Author Archives: aje

Business plan ecology

A complex system is one with “many dynamically interacting parts” (Beinhocker 2006, p.18). If the economy is a complex, emergent order, then you – future managers – are in the driving seat.

How does an economy resemble an evolutionary model?

  • A design space of possible designs
  • A schema that codes those designs –> business plans
  • A set of building blocks that underlie the designs –> physical and social technology
  • A schema reader that turns the business plans into reality –> management teams
  • An environment where evolutionary competition takes place –> the marketplace

Note that we’re not talking about firms, which are merely legal fictions. We’re talking about a business.

Beinhocker (2006 p.334) makes the argument that Microsoft’s success was built on an evolutionary approach. Rather than bet big on a particular development in the operating system market, they spread their bets across a number of different experiments. They invested in MS-DOS; did a joint venture with IBM; did a joint venture with Unix; bought a PC manufacturer that used Unix; invested in software development; and invested in Windows. Under conditions of uncertainty, instead of choosing which future is most likely to happen, it’s better to plan for an array of potential futures. This form of scenario planning can be very powerful because when you start to receive feedback on which of those futures is occurring, you can redirect resources towards an existing business plan.

In an evolutionary framework, the objective of a business is to endure and grow over time. It is not to “make a profit”, rather this is one (of several) constraints on the ability to endure and grow. These constraints include:

  • Generate a competitive return for shareholders in order to attract capital
  • Attract employees through appropriate incentives and compensation
  • Attract suppliers through mutually advantageous agreements
  • Create value for customers by producing goods and services that are demanded
  • Meet all legal and regulatory obligations

So how do you ensure that you endure and grow over time? How can a business discover new ways to create value, and adequately compensate their stakeholders? Simple: adapt and execute. Try lots of things and see what works. Do more of what works and do less of what doesn’t. Combine an adaptive walk (small steps that get you to a higher plain) with random jumps (to discover new starting points).To do this effectively, we need to recognise what type of bets we’re making:

  • How risky are they?
  • How related are they to current activity?
  • How long until they pay off?

There’s been a trend for companies to grow into vast conglomerates, diversifying their activities through different businesses in different markets. But what we’re alluding to here is more like venture capital. They are “portfolios of strategy experiments”, and their varied investments can all be assessed on the dimensions of “risk, relatedness, and time horizon” (Beinhocker 2006, p.347).

The ecological landscape is characterised by power laws, not a normal distrubution. And this generates a number of strategic insights:

  • Market forces are pretty efficient
  • The curve is extremely steep at the bookends
  • The curve is getting steeper
  • Size isn’t everything, but it isn’t nothing, either
  • Industry matters, a lot
  • Mobility is possible—but rare.

 

Finally, work to building an environment conducive to all this:

We may not be able to predict or direct economic evolution, but we can design our institutions and societies to be better or worse evolvers” (Beinhocker 2006, p.324).

Podcasts

I use Overcast to listen to podcasts. The smart speed setting quickens the pace without you even noticing and I usually listen to 1.2x normal speed. If you want to get into podcasts I highly recommend tweaking these settings to get through them faster. An added bonus is that if you’re listening to a proper series or radio play at normal speed, you “feel the benefit” and get super engrossed. 

Economics

  • EconTalk – the original economics podcast featuring an array of fascinating guests. Each episode is typically over an hour long which can be daunting, but permits a relaxed and casual conversation. As a former student of Russ Roberts, I thoroughly enjoy recapturing some of the intellectual curiosity and excitement of grad school through EconTalk.
  • Macro Musings – David Beckworth is a wonderful economist, and by focusing on monetary macro he provides a consistently high quality conversation on a topic I know I will want to listen to. I think it’s pitched at the perfect level to walk listeners through the career trajectory and major insights of an impressive guestlist.

Business and management

  • Planet Money – Short (20 minute) episodes that illuminate important economic concepts through interviews. Can’t get enough of them.
  • Stuff You Should Know – Well produced, entertainingly presented, always interesting.
  • The Investors Field Guide – I don’t listen to it (yet) but it’s been highly recommended to me.
  • Adam Buxton – on the surface this is a comedy show, where likeable comic Adam Buxton (from Adam & Joe semi-fame) chats with his “showbusiness” friends. I enjoy it because it provides an honest and sincere look at the thought process behind public speaking, professional success, and the art of humour.
  • The Edge with Joey Barton – I have sympathy for Barton and find him a highly engaging character. In this series of interviews he demonstrates his curiosity for what drives peak performance with applications for sport, politics, and all forms of management.

True Crime

  • Generation Why – two American friends present and dissect famous cases in an informal, engaging manner.
  • Casefile True Crime – the Australian narrator, following a well crafted script, provides an engrossing experience.
  • Criminal – somewhat hit and miss collection of interesting cases, but the good ones stay with you.

