Why raw data alone is insufficient for making decisions The WSj recently published an article regarding the prospects of asking/demanding that political candidates or prospective CEOs release DNA sequence information.

For us, even though data-driven analysis is the first phase in our business leadership process (Data-Driven Analytics (DDA), Informed Decision-Making (IDM), and Intentions-Based Guidance (IBG)), it is important to understand that data alone is meaningless. While the connections between sales data and pricing strategies or marketing campaigns is at least intuitively in the ballpark for most managers, the connections between DNA sequences, genetic predispositions, health risks, and actual health problems are far more attenuated. Geneticists and doctors (since the intersection is the important issue) know that only certain DNA sequences lead to definite health problems, and that only some health problems are tied primarily to purely genetic factors. For example, Huntington's Chorea, a genetic disorder, is caused precisely by a specific gene and regularly occurs when the mutation is present. Alternatively, even if I don't have a genetic predisposition to lung cancer, if I smoke a pack a day, I'm very likely to end up in trouble.

From a business perspective, it is clear to all (well, most, since we've found some of the exceptions) that if your sales price doesn't cover your costs, you're either in for a serious economic catastrophe or an antitrust investigation. But that single accounting snapshot is not a good description of how business happens. Businesses are continually making sale after sale, at varying prices, to different customers of different products and services. Tracking the change, rate of change, and source of change across those variables can point you in the right direction. Financial snapshots are like DNA; it's possible for them to point to problems all by themselves, but most of the time, you have to analyze the system dynamically because it's a dynamic system. In science, it's called experimentation; in medicine, it's called treatment; in business, it's called management.

Labels: DDA, execution, leadership

Saturday, November 01, 2008 :: posted by Rick Colosimo @ 1:32 PM

Kennedy on action "There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction."

This expands on one of Mike's favorite sayings to use with clients: "the unaimed arrow never misses." We use it to help clients understand another Army maxim of failing to plan is planning to fail. Of course, President Kennedy said it much more eloquently.

As junior officers, we were trained to be decisive, to take action even though analysis wasn't completely complete -- to learn when enough information was gained so that a decision was about as good as it was going to be, when the tradeoff between more investigation and delay tips in favor of DOING something.


Readers will see a reinvigorated blog over the next few weeks as we re-engage ourselves in this process of communicating with the markets. Thanks for your patience

Labels: leadership, quotes

Sunday, August 24, 2008 :: posted by Rick Colosimo @ 9:21 AM

Principles of War - Military

In OCS (for Rick) and at West Point (for Mike), we were both tasked with learning bits of "required knowledge." These were bits of useful or historical information, such as lifesaving steps or MacArthur's Duty, Honor, Country quote, or mnemonics used commonly in the US Army, such as OCOKA (obstacles, cover & concealment, orientation, key terrain, avenues of approach).

One of the items that we've carried with us long past our active duty days and see as relevant across many business situations is the 9 Principles of War. Each of these principles represents one aspect of military decision making. It is important to note that they are not rules; they are more like factors to be considered by military leaders in planning and execution.

We'll run through these principles one-by-one in the coming days, and we'll also create and refine a parallel version that puts these into a business context for greater relevance and accessibility.

9 PRINCIPLES of WAR

1. Mass - Concentrate combat power at the decisive place and time
2. Objective - Direct every military operation towards a clearly defined, decisive, and attainable goal
3. Offensive - Seize, retain, and exploit the initiative
4. Surprise - Strike the enemy at a time, at a place, or in a manner for which he is unprepared
5. Economy of force - Allocate minimum essential combat power to secondary efforts
6. Maneuver - Place the enemy in a position of disadvantage through the flexible application of combat power
7. Unity of command - For every objective, ensure unity of effort under one responsible commander
8. Security - Never permit the enemy to acquire an unexpected advantage
9. Simplicity - Prepare clear, uncomplicated plans and clear, concise orders to ensure thorough understanding

Labels: leadership, military, tips

Tuesday, May 13, 2008 :: posted by Rick Colosimo @ 11:58 AM

Too much data? Be decisive. This article & discussion from Lifehacker.com includes an excerpt from a new book, CrazyBusy. The author, in that excerpt, talks about how we often get entangled today by a desire to have all the data before we make a decision.

