Summer Reading 2018: Time for Reflection and Re-Creation

The last two years I started the introduction to the summer reading list with the same quote (read all my blog post on reading via this link). For a different reason, I repeat it one more time:

. . .  the worst thing one can do to feel one knows things a bit deeper is to try to go into them a bit deeper. The sea gets deeper as you go further into it, according to a Venetian proverb. Curiosity is antifragile, like an addiction, and is magnified by attempts to satisfy it – books have a secret mission and ability to multiply, as everyone who has wall-to-wall bookshelves knows well (Nassim Taleb, Antifragile).

For this list, I tried to find books that get you a bit deeper inside yourself, instead of getting deeper in history, science, philosophy or (business) decision-making (i.e. some of the ‘things’ Taleb is talking about).

I picked up just these books because I did not read a lot of new books this year relevant for this blog. (I guessed you didn’t really want a review of books with titles such as Baby-led Weaning, Babywise or Your Baby Week by Week; as those were the books I did read the last months.) Picking up books that you’ve read before, and reading through underlined sections and annotations, is a great way to reflect on yourself: Why did you underline it? What notes did you make? Does it still make sense? Which things did you forget but you really should remember from now on? Etcetera.

Whilst flipping through the pages, the books below magically seem to build on one another like this:

  • You build something big, anything, by working on it bit by bit every single day. Things add up, like training for a marathon. One day, you look back and see all the work you have done leading to the thing you wanted to achieve. This concept is found in Bird by Bird and is mostly about writing but it goes for everything you want to achieve in life really.
  • To achieve the above, you need rituals. You have to sit down (or move about) at the same time every day. This helps prepare your unconscious for the task ahead. Rituals are introduced in Bird by Bird but are the prime subject in Daily Rituals.
  • But what should you be building on? That, of course, is something that you have to find out for yourself. Some intriguing thoughts on that can be found in David Foster Wallace: The Last Interview and The Three Marriages. What struck me is that finding the thing you should work on, is not about rationality. According to these two books it’s more about intuition and gut-feeling. But even then, it is hard work getting there.
  • Hard work and maybe insight. Wisdom too. And prudence. Those are the subjects of The Art of Worldly Wisdom and would make a nice addition to any reading list. But the emphasis on prudence (i.e. acting with or showing care and thought for the future) makes it especially helpful if you want to build something big.

Here is my list for this summer to inspire you to get a little closer to what drives you. Or maybe make some welcome changes as you read through these pages filled with wisdom.

Bird by Bird by Anne Lamott. A book about writing. But at the same time about life. The struggle to write a book, and how to start, can be read as a metaphor for anything you would like to achieve in life. One of the bits I loved:

You get your intuition back when you make space for it, when you stop the chattering of the rational mind. The rational mind doesn’t nourish you. You assume that it gives you the truth, because the rational mind is the golden calf that this culture worships, but this is not true. Rationality squeezes out much that is rich and juicy and fascinating.

Daily Rituals by Mason Currey. Currey, in the introduction, describes what this book is about:

The book’s title is Daily Rituals, but my focus in writing it was really people’s routines. The word connotes ordinariness and even a lack of thought; to follow a routine is to be on autopilot. But one’s daily routine is also a choice, or a whole series of choices. In the right hands, it can be a finely calibrated mechanism for taking advantage of a range of limited resources: time (the most limited resource of all) as well as willpower, self- discipline, optimism. A solid routine fosters a well- worn groove for one’s mental energies and helps stave off the tyranny of moods. This was one of William James’s favorite subjects. He thought you wanted to put part of your life on autopilot; by forming good habits, he said, we can “free our minds to advance to really interesting fields of action.”

You can see why this is a great companion to Bird by Bird. This is not a book to read in one sitting. Currey has a little chapter on the routines of more than hundred authors, philosophers, artists and musicians. It’s a good book to put on your night stand for the holidays. Or a book that you can pick up if you already know you will not have more than ten minutes undisturbed reading at a time. There are some big names here: Freud, Hemingway, Murakami, Proust, Louis Armstrong, Stephen Jay Gould and Andy Warhol, to name a few. A lot in this book echoes what Anne Lamott writes in bird by bird. Consider Murakami’s routine:

When he is writing a novel, Murakami wakes at 4:00 A.M. and works for five to six hours straight. In the afternoons he runs or swims (or does both), runs errands, reads, and listens to music; bedtime is 9:00. (..) “The repetition itself becomes the important thing; it’s a form of mesmerism. I mesmerize myself to reach a deeper state of mind.”

The Three Marriages by David Whyte. A book about work-life balance:

The current understanding of work-life balance is too simplistic. People find it hard to balance work with family, family with self, because it might not be a question of balance. Some other dynamic is in play, something to do with a very human attempt at happiness that does not quantify different parts of life and then set them against one another. We are collectively exhausted because of our inability to hold competing parts of ourselves together in a more integrated way.

What follows is a very unusual treatment of the work-life balance. It changed the way I look at my work and relationships. If you want to reflect deeply this summer, pick up this book. But only if you like a very new way of looking at your life:

The pursuit of the self is the pursuit of that part of us not defined by our worries and anxieties. [I had to pause here for at least 10 minutes.] But this pursuit begins only by admitting that human anxiety is endless and to be expected. These waves of existential anxiety may knock down the surface self, but there is another, deeper self with a larger perspective that was never knocked down at all. (..) The pursuit of the self is also the pursuit of that part of us that is untouched by our successes and accomplishments.

David Foster Wallace: The Last Interview. This little volume of interviews with the writer David Foster Wallace makes me want to read his fiction. Zadie Smith said of him: “In a culture that depletes you daily of your capacity for imagination, for language, for autonomous thought, complexity like Dave’s is a gift”. Again, there’s a lot on routines and rituals here, but also some good thoughts on life and work:

[W]hen you’re a child I don’t think you’re aware of how incredibly easy you have it, right? You have your own problems and you have your own burdens and chores and things you have to do. (..) I think when they [i.e. his parents] went into these quiet rooms and had to do things that it wasn’t obvious they wanted to do, I think there was a part of me that felt that something terrible was coming. But also, of course, now that we’re putatively grown up there’s also a lot of really, really interesting stuff and sometimes you sit in quiet rooms and do a lot of drudgery and at the end of it is a surprise or something very rewarding or a feeling of fulfillment.

Definitely a nice little volume for your summer reading list. For the Dave Eggers fans out there: he is one of the interviewers.

The Art of Worldly Wisdom by Balthasar Gracián. Written in the 17th century by a Jesuit priest. A keen observer of human behavior, his 300 observations give you excellent advice on how to get ahead in life. Although the book was written long ago, it still holds truths that you can use in your work as a manager and business decision-maker. This little volume, for some, is therefore included in a list of three great, timeless wisdom books: Machiavelli’s The Prince, Sun-Tzu’s The Art of War, and, thus, Baltasar Gracián’s The Art of Worldly Wisdom. I am only halfway through this book. Here are some quotes I found especially useful in a work setting:

Don’t outshine your boss. When you counsel someone, you should appear to be reminding him of something he had forgotten, not of the light he was unable to see. It is the stars who teach us this subtlety. They are brilliant sons, but they never dare to outshine the sun.

Never exaggerate. It isn’t wise to use superlatives. They offend the truth and cast doubt on your judgment. By exaggerating, you squander your praise and reveal a lack of knowledge and taste. (..) To overvalue something is a form of lying. It can ruin your reputation for good taste, and  ̶  even worse  ̶  for wisdom.

Be diligent [i.e. careful and conscientious in work and duties] and intelligent. Fools are fond of hurry: they take no heed of obstacles and act incautiously. The wise usually fail through hesitation. Fools stop at nothing, the wise at everything. Sometimes things are judged correctly but go wrong out of inefficiency and neglect. Readiness is the mother of luck. It is a great deed to leave nothing for the morrow. A lofty motto: make haste slowly.

For all management consultants out there:

End well. [B]e careful of the way you end things, and devote more attention to a successful exit than to a highly applauded entrance. What matters isn’t being applauded when you arrive  ̶  for that is common  ̶  but being missed when you leave. Rare are those who are still wanted.

And for everyone out there:

Be careful when you inform yourself about things. Much of our lives is spent gathering information. We see very few things for ourselves, and live trusting others. The ears are the back door of truth and the front door of deceit. Truth is more often seen than heard.

This wonderful book is to be read like Daily Rituals: take it in in small doses and do a lot of thinking about the deeper meaning and consequences for your strategies in work and life.

I hope this list inspires you to read this summer. Need more recommendations? Check out all my book reviews via this link.

Enjoy your summer.

 

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Could You Be Wrong in Thinking Climate Change Does Not Affect Your Business?

Credit: Takver via Flickr

Introduction: what The Economist has to say about climate change and business

More than a year ago, we started off a series of blog posts on mandatory non-financial disclosures with a post on climate change. At that point, four risk groups of climate change were identified and suggestions were made on how to integrate climate risks in your overall risk management strategy. It is time to revisit and update the story on climate change, as climate science is advancing and impacts are becoming clearer.

As a heuristic (always a good idea, see this post), we gathered that the number of times The Economist, a weekly current events newspaper, wrote an article on ESG-related topics (i.e. risks stemming from environmental, social or governance aspects) would be a proxy for how serious firms should take ESG-risks. Climate change was the topic of the most articles by far in the period from roughly the end of 2015 to the end of 2017. We counted the following number of articles on ESG-topics:

  • Climate change: 38 articles.
  • Renewable energy: 18 articles.
  • ESG-risks: 12 articles.
  • Natural resource depletion and pollution: 11 articles.

Here’s how we think these topics fit together:

Please note we don’t claim any scientifically established causal relationships here; just a framework to put different topics loosely together and offer a way to think about interrelations. If you are looking for a scientific take on this, please visit the excellent report A Guide to SDG Interaction: from Science to Implementation from the International Council for Science.

Since climate change as a topic has the highest count in articles, is central to other topics such as the worldwide push for renewables and natural resource depletion (see schematic above), and climate change is advancing rapidly, we felt it was time to update our previous post on climate change risk. The importance of climate change risk is echoed by The Economist:

Ignoring the climate issues altogether looks like the biggest risk of all.

We will therefore revisit the four business risks already identified earlier (i.e. asset and infrastructure risk, yield and price risk, regulatory risk and reputational risk), and will propose a number of new risk groups that we found by reading recent articles by The Economist on ESG-topics.

Climate change and business risk, updated

In the table below, you will find all the business risks stemming from climate change found in The Economist. New risks (compared to our earlier blog post) are shown in bold italics. First, there are two additional business risks added to the risk group ‘external stakeholder actions to curb climate change’. Second, we found an entirely new risk group: ‘funding risk’.

For every business risk identified, we will now briefly describe the risk, give the examples found in The Economist, and offer a way to mitigate the risk.

Regulatory risk. More and more jurisdictions are introducing cap and trade schemes or carbon taxes. This inevitably means that firms have to take into account (future) carbon prices in investment decisions. According to the Carbon Pricing Leadership Coalition (a World Bank funded outfit that puts together business and governments to advance carbon pricing), ‘as of 2017, 42 national and 25 subnational jurisdictions are pricing carbon’. That already accounts for more than 20% of global CO2 emissions. In Canada, the announcement of a national carbon price puts high emitters at immediate risk. The province of Quebec in Canada, for instance, is lobbying to funnel $1 billion to Bombardier, an aircraft-maker, to make up for its payments of carbon taxes under a nationwide introduction of a carbon tax. Even if your own government is not imposing a carbon tax, there is increased risk that other governments start installing an import tax for every ton of CO2 emission in the making of a product. Indian steel makers, for example, will have to take into account a carbon tax when exporting to the EU, even though they do not currently face a carbon tax in India. What to do? More and more firms are using a price for carbon emitted in their long-term investment decisions. Putting a price on carbon in decision-making – and using a realistic price, say in the range of €50-60 per ton – will take into account any future carbon tax or cap and trade system. The Economist lists a number of companies that already use such internal carbon prices: Microsoft, DSM, AkzoNobel, Indian cement manufacturers ACC, Ambuja & Dalmia, French building materials producer Saint-Gobain, and supermarket chains Carrefour and Sainsbury’s.