Series

  • Serial Season 1 – a documentary about the death of Hae Min Lee featuring interviews with Adnan Syed, who is in prison for the murder. But did he do it? This helped build the genre of the developing real time podcast, and bingelistening to this with noise cancelling headphones, on a transatlantic red eye, was super sweet. The theme music still gives me shivers.
  • Homecoming – more of a play than a podcast, but one that utilises the medium very nicely.
  • S Town – a fascinating and gripping story, but I was somewhat annoyed by the presenter’s self-serving presence.
  • Missing Richard Simmons – originally presents itself as having the ingredients of a unique and enjoyable mystery, but sadly turns into a slightly disturbing hounding.
  • The Butterfly Effect – Very touching business history emphasising creative destruction and unintended consequences. High recommend.

Classic interview questions

If you had to kill someone, who would it be?

Have you ever worn odd shoes? Could you envision it?

What’s the biggest coincidence you’ve ever experienced?

  • A coincidence is “A surprising concurrence of events with no apparent causal connection.”
  • I like this one
  • Another famous one is a man picks ups ringing pay phone, and it’s a lady trying to get hold of him but she dialled his payroll number by mistake. But David Spiegelhalter claims to have 10 other examples of this happening! (see his website)
  • Luck = chance taken personally

Do you sincerely believe in any conspiracy theories?

Is cunning a good trait?

  • “Instead of following an open, clearly understandable line of behaviour, cunning is calculating how other people will react to certain forms of behaviour which are hiding the end game”… “this ability to assess things rapidly and then to act in a way that is not immediately readable/ understandable by the people around us in order to get an advantage that some people will doubtless feel is an unfair advantage” (Tim Parkes, translator of Machiavelli who, incidentally, was always truthful towards his wife)

Tell that story, the time you did the wrong thing because you were scared (link)

When were you at your happiest?

Do you have a favourite joke?

Imagine your funeral, and your family and friends have had a few drinks and are thinking of you. They want to make an idiosyncratic gesture to your memory. What would they do? What should they do?

Writing reviews

Reviewers come in numerous categories. One group, often the most gushing in their praise, show few signs of actually having read the book. A second group absorb enough of the introduction and of passages relating to their own specialty top pass resounding judgments. A third group, in a distinct minority, follow careful reading with balanced comments. And then there’s the Worshipful Company of Whingers, Carpers and Nit-Pickers, whose sole aim in life it to find fault.

Davies, N., (2006) Europe East & West, Jonathan Cape

Brand loyalty

AJE is brought to you by:

Past members

Apple – design brief moved into sleek and fragile rather than tactile and durable, no longer intuitive interface (e.g. access to Podcasts through iTunes)

Joseph Joseph – now skimming from existing customers and diluting the brand with gimmicks instead of novel solutions

Performance Review

The underlying problem is that all performance reviews (especially corporate ones) tend to be costly and arbitrary. Deloitte have a new approach that intends to simplify the process by asking 4 questions:

  1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus (five point scale)
  2. Given what I know of this person’s performance, I would always want him or her on my team (five point scale)
  3. This person is at risk for low performance (yes/no)
  4. This person is ready for promotion today (yes/no)

I like the idea but not the questions chosen (they are too hierarchical). Mine would be something along the following lines:

  1. Does this person excel at their job?
    • For example, is there documented evidence of other people attempting to learn from them?
  2. Is this person a pleasure to work with?
    • For example, would you look forward to making a transatlantic trip with them?

I recently became aware of the concept of a Personal Boardroom. I think it is a good way to recognise whether you have an effective support network, and to identify why your career may be stalling. The idea is that you should have people in your life – with whom you are in regular contact – that perform each of the following roles:

Screen Shot 2015-03-25 at 18.37.00 Screen Shot 2015-03-25 at 18.36.47 Screen Shot 2015-03-25 at 18.36.54

Country Competitiveness Dashboard

I am an Affiliate Faculty Member of the Microeconomics of Competitiveness program at Harvard Business School, and a big fan of Michael Porter – his work consistently reminds me of the importance of bringing clarity to management practice.

I also like his inclination for frameworks rather than models. If your goal is to interpret and assess, as opposed to measure and predict, a framework is a critical analytical tool. One that I especially like is his explanation for what determines competitiveness. For example, consider the following slide (which I believe originates from here).

screen-shot-2016-09-29-at-13-03-20

I’ve given this framework a lot of thought, but I don’t think it fits as neatly into the Diamond model as is often claimed. For example in this NBER paper Porter (and co-authors) present an enlarged version:

screen-shot-2016-10-12-at-13-49-00

This clearly shows that the Diamond model is intended to be a more detailed view of the “Quality of the National Business Environment” segment. But consider something like nutrient rich soil, or a large natural harbour. One might think that constitutes an endowment. But it is also a relevant “Factor input condition”. Indeed what’s the difference between the “Supporting and Related industries” and “State of Cluster Development”? I suspect this is why Figure 3 above has dropped endowments and clusters, and renamed it a “Foundational Competitiveness Index”. I think this is a shame, because the “What Determines Competitiveness” slide is clearer, and more coherent, than the FCI.

