknowledges that this move is a gamble (he calls it "a considered bet"), and expects "to learn a lot ... over the coming weeks". You bet.

In what sense does this count as a new business model? Starbucks already sells ground coffee and coffee beans in supermarkets across the USA. Many rival coffee purveyors have already shifted to the Gillette model, in which the coffee machines are sold cheap or practically given away, and you make your money selling overpriced pods of coffee.

The challenge faced by Starbucks is not choosing one business model, but attempting to combine two or three different (and possibly incompatible) business models at the same time. Such composition faces questions of cross-subsidy, brand dilution or erosion. Are there any reliable rules or patterns governing the interoperability (compatibility and composition) of business models?

See also

Starbucks to Combat Brand Erosion with Loyalty Program (Marketing Vox, March 2008)
Starbucks: How Growth Destroyed Brand Value (Business Week, July 2008)

cross-posted to SOA blog

Lecture Notes - Foundations of Business

2008-11-22T15:34:00.002Z

Our lecture notes have long been available in PDF form, but I have now loaded some of the lectures into SlideShare for easier access.

| Get your Presentation Pack

Entrenched CEO 2.0

2008-11-20T20:43:00.006Z

In The Perils of Having a Passionate Helmsman (Financial Times, 20 November 2008), John Gapper explains what was wrong with Jerry Yang as CEO of Yahoo.

"What he thought was right for Yahoo turned out not to be, and his passion for the enterprise he built, which he thought could flourish independently, was misguided. Sometimes, what a company requires is not a passionate leader but a dispassionate one."

The traditional pattern of the entrenched CEO was an indolent and complacent executive, who built himself mansions at the company's expense (or selling his stock to fund an expensive lifestyle), and spent more time playing golf and schmoozing with politicians than running the company. A recent study suggested this was a strong signal for investors to sell.

"Liu and Yermack discovered important correlations with future company stock performance: The larger and more costly the home, the worse the stock performance. Also, when a CEO liquidates company shares or options to finance a home purchase, even if the sale represents a small share of the CEO's total holdings, it bodes poorly for future company performance." [Knowledge@W.P Carey, May 2007. See also Michael Brush, CEO Mansions, A Stock Indicator (MSN Money, April 2007)]

Yang certainly doesn't fit that pattern. But all the same, the company didn't get rid of him until it was too late. See my post Yahoo Endgame?

Company Size

2008-06-17T08:58:00.002+01:00

Microsoft CEO Steve Ballmer thinks company size is a matter of perception.

"How do you know you're a big company? Answer: When everybody thinks you are. You're a small company when everybody thinks you are, including your employees. You're kind of an emerging company when everybody thinks you are. You're a larger company when everybody thinks you are."

This has implications for HR strategy, as Ballmer eloquently explains.

"We hadn't renewed our employee value proposition, if you will, since we became a big company. ... Clearly something happened between 1999 and 2003. We went from being whatever we were to being viewed as a very big company, because governments and everybody else said these guys are a very big company. And then you have to say, O.K., if that's the perception, then you have to have a value proposition that's appropriate. And not only had we not renewed our value proposition, we had tried to make small tweaks in some of the trappings and form around that value proposition that were sort of inconsistent with where it was and where it needed to go."

Source: Reshaping Microsoft's HR Agenda (BusinessWeek, Sept 10th 2007) via The Secret Diary of Steve Ballmer

A Time To Act 2

2008-02-18T03:44:00.003Z

Delaying a decision may simply involve holding out for a better offer. For example, when the directors of a company reject a take-over bid, claiming (as they always do) that it significantly undervalues the company.

It would be wrong to take the first offer that is made, if there is a reasonable chance of holding out for more. But on the other hand, if you wait too long for a higher offer, you may lose out.

In a post entitled Logic Need Not Apply, Microsoft employee John Evdemon comments on the refusal of Yahoo directors to accept a take-over bid from Microsoft. Is this simple greed, he asks, or are the Yahoo directors allowing their emotions to rule their heads? In asking this question, John is not just influenced by his current affiliation with Microsoft, but also with a startup company he was involved with previously, whose directors turned down a high offer and were subsequently forced to accept a much lower offer.

