First Friday Book Synopsis

"…like CliffNotes on steroids…"

Paul J.H. Schoemaker: A second interview by Bob Morris

Paul J.H. Schoemaker is a pioneer in the field of decision sciences, among the first to combine the practical ideas of decision theory, behavioral economics, scenario planning, and risk management into a set of strategic decision-making tools for managers. He is co-author of a landmark book on the subject, Winning Decisions: Getting It Right the First Time. He has written nine books, the latest of which is Brilliant Mistake: Findings Success on the Far Side of Failure (Wharton Digital Press 2012). In addition, he has written over 100 academic and applied papers, which have appeared in such diverse journals as the Harvard Business Review, the Journal of Mathematical Psychology, Brain and Behavioral Sciences, and The Journal of Economic Literature. Given their global applicability, his writings appear in at least 14 languages. His scholarly work ranks in the top one percent in academic citations globally as measured by the International Science Index (www.ISIHighlyCited.com).  He is also an entrepreneur: he is founder and executive chairman of Decision Strategies International, Inc. Finally, Paul is a dedicated educator: he is research director of the Mack Center for Technological Innovation at the Wharton School of the University of Pennsylvania, served for five years as a director of the Decision Education Foundation, conducted hundreds of lectures and executive seminars around the world. A native of the Netherlands, Paul lives on the East Coast with his wife; they have two children.

Here is my interview of Paul. To read the complete interview, please click here.

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Morris: When and why did you decide to Brilliant Mistakes?

Schoemaker: Two issues have always intrigued me.  First, when the founder of Honda claims that success is 99% failure, I wonder why we label the necessary steps toward success in such a negative way?  Failure and its twin sister “mistake” too often get a bad rap.  Second, when executives tell me that they learned the most in their careers from mistakes, I wonder why they don’t make a few more.  In the book, I suggest that we should make more mistakes (given how valuable they often are), but most people deeply reject that seemingly silly notion.  I was also fascinated with Thomas Watson’s counter-intuitive advice, as founder and Chairman of IBM, that if you want to succeed faster, you need to make more mistakes.  Our ambivalence about mistakes in business seemed an underdeveloped topic to me, especially the paradoxical notion that some errors will prove to be brilliant over time.

To learn maximally from mistakes, we need to commit more errors than we deem optimal as judged within the bounds of our limited rationality.  This idea may be hard to swallow.  Yet, it is the quintessential insight of this book. To my way of thinking, mistakes can be brilliant in two ways.  The first is to learn from an unexpected setback so much that it starts to dwarf the cost of the mistake.  The second way, which is more difficult to achieve, is to create strategies, organizations or cultures where people can make the types if mistakes where the learning benefits far exceeds the cost of the mistake.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Schoemaker: Hardly any “head-snapping revelations,” but certainly a few surprises. Successful people tend to have a different view about mistakes than most ordinary people.  Not only are they more tolerant of them (in themselves and others), but they often embrace them.  Notable examples are Steve Jobs who celebrated his mistakes during a commencement speech at Stanford, or C.K. Rowling who argued that she could not have produced the astoundingly successful Harry Potter series (books, movies, accessories) without having hit rock bottom first.

In the arts and humanities, people embrace mistakes more readily than in business, I feel.  As trumpet great Wynton Marsalis put it so well, if you are not making mistakes, you are not playing jazz – you are not trying.  I believe the same applies to life, since that requires a great deal of improvisation as well.  I don’t think that perfectionists, or people who eschew mistakes for other reasons, realize their full potential as human beings, either for themselves or others

A surprising conclusion is that people who are more risk-averse should make more deliberate mistakes, since they can be used as hedges. This was counter-intuitive to me at first.  A strong portfolio case can be made for investing in mistakes.  For a risk-averse decision maker, it may be worth putting some money in a project expected to yield a loss provided this investment offers a sufficient hedge in case other investments sour.  Even though that seemingly inferior project will not raise profit expectations, it can help reduce losses in case bad scenarios happen.  Similarly, a deliberate mistake can be viewed as a hedge against conventional wisdom, one that will have a high payoff when the majority view of the crowd happens to be wrong (but a loss otherwise in all likelihood).

