When is it a good idea to think differently?

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Two roads diverged in a yellow wood, wrote Robert Frost, and taking the one less travelled by made all the difference.

When is it wise to follow the crowd and when is it not a good idea?

Crowds are good at particular kinds of thinking. In his book The Wisdom of Crowds, New Yorker staff writer James Surowiecki talks about three kinds of problems that crowds are particularly good at solving:

  1. Problems of cognition: These are problems which will have a solution at some point. How many cars will sell next quarter? How likely is it that a new drug will get approved?
  2. Problems of coordination: How should a group of people behave? for example, how do buyers and sellers trade fairly? How should people drive safely in cities?
  3. Problems of cooperation: How is it possible to get people who are focused on their own interests to work together? How can we tackle problems like pollution, climate change or tax policy?

Crowds can also be extremely unwise. This usually happens when the rules they should follow break down, communication fails to moderate behaviour and you get things like a riot or stock market bubble.

Interestingly, a crowd seems to fail when its members start to think the same way. This is the essential cause of stock market bubbles and has been seen over time, from tulips to houses.

When everyone starts to believe that the price of something will always go up, you get irrational exuberance, and a bubble that eventually bursts.

The paradox is that wise crowds integrate individual judgements to produce a group judgement – but in order to reach a good judgement, each member of the group needs to think and act independently.

Organisations that want people to reach better decisions should encourage diverse and independent thought and action.

Individuals who want to make better choices should not be afraid to disagree and contest ideas and options. We think better when we think independently.

What kind of organisation do you work in?

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An organisation’s success depends on the nature of its relationship with its customers.

How customers view your company is key to how they choose to interact with you.

Thinking of an organisation only in terms of its staff, its products or its processes can hide important strategic aspects from you.

The model in the picture is adapted from this TED talk by Guy Kawasaki and this paper by Lepak and Snell and shows how customers treat organisations based on how they perceive them.

1. Efficient organisations: High Value but not Unique

Organisations that produce something of value are going to have a market for their products.

Their customers, however, have a choice between many suppliers. For example, car insurance is much the same between providers.

Your supermarket shop is going to have more or less the same things between major supermarkets.

In this quadrant, the winners are the ones with the lowest delivered price, which means they are the most efficient and with the lowest costs to deliver their service.

Customers are likely to go through tendering to work with organisations in Quadrant 1 and pick the cheapest one that does all the things they need.

One more thing about this quadrant – if you reduce your costs by becoming more efficient, the customer benefits in the form of lower prices but you don’t keep the savings in the form of higher margins.

This is why textile mills in the developed world went out of business. All the investment they put into reducing costs resulted in lower prices for consumers, but the companies themselves remained low margin and unattractive businesses and eventually closed down.

2. Contract based organisations: Low Value and not unique

If customers think that what you do has little value and is not unique then they have no incentive to work with you on anything other than a contract basis.

For example, many companies think of cleaning services just as something that needs to be done, but there are many companies that can do it.

The chances are that they will agree a contract with a cleaning company. That contract will continue as long as the facilities stay clean and the terms of the contract are fulfilled.

Over-delivering against the contract may not result in anyone noticing, but under-delivering – having facilities that are dirty – will probably result in complaints and having the contract terminated.

3. Stuck organisations: Unique but of low Value

Your organisation may produce something unique, but unless there is a market and customers perceive value in it, you are likely to be stuck with early adopters and find it hard to get more customers.

Many products fall into this category – there are now museums of failure to products such as Harley-Davidson Perfume.

In the city of Ann Arbor, Michigan, GfK Custom Research North America has a storehouse of failed products ranging from microwaveable scrambled eggs and TV dinners sold by Colgate to Clairol’s Yoghurt shampoo.

Many of these products were unique but perceived as having low or poor value and were withdrawn from sale within weeks or months because no one would buy them.

4. Growing organisations: Unique and with high value

Organisations that do something unique and are thought of by customers as delivering value are likely to be able to maintain higher margins than others, invest more into their businesses and attract more customers than their competition.

Apple is probably the poster child for this category. The company is sitting on $250 billion in cash as it brings in profits every quarter of over $10 billion.

This happens becuase its products are unique and it has customers that love what it does and are prepared to pay a premium to buy its stuff.

Warren Buffett has made a career out of buying businesses that have above average earning power – and credits managers with being able to get extraordinary results from ordinary businesses.

Summary

In summary, how your customers see what you do is crucial to getting the relationship right with them.

If you do something that is currently seen as low value and not unique, the only option, if you want to grow, is to work on changing your customer’s perception of what you do.