In our experience, this is not a side effect of the modern world, of the increasing availability of data. It is human nature to try to make good decisions, and the goal for certainty is underscored not by data but by poor management and worse leadership. Good leaders understand that people make mistakes and that data paralysis is to be avoided. Good managers help train people to understand what data is important and what is required to make a good decision (not necessarily the right decision). We can all look back at decisions we made that turned out to be right or wrong. That set isn't the same when we divide them by well-made vs. poorly made decisions.

Where do people learn about decisiveness? I know where we learned: the Army. As a young lieutenant, at the same time as we were teaching this concept to NCOs and junior enlisted soldiers, senior officers were teaching us. We left the Army with a well-tuned ability to figure out what kinds of information were required to choose among alternatives, how much information we needed to choose, how uncertainties in one area could be compensated by good information in another: actually making that choice, in an imperfect environment, we called decisiveness.

As junior officers, we were corrected more often for failing to make a decision than for choosing an alternative that turned out to be incorrect. We all had the opportunity to do plenty of pushups in places like West Point, Officer Candidate School, or Ranger School in the course of learning that lesson. That is one reason former junior military officers have often a bias for action, as we term it.

So, when you're faced with a data glut, do what your average 2LT would: figure out what you need to absolutely make the decision, assess how much information you have and how reliable it is, determine what the failure modes are based on incorrect or missing information; then, mash all that up in the supercomputer we call a brain and spit out an answer. After all, you're not just going to sit there, right? You *might* be wrong, but without intervention, the world *will* go to hell in a handbasket: it's Newton's Second Law.

Labels: execution, leadership, military

Tuesday, March 11, 2008 :: posted by Rick Colosimo @ 3:49 PM

Long Hours in the Business World Our two previous posts on the effects of long hours on errors and reduced productivity focused on two professions, doctors and lawyers. We picked those two rather than further explore the issue in the military because long hours for doctors and lawyers are purposely selected by managers whereas soldiers work long during wartime or training for wartime. This choice to impose long hours implies acceptance of the costs and benefits that result; the professions also have higher duties to the public, not just their patients and clients, that are codified in various ethical codes as well as actual statutes.

The original article sparking the discussion, however, came not from the professions but from the business world, and so we thought it would be helpful to discuss these issues in light of two additional fields where long hours are already on the table: consultants and business in general. We think that exploring the reasons why long hours in these fields might not be so readily discovered as a source of problems will help design appropriate experiments for firms to undertake as they seek continuous improvement.

Let' start with consultants. We have had substantial experience with the consulting world, and long hours are almost a badge of honor in the field. Travel is an additional duty for consultants, and an extra 10 hours a week of travel is not unusual, even for those who work all week at a single client location. If long hours reduces productivity and increases the likelihood of errors, why aren't these problems apparent or acknowledged by consultants?

First, like lawyers, consultants typically bill by time (even if their firms do not, consultants are tracked by hours per project). This hourly approach creates, if not a perverse incentive, the complication that it is hard to distinguish between lots of optimal work and lots of inefficient work. This lack of clarity affects the consultant, the firm, and the client, all without any bad faith. Indeed, benchmarking one consultant against another to compare the time taken for various tasks would likely show the same sorts of performance losses and hence be taken for normal performance. In other words, two folks performing at 80% would each give the appearance of 100% if matched against one another; of course, that's the wrong question.

Second, unlike doctors, whose "mistakes" often have immediate effects, any errors caused by consultants may never be discovered or be revealed to have any effect. (Of course, the counter-argument is that if a mistake doesn't have any ill effect, it's not a mistake.) But the lack of revelation is different from the actual mistake. For example, imagine a spreadsheet that contains errors in formulas used to support part of a decision analysis. If the right decision doesn't get made, in part because of the spreadsheet calculations, it may be invisible to the participants, but the end result will not be. Companies regularly miss earnings projections (at least they would if they weren't so heavily managed) and often fail to earn their cost of capital. Those are certainly "mistakes," broadly construed, and virtually impossible to connect to a specific action.

