Continuous transformation or a transitional approach, which path do you prefer?


Janet Yellen Testifies House Fniancial Services Committee

Earlier this week, Janet Yellen told the House Financial Services Committee that no decision has been made, but shared the Federal Reserve Bank‘s expectations via the Wall Street Journal.   “The economy will continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term, and if the incoming information supports that expectation, then…December would be a live possibility. ”

Wow, lot’s of room in those statements.  Both US Stocks and bonds slipped following her remarks. It’s become commonplace to link Fed Chairpersons’ remarks to the rise and fall of the markets.  I’m not so willing.

Maybe because my thoughts of late were influenced by a conversation hosted by the Becker Friedman Institute I attended last week.  Entitled The Role and Impact of Monetary Policy in an Uncertain Economy  and included Charles Plosser of the Philadelphia Federal Reserve  and nobel laureate Lars Peter Hansen.

First, I’m with Plosser in sensing that it’s foolish to expect that  the Federal Reserve’s control of the money supply and interest rates can be used to effect both inflation and domestic employment.   Second, we need to be cognizant, as Hansen advises, that models can be very helpful but are not exactly the same as direct relationships.  Politico made a similar point. “The Fed and its staff, like any good economists, rely on past patterns as a guide to future outcomes. And now, those patterns are no longer working…:

In fact, it’s the latter thought the differentiation between modeled certainty and certainty deserves more attention.  I’ve been unpacking and exploring this in a variety of ways .  Here’s one:

I know with certainty the relationship between the gas pedal and the degree of pressure applied by my foot and the acceleration of my car.  Janet Yellen and the Fed no matter how experienced and accurate the input data, the econometric models relationship to the economy remain uncertain.  It’s why changes in pressure they apply to expand or contract interest rates have a fuzzier relationship to the economy, and the measurable results more complicated and less consistently understood when compared to my car’s observed speed when I hit the or lighten up on the gas.

Modeled certainty when it fails produces uncertainty but doesn’t mean stop, or does it?

I only watch the dashboard in my car.  I used to have a ticker list of stocks I followed, but no more.  I also rely on the weather app on my phone even though it’s not very accurate. Why? Well it’s useful to be prepared for forecasted conditions, even though several are beyond my control. Yes the weather is uncertain inspite of models who do their best to assure us.

I’m not alone in my struggle to understand and interpret the signals around us, especially the indicators of the health of the American economy and the global economy.  For one, its more complicated than the working of my car, which I also don’t fully understand. The dashboard guides me, it reminds me that the gas tank needs refilling or that in a particular area I may need to reduce my speed, or if the other lights go on I should get a mechanic to take a look.

Today the growing interconnections between sensors, and communications technology make makes it possible to funnel more information to me in real time than ever before.  So, what value do additional indicator really offer? What does knowing more change? The answer is it changes everything, but not necessarily in a predictable way.

Experience, does affect how we process information. Our brain uses experience to filter out commonplace or the “usual” details in our midst. Organizationally, experience used to model and plan the allocation of resources and assure us with forecasts based on different decisions.  The bigger the organization, the more careful and challenging the coordination and planning activities.

When I was a kid, I heard the expression “As goes General Motors, so goes the country.” I didn’t know the first thing about economic indicators, or inflation rates.  My family bought GM cars, so when my grandpa bought a new Buick, things were going well. Conversely, things were going less well when my father continued to drive his Pontiac long after a small hole in the floor board  appeared spurting water when we’d hit a puddle.

GM of course was until recently not just one of the world’s automakers, it’s activities were deeply embedded into the economy.  A report by US Auto Alliance , quantified the importance of the automotive industry in the U.S. economy  claiming:

  • more than seven million private sector jobs and $500 billion in compensation,
  • drew foreign direct investment (FDI) currently valued at $74 billion—approximately 3 percent of all FDI in the United States.
  • And collective investments of almost $46 billion that expanded and retooled U.S.‐based facilities since 2010.

It take a reasonably long time to build a car, but people don’t buy them very often, so supply can generally keep up with demand. If we use GM as a litmus test for the economy there’s some wise and prudent parallels becasue there’s a lot of interdependencies between larger sentiments and people’s financial capabilities.  In contrast, fast food offers a set of alternative indicators to measure the pulse of the economy. In May of 2015, US news speculated about the inverse relationship between the two in an article entitled “McDonald’s earnings slide could be a function of economics. Besides, McDonald’s is the 2nd  largest employer in the country, trailing WalMart. Not surprising given its 14,300 restaurants –4.6 outlets per county.  (I plan to explore this idea more fully in a post I’ve drafted called  McDonald’s a truly American Story).McDonald's Workforce, 2005-2014

See http://fortune.com/2015/06/13/fortune-500-most-employees/

I only point to these two companies becasue I think it’s important to notice the difference between government actions and companies responses to changes in external conditions.

BCG put it this way:

“To compound matters, the diversity of the business environments—in terms of growth, rate of change, and harshness—that global companies face is expanding in a multispeed world. So it is not surprising that many companies find their strategies and business models increasingly out of step with their environments.

Many companies get caught in a “boiling-frog trap,” where they fail to recognize the problem and delay efforts to remedy it, thus necessitating a painful and risky step-change transformation.”

