Why Managing Risks Means Managing Arguments

Here is an excerpt from an article written by Justin Fox 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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So it was Lyme disease that did it! The tick-borne illness kept JPMorgan Chase’s Ina Drew out of the office for extended periods in 2010 and 2011. And it was during Drew’s absences, according to a richly detailed account in The New York Times, that the bank’s chief investment office, which she ran, began to get into trouble:

The morning conference calls Ms. Drew had presided over devolved into shouting matches between her deputies in New York and London, the traders said. That discord in 2010 and 2011 contributed to the chief investment office’s losing trades in 2012, the current and former bankers said.

Whether this really was the main reason for JP Morgan’s $3 billion (and growing) trading loss or not, it does at least sound like it could be true. Managing risks — especially the hard-to-pin-down, moving-target risks that any financial trading operation has to cope with — inevitably involves arguing. Which is why managing those arguments, as Ina Drew appears to have done brilliantly during the financial crisis but wasn’t around to do for the past couple of years, is so important.

The words “risk management” usually evokes less subjective, more data-driven pursuits. But data and objectivity can only get you so far. Philosopher Karl Popper famously proposed that to be scientific, a theory had to be falsifiable: that is, it had to make predictions that could be tested and possibly shown to be wrong. Popper spent a lot of time thinking about this definition of science and the burgeoning science of probablility, which he called propensity. (This summary is from Wittgenstein’s Poker, a book I’ve been reading):

As far as falsification is concerned, he thought that statements involving stable propensities — such as, ‘The die has a one in six chance of landing on six’ — could be tested by looking at what happens in the long run. But isolated statements of propensity — such as ‘There is a propensity of 1/100 that there will be a nuclear holocaust before the year 2050′ may resist testing, and to that extent exclude themselves from science.

Routine risks like worker safety and even some day-to-day trading hazards can thus be managed successfully with a mechanistic, scientific approach. But the kind of big-picture bets that JP Morgan’s chief investment office made could never be tested, or managed, in that way. Decisions either worked out or they didn’t; given the small sample size it was impossible to test what the true probabilities were.

To navigate such unquantifiable hazards, then, you need to make judgment calls. And that’s where argument (or discussion, or conversation, if you prefer) comes in. You want diverse, even opposing viewpoints. You want to manage their interactions in a way that allows the quieter, less-senior, less-predictable voices to be heard. You probably do want to accord different weights to the arguments of different people, although deciding how to do so (past track record? clarity of argument?) is hard.

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To read the complete article, please click here.

Justin Fox is editorial director of the Harvard Business Review Group and author of The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

The Real Secret to Thriving Amid Disruptive Innovation

Justin Fox

Here is an excerpt from an article written by Justin Fox for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.

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I’m sitting at DLD, a new-media conference hosted by an old media company (German magazine publisher Burda) in Munich. Arthur Sulzberger Jr. of the New York Times Co. and Hubert Burda of Burda are onstage talking about their experiences in a transformed media landscape. I want to feel useful, so I start tweeting about it. I am not alone. A trickle of tweets with the #DLD11 hashtag soon becomes a roaring river, to the point that blogger Paul Kedrosky, who’s not here, complains about it.

One of Sulzberger’s utterances — “a New York Times article is tweeted every four seconds” — is itself tweeted every 10 seconds for an hour or two.

“Maybe let’s get rid of word ‘publishing,’” Sulzberger suggests. “What can’t define the work we do is the method of distribution.” (In honor of Alfred Kahn, who died last month, I suggest we replace the word ‘publishing’ with ‘banana.’) Burda says his company (which has its roots in selling sewing patterns) makes pretty good money selling stuff online. “The biggest Enttäuschung — what’s the word for Enttäuschung? [it's disappointment] — is that ad revenues from online are so low, 10% of print.” But, on the plus side, “people like to blätter [look through actual pages].”

Then Burda and Sulzberger leave the stage and are replaced by a panel featuring a couple of media executives plus Google’s Nikesh Arora (who I guess is a media executive too), LinkedIn founder Reid Hoffman, and venture capitalist (and Facebook investor) Jim Breyer. Breyer stands out — both in the room and the Twitter echo chamber — by sounding like an Old Testament prophet (or at least like Clay Christensen):

http://hbr.org/authors/christensen

“traditional media companies unless they radically change … will be obsolete 10 yrs from now;” “if you were starting media company today no way would TV, magazine, newspaper be part of it … except maybe for sports;” “the fact of the matter is, newspapers are dead,” “my firm now has twice as many partners in Beijing as in Palo Alto;” etc.
By this point, I’ve given up on the tweeting. The likes of Robert Scoble, Bill Gross and Henry Blodget are far quicker on the draw — and far better at sussing out what will fascinate their many followers on Twitter — than I am. It’s media disintermediation at work!

Lots of industries have been turned upside down by innovation over the years. But no industry has ever had its disruption chewed over in quite such exhaustive, exhausting detail as the media in the age of the internets. I’ve been listening to these discussions about my industry’s uncertain future for 12 or 13 years now. Can’t we just get finished being disrupted already and get on with our lives?

Well, no, it doesn’t quite work that way. The disruption just keeps on going. One fascinating twist is that while Arthur Sulzberger and Hubert Burda can still show up at (and in, Burda’s case, underwrite) conferences like this and talk of their minor new-media triumphs, there’s no sign of such earlier disrupters as Yahoo! or MySpace or Pointcast or whatever. Several people I’ve talked to here in Munich expressed surprise, in fact, that Facebook hasn’t seen its business model disrupted yet.

How do you survive such a seemingly unending series of waves? The by-now-standard, Christensen-inspired corporate response to disruptive innovation is to create a separate operation, with different incentives and structure than the parent organization, to exploit the innovation. I can’t off the top of my head think of any huge successes of that ilk in the media world, though (can you?).

I used to think investing in the innovators might be the smart way around, but the venture capital business, which in theory does just that, has been in the tank for a decade. In the midst of all the talk about dying media companies at DLD, entrepreneur Yossi Vardi asks VC Joe Schoendorf when the last venture capitalist would go out of business. A few will survive, Schoendorf says.

Breyer (who is Schoendorf’s partner at Accel, a VC firm that appears headed for survival) at one point does say that “content developers are better off than ever before.” That is, those who know how to create media — stuff that people want to read, watch, listen to, play with — can make it through all the turmoil. Nice to hear! But somehow I don’t think developing content about people talking about disruptions to the content industry is really the ticket to success. Maybe the real secret to thriving amid disruptive innovation is not to to think or talk about it too much.

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Justin Fox is editorial director of the Harvard Business Review Group and author of The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

What Not to Spend Your Time On

Bob Pozen

Here is an excerpt from an interview of Bob Pozen by Justin Fox for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.

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This is a fourth in a series of conversations on personal productivity between Bob Pozen, chairman emeritus of MFS Investment Management and senior lecturer at Harvard Business School, and Justin Fox, editorial director of the Harvard Business Review Group. Pozen is a lawyer, and he started out in a legal career: law professor at Georgetown and NYU, associate general counsel at the SEC, partner at a D.C. law firm, general counsel at Fidelity Investments. Then, in 1997, Fidelity chairman Edward C. Johnson put Pozen in charge of Fidelity’s giant mutual fund arm, Fidelity Management & Research Co. Since then, Pozen has developed some pretty clear ideas about how top executives should do their jobs.

Justin Fox

Fox: How do you decide what to spend your time on when you’re the boss?

Pozen: Top executives usually say they set their priorities and then figure out how to implement them. But in this process many executives make a critical mistake. I’ve noticed this when I’ve mentored new CEOs. They say, “Here are the top five priorities for the company. Who would be the best at carrying out each priority?” Then they come up with themselves as the answer in all five areas. It might be the correct answer, but it’s the wrong question.

The question is not who’s best at performing high-priority functions, but which things can you and only you as the CEO get done? If you don’t ask yourself that question, your time allocations are bound to be wrong. Lots of CEOs who have been great number twos flounder as number one because they are implicitly asking the wrong question. That happens because they usually rose to CEO by being very good at getting things done themselves.

I try to focus on the things that I and only I can do. Those may include meeting with high-level regulators, or visiting with key clients. This may mean giving speeches to certain audiences or recruiting senior executives. But you really have to hold yourself back from taking on other functions or tasks even if you might excel at performing them.

For example, when MFS CEO Rob Manning recruited me to join the firm as Chairman in 2004, we explicitly divided the high-priority functions. Although I had run the investment management group at Fidelity, Rob is a talented investment guy and natural leader and wanted to take charge of the investment group. He and I agreed that I wouldn’t run the group, and that I wouldn’t even show up on the investment floors. This agreement was necessary to avoid confusion about who was heading investments. Similarly, when there were very important meetings with regulators, Rob didn’t attend.