On the other hand, if you can deliver the best service, at the lowest price, working in a contract based business or in a business where you are the lowest cost provider can still work for you.

The place you don’t want to be is where your ideas are unique but no one wants to buy from you.

How to think outside the box

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What does it mean to think out of the box – to be able to come up with new ideas and be more creative?

In this TED talk Professor Giovanni Corazza, a faculty member of the University of Bologna and founder of the Marconi Institute of Creativity, talks about how you can become more creative.

The key to thinking out of the box is to understand what the box is – in your mind – and what it means to think out of it.

All thinking is in your mind – you can’t think out of your mind.

Instead, what this means is that creative thinking is being able to go from what you know to what you haven’t thought of yet.

Being able to cross from one type of state of mind to the other is the essence of being creative.

How do you go about doing that?

The first thing is to realise that most thinking is convergent – we think about what we know and use existing knowledge and tools to approach situations and problems.

Our brains are designed to jump to conclusions quickly – a good evolutionary survival mechanism. You don’t want to be considering all the facts about whether that is a tiger in those bushes.

We also look for evidence that confirms our initial conclusions. There is a flash of orange, the bushes are moving, it must be a tiger.

We then act based on that evidence – climb a tree, run indoors, get away from that tiger.

The thing with creativity is that you have to remind yourself to go through a process of divergent thinking.

Divergent thinking is a way to be creative by exploring many possible solutions.

It asks you to take a more spontaneous, less rigid approach to the tasks, to play with ideas, to be willing to tolerate the absurd, the illogical, the risky approaches.

Above all, it asks you to be open. It’s only when you are open that you have the freedom of mind to think creatively.

How to make your innovation a success

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How do you know what kind of innovations will succeed and which ones will fail?

This is a question addressed in Stuffocation: Living more with less by James Wallman.

Wallman is a cultural forecaster, and uses five questions to ask whether an innovation is likely to catch on.

1. Is it better?

Is the innovation actually an improvement over what was there before?

For example, was the Walkman let you listen to music on the move. The iPod was a better tool for the same job.

2. Is it simple?

Is it easy to understand the innovation?

Is it clear how you can use it to make things better for you?

3. Is it compatible?

Does the innovation work with the rest of your life?

For example, DVD cases are a different height to CDs cases, typically because the cases used to sit on the same shelf as VHS tapes.

4. Is it easy to use?

Can you actually use the innovation easily.

For example, an electric toothbrush makes the act of brushing much easier. The same goes for washing machines.

5. Is it remarkable?

Is the innovation remarkable in the sense that other people will take note of how it has improved your life?

According to Wallman, if the answer to each of these questions is “yes”, the innovation is more likely to succeed.

There should be a health warning though – there are quite likely to be innovations that were better, simple, compatible, easy and remarkable but they failed to succeed.

This list of criteria could be based on “survivor bias”. We look at things that have succeeded and assume that they have these features in common.

Aiming to create innovations, however, that use this list as a checklist is unlikely to make things worse.

What you also need to succeed is a good dose of luck.

How to become more effective by reducing set up time

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In his book Sun Tzu and the art of business Mark McNeilly talks about how important the idea of set up time is to the military.

There isn’t much point if you ask for air support or artillery support in the middle of a firefight and it turns up a few hours later.

As a result, the military focus on getting into position fast and getting started. A trained artillery battery can move its guns and start firing at a different position in six minutes.

If you think of an operation – something you need to do as having a start and finish point, the time it takes to get from the beginning to end is the cycle time.

The set up time is how long it takes you to change from what you are currently doing to the new thing you need to do once you start.

In manufacturing processes, it is now understood that reducing set up times is important because it lets you respond to customers faster and reduce the assets you have to use.

In actual time, the set up time may only account for 5 or 10% of the total time, but it has a huge impact on how effective the rest of the process is – and the experience your customer has of working with you.

How many times have you asked for something to be done and its taken days before the request starts to work its way through various layers and eventually reaches someone’s desk who is going to actually do something with it?

Perhaps focusing on set up times for knowledge based organisations could be the best thing they could do to dramatically improve their responsiveness and customer satisfaction.

The essence of competitive strategy: build a moat

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Strategy in business is about focusing on the actions and responses of competitors.

That is what Professor Bruce Greenwald says in his book Competition Demystified. Bruce Greenwald teaches at Columbia Business School and is perhaps the leading academic authority on value investing, the method followed by Warren Buffett and outlined by Benjamin Graham.

The core concept of competitive strategy is based on Michael Porter’s theory that Five Forces tell you how attractive a sector is for business. These are Suppliers, Buyers, Competitors, Substitutes and Potential entrants.

