Category Archives: Management

From reducing to absorbing complexity

This reminded me of the work we sometimes did as consultants with frameworks, strategy models and elaborate templates. I felt that we didn’t really capture the complexity, we reduced and simplified it in a way which didn’t really work. I don’t think we really saw and allowed for an open system which constantly emerges dynamically, but aimed more for a controlled setting with plans and execution:

“Boisot felt that a fundamental premise underlying bureaucracies was a belief that knowledge is something that can be simplified, and then easily transferred between parties – an orientation towards reducing complexity. (…)

Boisot recognised that shifting the way companies worked with knowledge presented significant cultural and organisational challenges. He felt that the ability to make the shift from reducing to absorbing complexity would be one of the key determining factors about which companies survive the transition to a knowledge economy and which would become the dinosaurs of a former era.”

The fewer assumptions a model has, the more flexible we are and the less obstructed in our observations. The higher our capacity for learning. And the swifter we can act and change course when needed.

Quote from article: Strategy as Hypothesis

 

Future of Work – Banking – AI and investing at BlackRock

Apart from the Mergers and Acquisition process and other parts of banking (see previous posts), stock picking is becoming driven by A.I: and human stock pickers are being laid off at Black Rock, one of the largest investment firms globally.

Now, after years of deliberations, Laurence D. Fink, a founder and chief executive of BlackRock, has cast his lot with the machines. On Tuesday, BlackRock laid out an ambitious plan to consolidate a large number of actively managed mutual funds with peers that rely more on algorithms and models to pick stocks.

This has been part of a larger trend for years, showing that most fund managers do not outcompete indices after cost:

Last year, for example, $423 billion left actively managed stock funds and $390 billion poured into index funds, according to Morningstar.

At BlackRock, Machines Are Rising Over Managers to Pick Stocks

The initiative is the most explicit action by a major fund management firm in reaction to the exodus of investors from actively managed stock funds to cheaper funds that track every variety of index and investment theme. Some $30 billion in assets (about 11 percent of active equity funds) will be targeted, with $6 billion rebranded BlackRock Advantage funds.

 

Management miscellenia – Taiichi Ohno’s favourite word – understanding

Taichi Ohno counselled, never codify method, because it is the thinking that is the key. Ohno’s favorite word was understanding.

Like Socrates, who never wrote anything (Plato did). The moment you think the tool is the way, you may stop to think… Learning people to think, that is the way.

From an article by Jan Höglund. Great blog.

Reinhold Sprenger – Veranstaltungen betriebswirtschaftlicher Rationalität

“Mal ganz persönlich an Sie gerichtet: Was ist der größte berufliche Irrtum, dem Sie je aufgesessen sind?”

SPRENGER: Ich habe lange geglaubt, Unternehmen seien Veranstaltungen betriebswirtschaftlicher Rationalität. Das sind sie nicht. Es sind vielmehr Theateraufführungen, in denen viele Spielelemente nur deshalb berechtigt erscheinen, weil sie der Organisation als Organisation geschuldet sind. Also ihrer Eigenlogik. Das Spiel mitzuspielen, ohne zynisch zu werden, das ist die Kunst.”

Aus: http://www.absatzwirtschaft.de/content/marketingstrategie/news/employer-branding-hat-keine-substanz;81281

Ray Dalio: Decision Rules – “Have we got this right?”

Admitted, I am not a big fan of the hedge fund industry and its remuneration. But what I found interesting is the way some of them work. A great article in The New Yorker about Ray Dalio’s Bridgewater Fund makes for a very interesting read – especially the part about the principle-based approach. Smarter thinking…

Some excerpts from the interview:

”Our greatest power is that we know that we don’t know and we are open to being wrong and learning.”

”I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.”

One rule of radical transparency is that Bridgewater employees refrain from saying behind a person’s back anything that they wouldn’t say to his face.

(On Meditation) “It’s just a mental exercise in which you are clearing your mind,” he said. “Creativity comes from open-mindedness and centeredness—seeing things in a nonemotionally charged way.”

“They (Bridgewater, VL) are consistently innovating—constantly soul-searching and asking, ‘Have we got this right?’”

To guide its investments, Bridgewater has put together hundreds of “decision rules.” 

“The duty of a leader, first and foremost, is to be transparent.”

“the intention is to make people better. . . . I have never seen a C.E.O. spend as much time developing his people as Ray.”

Dalio has published his principles on his company’s site, Bridgewater.

In a letter Dalio and his wife described their reasoning for their philanthropy and joining the Gates-Buffett giving pledge. Happiness does not increase after a certain level of wealth with more wealth, but through meaningful relationships and work. And by charitably giving making a positive impact on other people’s lives:

Tom Rollins: the economist’s argument against shareholder first-strategy

This article by Steven Pearlstein is a good synopsis of management based on shareholder value. He describes the history, ecosystem and proponents, its critics and possible future:

What I found most interesting was the intellectual argument from an economist’s point of view against shareholder first-strategy, as formulated by Tom Rollins:

“at the foundation of all microeconomics are voluntary trades or exchanges that create “surplus” for both buyer and seller that in most cases exceed their minimum expectations. The same logic, he argues, ought to apply to the transactions between a company and its employees, customers, and owners/shareholders.

The problem with a shareholder-first strategy, Rollins argues, is that it ignores this basic tenet of economics. It views any surplus earned by employees and customers as both unnecessary and costly. After all, if the market would allow the firm to hire employees for 10 percent less, or charge customers 10 percent more, then by not driving the hardest possible bargain with employees and customers, shareholder profit is not maximized.

But behavioral research into the importance of “reciprocity” in social relationships strongly suggests that if employees and customers believe they are not getting any surplus from a transaction, they are unlikely to want to continue to engage in additional transactions with the firm. Other studies show that having highly satisfied customers and highly engaged employees leads directly to higher profits. As Rollins sees it, if firms provide above-market returns—surplus—to customers and employees, then customers and employees are likely to reciprocate and provide surplus value to firms and their owners.”

Or as Nick Hanauer says about that train of thought in a recent article on Politico:

The thing about us businesspeople is that we love our customers rich and our employees poor.”

Not coincidentally, several large companies have done extremely well who succeeded at becoming “platforms” which create larger surpluses for customers, employees, suppliers and partners, and owners.

For example Google (compared to traditional advertising and market research companies) provides a larger surplus for companies who advertise and at the same time for users, making it easier to find things, people, places, documents etc. Their business model is more inclusive, thereby fostering a larger ecosystem.

PS A slightly longer version of Pearlstein’s article was published in a Brookings Institute paper: