The Best Idea

Framing the future from the current body of knowledge

2011-03-28T09:01:00.000-07:00

Michio Kaku gives below some interesting predictions of the year 2100 based on his knowledge from current science.

I think he is right about several points:

Jobs that can be repeated will be automated and eliminated. Jobs that require creativity and are not repetible like construction or policemen will continue to prosper. Jobs of middlemen will be eliminated except for middlemen that bring value into the equation.
Aging processes will be greatly stalled.
Computing will be embedded in our lives based on augmented reality.

Curious on more? Take a look at his latest book on Amazon:

http://www.amazon.com/Physics-Future-Science-Shape-Destiny/dp/0385530803/ref=reg_hu-rd_dp_img_T2

What is as simple as possible?

2010-08-08T10:19:00.000-07:00

One of the most celebrated principles of our time is the concept of simplicity. But how do you obtain simplicity, and when do you know a solution the simplest possible?

Einstein is famously been quoted to have said "A solution to a problem should be as simple as possible, but no simpler". In the same lines Leonardo da Vinci is reported to have said "Simplicity is the ultimate sophistication."

Great! I can hear what you are saying, but what does that mean?

How do you obtain simplicity? On this question - ideas have been widespread.

A good source to understand what we are looking for are The Laws of Simplicity . A set of 10 laws that partially describe how to obtain simplicity, partially describe how you can perceive simplicity and partially state that some things cannot be made simple. A good reference for reflection, but from my point of view - not simple enough!

The site The Simplicist describes two approahes to achieve simplicity (1) Simplicity by Reduction and (2) Simplicity of design. The titles are rather self explaining, but read the source to see the descriptions. This site is really simple so they are living up to their ideal, but is it maybe too simple? Anyhow, the two approaches may come in handy, so lets keep them in mind.

When is a solution the simplest possible? This is the hard question. I use a three step solution to this. Might work for you as well?

1. I believe you must base it on the possible known solutions to a problem. There will be solutions out there that may be found in the future, but simplest possible does not include the unknown by definition (the unknown is not possible at this point in time...).

Ex: Example could be that in 1850, the simplest solution to communicate a short message between Australia and England could be to send a postal mail by ocean traffic. Today it might be to send an SMS or just make a phone call?

2. Select the solution that based on key metrics (ie production time, money, energy needed) that you believe give the lowest value given lowest accepted value for some quality metrics/tests (ie defects, pollution, service calls etc ). This is based on the simplicity be design principle (2) above.

Ex: Our message could be sent by email instead of SMS, but would that be fast enough based on our expected response time from our receiver? We could also call instead to get the message over instead of sending and SMS, but would that be acceptable to the receiver. Would it be simple for him/her and take the little time it needed?

3. Once you select your solution, remove the least necessary part. Ask yourself will it still work given the quality metric/test. If the quality metric/test is still evaluated acceptable: Repeat and see if you can remove one more layer. This is based on the simplicity be reduction principle (1) above.

Ex: Say in our SMS communication. Can we remove the need to send multiple SMSs. Is it acceptable to only send one SMS with the message and require only one response? Maybe in some cases you can remove the response itself by saying that "if OK, no need for response. " That would assume that you really trust that the message was received (!), but still it proves the point of multiple possible reductions.

Try it! It works pretty well for me, and you get something that is pretty close to As simple as possible, but no simpler.

The thrilling potential of SixthSense technology

2010-04-28T09:50:00.000-07:00

Watching this video truly opens your mind of future interaction technology and gives you idea on how it will engage us in the near future. One think I especially liked was the way Mr. Mistry takes the living context you are in and bring new knowledge and insight to it. Simply Genious!

