TFS Project

Heath Brothers' most recent book compiles decision-making wisdom

I confess I haven't had time to read the most recent book from Chip and Dan Heath, Decisive, but I've looked at the workbook, and it's clear they've done a good job of compiling the latest wisdom around decision making from Daniel Kahneman and others. I'm going to read it soon, and let me know if you'd like to work through it together. 

USA Today: A witty guide to good decisions, 2013-Apr-18 by Kerry Hannon

Here's a sampling of the Heath's insightful advice.
• It's easier to spot a narrow frame from the outside–watch for it as a decision adviser. "Whether or Not" decisions should set off warning bells.
• Have the discipline to consider the opposite. To gather more trustworthy information, we can ask disconfirming questions. Law students: 'Who were the last three associates to leave the firm? What are they doing now? How can I contact them?"
• Common hiring error: We try to predict success via interviews. Should we nix the interview and offer a short-term consulting contract?

In defense of complex models of decision-making (i.e., wisdom)

Learning to make sound decisions in the face of uncertainty has to be the most important skill a manager person can have. Knowledge of what worked in the past is fundamental. Ability to recognize potential bias is the hallmark of a more experienced decision-maker. But nothing can make uncertainty disappear.Tq131118db We have to decide in the face of uncertain outcomes. In the best decisions, we confront uncertainty, accept it and make it a part of the plan.

In Thinking, Fast and Slow, Kahneman defends the introductory economics texts where only older, simpler models of decision making are presented.

There are good reasons for keeping prospect theory out of introductory texts. The basic concepts of economics are essential intellectual tools, which are not easy to grasp even with simplified and unrealistic assumptions about the nature of the economic agents who interact in markets. Raising questions about these assumptions even as they are introduced would be confusing, and perhaps demorializing. It is reasonable to put priority on helping students acquire the basic tools of the discipline.

Unfortunately many students never move beyond the introductory class in economics. (I never did.) They are left with an incorrect understanding of how people make decisions. This approach is unconscionable. For example, statistics was one of the most difficult courses I ever had to take, and I'll never truly grasp probability theory, but I learned to respect the complexity, and I found tools that helped me deal with it.

Correct understanding of how people make decisions comes as close to wisdom as any form of knowledge. Let's start spreading it further.

TFS: Entrepreneurial risk-taking in the context of bad options

Entrepreneurs are famous for taking crazy risks, but according to Kahneman, it's easy to understand their behavior in context. Tq130813pd When the plane is falling out of the sky, how should you respond?

The entrepreneurs who opted for the "Hail Mary" pass were piloting a crazy idea to avoid catastrophe. The more imminent failure becomes, the more likely they are to be running headlong into great risk.

Whether you've invested in a new-business venture or work for a crazy entrepreneur, placing this risky behavior into context will be very important. Because you may have information the entrepreneur lacks. You may see a safety net. You may know a way to land the plane safely. Be sure and speak up. Or hold on for dear life.


TFS: A premortem to strengthen every project

We can improve our planning. WeTq130806pd can fight back against competitor blindness and irrational optimism. Daniel Kahneman recommends an idea developed by Gary Klein called a premortem.

A typical premortem begins after the team has been briefed on the plan. The leader starts the exercise by informing everyone that the project has failed spectacularly. Over the next few minutes those in the room independently write down every reason they can think of for the failure—especially the kinds of things they ordinarily wouldn’t mention as potential problems, for fear of being impolitic. For example, in a session held at one Fortune 50–size company, an executive suggested that a billion-dollar environmental sustainability project had “failed” because interest waned when the CEO retired. Another pinned the failure on a dilution of the business case after a government agency revised its policies.

Next the leader asks each team member, starting with the project manager, to read one reason from his or her list; everyone states a different reason until all have been recorded. After the session is over, the project manager reviews the list, looking for ways to strengthen the plan.

TFS: Get lots of ideas from your competition

Chapter 24 of Thinking, Fast and Slow is called "The Engine of Capitalism." It is, of course, about irrational optimism. But that's not the only type of bias which afflects entrepreneurs. One of the others is "competition neglect." Tq130730bwWe become so focused on the originality of our ideas, we forget that we have competition, and they are moving in on customers at the same time as we are. 

As a way of preventing ourselves from losing track of the competition, we can make it a practice to gather ideas from them on a regular basis. Talking with customers is wonderful, but talking to the competition is so much more exciting! Even if you don't share James Altucher's desire to take them to lunch, you should always be studying them, collecting as much information from them as you do from your customers.

TFS: Do your want to be inside or outside? The view is different.

Insiders are biased into thinking they have more control than they actually have, or probably should have. That's one of the reason it can be so valuable to have a consultant come look at your business. But the article below also shows the dangers of the outside view. Tq130726rdIt's cold out there, and the perspective may not be constructive.

"The way around the concern is simple." Only from the outside. Just replace the unprofitable customers with profitable ones. From the inside, you have to try and anticipate the repercussions and project probable outcomes. And prepare yourself for the "unknown unknowns." We can't know or control the future. All we can do is try and recognize what is valuable and hold onto it, letting go when we need to do so in order to survive. 

Sloan Management Review: Should you punish or reward current customers, 2013-Jul-23, by Jiwoong Shin and K. Sudhir

The common apprehension among managers that firing customers may lead to allocating fixed service costs among fewer customers (making them unprofitable) is misplaced. The way around the concern is simple. Simultaneously with firing bad customers, the company should go out and obtain new customers — customers who are on average more profitable than the ones who were fired.

Marketing is a Wicked Environment

According to Robin Hogarth, a 'wicked environment' is one where "feedback on decisions is infrequent, it can be distorted (e.g., biased by unexpected events), and [decision makers] cannot learn from the decisions they did not take." [Emphasis mine.] Hogarth wrote one of my favorite books, Educating Intuition, and is mentioned admiringly by Daniel Kahneman in Thinking, Fast and Slow.

I've been trying to get a client to tell me why she bought a product and how she's using it, but she is not interested in my concerns and will not reply. Of course, I haven't built enough relationship trust with her yet, but my maddening problem is that I only have 5 (five) customers. I cannot get any kind of reliable read on the market in these conditions!

When I was an account executive at Ogilvy working on the Compaq account, we ran a wonderful ad in the Wall Street Journal with the headline, "It's not just that 97% of all COMPAQ owners are satisfied. It's why." It was a full page ad illustrated with a pie chart where the 3% gap had been transformed into a smile. We called it "Smiling Pie."

That ad was the most successful we ever ran, according to the feedback system we had in place. Then a buddy of the Compaq CEO called him and said, "Hey, I saw you guys recruited PAC MAN as a company spokesperson. Heh, heh, heh." The CEO immediately killed the ad. I did NOT fight back, I just asked, "Did anyone TELL him that it has pulled more responses than any other advertisement we've ever run in the Wall St. Journal? Aren't we interested to see what those responses were??"

Tq130719weI was told that the ad's performance was irrelevant. Despite the fact that David Ogilvy said "We sell or else." Getting good results didn't matter. Obeying the CEO mattered. THAT's a wicked environment.

That incident at Ogilvy wasn't unusual. After 25 years in marketing, I could tell you six more stories. My point is that today, as I try to grow a business from a very small base of clients, I'm more aware than ever how difficult it is to find out if you're doing it right in marketing.