Forget the “Dimon principle.” Investors should follow the Feynman principle.

Richard Feynman (Photo: PBS/Everett Collection)

Here is a brief excerpt from an article published by the Wall Street Journal and WSJ.com “Intelligent Investor” columnist Jason Zweig. He  pulls up a chair on Mean Street to explain how J.P. Morgan violated a simply rule in its $2 billion trading loss: You must not fool yourself. To read the complete article, check out other resources, obtain subscription information, and register for email alerts, please click here.

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When J.P. Morgan Chase’s JPM chief executive, James Dimon, disclosed a $2 billion trading loss during a hastily organized conference call on Thursday, he said: “This trading may not violate the Volcker rule, but it violates the Dimon principle.”

Mr. Dimon didn’t say what the Dimon principle is, and a spokesman for the nation’s largest bank by assets didn’t respond to requests for comment.

The Feynman principle, however, is simple: “You must not fool yourself—and you are the easiest person to fool,” as the Nobel Prize-winning physicist Richard Feynman put it.

Asked on April 13 whether J.P. Morgan’s trading operation posed significant risks to the bank, Mr. Dimon called it a “tempest in a teapot.” The bank’s chief financial officer insisted the London-based division was merely “protecting that balance sheet,” adding that J.P. Morgan was “very comfortable with the positions we have.”

The moguls of J.P. Morgan, in letting a complex risk run wild and denying any potential for error until it was too late, are a reminder that one of the biggest dangers in finance is self-deception.

For investors, the bigger the commitment, the more certain they become that they must have been right to make it—and the harder it becomes to let go.

The literal meaning of the word “invest”—from the Latin vestire, to clothe or dress—is to wrap oneself up in something. Experiments at racetracks and elsewhere have shown that people who bet on an outcome become up to three times more confident that it will occur than people who didn’t put up any money.

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To read the complete article, please click here.

How to develop better change leaders?

The most obvious answer is to change the way you develop change leaders if the process you now have isn’t working very well.

Here is a brief excerpt from another outstanding article, co-authored by Aaron De Smet, Johanne Lavoie, and Elizabeth Schwartz Hioei, and featured online by The McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, obtain subscription information, and sign up for free email alerts, please click here.

Source: Organization Practice

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Putting leadership development at the heart of a major operations-improvement effort paid big dividends for a global industrial company.

Few companies can avoid big, periodic changes in the guts of their business. Whatever the cause—market maturation, a tough macroeconomic environment, creeping costs, competitive struggles, or just a desire to improve—the potential responses are familiar: restructure supply chains; rethink relationships among sales, marketing, and other functions; boost the efficiency of manufacturing or service operations (or sometimes close them). Such changes start at the top and demand a relentless focus on nitty-gritty business details from leaders up and down the line.

Too often, however, senior executives overlook the “softer” skills their leaders will need to disseminate changes throughout the organization and make them stick. These skills include the ability to keep managers and workers inspired when they feel overwhelmed, to promote collaboration across organizational boundaries, or to help managers embrace change programs through dialogue, not dictation.

One global industrial company tackled these challenges by placing leadership development at the center of a major operational-improvement program that involved deploying a new production system across 200 plants around the world. While the need for operational change was clear—the performance of the company’s factories was inconsistent and in many cases far below that of competitors in terms of efficiency, productivity, and cost—so too were the organizational obstacles. Drives for improvement, for example, carried a stigma of incompetence; current performance was considered “good enough”; conflict tended to be passive-aggressive or was avoided entirely; and shop floor employees felt that they were treated as cogs and that their supervisors were enforcers. The effect of all this on employees was disengagement, a lack of trust in senior management, and a pervasive fear of making mistakes—a worry reinforced by the company’s strong culture of safety and of risk aversion.

These challenges were impossible to ignore, and that was probably a blessing in disguise: the senior team had to look beyond technical improvements and focus on helping the company’s leaders to master the personal behavioral changes needed to support the operational ones. To that end, the company mounted an intense, immersive, and individualized leadership program. (Note: For each participant, the program took four months, including two week-long off-site training programs, along with ongoing coaching on the application of what they had learned to the workplace.)

The results are still unfolding, but after three years the company estimates that the improvement program has already boosted annual pretax operating income by about $1.5 billion a year. Furthermore, executives see the new leadership behavior as crucial to that ongoing success. Indeed, the senior executive who launched the program believes that without the inclusion of leadership development, it would have made only half the impact it actually did. She adds that the company has seen a tenfold return on its investment in each of the dozens of leaders trained thus far.

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To read the complete article, please click here.

Aaron De Smet is a principal in McKinsey’s Houston office, Johanne Lavoie is a senior expert in the Calgary office, and Elizabeth Schwartz Hioeis an associate principal in the New Jersey office.