According to the New York Post (via Computerworld, Feb 15th 2008), there is a split in the Yahoo board, with some directors advocating acceptance. There is a threat of shareholder lawsuits if the directors could be proved to have acted emotionally, rather than in the best interests of shareholders. But how could this ever be proved?

A Time To Act

2008-02-18T02:26:00.003Z

After several months in which alternative solutions to the Northern Rock crisis were explored, the UK government has finally decided to take the Northern Rock "bank" into temporary public ownership. [BBC News, February 17th, 2008]

The delay provides easy ammunition for political opponents.

"After months of dither and delay we have ended up with this catastrophic decision," said George Osborne ( Conservative shadow chancellor).
Liberal Democrat treasury spokesman Vince Cable said that the right decision had been taken, though "belatedly", and that the government should have walked away from the prospect of a private takeover some time ago.

For their part, government ministers argue that it was necessary to explore other options, and provide the private sector a reasonable chance to offer an acceptable solution, before taking this step. Among other things, the thoroughness of this exploration would provide some defence against any likely legal challenge by Northern Rock shareholders.

As I have previously pointed out on this blog (decision-making, time), timing is an important aspect of decision-making. In this case, it is possible to debate not only whether the decision was the correct one, but also whether the decision could or should have been made earlier - or even later.

According to our model of decision-making (based loosely on Lacan), there are three phases in a decision.

The instant of seeing - the moment it was recognized that Northern Rock was in trouble
The time for understanding - a period of reflection, negotiation, allowing time for collaborative solutions to emerge
The moment of concluding - the point at which all the available options are understood, and a choice must be made.

All of these are uncertain. When exactly was the instant of seeing - when the first rumours of trouble reached the Bank of England, or when the customers started queuing outside the branches to withdraw their savings? How long is it reasonable to wait for a solution to appear? At what point must analysis and negotiation be cut short? Might we have found a better solution if we had spent longer searching?

It is easy to rival politicians to claim that the Government (or any other decision-maker) got the timing wrong, and to make wild and imprecise claims about their own super-human decision-making prowess: "Oh, we'd have acted straightaway" (whatever that means). We live in a culture that values speed and instant response, and is impatient of slow deliberation.

I don't actually know whether this particular decision was taken at the best possible time, and I guess you probably don't know that either. Just look out for statements about how quickly or slowly a given decision ought to be made, and see how these statements are underpinned not by reasoning but by instinct. Which means that if other people act faster or slower than you think they should, this doesn't necessarily mean they are stupid, it may simply mean they have different instincts.

Fashion Incubator

2008-02-06T10:27:00.000Z

In a couple of earlier posts (Game Theory, Game Theory 2), I discussed a clash of worldviews between Bill Waddell (who teaches Lean Manufacturing) and Howard Schwartz (who teaches Organizational Psychology).

I have just found a comment made by Kathleen Fasanella, who had given a copy of Schwartz's book to Waddell in the first place. The comment is fairly inaccessible, so I reproduce it here.

"Bill is one of a kind. He had to barbeque Schwartz as a matter of principle lol. I knew that sending him the book would certainly result in some entertainment and he didn't fail to disappoint. I also knew that some of what Schwartz wrote couldn't fail to register. A seed, that's all I was asking for.

"I can't recall how I found out about the book but I found it very thought provoking. I also had a problem with all the freudian references and didn't understand those portions well, not having the background. But I try!"

Kathleen is an expect on manufacturing and entrepreneurship in the clothing industry. I've just spent rather longer than I intended browsing her blog: Fashion-Incubator (subtitled: Lessons from the Sustainable Factory Floor).

Spice Girls cut short world tour ...

2008-02-02T03:01:00.000Z

"... owing to the phenomenal demand for tickets".

[source: BBC News]

In a competitive market, with variable prices, high demand pushes up the price which then triggers further supply. In a closed market, with fixed prices, high demand may have the paradoxical effect of reducing supply.

If the Spice Girls earn more than they expected from the first few concerts, this might have motivated them to put on even more concerts. On the other hand, it might mean they can't be bothered even to complete the concerts that were on the schedule.

And of course we should always question the data. What exactly is meant by the word "phenomenal"? Does it mean surprisingly high ... or surprisingly low? Here's what Wikipedia has to say on the subject of Anomalous Phenomena.