Watch and be amazed:
Pranav Mistry: The thrilling potential of SixthSense technology | Video on TED.com

The Power and Beauty of the Insightful Statistical Prediction

2009-11-24T09:17:00.001-08:00

Hans Rosling [1] have for some years now inspired me and many others in his enchanting way of presenting statistics and future prediction. This talk, describing the rise of Asia as the dominant force in the world is his best ever:

http://www.ted.com/talks/hans_rosling_asia_s_rise_how_and_when.html

Look at his humble intro and natural approach throughout.
Look at the elegant way of using dynamics in the graph to prove the prediction.
Look at how well he matches and lifts his audience and their final reaction to his presentation.

Great people project great ideas.

[1] http://www.gapminder.org/

Ten Greatest Thinkers of All Time

2009-11-15T12:08:00.000-08:00

One of the great 20th century historians Will Durant, made in some of his assays rankings of what from his perspective were The Greatest Minds and Ideas of All Time. The essays are summed up in the book with the same name.

The book is a fun read, and is recommended as a reference for further study. Here I list his "Ten Greatest Thinkers of all Time". I think he is pretty close to a perfect list, but some of them might be more controversial than others - depending on your favorites:

Confucius
Plato
Aristotle
St. Thomas Aquinas
Copernicus
Sir Francis Bacon
Sir Isaac Newton
Voltaire
Immanuel Kant
Charles Darwin

The whole essay can be read under chapters published in a blog with entries for each person on the list here and here.

I'll come back with his list of The Greatest Ideas of all time.

The Wonder and Paradoxes of Penrose's World Projections

2009-11-07T04:55:00.001-08:00

I am a big fan of Roger Penrose, and his work is absolutely brilliant reads, if you have the time and energy to truly concentrate on his writings (for my favorites see [1] and [2]).

One model that is introduced in his work is the "the three worlds" and its relations, mysteries and paradox. The idea is depicted below (taken directly from [1] ) and describes how the physical world of existance is governed by the laws of the platonic/mathematical world, while the mental world is a part of our mental world, while our mental world is a small part of physical existance!

If you - as I do - see the model as relevant notice the following 3 mysteries and one paradox:

Why is it that only a small part of the world of mathematics have relevance to the workings of the physical world?
Why does the mental world come about in association with only certain physical structures - healthy, wakeful human brains.
Why does only a small fraction of our mental minds concerns itself with mathematical/platonic truth?
Finally the paradox - how come the three worlds appear to encompass the next one in its entirety?

In Penrose's own words : "Maybe the three worlds are not separate at all, but merely reflect, individually, aspects of a deeper truth about the world as a whole which we have little conception of at the present time.

Whatever your standpoint, the model is so powerful and creates a reflection and controversy it deserves to be called a great idea.

[1] The Emperor's New Mind: Concerning Computers, Minds, and the Laws of Physics (Popular Science)

[2] The Road to Reality : A Complete Guide to the Laws of the Universe

Violence in Decline

2009-10-03T06:29:00.000-07:00

In contrast to popular opinion, violence in the world has been continually declining since biblical times to the present. This continual decline correlates strongly with the gathering of societies in centralized states and democracies and in parallell to the increase in reason and technology. Especially, the 16th century - the start of the age of reason - marked the start of a unprecedented drop in violoence and rates of deaths in war.

See this great TED conference lecture by Steven Pinker for the whole inpiring story (see this to read the whole lecture). Enjoy!

According to Pinker, several theories have been noted to explain the effect. All of these have some truth to them I am sure:

"Hobbes got it right" - In a state of anarchy, there's a constant temptation to invade your neighbors pre-emptively, before they invade you. A centralized state this is not such a great problem.
"Life is cheap" - "When suffering & early death are common in one's own life, one has fewer compunctions about inflicting them on other. Technology and economic efficiency make life longer and more pleasant, one puts a higher value on life in general"
"The non-zero sum game" - "..in certain circumstances, cooperation or non-violence can benefit both parties in an interaction, such as gains in trade"
"The Expanding Circle" -Evolution bequeathed us with a sense of empathy. By default, we apply it only to friends & family, over history, the circle has expanded:
-village->clan->tribe->nation->other races->both sexes.