​The Four Worst Innovation Assassins

Here is a brief excerpt from an article written by Scott Anthony for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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Is there a corporate leader who doesn’t extol the virtues of innovation these days? Yet if innovation is so important, why do so many companies have so much trouble with it?

The reflexive response is that it is a human capital problem — that is, that most people just don’t have what it takes to successfully innovate. I reject that view. Academic research in fact shows that almost anyone can become a competent innovator (with sufficient practice). I’ve seen countless examples of ordinary individuals displaying the creativity, ingenuity, and perseverance of the world’s great innovators.

Those people can only be effective in the right context, but, ironically, many of the things leaders do to encourage innovation actually kill it. Look carefully at your company and you might spot one of four types of unintentional innovation assassins.

[Here's the first of the four.]

1. The Cowboy. Itching to create a corporate culture tolerant of creativity and innovation, the Cowboy says something along the lines of, “No boundaries! Just great ideas!” Of course, companies should continually evaluate and push their boundaries. But every company has a set of things it simply will not do. Saying innovation has no bounds when it does just leads people to waste time working on ideas that — honestly — have no hope of ever being commercialized.

Instead, consider issuing highly-focused challenges. For example, a few years ago Netflix offered a $1 million prize to any team that could improve the performance of the algorithms that determine which movies it should suggest to consumers by at least 10%. More than 250 teams rose to the challenge, and two actually exceeded the target. Focus is one of innovation’s best friends.

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The good news? Since unintentional innovation assassins are easy to identify, they are also easy to disarm. Constrain the Cowboy, bound the Googlephile, ground the Astronaut, and make the Pirate walk the plank — and watch innovation efforts soar.

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To read the complete article, please click here.

Scott leads Innosight’s Asian operations. His fourth book on innovation, The Little Black Book of Innovation, was published by Harvard Business Review Press (January 2012). You can follow him on Twitter at @ScottDAnthony.

The Branded Mind: A book review by Bob Morris

The Branded Mind: What Neuroscience Really Tells Us about the Puzzle of the Brain and the Brand
Erik du Plessis , with Nigel Hollis and Graham Page
Kogan Page (2011)

A travel guide and operations manual for exploration and management of the “Damasian paradigm shift”

With assistance contributed by Nigel Hollis and Graham Page, Erik du Plessis provides his reader with an update on recent developments in the field of neuromarketing to explain “how people think and how people think about brands.” He invokes an especially appropriate extended metaphor when noting in the Introduction that, like a jigsaw puzzle, “the brain consists of many pieces, each unique in appearance and function. All these work independently, and in harmony, to produce the big picture. The big picture is termed `behaviour.’ If only one piece of the brain is faulty then the big picture is also faulty.

“To complete a jigsaw puzzle you need to know the picture on the cover of the box, and you need to study the individual pieces when trying to assemble the puzzle. If you do not know what the final picture looks like and merely proceed by trying to assemble the pieces you will waste your time. Similarly, just looking at the picture on the cover tells you very little about the way the puzzle is assembled. Something similar is true of the brain.” This brief excerpt suggests what this book is about and by what process de Plessis’ intends to explain what neuroscience really tells us about the puzzle of the consumer brain and the brand.

This is by no means an “easy read”; on the contrary. However, it will generously reward those who read it with great care. In fact, I strongly recommend this sequence:

1. Read the Foreword, the Table of Contents, the Introduction (Chapter 1), and then the “Summary of implications for neuromarketing” on Page 244.
2. Re-read them at least once more and highlight key passages.
3. Then read Chapters 2-4 and highlight key passages.
4. Re-read highlighted key passages thus far, then Chapters 5-18 and again highlight key passages.
5. Then do the same for Chapters 19-23, Chapters 24-28, and Chapters 29-30

To repeat: du Plessis will generously reward those who read (and even more generously reward those who re-read) this book with great care. With both rigor and eloquence, he explains why emotions are not in conflict with rational behavior; indeed, they cause rational behavior. For those who are eager to understand the consumer brain and the decision-making process it tends to follow, this insight is of incalculable value. Better yet, du Plessis creates for it a neurological context, a frame-of-reference, within which to understand both its nature and implications.

Of special interest to me is what du Plessis has to say about Antonio Damasio’s somatic marker theorem. What does it achieve? “It forces attention on the negative outcome to which a given action may lead, and functions as an automated alarm signal which says: Beware of danger ahead if you choose the option which leads to this outcome…Somatic markers probably increase the accuracy and efficiency of the decision process. Their absence reduces them.”

Here in Dallas near the downtown area, there is a farmer’s market at which merchants offer slices of fresh fruit as samples. In the same spirit, I provide excerpts in my reviews. No brief commentary of mine, however, can possibly do full justice to the scope and depth of valuable substance that du Plessis provides in The Branded Mind. It is a brilliant achievement. For those who read it and then re-read it with appropriate care, its value will be incalculable.