I think Porter’s attempt to force fit the Diamond model into the Competitiveness index creates an opportunity to take the “What Determines Competitiveness” slide in a new direction. Indeed I think it complements nicely the “Growth is Like an iPhone” analogy:

In my attempts to merge the three level analogy with a template that my students can use in class, and with all appropriate nods to Prof. Porter, this is the “Country Competitiveness Dashboard“:

ccd

Rather than viewing the Diamond model as a subset of the “Business environment”, I see it more as a strategic tool that cuts across the whole Country Competitiveness Dashboard. In other words step 1 is to populate the dashboard, and ensure that you are covering all bases. Step 2 is to conduct a Diamond analysis – which is better suited at the cluster level than the national level anyway.

The endowments above are rooted in economic growth theory, but I am always struck at how important they seem to be when reading geopolitical accounts. The list below shows some of the typical go to areas when trying to understand the starting position of a country.

Management reading list

Here are a few recommendations for managers.

  1. Sowell, T., 1987, A Conflict of Visions, William Morrow
    • Sowell makes a distinction between a constrained (i.e. human nature is stable and based on self-interest) or unconstrained (human nature is good or has the potential to be good) “vision”. He argues that most political beliefs fit into one of these categories, and that people’s judgements are often determined by their existing vision.
  2. Schwartz, Peter. (1997) The Art of the Long View: Planning for Future in an Uncertain World, John Wiley & Sons
    • The pioneer of scenario planning provides a user guide to their construction and use, and demonstrates theur relevance for any decision making under uncertainty.
  3. Postrel, V., 1999, The Future and Its Enemies, Free Press
    • Postrel challenges the conventional wisdom that modern society isn’t delivering, and that we need to take coordinated action to change this trend. Instead, she articulates the case for competition and decentralised decision making, and identifies a “dynamism” world view that permits amazing innovation.
  4. Koch, Charles, G., 2007, The Science of Success, Wiley – especially SoS excerpts
    • This book outlines the concept of “Market-Based Management”, the framework that Koch credits as driving the incredible success of the American conglomerate Koch Industries. It attempts to apply the institutions of a free society and market economy within a firm, and provides an excellent case study on alternatives to hierarchical command structures.
  5. Burlingham, Bo, 2005, Small Giants, Penguin
    • A fascinating collection of case studies of companies that chose to be great rather that big. Most of them may be unfamiliar, but they are all inspirational for their pursuit of excellence as they define it.
  6. Cowen, T., 2009, Create Your Own Economy, Dutton
    • This is an eclectic look at how the internet has affected the way we engage with information. We have more choice, and more ability to cultivate our own consumption that ever before. This caters to people with autistic tendencies, and Cowen not only allows us to understand this condition, but also encourage our inner neural diversity.
  7. Deutsch, D., 2011, The Beginning of Infinity, Penguin – in particular “Optimism” (Chapter 9)
    • In a deep, mind bending work Deutsch argues that the enlightenment was built on the search for good explanations (which is different to attempts to test theories), and claims that a rediscovery of this effort will create the beginning of infinity. He touches upon his expertise as a Physicist to explain famous paradoxes and make a convincing argument in favour of the multiverse.
  8. Ridley, M., 2011, The Rational Optimist, Harper
    • Trade and specialisation have meant that things have never been better, and things will continue to be better provided we remain rational and optimistic.
  9. Poundstone, W., 2011, Priceless, Oneworld – especially the chapters on Prospect Theory and Ultimatum Games
    • Entertaining and accessible overview of behavioural economics and its impact on decision making.
  10. Ries, Eric, 2011, The Lean Startup, Penguin – especially the chapter on batches
    • The classic guide to creating a new organisation under conditions of uncertainty, including practical advice on strategy.
  11. Gleick, J., 2012, The Information, Fourth Estate
    • A somewhat daunting but wholly engrossing history of information, explaining critical innovations such as drum banging, Enigma, through to the internet.
  12. Fisman, R. and Sullivan, T., 2013, The Org: The Underlying Logic of the Office, Twelve – in particular “What Management is Good For” (Chapter 5)
    • A highly readable explanation for why organisations exist, and a defense of the important role they play in coordinating economic activity.
  13. Leighton, W.A., and Lopez, E.J., 2014, Madmen, Intellectuals and Academic Scribblers, Stanford – especially the chapter on Public Choice theory
    • A scholarly level and yet enjoyable look at how ideas shape the world around us, with excellent examples of times when they can overcome vested interests. The authors identify policy entrepreneurs as key change agents and show how social change occurs.
  14. Skarbek, D., 2014, The Social Order of the Underworld, Oxford University Press
    • One of the very best attempts to study how governance emerges without government. Skarbek presents his academic work on how prisons are organised, cutting across all of the social sciences. He draws upon fascinating fieldwork to explain the role of gangs and destroys many myths about why they form and the functions they serve. This is one of the best contemporary examples of the applicability of economic theory to broad social issues and will change how you think about how people associate.
  15. Weiner, E., 2016, The Geography of Genius, Simon and Schuster – in particular his advice to his daughter
    • A tender travel book that combines affectionate tales of interesting journeys, with a sharp identification of what causes certain locations, at certain points in history, to give rise to outrageous spells of creativity.