High Heels & Big Data: When Fit is Critically Important

I'm just a short way into Donald Sull and Kathleen Eisenhardt's excellent book, Simple Rules, and came across a passage that struck me as interesting given the breathless hype we're hearing around Big Data these days.

"Why can simpler models outperform more complex ones? When underlying cause-and-effect relationships are poorly understood, decision makers often look for patterns in historical data under the assumption that past events are a good indicator of future trends. The obvious problem with this approach is that the future may be genuinely different from the past. But a second problem is subtler. Historical data includes not only useful signal, but also noise - happenstance correlations between variables that do not reveal an enduring cause-and-effect relationship. Fitting a model too closely to historical data hardwires error into the model, which is known as overfitting. The result is a precise prediction of the past that may tell us little about what the future holds. Throwing more data and computing horsepower into the mix doesn't necessarily resolve this problem, because big data mixed with little theory is a recipe for overfitting. IBM recently released a study, based on a hundred years of data, showing that the increases in height of women's heels were a leading indicator of economic downturns. The flat shoes favoured by 1920s flappers gave way to high heels during the Depression, 1960s sandals to platform shoes during the 1970s oil crisis, and the low heels of the grunge look were replaced by stilettos as the dot com bubble burst. The correlation worked, until it didn't. In the aftermath of the 2008 financial crisis, heel height trended downward. If you crunch a lot of numbers without a good theory, you find correlations  - the problem is, they may be spurious."

With our already challenging predisposition of too easily jumping to conclusions, and confusing correlation with causation, we now need to add overfitting to our list of things to consider. 

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Unhide the Hidden

My new friend Dan Markovitz is a great writer. He takes opaque and sometimes confusing Lean concepts and terminology and translates them into language almost anyone can understand. When speaking with him the other day I noted I'm often guilty of taking complex concepts and making them more complex with my explanations.

When we work with clients on reducing Organizational Waste and increasing Organizational Health, people easily get hung up on terminology. There I go again. The previous sentence is a primary example. All we're really talking about is helping people to stop doing things at work that piss them off and waste their time, and help them do things that add more value to their customers, company and themselves with fewer costs.

How come this doesn't get done? Terminology is one reason; people disregard things they have to work at to understand. Fear of change. Inertia. Uncertainty. Failure of past "change" efforts. Tackling too much, too quickly. There are no shortage of reasons why making changes at work isn't easily done.

“A general “law of least effort” applies to cognitive as well as physical exertion. The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.”
Daniel Kahneman, Thinking Fast & Slow

But no change at work will happen until you can unhide the problem. Dan does a great job talking about "How Visual Systems Make It Easier to Track Knowledge Work" in his excellent HBR blog post. Visual representations of systems are hugely important. Many of the best ones evolve over time with input from many stakeholders. They often come from the people actually doing the work, not someone in charge of "managing" the process.

Getting the balance of simplicity and richness right with these visualizations is not trivial. If they are going to add enough value that people will start using them, they will have to accurately characterize the processes without adding too much cognitive overhead to learn and use them.

We'll look at a few examples of these like Swim Lanes, Kanban and Project Boards in our next few posts.

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Can A Law Firm Be Lean?

We're fortunate to work with a bunch of great law firms.  We see first hand how challenging an environment it can be with downward pressure on fees, competition from all corners, and rigid organizational structures that aren't built for adaptability and resilience in a time of disruption. 

So, you don't need to look very far to see news of some of the largest firms being forced to merge or fall into bankruptcy. Many firms are now revisiting just how they do business and what they offer to their customers.

McKinsey Quarterly recently published a fascinating piece on how Chicago-based Seyfarth Shaw is reinventing their operations to provide more value while controlling their costs.  They embarked on the journey to incorporate Lean Management principles with two initial projects.

"Once both projects were showing strong results, we started the next partnership meeting by saying, “We are embarking on this journey. We know you’re sitting there reading your paper and waiting for this latest management fad to pass. It’s not going to—this is going to be part of who we are and what we do as an organization, and here’s why.” One of our partners spoke about the changes in conflicts, where we reduced processing time by 86 percent and the number of errors by 90 percent. Then a partner from the lending group described how the changes led to better allocation of resources and higher fee recoveries."

If you have a few minutes, you should give it a read. Nutritious and low fat.;)

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“Power, prestige, and performance make you stubborn, stupid, and resistant to valid evidence.”

Isn't work great? Where past performance can make you more of a d-bag?

