The world is not governed by logic

“lessons you wouldn’t learn in business school – 03″

In our day-to-day lives we tend to make several business decisions. The decision making process has had enough attention by researchers. Many studies types of decision making and the circumstances around the decision and the consequences of each type of decision made.

Other than decisions we also make forecasts. Based on those forecasts we plan our actions or reactions.

I wouldn’t want to discuss what is right or what is wrong in decision making. For me, the only guideline is that the decision should lead to best achievable result considering the cost of alternatives and the information in hand.

What I want to focus on in this article is forecasts or expectations. We tend to make a lot of logical expectations about the state of the market, sales activities, market segment requirements, and so on. The thing is markets are rarely predictable. Recent events in the global economy are a good proof of this. Who could foresee a barrel of oil skyrocket to 140$ in less than 6 month and “free fall” back to the 40ies in about the same timeframe.

There are two (of many reasons) for the unpredictability of the markets:

• Herding

Many studied the herding behavior of the market. Most recently the International Monetary Fund – IMF made a study on financial markets reaching the conclusion that the status of the market may not be an exact reflection of the true state of the fundamentals. According to their research, people tend to take buying decisions not based on actual information they have but according to other people’s actions.

• The emotional factor

Many researchers have made the point that when taking “hot” decisions (that is a decision in a short timeframe with no adequate time for research) people tend to be more emotional than rational. And they tend to be influenced emotional factors rather than by information they already have in hand.

Lessons you wouldn’t learn in business school:

• Dig deep in the study of the market and the culture. Learn the people and how they take decisions in the market segment you are targeting. It is very dangerous to think you know what you really don’t know.
• Do not take business decisions based on what others are doing.

• Build an emotional relationship with your customer. You will most probably win even if your competitor has better options.

This Article is part of the series “Lessons you wouldn’t learn in business schools”. Previous Articles:

Circles of business knowledge

The Danger of Average

The Danger of Average

“lessons you wouldn’t learn in business school – 02″

The average of two numbers is the total of those numbers divided by two. But is it that simple?

Business managers use the average function in countless places around the daily process. We average sales per week, output number of products per day, cost per piece, average time consumed, etc. Some key performance indicators (KPI) are also an average. It is used so frequently because it is a useful simple way to get a general idea about a certain situation. But it comes with a price.

It has two main dangers:

1. we tend to make quick averages which are not always correct mathematically

For example: you have a car which go a distance of 60km up the hill with a speed of 60km/h and descends the same hill with a speed of 120km/h. what is the average speed of the car for the whole journey? You may be tempted (I did) to sum the two speeds and divide by 2 getting an average speed of 100km/h.

The correct way to calculate the average speed is: total distance divided by the total time. The total distance is 120 km and the total time is 1.5 hours. So the average speed is 120 / 1.5 = 80km/h.

Result: values are two types: simple values and compound values. Be careful when you want to average compound values.

1. The average is an indicator which does not represent its components

Let’s say that a company decides to operate a plane to a certain destination. The flight departs with the following passenger number on board each month (percentage to actual number of seats):

Week 1	50%
Week 2	25%
Week 3	60%
Week 4	100%
Week 5	80%

The average fullness of the plane is 63%. But does this number give any idea about any of the individual months?

Many business leaders get lost analyzing the 63% fullness (or 37% emptiness) and they forget about the month where they may have lost passengers because there are no seats; or those days where the flight left nearly empty.

We have the same result of 63% which may make sense if you are studying the cost for example. But if you want to analyze the traffic, you have two wholly different scenario (and results). One approach is to study the 63%; another is to study the monthly break down. And guess which result would be more accurate?

Lessons you wouldn’t learn in business schools:

• KPIs are good, but it’s always good to get down to details (of course only to the level of significant details)
• Stop at every step of your analysis and recheck. You may have made an incorrect average (or a bad assumption). It gets dangerous when other results or assumption are based on this one.