Fox: What about those of us who aren’t CEOs?

Pozen: The key, I’ve found, is to become messianic about the principle that everybody owns their own space. This is the human resources analogy to bottom-up investing.

Under this approach, every employee is viewed as the owner of a small business — his or her division, or subdivision or working group; the performance of this unit is his or her responsibility. As the boss, my role is to provide my reports with resources, give them guidance and help them do battle with other people in the broader organization. But they own their own unit.

I can’t emphasize this principle enough because at every level, employees need to feel they’re in charge. An effective leader not only has to set priorities but also has to mobilize the organization to implement them. But this will happen only if the employees have a true sense of owning these functions in the broadest sense. I’ve seen quite a few organizations where employees say, “I didn’t do X because it wasn’t within my job description, or no one told me to do it.” These are flagrant violations of the ownership principle.

Fox: So how do you instill this ownership principle?

Pozen: You don’t describe in detail the tasks that employees should be doing. Instead, you present a general set of priorities for the upcoming year, and let your employees formulate the specific ways to implement them. You also ask: “What are the metrics by which I should judge your success?”

When I became president of Fidelity Management & Research, we faced a major challenge because the fund business had grown so rapidly. So we created lots of small units within the company to provide many employees with the opportunity to “own” their unit. While we recognized that creating so many units would bring coordination challenges, it was worth the price to give portfolio managers more say over the activities of their own investment groups.

Andrew O’Connell on “Sensitive Men: It’s Your Glass Ceiling Too”

Here is an excerpt from an article written by Andrew O’Connell for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.

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If you’re a caring and empathic guy, but you’ve noticed that you’re a lot more likely to come home from work with a headache than a promotion, chances are you’ve been banging into a glass ceiling — the same glass ceiling that stops women from rising to the C suite.

A team led by Mark C. Frame of Middle Tennessee State University finds that the higher you go on the corporate ladder, the more you’re among people who put a lot of stock in assertiveness and independence — what psychologists call “agentic” qualities — rather than on such things as caring about others’ feelings.

Get near the top, and people are all about action. Tasks. Results. That, according to Frame and his colleagues, lends “support to the idea that success and upward mobility in corporate environments may require more task-focused behaviors” and fewer behaviors displaying what are known as “communal” qualities.

The findings, based on attitudes data from more than 14,000 people, apply to both men and women. Thus, “it could be that the glass ceiling has more to do with communal versus agentic behaviors than it does with gender,” the researchers say.

In other words, the glass ceiling may be about how you roll, not what sex you are. It may block anyone who places great importance on selflessness or concern for others. Kinda scary, when you think about it.

If you’re a sensitive guy, you’ve probably sensed the presence of this barrier all along. You might even have heard once or twice that you’re “too nice to get promoted.” Yet you know you’d be a better boss than those task-oriented managers, many of whom have zero people skills.

Is there a way to break through? Frame has been looking at this question in the context of female employees, because women tend to be more communal oriented. So far, he hasn’t found a definitive answer. But he has some thoughts, and they apply to communal-oriented men as well.

“The answer likely has something to do with learning how to play roles within the organization,” he says. “I suspect that the key to being a communal-oriented manager is to be able to bring out your agentic styles when needed.”

If it’s stressful to play up the task-oriented side of your personality while submerging the caring side, you can look beyond the workplace for relief: “Having a social or familial network in which to express communal styles outside of work may be helpful for men who wish to succeed by being more agentic but maintain their inner communal qualities,” Frame says.

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Andrew O’Connell is an editor with the Harvard Business Review Group.

What Lies Ahead for Leadership?

Imagining the Future of Leadership

Here is an excerpt from article written by Ellen Peebles for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please visit dailyalert@email.harvardbusiness.org.

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(Editor’s note: This post concludes a six-week blog series on how leadership might look in the future. The conversations generated by these posts will help shape the agenda of a symposium on the topic in June 2010, hosted by HBS’s Nitin Nohria, Rakesh Khurana, and Scott Snook.)


Six weeks ago, Harvard Business School professor Scott Snook (along with his colleagues Nitin Nohria and Rakesh Khurana) launched an online conversation on the nature of leadership. They invited top scholars and practitioners in the field to talk about our traditional assumptions and practices and how and whether they hold up in a new era — one shaped by modern warfare, severe economic pressures, natural disasters, rapidly changing technology, and some eyebrow-raising ethical choices. If the old models are broken, then what should replace them? They asked these experts, in other words, to imagine the future of leadership. We received 33 posts, each representing a thoughtful, enlightened point of view. As the editor for the series I’ll mention a few themes that came through, but urge you to visit the rest of the series for more.