Principle of Universal Options

2009-09-24T12:46:00.000-07:00

Whatever the challenge, field or situation, there are options to invest in to hedge risk and unceirtainty.

This is a rather bold assertion, but I believe it to be very true. Some examples:

Stock market: Options and other derivatives.
Commodity and currency markets: Hedging or futures.
Business and personal economy: Insurance, portfolio management,
Personal health: Excercise, healthy food, vacations
Personal Career: Education, training, parallell ventures
Project Management: Real Options, Risk and change management
Engineering: Modularity, flexibility
Medicine and psychology: Alternative treatment forms

My note to self? Whatever the challenge, there will be heging possibilities that for a limited cost will reduce the risk we are facing.

Evolutionary Prediction - The Wisdom of the Crowds

2009-09-04T02:01:00.000-07:00

From my point of view, the biggest single paradigm shift in human history can be marked by the introduction of theoy of evolution and the theory of natural selection. The theory not only gives us meaning in understanding the past, it is the basis for the most powerful ways we have to predicting the future.

First and foremost, it opened up a totally new perspective on the whole concept of humans and where we come from. Old school religious theories were thrown out (even though some hardcore bible-enthusiasts still cling to sci-fi concept of intelligent design).

Secondly, and maybe just as important it gave us a general reference model that can be used outside the domain of biology. Topics like desease spread, stockmarket behaviour, agriculture, development of societies, climate change to the control of robots are today modeled and inspired by evoutionary principles. Th set of theories analytical models are now so detailed that they are or close to be proven.

Due to this last reason, an evolutionary prediction model given these theories would be rather neat. We could predict - given a set of factors - how humans, may evolve, how a desease will spread or maybe how societies may evolve and in that way use the models to set in countermeasures that can reduce the impact of an unwanted trend. There will never be a psychohistory like Isaac Asimov describes in his foundation series. Still, I believe the predictive gains would outweigh the misses.

As can be expected, this evolutionary prediction idea is not new. Darvin himself set out several predictions and many were proven. Some examples can be found here. There are also several evolutionary and genetic algorithims that are used extensively in many scientific fields - like the ones mentioned above.

What is most exciting though in relation to evolution , is the insights so well described in The Wisdom of Crowds (Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations).

Its central thesis is that a diverse collection of independently-deciding individuals is likely to make certain types of decisions and predictions better than individuals or even experts. To exemplify, lets mention a few cases from book:

The best predictor of the next president in the US is a betting market on the next president.
The best predictor of the number of jelly beans in a jar is a average vote between a diverse group of people.

In many ways this is exactly how evolution descibes it. The best solution is the most likely to survive given a diverse and selfish set to select from. The volume of the crowds is the selector.

This evolutionary crowdsourced prediction method has just started to be implemented. One of the best examples is how google has set up internal crowdsourcing to perform strategic prediction. Nice results! I bet Google will survive for quite some time in the evolutionary game of corporations. ;D

Broken Windows

2009-09-02T12:33:00.000-07:00

Have you ever left a cup on the kitchen table and an hour later the whole kitchen is a mess?

If you have you have experienced the broken window theory:

The observation that a few broken windows in an empty building quickly lead to more smashed panes, more vandalism and eventually to break-ins. The tendency for people to behave in a particular way can be strengthened or weakened depending on what they observe others to be doing.

The thory developed by Dr. Keller in the beginning of the eighties has been a role model for crime reduction in several US cities and studies show that it has some sense to it. According to the theory, the prevention of the effect is to stop all kinds of small crimes - like grafitti, shoplifting etc - and violent and serious crime will drop as well. Since the theory was implemented in practice in many US cites (most famous is New York), you can see that violent crime rates dropping in many US cities.

Yes there are critics to the theory, but it still makes sense. Personally, I see that the insight is relevant in so many other areas that affect us - from the private to our business lifes. Hence, a great idea.