If you have worked with anyone that has reached a certain age and level of success, you'll instantly connect with the title. It can be an exercise in frustration when senior level executives and leaders refuse to consider there might be a better way to do things. They can be pretty indignant if you even hint at the possibility that they may want to consider another approach. And god forbid if you actually present evidence that flies in the face of their position.

Leaders will inevitably say something like, "When I was at (insert name of successful/large/noteworthy company), we blew our numbers of the water by (insert justification for current position)."

There are obviously two major problems with these kinds of statements. For starters, our current business environment is not the same as it was even 5 years ago. You, and Roger Martin, can choose to disagree with me than it is not more VUCA (Volatile, Uncertain, Complex and Ambiguous) that in previous eras, but you simply can't ignore the speed and ease of executing a transaction today creates expectations that are difficult to match. Have you ever ordered something from Amazon early one morning and have the item show up at your house before noon!? Thousands have.

Secondly, coming to a conclusion about what worked and what didn't in the past is notoriously difficult to do given normal cognitive biases like Groupthink that "starts with the unstated assumption that we know everything we need to know" about what happened, and the Responsibility bias that "sees us exaggerate our own contributions relative to others' inputs." 

Lastly, presupposing you understand all the variables that were at play with complete clarity and how other market, competitor, customer, economic, legal, environmental and regulatory influences (just to name a few) impacted your performance is highly presumptuous and conceited.

It's exceedingly difficult to manage around our personal and organizational biases. Especially if we don't understand what they are, and keep a vigilant watch for them. It's almost amazing that some organizations can create and sustain high performance at all given how many behavioural challenges we have to combat in our enterprises just to move things forward. 

I think it's time that every organization gets a big hug from Robin Williams' character in Good Will Hunting, while hearing him say...

"It's not your fault"

"It's not your fault"

"It's not your fault"

"It's not your fault"

Then get on to the business of creating better working conditions by accepting our personal biases and creating conditions where they get mitigated. Senior leaders have to lead this charge as well as dig in to do a lot of the work. 

(Note: The title comes from Jeffrey Pfeffer and Bob Sutton's book Hard Facts, Dangerous Half-Truths & Total Nonsense)

Skeptical? Stubborn? Resistant?

We think less when we get more power.

Power makes us stupid.

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The One Thing that will Indisputably Improve Enterprise Performance

The number of books, papers, websites, videos and the like, that profess “if you do this, you will be a top performing enterprise,” are laughable. Every self-anointed guru has their sure-fire way to “perform like Apple” or alternately “perform like Google.”

Most of it is complete crap.

Why? Because reverse engineering enterprise performance is as close to impossible as you can get. There are so many factors at play in any market - much of it unknown (even unknowable) to the enterprise and it’s people - that drawing a definitive causal link between a certain action or capability and performance without considering all the potential environmental influences requires a great deal of hubris or naïveté.

Political, economic, social, technological, environmental, and legal factors are the first and most obvious things to consider. But then you have to account for small decisions made throughout the enterprise, competitive actions, consumer sentiment, micro trends and even luck and probability.

Wait, you have the one and only algorithm that factors all these attributes in and has been proven to be right 100% of the time? Uh huh. Maybe you should try predicting the weather with it. Because that’s just about the complexity of the challenge we’re talking about.

We don’t live in a “ceteris paribus” kind of world where you can isolate enterprise performance in lab conditions. Nothing is ever equal. And given the speed and ferocity of our current markets, it isn’t getting any easier.

So, how can I write in my title that there is something that can indisputably improve enterprise performance? Because while we can’t effectively isolate performance at the enterprise level in active markets, we can isolate performance at the team and individual level.

Does your company rely on people to generate it’s profits? Then you need to consider the conditions you are creating for your people and teams. Your job as a leader or manager is to continuously improve the conditions for individuals and teams and the development of their capabilities so the enterprise can perform better.

That is the one thing, that indisputably, drives enterprise performance. Establishing the preconditions and conditions for others to succeed. Helping your people do the most important things well. Of course, that "one" thing is comprised of many when you crack it open.

Yes, as leaders you need to make a call on what the most important things are, and that isn’t easy. And there may not be any roadmaps for that part.

But then it’s up to you to create the conditions where your people can excel. And there is plenty of good evidence to follow when it comes to creating high performance conditions. However, there is a good chance you might need a bit of a refresher in this area, as the science has improved vastly in the past 15 years.

Much like our understanding of everything else.


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One Bar Closer to Humanity

The potential exists for technology, both at home and work, to positively impact our lives. I don't think the net effect of technology is presently positive. Social applications prey on negative and addictive aspects of our personalities and create new (bad) neural pathways that reinforce these addictions to validation, attachment and self-promotion...but this says it so much better than I can.