This Article is part of the series “Lessons you wouldn’t learn in business schools”. Previous Articles:

Circles of business knowledge

Circles of business knowledge

“lessons you wouldn’t learn in business school – 01″

Managing business is a piece of cake if you have an MBA. Or at least this is the perception.

Personally speaking, I have nothing against MBAs in general or MBA graduates in particular. The thing is that the rise in the number of the so called “professional managers” is raising a number of questions in the circles of business. Those questions have been given a rise in the last period after the global economic crisis. This crisis which started in Aug 07 with the collapse of the sub-prime mortgage market has its effects so huge today more than a year after. Many people think that the roots of the crisis lie in bad decisions made by this new generation of business leaders equipped with a certificate and who lack what the CEO of General Electric calls “Domain knowledge”.

The human building

These days I’m busy preparing a project for staff selection and evaluation. I’ve been discussing the issue of staff selection and management for a while and I kind of shaped a more solid understanding. At this time I feel the need to write because I want to share and it’s good to get some comments

Lately, I’ve met with people trying to get the best out of there staff but all in vain. There was this kind of dissatisfaction from both sides (the manager and the staff). Most of those people pay high salaries and nearly all of them assured me that the have been so careful choosing there staff and that they give them all the job requirements. So what’s wrong?

What makes a good leader?

I was reading in the news the other day that presidential candidate Hilary Clinton was engaged in a public debate. The news reporter said that the audience was testing her “consistency” and “judgment“.

This phrase rang a bell in my head. Those two words summed up a long debate in my mind on what characteristics make a good leader.

Before you press send

I found this document on Microsoft website by chance. It’s a check list to do before sending an email. It makes very good sense and I think people who regularly send mass emails to clients or distributers will find it very useful.

Download it here “Before pressing send”

Before pressing send

□	Does this e-mail message make sense? Are the actions clear and do they have owners?
□	Does the e-mail message meet the MPS P.A.S.S test?
	□	What is the purpose of this communication?
	□	What action is involved and does it have a due date?
	□	What supporting information does the recipient need?
	□	Has the communication been effectively summarized in the subject line?
□	Is the message well-written? Is it concise while providing enough data for action to be taken or decisions made?
□	Do the links in the message work? Are the attachments included?
□	Is the e-mail message being sent to the correct recipients (not too many and not too few)?
□	Does everyone on the To line have an action to take?
□	Has the message been re-checked for grammar, spelling, and use of jargon?

Boxing-style learning

 

Long ago I used to attend kick-boxing classes. We noticed that those who start learning some new moves begin to be so proud and they tend to be aggressive in there attitude. You would see them walking in the street showing off. As soon as those begin to be more mature in the game, their attitude begins to get wiser and more moderate.

In the business environment the same applies. Some people, in the beginning of their career, when they start to realize that they’re getting bigger (or different) than there peers, begin to adopt the same attitude.

Intuitional decision making

The fact that we watch a lot of TV, and that this has been running the logic of many is becoming more acceptable these days. In the world of movies we usually associate with the good guys. Usually those good guys are heroes capable of beating the bad guys with there “innate” capabilities.

Many try to represent the scenario in real life. This has a bright side: it does inspire people to do good things. But it becomes risky when those people are in charge. What turned me on to write this is the way some leaders and politicians take there decisions.

Do real life situations give us the luxury to experience our fantasy?

Negative and positive spirals

Spirals, in the commercial sense, are actions that follow each other by lows of causality to increase or decrease in a non-linear fashion. If we take the example of the highly popular community website Facebook, the software had no value when it had only one member as this member had no one to communicate with. Each new member will add to the value of the network and to its users and will attract more new users to sign-up.

Give them the freedom or not?

This is a question I’ve been asking my self for some time: in large companies, should we give the freedom of taking decisions to junior managers?

Frankly speaking, because I am a liberal kind of guy, I always thought that everyone should be given full control on his own domain. This was because I thought that each one is more familiar with his own work more than anybody and he is the one more capable to take a decision.