Is that what you want the Federal Reserve Governors to do?  I hope not.  It’s why I don’t envy them nor am I ready to second guess them.  In reality no one should let uncertainty about monetary policy and interest rate hikes hold up your planning, I would encourage you to take a harder look at the relationship between the micro as well as the macro trends in your industry. You don’t need a data scientist per se to create an elaborate model, but it can’t hurt.  The trick is to merely face the realities.    Try to imagine how your customers adjust and see if these factors are included in your own models, you might fill in a few more gaps..a sustainable path is up to you.

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Goldilocks can help you face your challenges, will you let her?


photo (1)What’s the story? Today’s headlines continue to be filled with a persistent recurring behavior symptomatic of leadership failures.  Most of us are familiar with storybook tales and parables that remind us of particular lessons. No one wants to be The boy who cried wolf. Cinderella teaches us not to give up hope, and I’m sure you have an equally simple take away for the story of Goldilocks, aka the story of the three bears.

Have you considered using simple stories, and in particular the tale of Goldilocks,  to lead differently? 

I’m actually heartened by Mary T. Barra, because I think she gets this lesson. Today’s New York Times report on the ignition switch investigation suggests that unlike her predecessors, she pursued a different approach. This stands in sharp contrast to last week’s New York Times story Business school Disrupted where Jerry Useem offers a glimpse into Harvard Business school‘s decision-making around digital, online education.

How IS it possible that one of the most premier academic institutions in the world–with articulate thought leaders on key business issues related to Strategy, Disruption and Innovation– continue to cling to their old ways, unable to effectively transform themselves?  I’m not interested in their offering per se.  Their decision options resemble those of Fortune 500 business leaders when surveyed.  They find it difficult to pursue a path toward transformation, though failing to try, often cripples their organization’s ability to sustain value and/or their competitive advantage.

I see the decision dilemma as actually two stories. One, the tale of a lizard, or chameleon, and the second the universal tale of Goldilocks.

Steve Jobs sittingSteve Jobs, from what I’ve read, understood how to lead like a chameleon. By association the story of Apple throughout its tumultuous history can easily be interpreted as a lizard’s tale. Academics, however like many cogent, intelligent thought leaders resemble Goldilocks. Their training, the PhD process itself promotes competition, neither intentional antagonism or collaboration. Individual researchers training emphasizes objectivity, perhaps fearlessness, definitely curiosity. Still academics produce results relative to existing thought using an established process.  These predictable outcomes rarely achieve or encourage breakthroughs in understanding.  Occasionally, this process model when most forcefully applied manages to create disruption in existing domains. Leaders in these established environments rely on orderliness, offsite planning and reflective discourse. Failure to challenge their process makes them vulnerable to outside breaches that create havoc at multiple levels within their hallowed institutions and the underlying operating models their continued existence depends. Basic physics teaches that a body at rest stays at rest.  This lesson exemplifies the impact of complacency and comfort, and the necessity to avoid them at ALL costs.

Goldilocks isn’t a morality tale

Adaptation came easily for Steve Jobs , though in many ways he also behaved like a Goldilocks. Constantly moving and sampling new things until he seized on an idea that resonated with his core principles—simplicity , quality and durability, as in built-to-last. His passion for these principles when wrapped around an idea supported peer learning that enabled development of a powerful culture that made his ideas tangible. The Steve Jobs in Walter Isaacson’s book both hungered for new ideas, and was steadfast in his resilience. These qualities resemble chameleons, making it possible to adapt quickly to subtle changes happening in their environment. These thick-skinned qualities made him  tough, capable of weathering transitions and nurturing— both necessary to support transformation and sufficient to support sustainability.   The verdict remains out for Apple itself.

Goldilocks adapts too.  She makes do with what she finds but she herself never undergoes any transition. She changes her environment, it doesn’t change her. Her existence also depends on encounters with normally distributed choices. The variance around the norm makes her choices rational and predictable.  This may explain why her innocence makes us lose sight of the disturbances she leaves behind.

I don’t know what personality profile Goldilocks fits exactly. It’s why I believe today’s popular assessment tools used by many companies in their hiring practices to find cultural fit ultimately don’t matter.  How exactly do profiles help an organization survive? Leaders who worry about identifying Goldilocks may be missing what I find to be the more critical perspective in the story.

What about the story of Goldilocks resonates and endures? (see post two)

Personally, I think on some level, each of us behaves like Goldilocks.  We are often unaware of how our choices create a wake or disturb the system for those who follow. We prefer to limit the number of choices. Fewer options allow us to focus and ultimately find the points of contrast most relevant, or good enough for us now. Once we make the choice, we can keep going,  gain additional experience and be ready for the next opportunity we meet.

Goldilocks always finds a suitable, generally satisfying choice after sampling all of them. What would she do in a complex situation where the choices exceed her ability to sample? The absent inhabitants of her found environment don’t stop her from seizing the opportunity or indulging her curiosity.  Why doesn’t she hesitate or allow uncertainty to get in her way? When the Bears do return, Goldilocks flees and the narrative ends.

Of course, our experiences allow us to imagine the internal voices that often stop us from pursuing what we recognize could create difficulties for others.  A verbal exchange of assumptions often proves surprising and reveals greater diversity in perspective than any of us imagine. These behaviors Leaders need to cultivate and question when presented with Goldilocks canned results.

Ask Mary T. Barra if the risks were worth the time her predecessors saved shutting down alternative thoughts, questions left unspoken and open issues under examined? Does complacency in your process overrule critical thinking and exchange among peers of diverse perspectives? Should PhDs be reviewed only by the experts in their own domain? What are the principles that every report and process should adhere?

The challenge for management and leadership isn’t to isolate Goldilocks, but to encourage and nurture transformations and mindfulness .