"Purported phenomena with explanations considered to be outside the scope of conventional science can be classified as paranormal phenomena. Because these anomalies are difficult to explain in terms of science, their existence is often challenged by skeptics."

Quite.

cross-posted to POSIWID blog

The Perfect Question

2008-01-20T13:25:00.000Z

In the story of Parsifal, the hero ("the consultant") meets someone with a problem ("the client"). The inexperienced Parsifal is reluctant to ask too many questions, and so fails to ask the one critical question. Afterwards, he learns that merely asking this question would have solved the problem.

Actually that's not so far-fetched. As a consultant, I have sometimes happened upon the perfect question. Once I was investigating disappointing productivity figures in a large German firm. The project managers told me it was the fault of the tools and methods group. The tools and methods group blamed the project managers. I sought out the boss of the division and asked an innocent question: Who is actually responsible for productivity? My question triggered a management decision that addressed the problem.

Two things to note here. Sometimes the consultant needs to answer questions, not just ask them. And sometimes the consultant needs to get on with the job, rather than fantasize about finding the perfect question.

Towards the end of the tale, Parsifal gets a second chance. Even though he now knows the proper question to ask, he chooses to ask a different question, a more personal one. It turns out that the authentic question is just as good, if not better, than the perfect question.

Quite.

Decisions and Timing

2007-11-26T01:26:00.000Z

One of the key aspects of decision-making is timing - judging when to commit yourself to something. Two contrasting styles/cultures can be identified

Delay / Hesitation / Procrastination
Haste / Impatience

Delay / Hesitation / Procrastination

It is always possible to find a reason (excuse) for deferring a decision.

More information needed
More options could be developed
More stakeholders consulted

Some individuals / organizations take ages to reach a decision.

Committees and subcommittees
Referrals and due diligence

Haste / Impatience

Because it is always possible to find a reason for delay, some people / organizations are inclined to dismiss such reasons, or are reluctant to take them seriously.

Some people / organizations are impatient with anything that inhibits action.

JFDI - "just xxx do it!"

Lacan's Theory of Logical Time

Lacan offers an interesting analysis of hesitation. Logical time is divided into three "moments".

the instant of seeing
the time for understanding
the moment of concluding

Lacan illustrates this with a story of three prisoners. The prison governor shows them three green discs and two red ones. Then he puts a green disc on each prisoner's back. Each can see the disc on the other two prisoners' backs. The first one to deduce the colour of the disc on his own back will be granted his freedom.

The correct deduction appears to depend on the hesitation of the group. "If I had a red disk, then each of the other prisoners would not hesitate to deduce immediately that he was green. Since neither has done so, I must also have a green disk."

Delay, doubt, hesitation, procrastination, the ability to make nothing happen (ungeschehenmachen) - these characteristic features of decision-making are grounded by Lacan in the phenomenology of obsessional neurosis.

For a detailed discussion, see John Forrester, The Seductions of Psychoanalysis: Freud, Lacan and Derrida (Cambridge 1990), Chapter 8. The prisoner story can be found on p178 ff.

Marketing

2007-07-23T12:21:00.000+01:00

Many people talk about marketing as if it were a strictly one-way communication - from a business organization to its customers.

True marketing is a two-way communication - a conversation between a business organization and its customers. True marketing means not just telling customers what wonderful products and services you have, but listening to customers and finding out what they really want, finding opportunities to deliver greater value, aligning your products and services to customers' real needs.

From a systems perspective, we should always be suspicious of any communication that appears to go in one direction only. All communication generates a response: the response is an essential part of the communication. A good communicator generally picks up the response and deals with it intelligently, but many organizations are very poor communicators in this sense.

It is true that many administrative systems (whether computerized or just bureaucratic) provide for a token response called an acknowledgement or handshake. But this merely confirms that a message has been received; it is difficult to see much meaning in it. (There is no body language in a computer handshake - nothing to convey how pleased the recipient might be.)

So it's not enough to say that communication needs to be a closed loop. It is not enough to have a rich and interesting communication in one direction, and just a paper-thin bureaucratic response in the other direction. Surely a rich and interesting message deserves a rich and interesting response?