The Five Forces framework makes it easy for business people to spend a lot of time looking at their markets and making plans.

The book says that executives make the mistake of thinking that any plan to get new customers, cut costs or do something that takes time and money is a strategy.

Instead, a strategy should be thought of as only those plans that focus specifically on the actions and responses of competitors.

Why is this important?

It’s because the price at which you sell something tends to head towards cost in a commodity market. If what you do can be done by anyone else, the market price of that thing you do will quickly fall to the cost of doing it, making your margin zero.

The more exposed you are to competition, the easier it is for someone else to start what you do, the fewer the buyers for your service – the more quickly your margin will drop.

The way to maintain a high margin is to focus on how you can create and protect an advantage for your business. As Warren Buffet would say, what is your moat? What is the thing that surrounds and protects your business from competitors who want to take your market share.

Strategy is all about making the playing field less level by doing something your competitors cannot. As a result, strategy is all about your competition – where are they playing, what are they doing, and where should you put your efforts so that you can make it harder for them to replicate what you have and do?

If you can’t protect yourself, then the only thing to do is to be as efficient as possible. Forget the competition and focus on reducing your costs.

If you can, then focus on creating a moat.

The same strategic process applies to individuals. If anyone can do what you can do, your wages will stay low as you can be replaced easily.

If what you do is unique and hard to replicate, you will be more valuable and be paid more.

Why don’t we make rational decisions under pressure?

For a long time we assumed that humans are rational creatures and operate on the basis of rational self interest.

The basis of traditional economics is that people make rational decisons. It assumes that people make a choice that gets them the most benefit and is in their self interest.

Much philosophy is based on logic. The idea is that you can arrive at the truth through logic and dialogue, that the truth is somehow independent of how we think and feel.

These views of human behaviour are changing as we learn more about behavioural psychology.

Logic ran into trouble in 1931 when a mathematician called Godel figured out that you couldn’t prove everything with maths.

In essence a general sense any system based on axioms and deduction, such as arithmetic, would contain within it statements that can “neither be proved nor disproved”.

What this means is that you can’t argue that something is “true” purely using logic and maths because there will always be something within that framework of knowledge that you need to “believe”.

So, logic starts to experience problems when it comes to explaining the complexity of human behaviour. Economic logic has run into that problem – the kind of behaviour predicted by traditional economics is something people just don’t do.

For example, ask people if they would rather be paid £100k and all their friends be paid £200k, or if they would rather be paid £80k and all their friends be paid £60k.

The rational choice, the one that maximises benefit is the first choice. But most people will go for the second choice because they think about what the benefit to them means when compared to what others get. In essence, value is relative and not absolute.

One reason for this is that our brains were not “designed” to be logical. Evolution didn’t design us or decide what attributes to give us.

In Daniel Levitin’s book The Organized Mind he describes how the brain was not engineered. Instead he says that “The brain is more like a big, old house with piecemeal renovations done on every floor, and less like new construction”.

The human brain is a concoction of systems – from the lizard brain that runs away, fights and reproduces to the pre-frontal cortex that allows us to think about the future.

Biology has more to say about why people think and act the way they do these days than does economics and philosophy. We can look inside the brain and understand the structure of memory and decision making better than ever now.

For example, we know that when people are stressed, their brains revert to lizard mode.

Any organisation that wants to make better decisions needs to make sure that their people don’t operate under stress. That is guaranteed to get the lizard brain operating and will result in decisions based on fear or violence (flight or fight).

It’s almost impossible to switch from lizard mode brain into thinking brain when you are under pressure.

The only way to operate is to decide ahead of time what you are going to do and then follow that plan.

We need to work at being rational – it’s not something that comes naturally in all situations. The rational thing to do is assume that we are always going to default to decisions based on fear or aggression and we need to work on improving our decision making.

3 websites to get started with data science

1. The Open Source Data Science Masters

The Open-Source Data Science Masters website has lists of books and courses to learn more about data science, links to software and programming material and to blogs and videos about what data scientists do and think about.

2. 7 command-line tools for data science

This is a blog post by Jeroen Janssens that has been turned into a book Data Science at the Command Line. It has a mix of the usual tools that you would expect and few other scripts.

Also, it reminds you of the Unix Philosophy, which is worth reading a few times.

3. Data in government

The UK government, in particular, has a big focus on making more data available to people. This blog post has an introduction to data science that the team at the Government Digital Service (GDS) use.

This is the most important skill you need in the future.

What do Jack Ma, Elon Musk and Eric Schmidt have in common?

They all believe that data science, the ability to work with data and analyse what it means for us, is going to be a crucial skill in the future.

More than a third of all jobs people are doing now could be done by computers in the next 20 years.