Clean you desk, wash your car, put the cups in the washing machine, allow no sloppy work in your team. Who knows what may happen if you don't.

Hype Cycles

2009-08-16T01:08:00.001-07:00

The technology maturity hype cycles of 2009 from Gartner were just released. Since working as a consultant during the boom years around Y2K the hype cycle model has fascinated.

It is such a simple way to chart a very complex phenomena and convey a smart insight at the same time.

Highlights this year is that cloud computing and e-book readers are at inflated exceptions and are about to crash. Another assertion is that microblogging services like Twitter/Facebook are about to crashing this instant due to spam and noise. Wikis on the other hand are on the return.

Gartner might be right about their predictions and they are probably wrong on several as well, but that is not the only point. Thanks to this model, discussions start and new ideas pop up. Sit down and design your own hype cycle it in your business area, and its almost magical how the pieces fall into place and insights start to flow.

Access to more info at: http://www.gartner.com/it/page.jsp?id=1124212

90-9-1 Community!

2009-06-07T21:45:00.000-07:00

As described here before [1], power laws are very potent at describing many type of phenomena. Latest principle is the 90-9-1 principle of online communities [2].

The concept is simple. In an online community, 1 percent are creators of content, 9 percent are editors of content and the remaining 90 percent are just the curious audience watching. The phenomenal thing is that this rule seems to be proportional, so that getting more creators to a site, increases the editors and the audience.

My bet is that many users act in different roles depending on the site they use, but that there is a small minority of heroes out there that generates most of the community content - and hence drives the traffic.

[1] The Vital Few or the Trivial Many?
[2] 90-9-1 Principle

The Seven Principles of Influence

2008-09-22T12:00:00.000-07:00

The book Influence [1] gives a unique guide to how people are influenced by 7 different principles. Here we list them:

1. Perceptual Contrast - when one item is presented after a more expensive one, the first item presented will be considered cheap.

2. Recipocation - when a person is given something he will try to repay, in kind, what he was given. The strategy is to give a person some small favor (a rose, a candy) and get big benefits in return (your purchase)

3. Commitment and Consistency - once a person has commited to something he will continue being consistent to this commitment. Hence, by getting an initial commitment from one you wish to influence, the target will likely by consistent further on with his initial commitment.

4. Social Proof - people will tend to base their beliefs or act upon what other similar people in the same situation would believe in or act after. The social proof principle is the strongest when similar people are the basis for the proof or if the person to decide is unceirtain in the situation.

5. Liking - people tend to say yes to other people they like. Liking can be increased by such things as the others physical attractiveness, similarity, though compliments or through continued contact with the other person.

6. Authority - people with some sort of authority (knowledge, titles, clothes etc) will tend to have influence over others.

7. Scarcity - an item or other sort of quantity that is percieved as scarce will be considered attractive. People assign more varue to an opprotunity when it is considered less available.

[1] Influence: Science and Practice

The Project Magic Triangle 2.0

2008-01-04T05:10:00.000-08:00

Standard project theory has this view of the project that it is a triangle. The triangle corners are Time, Cost and Quality and the PM's job is to find the perfect balance between these forces and in that way create results. I believe this model is a model of the past and needs to be ratified - but just slightly. The reason is that these days a project's purpose is first and foremost to create business value and customer value, and needs to be directed by quantified effects related to these.

The Business Model and The Project
I have never found one definition that captures the whole concept of a Business Model, and as is stated under the term on wikipedia[1], there really is no common definition. What I have found is that a true business model must cover three areas:

It must cover how value is created for the owner / prime stakeholder

It must cover how value is created for the customer

It must cover the resources (time, competence, cost, material) needed to create value

For projects - we have Cost and Time which is relatively easy to quantify and Quality is often the magical factor (some define it as defect density, others though customer satisfaction surveys, still others though). In the figure below the two triangles are shown. See the conflict?

The Magic Triangle 2.o:
So let's combine these triangles to make it more logical.