Effective marketing departments don't just transmit, they receive and analyse and learn. We can observe this by studying real organizations, we can explain it using systems thinking, and by enacting this explanation in our own organizations we can experience it directly for ourselves. Theoretical understanding of organizations always requires both observation and explanation; practical understanding requires experience as well. As for experience without understanding ... well if that's all you want from life, you shouldn't be reading this blog.

Asda versus Bloomsbury

2007-07-17T09:56:00.000+01:00

extract from POSIWID blog

Following my earlier post on Lost Profits, a row has blown up between Asda (part of Wal-Mart) and Bloomsbury (publisher of some obscure children's book).

Potter publisher halts Asda order, BBC News July 17th 2007

The facts are (not surprisingly) disputed. But there is a suggestion that Asda has failed to pay in full for previous Harry Potter books. I don't know what has happened in this case, but supermarkets often apply retrospective discounts to their suppliers - paying less than the agreed price.

Supermarkets typically defend their price-cutting stance, and their aggression towards suppliers, by claiming that they represent the interests of consumers. In this case, Asda is claiming that the Harry Potter book is too expensive for children. Obviously Asda wants to make sure the children have some pocket money left for sweets as well.

... for the rest of this post, read Wal-de-Mart and the Profit Eaters

analysis

The Harry Potter phenomenon raises some interesting questions about the business model of media companies, which relies on large profits from a few blockbusters to cover the large risk of publishing unknown products. Emerging retail models, which seek to cream off the excess profits, represent a serious challenge to this traditional media model.

Similar analysis is prompted by Prince's recent decision to allow his latest album to be distributed in a newspaper, rather than through traditional channels. (Discussed in my post Lost Profits and by Fake Steve Jobs.)

Many Hands Make Light Work

2006-11-19T20:03:00.000Z

Apparently, the UK Revenue and Customs has introduced a new 'streamlined' process workflow, in which each case is handled by up to six civil servants. A spokesman for Revenue and Customs said: "The more complex returns may need more people working on them. The idea is to offer a better service."

The Mail on Sunday mocks this reform under the headline "No joke... it takes six civil servants to deal with your tax return".

It is possible that the Mail on Sunday could be expressing its scepticism about any process reengineering in the public sector, especially after learning that consultants were paid more than £7million to 'streamline' the process. (I don't actually know which consultancy it was, and I have no idea whether this was good value. There are many public sector projects that cost a lot more than this.)

But the language of the article (including words like "barmy") sounds more like bewilderment than scepticism. It seems that the Mail on Sunday simply doesn't understand how the division of labour can possibly improve efficiency.

The Mail on Sunday suggests that there is still a backlog of work, but even if this is true it does not necessarily mean that the reformed process doesn't work (see below). Meanwhile the Mail on Sunday is expressing its scorn and mockery of anyone who thinks it might work.

A proper evaluation of the reform would doubtless require a lot more detailed investigation and analysis than the Mail on Sunday is willing or able to undertake.

Exercise for the reader of this blog - to explain the division of labour in simple terms that even the Mail on Sunday can understand. (Hint: Adam Smith.)

Second exercise - to explain why backlogs don't always disappear immediately, even when the process is made more efficient. (Hint: to clear a 4-month backlog in 1 month may require up to 4+1 times as much resources, even with a more efficient process)

Market Timing 2

2006-11-08T23:14:00.001Z

I have referred on this blog before (Market Timing 1) to the importance of time/timing in making decisions. In Lacan's theory of Logical Time, there is "a moment to conclude". Lacan is one of the few thinkers who appreciates the need to explain why decisions and actions take place at a particular point in time - helping us understand, among other things, how decision-makers are affected by haste and hesitation.

Now marketing guru Seth Godin has a post on his blog on the importance of timing in marketing. He points out that the effect of a message depends on the state of the recipient when the message arrives.

"All marketing analyses that ignore time are wrong. There's a big difference between a message that arrives when I'm full and when I'm unfull. And there is a big difference between a first impression and tenth one. Even if I can't remember the first nine."