Morris: Please explain the approach you take in the book to establish a case for making brilliant mistakes.

Schoemaker: In the book, I draw more on behavioral decision theory and its close cousin, behavioral economics, than portfolio theory or options thinking.  Because humans suffer from bounded rationality and furthermore don’t know what they don’t know, the only way to overcome myopic frames, overconfidence, and incremental career progress is to innovate beyond the bounds of our self-limiting world views.  I describe a long list of past business mistakes – as judged by the conventional wisdom at the time – that proved to be brilliant.  These include personal copiers, selling via pet stores, ATM machines, credit cards for students, organic food, fractional jet ownership, and tobacco-free cigarettes.  Just as these ideas were ridiculed at the time, there are many silly ideas floating around today in business that will prove to be brilliant in the future.  The challenge for managers is to recognize them, and this can only happen if leaders create sufficient space for productive mistakes to occur.  In most companies, brilliant mistake may already have been made, but the brilliant part lies dormant because there is little appetite or capacity to mine the mistake.  Since the tuition was paid, why not extract the lesson?

Morris: All of your previous books are research-driven. Is that also true of Brilliant Mistakes?

Schoemaker: I build on the strong foundation of decades of research in behavioral economics and decision psychology.  I offer a practical plan for separating destructive from constructive mistakes, for learning to make more of the brilliant kind.  I encourage leaders to embrace this quality, to milk it for all of its evolutionary and learning potential.   For those rationalists who deem the notion of a Brilliant Mistake to be an oxymoron, I would recommend that they take a portfolio view. A strong case can be made for investing in projects that are expected to yield a negative return. For a risk-averse decision maker, it may be worth putting some money in a project expected to yield a loss provided this investment offers a sufficient hedge in case other investments sour.  Even though that seemingly inferior project will not raise profit expectations, it can help reduce losses in case bad scenarios happen. Similarly, a deliberate mistake can be viewed as a hedge against conventional wisdom, one that will have a high payoff when the majority view of the crowd happens to be wrong (but a loss otherwise in all likelihood).  My book provides the formal argument for those interested.

Morris: Mistakes can either be intentional or unintentional. Please cite a few examples of mistakes (i.e. those that are deliberate and purposeful) can be beneficial.

Schoemaker: Mistakes have been the cause of great discoveries and revolutionary new insights.  It was bad judgment that led the Wright brothers to try to fly: everybody knew at the time that humans couldn’t fly and never would.  In 1895, just eight years before their fragile construct took to the air, Lord Kelvin, the esteemed British mathematician, physicist and president of the British Royal Society, had unambiguously declared that “heavier-than-air flying machines are impossible.”

It was relative ignorance that prompted Albert Einstein, a lowly patent clerk in a Swiss law office, to pose some silly questions about the nature of time, space and energy.  Albert Einstein made at least 23 mistakes in his published (and refereed) scientific publications.  Some of these were necessary to achieve his monumental insights about the deeper forces of nature.

At a more mundane level, I describe a young woman deciding to date any person asking her out and in the end marrying someone she wouldn’t have given a second look.  She was willing to test her preconceived notions about Mr. Right and companies should perhaps do likewise when hiring new talent.  Hiring in your own image is seldom the best approach.

Morris: In the Preface to Brilliant Mistakes, you observe, “For most people, the problem is not that they make too many mistakes but too few.” Are there any examples of that in your own experiences thus far?

Schoemaker: Although there has not been that much brilliance in my own life, there are several personal examples that I would consider “brilliant” mistakes at my own level.  One concerns my decision to take a two-year sabbatical with Royal Dutch/Shell’s planning group in London just after having been promoted to associate professor at the University of Chicago.  Many colleagues deemed this a mistake since my academic career was going well and leaving the world of scholarship might cast doubt on my commitment to research etc.   This risk was indeed real, and my two-year absence from publishing probably did not help my academic career.  But it also opened up new vistas about life beyond academia and led me to found Decision Strategies International, which for 20 years now has served leading companies around the world in the fields of strategy and decision making.