Nicely played.

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Roger Martin is Wrong - Part II

Let me say again that I'm a big fan of Roger Martin.

In fact, given a couple Twitter exchanges over the past few months, I'm an even bigger fan. He's got a good sense of humour.

But let's return to the source of our Twitter debate that was sparked by my last blog post. Is the world more VUCA (Volatile, Uncertain, Complex and Ambiguous) now, than it has been in the past? Here's an excerpt of our VUCA Twitter conversation:

I also agree with Roger that I have access to better graphs relating to today's situation than we do for past eras, so I figured I'd pile some more of those on.;)

Economic, financial and social interconnectedness are on the rise. Thanks to the Internet and its enabling infrastructure, that feeling we all have that the world is smaller, is more than just a feeling.

Erik Brynjolfsson and Andrew McAfee, The Second Machine Age

Erik Brynjolfsson and Andrew McAfee, The Second Machine Age

And speaking of enabling infrastructure, the technology that is connecting us is getting so powerful and sophisticated, so quickly, we are able to facilitate interactions in ways that were "inconceivable" in the early nineties. 

This interconnectedness, supported by an ever-more-sophisticated infrastructure is creating complexity for organizations that they seem content to pass on to their employees. Instead of responding with more focus and clarity on the things that really drive performance, organization's seem content to pile-on more. I guess they don't buy into Pfeffer and Sutton's contention that:

“The foundation of any successfully run business is a strategy that everyone understands coupled with a few key measures that are routinely tracked.”

I think there is decent evidence that we live in a more VUCA world than in previous eras, and it is impacting all of us at work. I'm prepared to be wrong, as Roger believes I am, however.

What do you say? We'd love you to contribute to the conversation.

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Roger Martin is Wrong

I know what you're thinking...who the hell is this guy telling us the great Roger Martin is wrong!? And you would be right. But consider the following before you dismiss me out of hand.

In another excellent HBR blog post concerning the shortcomings of Adaptive Strategy, Roger makes the statement that, "There is really no actual evidence that ours is a more VUCA world than previous ones." You'll no doubt recall that VUCA is a favourite buzzword/acronym being used these days describing an operating environment for business that is Volatile, Uncertain, Complex and Ambiguous.

For the record, I'm a big fan of Roger's, and I love his recent addition to strategy literature (along with A.G. Lafley) entitled, Playing to Win: How Strategy Really Works. And I don't disagree with the main assertion of his post that Adaptive Planning is a cop-out. But evidence is something we take seriously here. And in this case, I think there is decent evidence that we do live and work in a more VUCA world than previous ones.

While I believe there are several ways to go about proving this, I’m going to stick to a few areas we know a little something about rather than straying too far into more abstract economic factors like the power of multinational corporations, the near-frictionless movement of capital, the ability of emerging economies to leapfrog others with newer technologies, or the severity of economic impacts due to global warming.

We’ll focus instead on factors that have changed forever in our work lives, or are at historical levels, which represent never-before-seen conditions. We will not tackle the “why” of each of these conditions in this post. That’s a serial-post venture.



Work Has Changed

Our economies are driven more now by information work than by physical work. This has a number of downstream effects on both macro or business environment-level conditions as well as internal organizational dynamics. Again, we won’t discuss these here, but the type of work most of us now do is not the same as in previous eras.


Mobilizing Minds: Creating Wealth From Talent in the 21st Century Organization, Lowell Bryan & Claudia Joyce

Mobilizing Minds: Creating Wealth From Talent in the 21st Century Organization, Lowell Bryan & Claudia Joyce


Interaction Costs Are Plummeting

I won't bore you with the history behind Interaction Costs except to say that Ronald Coase received a Nobel Prize for his work in the area. His theories included the idea that a firm will continue to expand until the cost of doing business with external parties is cheaper than it would be having the work done in-house. Explained another way, you won't hire people to do a job as an employee if you can get the service cheaper from a sub-contractor or outside service provider. And when that happens, your firm stops adding people.

So, as the composition of our work becomes driven more by information, and the costs of processing and transacting continue to drop, the pressures on businesses to synchronize their size with the market realities continues to intensify.

Mobilizing Minds: Creating Wealth From Talent in the 21st Century Organization, Lowell Bryan & Claudia Joyce

Mobilizing Minds: Creating Wealth From Talent in the 21st Century Organization, Lowell Bryan & Claudia Joyce


People Are Overwhelmed

I think this is something we all feel intuitively. Given the move to information-driven work, the dropping interaction costs and the skyrocketing connectivity of the worldwide population means things are just getting more and more frenetic at work.