What happens when people have to make a decision on a particular day - for example an election? Some people make up their mind at the last minute. Perhaps it is not rational to commit to a candidate too early, since any candidate may say something unwise, and damaging revelations may emerge at any time before polling day. (A Republican candidate dropped out five weeks ago when inappropriate emails came to light [source: BBC News]. And after yesterday's mid-term election in the USA, the balance of power in the Senate depends on the outcome of the vote in Virginia, where the Republican incumbent was well ahead until he was caught on video uttering a racial slur [source: BBC News].)

But this is not a good example of Lacan's logical time, because an election is held according to an external schedule. What is more interesting in elections is the timing of a campaign. Seth is absolutely right to point to the importance of groundwork, but no amount of groundwork can prevent your candidate from peaking too soon.

Technorati Tags: Lacan marketing systems thinking timing

Game Theory 2

2006-06-01T09:25:00.000+01:00

In my previous post on Game Theory, I mentioned a disagreement (since partially resolved) between Bill Waddell (an expert on Lean Manufacturing) and Howard Schwartz (an expert on organizational psychology).

Having expressed an instant dislike for Schwartz, Waddell was persuaded (apparently by the woman who gave him the book in the first place) to read further and conceded (in a later post) that there was some good material later on.

But he then feels the need to taunt his critics. (Not sure whether he includes me in this category.)

"Your best shots have been cream puffs compared to the hailstorm I am usually under from Detroit and the MRP crowd. I work in manufacturing where brutal reality reigns supreme."

Excuse me? So what was that for? Sounds like a "manufacturing is from Saturn, org psych is from Neptune" moment - in other words, he wants to remind us of the cultural gulf between US and THEM.

Waddell affects surprise that General Motors management has failed to understand Schwartz. But given his own reaction to even mild disagreement with the psychology camp, I don't find this surprising at all.

Technorati Tags: business organization psychology

Game Theory

2006-05-30T23:13:00.000+01:00

Chandler Howell [Got Game (Theory)?] has just come across an attack on the real-life use of game theory in business by Martin Kihn [You Got Game Theory!], published in Fast Company, February 2005.

Kihn can't find suitable references to game theory in the business literature, or in the heads of academic experts. Because game theory can't be found in business theory, he concludes that it cannot be found in business.

Howell retorts that he uses game theory every day - he just doesn't publish an academic paper every time he does so.

I think both are right. I agree that the lack of concrete examples of game theory is an interesting observation - and if I made my living from pontificating on game theory, I might be a little worried.

But if you are going to do a proper scientific experiment, you have to have a proper control. [See Richard Feynmann's article on Cargo Cult Science.] The absence of game theory in the business literature doesn't mean very much until we have something to compare this finding against. So let us ask how many references are there in the academic business literature to set theory, to algebra, to elementary arithmetic? If we cannot find specific references to these important branches of mathematics, does this mean that business people don't use them?

What parts of mathematics or economic theory (if any) are regularly referenced by business people?

There are lots of examples of game theory in movies. Can we use fictional examples when we are discussing business? Bill Waddell thinks this is unfair, and is scornful of Howard Schwartz who uses some material from the film Silkwood (starring Meryl Streep) to illustrate some aspects of organizational dysfunction in his book Narcissistic Process and Corporate Decay : The Theory of the Organizational Ideal. But Freud used examples from Greek myth, and Einstein explained some of his theories in terms of imaginary (and impossible) experiments. Fiction is okay for explanation in science, as long as you don't imagine it proves anything.

[Update: In a later post, GM NASA and Sigmund Freud, Bill Waddell admits that Schwartz has some good insights about real companies as well.]

Mathematics and economics come into business studies in the obvious way - though counting and calculating money, and complicated functions relating to money. But they also come into business studies to help us understand structural things like conflicts of interest and patterns of behaviour. Just don't expect managers to stop in the middle of running a business and give you a guided tour of the mathematics involved.

Technorati Tags: business game theory mathematics

Tangled Solution

2006-02-28T14:57:00.000Z

Some people buy newspapers and magazines because there is a favourite celebrity on the cover. I bought the Times this morning because there was a crude attempt at a stakeholder map on Page One.

Click here for larger image

The diagram isn't a particularly good one, but it's interesting that a middle-brow newspaper finds this is the only way to try and communicate the complexity of this issue.

What's wrong with the diagram then? It shows THAT there are lots of separate agencies involved, but not WHY. And it doesn't give any clues about ways the situation could be improved.