The second mistake concerned our family’s move from Chicago to Philadelphia without there being any single compelling reason to do so.  We were quite happy in Chicago but I left nonetheless to be closer to family, friends and colleagues I had worked with in academia and business.  It turned out to be a great move, without regrets and many new experiences that Chicago would probably not have offered.

In the book I describe a third example, where our company decided – against its better judgment – to respond to Requests for Proposals (RFPs) that came in over the transom.  We had good reasons to believe it would be a waste of time to pursue such RFPs, but then decided to challenge this key assumption.  It turned out that we were wrong; some of these random RFPs proved quite valuable to us in terms of new clients and growth.

Morris: Which factors have the greatest impact on a decision’s outcome? Which of them seems to have the greatest impact? Why?

Schoemaker: Companies that want to compete on innovation are well-advised to become more error-tolerant in practice and develop better methods for capturing the lessons from mistakes.   Such companies should also emphasize that managers (especially younger ones) who are involved in project failures, are to be viewed as being on a fast learning track, rather than an exit track.  Given the significance of failures and mistakes that have led to success, there is potential value from the lessons learned if they are documented, captured and shared. Career development benefits should follow for those involved in the right kinds of failure, assuming they learn and apply the lessons to avoid mistakes in the future.  This can be tested via performance reviews as well as actual on-the-job behavior.

The deeper challenge in all this is that leaders must learn how to celebrate the egg that people invariably have on their face, award.  This president of an Ann Arbor business decided to institute a Golden Egg to make sure his organization would extract as much learning as possible from past failures.  This story is detailed in the book.  His viewpoint was that mistakes are valuable assets that belong to the organization.  To hide them and not share the lessons would amount to destroying shareholder wealth.  At first, few managers wanted to receive the Golden Egg award, but after a while it became much sought after.  Winners would proudly regale visitors in their office with the tale of their failed venture and proudly share its lessons.   The president created a true learning culture.

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To read the complete interview, please click here.

Paul cordially invites you to check out the resources at these websites:

Home Page: please click here.

Wharton’s Mack Center: please click here.

His Amazon page: please click here.

His Wikipedia page: please click here.

A video: please click here.

Wednesday, May 23, 2012 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

4 Secrets of Great Critical Thinkers

Here is an excerpt from an excellent article written by Paul J. H. Schoemaker and featured online at the Inc. magazine website. To read the complete article, check out other resources, and obtain deep-discount subscription information, please click here.

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The best problem solvers see a complex problem through multiple lenses.

Here’s how to become a better strategic thinker and leader yourself.

In 2009, J D Wetherspoon, a chain of more than 800 pubs in the UK, was facing declining sales. Demand for beer had been down for five years. In addition, pricing pressure from super market chains was intense, and higher alcohol taxes further squeezed its already tight margins.

Most people see it as a sales problem and recommend better marketing and promotion. But this reflex may be wrong. In Wetherspoon’s case, the company examined the problem more deeply, looked at data, and framed the situation from multiple angles. In the end, they found the real problem: A subtle but profound shift in consumer preferences.  As a result, the chain responded with much bolder actions, transforming all its pubs into family friendly cafes during day hours.

The strategy worked. Wetherspoon saw its earnings per share jump by 7.1 percent in the first year. Two years after this frame shift (2011), it has maintained its earnings per share and, with the investment in this new strategy, its free cash flow is up 12.9 percent. Exploring multiple problem framings, by zooming out rather than in, gets you to the root of issues and more creative solutions.

If you fail to do this, you risk solving the wrong problem.

Ironically, the more experience you have, the harder it will to break from conventional mindsets. Leading companies often get stuck in old business models. Kodak engineers developed an early version of the digital camera, while the rest of the company remained focused on chemical film processing. Microsoft executives doubted the value of online search as a revenue model. Barnes and Noble seemed convinced that people would always want a physical book in their hand.