It's clear that this second point is the one most likely at work in the corporate world. Once we moved most work from factory or manufacturing work that is relatively easy to measure to much fuzzier knowledge work, we exposed ourselves to productivity problems and cures of all kinds, all equally undefinable and unreliable. In the same way that it is difficult to determine the effects of fatigue on productivity, it is difficult to sort out what benefits in performance may be expected from other changes. This disconnection is one reason that usability experts are still focused on getting businesses to implement changes that are easy to measure, such as intranet structure for common activities.

If it's hard to observe and measure real-world effects of chronic fatigue and long hours, where can we get evidence about the likely effects that is convincing enough to allow leaders to implement changes, or at least tests, in their organizations? Well, some of that research already exists and was referenced in the original article. The Belenky article describes the pattern of failure from sleep deprivation. Performance slowly degrades until a critical failure is reached because the time available to make a decision or analysis arrives while the decision-making process is not complete. "Thus, a gradual decline in performance during simulations or laboratory studies maps into a long period of apparently adequate, if not good, performance in actual operations, and then, suddenly, failure. " This paradigm is supported by our personal experience in Ranger School (described in the article as 3.6 hours of sleep -- we wish we saw that much every day!), in military training, in Ivy League graduate school, in careers in professional services organizations, and in our current roles leading our own portfolio of businesses.

Is knowledge work like that described by Col. Belenky? We think so. The dichotomy between the sustained ability to complete physical tasks and the degraded ability to maintain situational (or strategic) awareness, the context for those physical tasks, describes very well the difficulties facing people in the corporate world. It remains possible to read and type, to even modestly edit and review presentations and spreadsheets and documents, but the strategic viewpoint, the stream of constant background analysis that is the hallmark of good decision-making, is lost. This continuing failure to appreciate the big picture, if it affects all those folks involved in strategic decision making as a result of long hours at work over time, could explain the almost random performance of corporations and the failures we have seen to make even the most basic decisions right on a consistent basis, namely ensuring that the firm earns its cost of capital.

This degradation results in a constant watering-down of analysis since the simple tasks are done and the obvious connections made. But the competition can be assumed to make the same simple connections as well. Working smarter, not harder, has been a theme for the last 15 years, since automation and knowledge management become more accessible through the ready availability of information technology resources to almost all workers. While that may be true, What we're learning, however, is that working harder is almost certainly not working smarter.

Labels: leadership, performance

Tuesday, January 08, 2008 :: posted by Rick Colosimo @ 10:11 AM

Big law firm hours explained - competing interests This is the second in our series of three posts relating to the idea that long hours, substantially over 40 hours per week, lead to reduced cognitive function and poor performance, most notably lower productivity per unit of time.

Our first post reframed and rehashed these arguments in the context of the medical profession, notably the long hours of medical residents, which some medical groups now suggest should be limited to an average of 80 hours per week.

We wrote how even if you exempted malpractice in the legal, actionable sense from the discussion, professional ethics should lead doctors to reduce hours for residents. (Question: are all hospital administrators practicing physicians? Certainly shareholders are not.) The next profession we are going to analyze is the legal profession. Not only do we have direct experience here, we have also been in the position of law firm client (too many times, most would say). The situation for lawyers is akin to that of doctors: malpractice is an actionable claim for injured clients; professional ethics create obligations governing one's practice.

If you accept the general premise that lengthy hours have a dual effect of both reducing productivity and increasing the likelihood of mistakes, then lawyers, and by extension their law firms, are probably committing professional errors (meaning a breach of the general code of ethics requiring competence), if not actual malpractice, by increasing billable hours per associate. Various times throughout the last ten years (and obviously much before that as well), first-year lawyers have been the recipients of dramatic increases in salary. Of course, there's no such thing as a free lunch, and the tradeoff for associates has typically been increased billable hour requirements. Firm have typically chosen to increase the hours of associates and partners rather than maintain the hour requirements and increase the numbers of lawyers. This increase in hours is driven by the increase in salaries, which in turn drives tuition hikes.