Jobs that involve empathy, creativity and high levels of social interaction are going to be safer than ones that involve manual skill such as dexterity and the ability to assemble components in a factory.

Adminstrative and office support tasks such as scanning and processing invoices could be taken over by algorithms.

The biggest change coming towards us is how everything is connected through the internet and the enormous quantities of data that are being created as a result.

Think of three key areas of human activity:

  1. Health
  2. Relationships
  3. Work

The amount of data that can be created and used in these areas is mind boggling.

Take health, for example. It is rare to find someone in any group of people not wearing a Fitbit.

Many people are measuring every aspect of their daily lives, a process called lifelogging or quantified self.

For people with heart trouble an iPhone could now save your life. A starup called AliveCor makes a device that connects to an iPhone and lets you take a medical grade ECG.

The AliveCor device helped a cardiologist save the life of a man 35,000 feet up on a plane because he could use the device to tell that the man was having a heart attack in real time.

Devices such as these could take many more measurements such as blood pressure, oxygen concentration, sleep apnoea and a host of others that mean people don’t need to go into hospitals and can monitor their health much better.

When it comes to relationships, facebook has transformed that space. The firehose of twitter produces a continual stream of chatter.

It is still early days for technology in this space. As many people have found, useful contacts tend to get drowned out in the noise that overwhelms such technologies, especially when marketers get involved.

So people move from email to facebook to whatsap to instagram in search of a plaform where they can connect with others without being overwhelmed by a deluge of irrelevant information.

But the algorithms are getting better at providing hypertargeted information as well. There is no such thing as a general search on google any more. A search that you make will be different from the one the person sitting next to you makes as the algorithms employed by Google work out who you are and exactly which results are likely to be more relevant to you.

Work sometimes appears to be the last bastion of resistance. It’s the one area of life where there is a sharp difference between companies that adopt new ways of working and those that don’t.

This is largely due to the power balance in organisations. Companies led by people comfortable with technology are likely to use different methods to communicate and work that ones that are not.

I was listening to a podcast where an author was talking about recording an audiobook in a studio. My ears perked up at the words “the producer dialled in on skype from New York”.

So, you have a distributed team doing that work. The author in a booth, with a sound technician outside and a producer on Skype. That is an incredibly effective way of getting a top producer to work with you without having to pay for travel and must make the organisation employing that producer even more effective.

The challenge facing organisations is one of declining productivity in a knowledge economy.

In addition to safe jobs requiring empathy, creativity and social skills, the next generation of high paying jobs will be ones that involve working with machines and algorithms to improve every aspect of our lives.

Also, perhaps we should be working on more interesting problems. Elon Musk said “The best minds of my generation are thinking about how to make people click ads”.

A vast amount of data science work goes into figuring out how to manipulate people’s behaviour. That is the entire purpose of supermarket loyalty cards.

Although I suppose thats just good business.

But over the next 20 years, you would expect that other aspects of our lives would also get better as the technology and its application improves.

The Trump Solar Wall

Donald Trump spoke to his supporters this week (21st June 2017),  once again saying that he would build a wall on the US-Mexico border, but that he had a new idea.

He would build it with solar panels, so it would create energy and it would pay for itself.

The President took credit for the idea, saying “Pretty good imagination, right? Good? My idea.”

Well, the idea has been around for a while before that. Jigar Shah wrote a detailed article on 3rd January 2017 analysing the business case for a solar panel covered wall. The full article is here https://www.linkedin.com/pulse/giving-mainstream-media-credit-getting-things-right-solar-jigar-shah.

In a nutshell, the wall would run for 2,000 miles or 3,200 kilometres and be 65 feet or 19.8m high.

Each solar pane is 2 metres high by one metre wide, so you could have 10 stacked on the wall.

As the wall runs for 3,200 kilometres, then you could have 3.2 million panels side by side, or 320 million panels if they were really squeezed together.

At an output of 200W per square metre, you could install 0.64 GW of solar panels on each row. If you had 5 rows, that would be 3.2 GW of output. That would generate around 9.3 GWhs of energy operating 8 hours a day, 365 days a year.

That would collect over $500 million a year at 6 cents per kWh or $20 billion over the 40 year lifetime of the wall.

The cost of the wall is estimated at $12 billion – so the panels could actually pay for the wall to be built.

Jigar Shah’s analysis works it out at 5 GW of panels producing 6.6 GWhs and bringing in nearly $400 million a year or nearly $16 billion over the life of the project.

Putting aside the various concerns about the wall, from what it means to create such a barrier to what it means for the environment and fauna along the border, there appears to be a business case that could finance the project.