In his book Thinking, Fast and Slow, Nobel laureate Daniel Kahneman attributes shallow framing to people substituting easy questions for hard ones. We often miss the crux of the issue by drawing imaginary connections between what we see and what we expect to see. As our own book Winning Decisions explains, the essence of critical thinking is to slow down this process, learn how to reframe problems, see beyond the familiar and focus on what is unique in any important decision situation. Here are [two of] four ways to hone these critical thinking skills:

1. Slow down.  Insist on multiple problem definitions before moving towards a choice. This doesn’t need to be a time consuming process – just ask yourself or the group, “How else might we define this problem – what’s the core issue here?” This should become a standard part of every project scoping conversation you have, especially when the issue is new or complex

2. Break from the pack. Actively work to buck conventional wisdom when facing new challenges or slowly deteriorating situations. Don’t settle for incremental thinking. Design ways to test deep held assumptions about your market. Of course, different is not always better so seek to understand the wisdom inherent in conventional wisdom as well as its blind spots.

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This article was co-authored with John Austin and is second of in a series examining the key components of strategic aptitude: anticipating, thinking critically, interpreting, deciding, aligning, learning. For an overview of all six skills see 6 Habits of Strategic Thinkers.

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To read the complete article, please click here.

Paul J. H. Schoemaker just published Brilliant Mistakes: Finding Success at the Far Side of Failure (Wharton Digital Press). He serves as Research Director of Mack Center for Technological Innovation at the Wharton School of the University of Pennsylvania, where he teaches strategy and decision making. He was previously at the Univ. of Chicago, from where he spent an extended sabbatical with the scenario planning group of Royal/Dutch Shell in London. Paul is also the founder and chairman of Decision Strategies International, Inc, a consulting and training firm specializing in strategic planning, executive development and technology solutions. He has written more than 100 academic and applied papers, and is the (co)-author of several earlier business books including Decision Traps, Decision Sciences, Wharton On Managing Emerging Technologies, Winning Decisions, Profiting from Uncertainty, and Peripheral Vision.

Sunday, April 22, 2012 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , , , | Leave a comment

Running Faster, Falling Behind: John Hagel III on How American Business Can Catch Up

John Hagel III

Here is an excerpt from an article about John  Hagel III featured by the Knowledge@Wharton website, sponsored by Wharton School of the University of Pennsylvania.

To read the complete article, download/or listen to the audio, check out all the other free Wharton resources, and subscribe for Knowledge@Wharton email updates, please click here.

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In the early 2000s, Silicon Valley-based business guru John Hagel III was involved in a high-tech start-up and hired Stephen Gillett, a young man right out of college. Less than a half dozen years later, Gillett was named a senior vice president and chief information officer for Starbucks — the youngest CIO of a Fortune 500 company at that time.

And Hagel thinks he knows a primary reason for his one-time employee’s meteoric rise. Everything that Gillett needed to know, Hagel said, he learned while becoming a guild leader in the popular online game World of Warcraft.

The co-chairman of a tech-oriented strategy center for Deloitte LLP, Hagel told the annual Wharton Leadership Conference that Gillett — just like other top players on the massive online multi-player game, with an estimated eight million participants — reached out independently to build a large team of allies that solved complex problems and developed winning strategies.

Guild leaders in World of Warcraft “require a high degree of influence,” noted Hagel, a successful author and longtime consultant. “You have to be able to influence and persuade people — not order them to do things. Ordering people in most of these guilds doesn’t get you far.”

The look inside World of Warcraft and its relevance for today’s complicated business environment was part of a recent research project and book by Hagel and two co-authors — John Seely Brown and Lang Davison — that examines how companies re-invent and revive themselves by moving away from secretive, proprietary shops and toward a more open, collaborative business model. Their findings resulted in the recent publication of The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion.

The bottom line, they found, is that American companies will continue to fall behind their counterparts in emerging markets such as China or India unless they move toward what Hagel called “the edge,” which is where passionate, change-driven employees collaborate with others on the kind of innovations that prevent a company from seeing its core business model slowly erode. “The only thing that succeeds,” Hagel said, “is to take those initiatives on the edge and pull more and more of the core out to those edges — rather than trying to pull them back in.” He asserted that chief executives who stick to the conventional wisdom and cling to secretive proprietary business systems are doomed to fail.