So, where are the studies that show the increase in mistakes for lawyers, like the ones for doctors? They don't exist. Why is that? Several reasons:

1. Big law firms typically bill clients by the hour for legal services. If productivity declines and it takes longer to resolve matters, the first and most obvious result in increased billable hours. So, rather than poor medical outcomes for patients, which are noticeable to those outside the hospital, we have larger bills, which are certainly noticeable to the clients but not distinguishable from "business as usual."
2. Errors that would lead to malpractice seldom lead to actual malpractice claims. Not only are errors often caught by other lawyers involved in a matter, but the errors themselves are harder to identify as errors, since they seldom have immediate effects and the true outcome may not be known for months in a transactional matter or even years in a litigation. Many errors are harmless because the circumstances that would trigger them fail to arise; a choice of law clause only becomes relevant when litigation is contemplated. Even when matters do turn for the worse, the idea that a negative outcome could be traced to a single error, which could then be traced to acute or chronic sleep deprivation, is harder to imagine.
   
3. It's possible that even when operating at a sub-par level, the types of lawyers who work at big firms may still perform at the standard of care, which is more generally based on lawyers overall. This argument has a lot of assumptions and perceptions built into it, which should be made explicit:
1. Associates who go to big firms are commonly perceived (at least among those seeking to go to big firms and among the big firms hiring them) to be of higher quality than those who aim differently following law school. They are perceived to be generally more capable legally.
   
2. Associates at big firms are perceived to be harder workers, or at least to have worked harder, in terms of more hours, during law school. Big firms prize law review membership and high grades, assuming that the former's hourly commitment combined with the latter's intellectual performance will translate well to the firm environment.
3. One of the key skills for lawyers is attention to detail, and that is another one of the skills for which good grades and law review time are supposed to be proxies.
4. Another difference between medical practice and legal practice, related to point #1 is that because of the fee-sharing restrictions in legal ethics codes, lawyers still run their own practices. Not always from a day-to-day perspective, where smarter firms are hiring non-lawyers to manage the business while leadership is to be provided by senior lawyers. The medical field has not had such a restriction in a very long time, exacerbated perhaps by early concerns about the effects of medical malpractice exposure to individual doctors. That led to the ability to restrict professional liability and to growth to spread risk. Many of those larger entities became public entities with shareholders and other investors. While it is obviously common for hospitals to be run by doctors, it is not required. The key argument for why law firms should not be owned by non-lawyers is that the profession does not want lawyers to be subject to people who did not have the same ethical obligations as the lawyers. Where this tension currently exists, however, is in corporate legal departments, and the complications are clearly there.
   

So these assumptions might explain why the rate of error would be lower, but does it really make any sense that lawyers would actually err less than doctors? Doctors constitute a much smaller universe than lawyers, and few lawyers who would claim that medicine is an "easier" field for those with less powerful intellect. If doctors can make apparently clearly measurable errors, wouldn't it make sense that lawyers make at least the same number of errors? If anything, the type of errors committed and the circumstances have a greater impact on what outcomes are measured and the perception of those errors.

Do firms have an ethical obligation to reduce attorney billable hours to reduce risk of poor performance? Do they have an ethical obligation to reduce billable hours to reduce low productivity, which results in larger bills for the same work? What about clients? Certainly the primary clients of large law firms are large corporations, who might be more knowledgeable than individuals about these effects. Also, given the outside legal budgets of large corporations, they probably experience low-probability events on a regular basis and so can expect that there is some harm to them from these issues. Does anyone know of large corporations that have firm restrictions on the number of hours that may be billed to them by a single lawyer, or by such a lawyer in a week, month, or year?

We are attempting to identify some future research opportunities in this field. Does anyone have connections inside a legal malpractice insurer? We would be interested in tracking claim experience by firm size and hour requirements. Similarly, we are preparing a proposal for corporate counsel at large commercial firms to evaluate lawyer performance in light of these issues.

Business people inside corporations and acting as consultants are our next area of inquiry in this sleep deprivation/overwork trifecta.

Labels: leadership, performance

Sunday, January 06, 2008 :: posted by Rick Colosimo @ 11:02 AM