Quality becomes the the Customer Value. Measures must be centered on the customer and will typically be measured though values such as customer satisfaction indexes (CSI's), usability measures and service quality measures. The project charter should have clear and measurable goals for these. These are the first part of the project's effect goals.

Time is really just a function of Shareholder Value. If you come to market mith a solution faster, you will (in most cases) have an advantage. Cashflow will come faster. The shareholder value is most often formulated as a business case (BC) with NPV/IRR values. Measures are typically bound to the BC such as sales volume, market share, cost effectiveness, revenue per customer. These are the second part of the project's effect goals.

Cost is the only part that stays the same compared with the old triangle. You might want to extend it to Resources because that incorporates a great deal more such as competence and location but in reality everything can be bought.

So the main problem with the old model is pedagogical. When you show the CTQ triangle many projects I have seen, they suddenly live in a box. Nothing than the balance between these three factors (as they have traditionally been defined) matter and you end up with a project that succeeds on these. But the effects of the project are an utter failure outside the box. For sales and customer satisfaction the project did not deliver.

To many this may seem elementary. "This is how we do it anyhow!". I agree, many projects have this focus or partly this focus. Many organizations demand BCs for their investments - but many then forget than customer value is just as important. In the "Agile Software Development" movement there has been a considerable and good focus on the cutomer - though the business value has been a little less discussed. You need to balance these forces.

So think RSC (Resources, Shareholder Values, Customer Values) instead.

[1] http://en.wikipedia.org/wiki/Business_model

Spreading Ideas by Exclusiveness and Secrecy

2007-10-31T12:56:00.000-07:00

The heading may seem like a large contradiction, but I believe it is not.

The Tip from a Friend
Why does a tip from a friend mean so much to you compared to an ad in a magazine or on television? Well, friendship is strongly related to honesty and the ability to keep secrets between each other. When you break either of the two, the good relation is sacrificed. Hence, if you get a tip from a friend, you believe it because (1) he is not likely to lie and (2) this may be an important secret your friend tells you about.

In sources [1] and [2], the word-of-mouth-marketing (WOMM) idea is advised to be used more by companies. But, a WOM epidemic is hard to start. It is more art than science, but some references exist that may give some valuable advice. In "The Tipping Point" [3], a WOM-model is introduced, and I like it.

The main thesis of the book is that ideas, products and social phenomena may spread like epidemics. "The Tipping Point" happens when "the vital few" as apposed to the the trivial many starts to use, apply or advertise the idea and the "epidemic" spreads. Gladwell calls this group phenomenon the Law of the Few, and from my point of view it is simply another way of stating the Pareto Principle [3] (find the vital few that produce the impact).

To apply the Tipping Point insight, the key is how to select the vital few. Gladwell asserts that you need to find the "Connectors, Mavens, and Salesmen" that can cause the tip. Finding who those are again is still an art.

A great example of a product where the WOMM effect is seen, is Gmail. Yes, there has been considerable amounts of media coverage on the service, but the fact of the matter is that the service has never been advertised. Hence, the media coverage has only started by WOM. The service was originally also only accessible to those who have been invited. Hence, there became a sense of exclusiveness and secrecy in the service. The product then exploded!

Relationships of Trust

WOMM is great, but is not possible in all situations. The thing is that not all products can be marketed through your friends. Some products have the characteristics so that there is little interest for someone to tip a friend. Furthermore, there is for instance a lot of research that indicates that buyers do not tell about products or services they like, but they are very likely to tell their friends about the ones they do not like. There are some success stories of WOM-campaigns that spread by giving consumers incentives to spread the word - but there are in many markets legal challenges for these type of models.

So when WOMM does not work, you as a company often need to spread the word yourself. To be able to do that successfully you must build a relationship of trust with your customers [6]. In order to do that, why not look at the model for friendship and look for inspiration. Hence, giving a customer secret and good offers while keeping a sense of exclusiveness to the relationship is most likely what will attract and retain them.

[1] Word of Mouth Marketing - WOMM!
[2] Word-of-Mouth: The World's Best-Known Marketing Secret
[3] The Tipping Point

[4] The Pareto Principle
[5] GMail
[6] It's Not About Permission, It's About Trust

The Vital Few or the Trivial Many?

2007-10-29T04:19:00.000-07:00

When the Pareto Principle [1] was popularized within business and engineering in the 1940s by Dr. Joseph Juran, he called his theory "The Vital Few and the Trivial Many" [3] : A few vital inputs produce most of the results. For many years now that has been how we are taught to prioritize ideas and activities in business. However, thanks to the Internet, the Pareto Principle is being falsified [4] in various domains.
The insight comes from power law theory [2]. As one can see in the figure to the right (from wikipedia) , a power law distribution can be split into a vital few (the green area) and the trivial many (the yellow). What is happening for many products and services sold via the Internet is that demand is shifting down the tail - making the tail fatter and the head slimmer! According to [5] there are 3 reasons for this:

Cost of production of many products from music and books to Internet services is falling, thereby creating more available products in the tail.
Cost of inventory and distribution is falling though JIT production, digital content and application hosting. The marginal cost of one more product ore product feature in the inventory is extremely small, making it profitable for low volume sales of one item.
The Internet and it's search engines and communities are creating new ways for consumers and businesses to find more specialized products and solutions that fit their exact tastes and needs.

This insight is rather extraordinary because it shows that lucrative business opportunities exist where there was said to be none. Furthermore, there are signs that the profit margin is larger and the competition smaller at the tail per unit than at the head. Sounds like faster money to me!

[1] The Pareto Principle
[2] Power Laws and Long Tails
[3] The Vital Few and the Trivial Many (external)
[4] Falsifiability (external)
[5] The Long tail (exteral)

The Pareto Principle - After 101 Years

2007-10-29T02:39:00.001-07:00

The Pareto Principle or the 80/20 [1] rule as it has often been called, was first noted in 1906 by economist Wilfredo Pareto while he was studying the wealth distributions of people. Apparently, 80% of a nations wealth was in the early 1900s controlled by 20% of the population. Since then, the Principle has been popularized in management theory and is applied in all sorts of domains. Take for instance blog entries such as this [3].

It seems that 100 years later the relationship has become even more differentiated. According to [2] 10% of the worlds population control 85% of the wealth. Hence, if Pareto had lived today, the Pareto principle would have been called the 85/10 rule.

[1] Pareto Principle - an explanation of the Pareto principle and further reads.

[2] UN study of the wealth distribution in the world - ppt of some very interesting figures.

[3] Notes to Self blog entry about 80/20 in your daily life

The Medici Effect

2007-10-27T09:22:00.000-07:00

The Medici's were a very influential family empire in Florence from the 1300s to the 1600s. An amazing number of scientific discoveries were made during their era - Leonard Da Vinci being one of the most famous and influential of the discoverers. The accepted theory for why this era was so productive is that the culture was very open and cross disciplinarian. That again made innovation more plausible.

The Medici Effect [1] is a book that looks at the innovation from such inhomogeneous processes and how you can accelerate the process. The main thesis of the book is very much in line with what the notes on this blog is about : Innovation comes nowadays from the intersection between disciplines. You take ideas and concepts from different disciplines and combine them into new concepts.

The big question is how you or an organization can step into this intersection. According to the book there are 3 key elements that are important driving factors:

1. By diversifying occupations.
2. By interacting with diverse groups of people.
3. By going intersection hunting.

1 and 2 are fairly obvious. Being in a culture of diversification, curiosity and open mindedness are key factors for innovation. 3 is mostly based in the idea of creating directed randomness in your thought process. One method is to go for a stroll and purchase or pick up objects that are not related to your current problem. Look at these and let your thought roll.