A few contributors took on the great-man model, arguing that it’s no longer relevant or particularly effective. HBS professor Bill George, for instance, said that the hierarchical model “simply doesn’t work anymore.” Knowledge workers don’t respond to top-down leadership. Barbara Kellerman, from Harvard’s John F. Kennedy School of Government, argued forcefully against what she called the “abiding tyranny of the male leadership model.” In the U.S., she says, “so far as leadership is concerned, women in nearly every realm are nearly nowhere -— hardly any better off than they were a generation ago.” HBS’s Linda Hill wrote about “leading from behind,” a phrase she borrowed from Nelson Mandela.

We had a couple of posts about the simple art of paying attention. Harry Spence from Harvard’s Kennedy School, for instance, pointed to the danger of leaders unconsciously betraying their organizations thanks to personal agendas they’re not even aware they hold. Ellen Langer, a psychology professor at Harvard, wrote a thoughtful piece about “mindfulness” — actively noticing events and people. She cited a study of orchestra musicians who were instructed to be either mindless or mindful. That is, they were to replicate a previous performance with which they were very satisfied or make the piece new in very subtle ways that only they would know. Audiences unaware of the instructions listened to taped performances and greatly preferred the mindful versions (the players liked them better too).

Another series of posts focused on leadership development. Trina Soske (from Oliver Wyman Leadership Development) and Jay Conger Claremont McKenna College), for example, argued that companies aren’t getting their money’s worth with classroom efforts and that development projects should be focused squarely on real business problems. Daisy Wademan Dowling, an author and leadership development executive, and MasterCard International’s Matthew Breitfelder proposed that companies take a page from the Peace Corps, sending employees to volunteer across geographic boundaries. William Sullivan, from The Carnegie Foundation for the Advancement of Teaching, argued for bringing leadership development and a sense of professionalism to undergraduate education, rather than starting with business schools.


Ellen Peebles is a senior editor with the Harvard Business Review Group. She was the editor for the HBS Imagining the Future of Leadership blog series.

Innovations for health care in the future

Harvard Business School

Here is an excerpt from an article written by Gardiner Morse for the Harvard Business blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Daily Alerts, please visit dailyalert@email.harvardbusiness.org.

Health Care of the Future

This post is part of HBR’s Health Care Innovations Insight Center.

If ever a field needed a makeover, it’s medicine. Chaotic, expensive, inefficient, and often ineffective, health care is dying for innovation. There’s no shortage of clever ideas, but, as we will be discussing online in the coming weeks, barriers to innovation — everything from heart-stopping price tags for new technologies to doctors’ famous crankiness about doing things differently — are just as abundant.

Here are 10 innovations that we at HBR think will have a big impact —if they can prove themselves and make it into the mainstream. You can also view a slideshow version of the 10 innovations.

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Here is the first innovation Morse discusses. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Daily Alerts, please visit dailyalert@email.harvardbusiness.org.

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Checklists: Health care is catching on to something pilots have known for decades — that by taming complexity, checklists can save lives. In his best seller The Checklist Manifesto, surgeon Atul Gawande describes how using a simple checklist before surgery can help hospitals catch stupid mistakes before they happen (are we operating on the right patient?), reducing deaths nearly half. A checklist tested at Johns Hopkins Hospital required doctors to confirm, among other things, that they’d washed their hands before inserting a central line. Incredibly, when doctors used the list, the 10-day line-infection rate fell from 11% to zero. So using checklists is a no-brainer, right? I asked Gawande about that. The good news, he told me, is that they’re being adopted pretty fast compared with other innovations in medicine (it took more than a decade for aspirin to become a routine part of heart-attack care). The bad news is that if you try to mandate checklists “it will fail,” Gawande says. Hospitals need to sell docs on the value of checklists and, more difficult, get them to step off the pedestal and become team players, comfortable in a world where a nurse can tell them to go wash their hands.

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To see the slideshow:

http://hbr.org/web/extras/insight-center/health-care/10innovations/1-checklists

To read an article about the Johns Hopkins checklist:

http://www.hopkinsmedicine.org/Press_releases/2010/02_15_10.html

Gardiner Morse is a senior editor of Harvard Business Review Group.