Sustained Erosion

This year’s Wharton Leadership Conference  — titled, “Leading in a Recovering (and Even Rebounding) Economy” — came at a time of increasing focus on corporate executives and the role they play in defining a business’s direction, its image and its accountability. The conference was organized by the school’s Center for Human Resources, Center for Leadership and Change Management and Wharton Executive Education, in partnership with Deloitte. Hagel heads Deloitte’s Center for the Edge, which studies emerging business strategies.

Hagel’s more than 30-year career in the business consulting and high-tech industries also included a stint at iconic 1980s video game firm Atari, as well as launching the e-commerce practice at McKinsey. He said the bad news uncovered by his research team was that the erosion of American business leadership was not so much a function of the downturn beginning in 2008 as it was a systemic decline dating as far back as the mid-20th Century.
In trying to quantify the problems facing American industry, Hagel and his co-authors found little existing data to measure the overall performance of U.S. companies. So they worked up some measurements of their own — and even they were surprised at what they uncovered. Since 1965, they learned, the return-on-assets for all American firms has eroded by 75%.

“The erosion has been sustained and significant. There is absolutely no evidence of it leveling off, and there is certainly no evidence of it turning around,” Hagel noted. Indeed, another measurement showed that survival is also an increasing problem for U.S. corporations. Firms in the Standard & Poor’s 500 in 1937 had an average life expectancy of 75 years; a more recent analysis of the S&P 500 showed that the number had dropped to just 15 years. “When I’m in executive boardrooms, I hear the metaphor of ‘the Red Queen’ and the notion that we have to run faster and faster just to stay in place,” Hagel said, referring to the character from Lewis Carroll’s Through the Looking-Glass. “I would make the case, based on the analysis that we’ve done, that the Red Queen is actually an optimistic assessment of our situation, that we are running faster and faster and falling farther and farther behind.”

What went wrong? Hagel argued that American companies and their leaders were essentially not prepared for a move away from a corporate model of “knowledge stocks” — developing a proprietary product breakthrough and then defending that innovative advantage against rival companies for as long as possible — and toward a more open and collaborative business model that he called “knowledge flows.” The problem, he said, is that because of the increasingly global nature of business competition, the value of a major proprietary breakthrough or invention erodes in value much more quickly than in the mid-20th Century.

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To read the complete article, download/or listen to the audio, and check out all the other free Wharton resources, please click here.

Saturday, April 23, 2011 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Stewart Friedman: A very special educator

Currently Stewart Friedman is a Practice Professor of Management at the Wharton School of the University of Pennsylvania. He is founder and director of Wharton’s Work/Life Integration Project and he founded Wharton’s Leadership Programs for both the MBA and Undergraduate divisions. Friedman was director of academic affairs for Wharton’s undergraduate division and has won numerous teaching awards; The New York Times cited the “rock star adoration” he inspires in his students. From 1999 to 2001 he was a senior executive at Ford Motor Company, where he was responsible for the company’s global leadership development strategy and programs. He was an advisor to former Vice President Al Gore and former GE CEO Jack Welch on work/life issues and was chosen by Working Mother as one America’s 25 most influential men in having made things better for working parents.

Friedman earned a BA degree at the State University of New York at Binghamton and MA and PhD degrees at the University of Michigan. His most recent work is Total Leadership: Be a Better Leader, Have a Richer Life, published by Harvard Business Press – an award-winning book that reached #3 on USA Today’s national bestseller list. He heads a group that brings Total Leadership to organizations and communities worldwide in order to improve performance in all parts of life – work, home, community, and self – by finding mutual value among them.

Stewart Friedman is a business thinker I hold in the very highest regard. Here is a link to my interview of this very special educator and to my review of Total Leadership:

http://ffbsccn.wordpress.com/?s=Stewart+Friedman

Here’s a link to an article Friedman posted at the Harvard Business blog earlier today (April 1, 2010), The First Couple and a New Era of Workplace Flexibility:

http://blogs.hbr.org/cs/2010/04/the_first_couple_and_a_new_era.html


Here’s a link to the Total Leadership homepage:

http://www.totalleadership.org/

Thursday, April 1, 2010 Posted by | Bob's blog entries | , , , , , , , , , , , , , , | Leave a comment

   

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