I won't say that the book is very revolutionary, and the fact of the matter is that you need to have a mind that is creative and curious in order to create this effect. Most ideas are created/formulated by a few people compared to the population. These few people make up many ideas - many which never make the test of reality. Still, the thesis of the book is important to remember, so if you want to create an innovative culture it would not be so silly to study the Medici's.

[1] Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation

The Currency of Influence and Authority

2007-10-27T09:13:00.000-07:00

Talking to a colleague senior project leader the other day, I learned a very valuable lesson. "Watch up so you do not 'spend' all your authority! It will be valuable to have later down the line", he said. He was talking about the currency of influence and authority.

His statement was the answer he gave after I asked him how he was so successful at reaching agreements in disputes with contractors and conflicting organizational units. He continued to tell me how he tries to delegate various negotiations and discussions to subordinates as much as possible. The obvious reasons for this was motivating his subordinates and more importantly to increase effectiveness by decentralizing authority.

His last reason however, is the key learning point for me. When you meet in negotiations yourself it means that you can never be the man that the issue is escalated to - you have already 'spent' your authority by being there. He told me that if he did not sit in on the negotiations, but instead only appeared if there was a dispute, his natural authority (and the authority he got from his position) was more effective.

So influence and authority not matter what its source is not infinite. Spend it with care, and be serious about where you invest it. The currency of influence and authority can give you big payoffs, but is very often spent on invaluable situations.

Occam's Razor Shows the Immature State of Quantitative Economics

2007-10-26T03:50:00.000-07:00

"In physics, it takes three laws to Explain 99% of the data; in finance, it takes more than 99 laws to explain about 3%". According to an article [1] in HBR, the source of this statement from MIT finance professor Andrew Lo. He followed up by saying: "Economists consequently suffer from physics envy".

What does it mean if Lo's statement is true ? In my experience I believe he is, and I see two alternatives:
(1) Economics and its mental world is not at all as amendable to the power of mathematics as physics in the physical world. This is the conclusion in [1].
(2) Economics is simply too immature, and totally new approaches to its understanding is needed in order to build predictive models. If this is the case, the emergence of such a theory will be through the collaboration from other fields.

According to alt. (2), Occam's Razor will force a new and radically simpler quantitative economic theory with greater accuracy. It might be you who finds this theory?

[1] Article in Harvard Business Review.

The Balanced Simplicity in a Classical Music Recording

2007-10-24T23:47:00.000-07:00

The goal of a classical recording is of course to create a sound in a stereo that gives the listener the impression that he is sitting in that concert hall. The process goes though several steps, the major ones being recording, editing and mastering. I was talking to a Classical Music Master yesterday, and among other things he explained the ultimate recording setup: 2 microphones!

Apparently, one studio uses one microphone in each seat in a concert hall to make the recording and the result is terrible. The sound arrives in each seat at different times and in that way it becomes distorted. Furthermore, the mastering becomes really complicated due to all the channels the Music Master needs to work with. By having two microphones, you receive

Occam's Razor strikes again: "A solution to a problem should be as simple as possible, but no simpler." In the mastering process, the master reworks the analog recording to a digital piece. This is apparently a balanced analytical process and intuitive art. The master looks at the musical digital profile and listens to the sounds for impressions in an iterative manner. The master also needs to take into account that most listeners are using simple stereos that do not bring out the full quality of the music. So to summarize, a digital musical masterpiece is a product of fine balance of simple building blocks.

Power Laws and Long Tails

2007-10-24T02:43:00.000-07:00

The standard normal distribution (bell curve) is today dominant when we model phenomena. It often works out quite nicely with reality, but it has one easily to forget limitation : It assumes that the occurrences are independent. In many cases independence is very limiting. Interdependence needs to be taken in account. In these cases power laws are more accurate (For a definition of a power law see [1]). The result is that extreme events become much more probable.