Market Leadership is Shorter-lived

Any company executive worth their salary understands the growing science behind market disruption. We’ve seen it repeated time and time again from the largest industries like automobiles to retail store niches.

Each of these factors contributes to decreasing barriers to entry in markets and the ability of competition to emerge from anywhere.



People Being Displaced in Market Disruptions

One factor driving the massive increase in long-term unemployment is the rapid change in employment opportunities now available. The move from Physical to Information work and rapidly shifting market boundaries has left many people on the sidelines with skills that do not match current market opportunities. Whatever the full reasons behind the situation, we’ve never seen long-term unemployment like this.


More VUCA or Not?

If I were to argue against myself I could say that these things indeed are different, but in totality the amount of VUCA is not markedly different than in previous times. Rather, it's just the underlying causes of VUCA are different but the aggregate total amount of VUCA is the same.

Or, are we connecting random bits of data which don’t sum up to a more VUCA world than previous ones?

What do you think? We’d love to hear your view.


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Holacracy vs. Boring Old Ideas


If you're a follower of innovative leadership or management practices, you'll no doubt have seen some of the breathless statements about Zappos' planned (or impending) move to Holacracy. What's a Holacracy? I won't spend your precious time recounting what others have covered except to say it is being hailed in the press as an innovation in management that aims to get rid of managers and hierarchy.

Let me address that last sentence I just wrote. Firstly, the press - in particular the tech press - lives off the "new" and "innovative" but has collective amnesia when the same things are "discovered" over and over again. Secondly, the press doesn't have it quite right, as usual. Holacracy doesn't really get rid of hierarchy, as it is being reported, it just distributes it. These aren't really new ideas at all. The packaging is good though.

This quest for newness extends from the press into companies where jumping from fad to fad does nothing but demoralize, disinterest and frustrate people who have to go through it. In truth, there is very little that is new in the management and leadership realm that isn't known. The problem is, people don't publish their sources of where the ideas actually come from because...well, I'll refrain from speculating on that.

Stanford's James March's quote is particularly applicable in this case:

"Most claims of originality are testimony to ignorance and most claims of magic are testimony to hubris."

I love the fact that Zappos is being experimental as an organization. And I'm impressed that they are making a bold move to further empower their people to be freed from constraints so they can perform to their potential. I would be lying if I said I wasn't a skeptic, however.

For those intrepid souls willing to investigate, there are many well-known, longstanding management practices and approaches that create the conditions for high performance. Most organizations will disregard these for the "flavour of the month," and that can be costly to everyone.

Give me the boring old ideas that have been proven to work. 


P.S. Have a look at Bob Sutton's post at LinkedIn for further discussion and enlightenment.

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Clarity Begins With What You Don't Notice


Meta-cognition. Thinking about thinking. In today's harried, data-soaked world, we rarely get time to think about how we think. The holidays are a good time for that.

If we don’t notice what we don’t notice, we’re much more likely to fall prey to poor decision-making and groupthink. I’ve written about decision-making before, so let’s look at groupthink.

Groupthink is an interesting phenomenon. What is it exactly? I'll rely on Daniel Goleman's description in his latest (excellent) book, Focus: The Hidden Driver of Excellence. When speaking of the financial meltdown and the subprime derivatives scandal:

"Of course, seemingly very smart people did invest in those derivatives, ignoring the signals that they were not worth the risk, and emphasizing whatever might support their decision. When this tendency to ignore evidence to the contrary spreads into a shared self-deception, it becomes groupthink. The unstated need to protect a treasured opinion (by discounting crucial disconfirming data) drives shared blind spots that lead to bad decisions."

Daniel Kahneman also writes about groupthink in Thinking Fast and Slow and in particular how people so easily dismiss disconfirming data and continue on as they always have. Groupthink begins with the unstated assumption that we know everything we need to know.

In Kahneman’s book, he recounts research he conducted when looking at a financial advisory company for high net worth individuals. He was granted access to 8 years of investment results for 25 investment advisors. His conclusion was that none of the advisors was consistently any better than the others at managing the clients’ money. The results were no better than chance.

Yet, when bonus time came around, the executives were “rewarding luck as if it were skill.” When told of the results of Kahneman’s research, it was quickly disregarded. According to Kahneman, “facts that challenge such basic assumptions - and thereby threaten people’s livelihood and self-esteem - are simply not absorbed.”

The research on the effectiveness of traditional management practices aren’t any different than those of the financial advisors above. 

And not surprisingly, the evidence is simply not absorbed.

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