Look at the diagram below from [3] (also a great overview of power laws). As you can see, a bell curve will predict that unlikely events are very rare. In cases of independence of phenomena that is likely. A power law distribution looks similar, but has a "fat tail". The implication is that it predicts that rare events are much more likely (you may say that the interdependence creates a possible "butterfly effect").

An example from [2] (a brilliant book by the way) is illustrative. In the book business, the largest brick and mortar shops can keep an inventory of maximum 100.000 books. After that the business of keeping them in store becomes unprofitable. A site like Amazon.com has an inventory of over 1.5 million books and growing. Even though it sells only a a few copies of the millionth popular book, it still makes a profit on it. That's due to the low costs of storage, distribution and sales.

An example from [3] is another illustration : "In the case of market fluctuations, for example, the bell curve predicts a one-day drop of 10 percent in the valuation of a stock just about once every 500 years. The empirical power law gives a very different and more reliable estimate: about once every five years." As the reader may know, we see 10 percent drops fairly often!

[1] Wikipedia - Power Law
[2] The Long tail
[3] Power Laws & the New Science of Complexity Management

Principles of the Greatest Companies

2007-10-23T03:52:00.000-07:00

What makes a company truly great?

The research by Jim Collins presented in his book Good to Great [1] from 2000 gives me a lot of inspiration. Collins researched the stock market and found the companies that had beat their market segment by 7 to 15 times over a 15 year period. The team then found the common qualities the great companies shared. Some of the results were really surprising. Interestingly, the list did not include companies like GE, Coca Cola and Microsoft. These did not qualify.

Below are the qualities :

1. Level five leadership
2. First Who, Then What. Pick the right leadership team
3. Confront the brutal facts - Murphy's Law
4. Hedgehog Concept (Strategy)
5. Discipline in culture
6. Use technology to accelerate

See [2] for a thorough walk through of the complete set of ideas that were introduced in the book. The book is also a very good read.

[1] Good to Great - cool study of the greatest business transformations.
[2] Jim Collins' web site

The Spooky Explanation for Pretty Girls

2007-10-22T01:27:00.000-07:00

According to [1], beautiful parents are 36 percent more likely to have a daughter than a son. Hence, beautiful women are easier to find than attractive men. The hypothesized reason for this statistical result is that "evolutionarily speaking, beauty is a trait that is more valuable for women than for men". Selection pressure hence gives the beautiful parents pretty girls.

Similar results apply to parents working in "empathic" occupations such as nurses, social workers and kindergarten teachers. On the other hand scientists, mathematicians and engineers are more likely to have sons than daughters.

Did anyone say politically incorrect?

[1] Why Do Beautiful Women Sometimes Marry Unattractive Men?

Being Orthogonal and DRY through McKinsey's MECE

2007-10-21T11:50:00.000-07:00

Two of the important lessons that many software engineers have learned through experience is so brilliantly explained in the book Pragmatic Programmer:

Orthogonality - "Things that are not related conceptually should not be related in the system."
DRY (Don't Repeat Yourself) - "Every piece of system knowledge should have one authoritative, unambiguous representation. Every piece of knowledge in the development of something should have a single representation. A system's knowledge is far broader than just its code. It refers to database schemas, test plans, the build system, even documentation."

While skimming through the book The McKinsey Mind (a follow up of another very similar book called the McKinsey Way) I suddenly found the same principle being present in the Firm's analysis methodology. The principle is called MECE and stands for:

(ME) Mutually Exclusive - "must ensure that a list of items is mutually exclusive, or that every item is separate and distinct"
(CE) Collectively Exhaustive - "it must also be collectively exhaustive, that it includes every issue relevant to the problem"

According to the source, the MECE principle is used by the associates in the Firm to analyse different scenarios or to develop a list of questions concerning a particular issue. It is funny to see that the same principle is applied by both successful software designers and successful business analysts. The principles are just coined differently. DRY and orthogonality covers ME. You can say that CE is supported by any working software system in that it works.