Reputation risk. The sectors that face reputational risk include an obvious one and a, maybe, not so obvious one. To start with the obvious sector, the fossil fuel industry, it is not only CO2 emissions that are the target of environmentalists, but also methane leaks. That leaves companies like Shell, BP and ENI vulnerable to reputational risk even if they pledge to switch more and more to natural gas (infamous for methane leaks). Already, NGOs such as the Environmental Defence Fund are drawing attention to methane emissions in the production of natural gas that ‘now surpasses cow burps as a source of [methane] emissions’ according to The Economist. A sector that, as of yet, has not attracted the attention of environmental campaigners, is the cement industry. That might be about to change however, as more and more NGOs draw attention to an increasing number of industries now that it becomes clear that humanity is unlikely to keep temperatures less than 2°C warmer than pre-industrial times. Cement, together with steel, makes up a large part of the CO2 footprint for any building. And as firms try to lower their CO2 footprint, buildings, and thus cement, is another link in the chain in trying to reduce emissions. Firms that are exposed to this type of risk (i.e. reputational) are, according to The Economist, especially the major players in the cement industry, e.g. Heidelberg Cement Group and Cemex. Examples for mitigating these risks, as listed by the same newspaper, include setting publicly available targets (and reporting against those targets), carbon capture and storage, and using higher internal carbon prices for long-term investment decisions.

Shareholder pressure. An unlikely pressure group that turns its attention to climate change, are shareholders. Unlike environmental groups, who strive for direct reduction in emissions, shareholders would like to see that companies identify the impact of climate change regulations and policies on business plans. Again, the industry where shareholders are, at the moment, most active is the fossil fuel industry. The Economist refers to Shell, Total, Chevron and Exxon as firms where shareholders are particularly active to push towards pricing in carbon in investment decisions as the preferred mitigation strategy. Total goes further: ‘It plans to set out its ambition to develop an energy mix by 2035 consistent with Paris-style global-warming limits, including a pledge to invest $500m a year in renewables, and a “symbolic objective” to raise their share to 20% of its portfolio, from 3%. In an effort to complement its acquisition of a solar-energy company, it launched an offer to acquire a battery-maker, which will bolster its expertise in electricity storage’. Hidden in this mixture of Total’s plans, are a plethora of mitigation strategies that would please many shareholders pushing for just that: increasing the stake in renewable energy, taking head of broad international movements like the Paris agreements and adjusting strategies accordingly, and setting publicly available targets. Do this, and add to the mix internal carbon prices for investment decisions, and your firm will have a good policy mix to satisfy shareholder demands.

Lawsuit risk. In an article dubbed ‘Lawsuits against climate change’, The Economist points out that the number of lawsuits where the negative effects of carbon emissions are central, are rising. The targets are both governments and big energy firms. Ironically, governments also sue energy firms: San Francisco is taking BP, Chevron, Exxon and Shell to court. All of this is made possible by improved climate science: ‘Scientists are increasingly confident that they know roughly what shares of the greenhouse gases in the atmosphere were emitted by individual countries, and even by the biggest corporate polluters. (..) just 90 belched out 63% of all greenhouse gases between 1751 and 2010.’ In a fascinating report by the Carbon Majors Database, all these companies are listed. Unsurprisingly, the 90 firms are either big energy firms, mining corporations, or cement manufacturers. Even if your firm is not listed, you might want to check if a similar study is done for your own country, and you may find that your company is listed in that ranking. Climate litigation is on the rise. The focus is on big energy firms for now, but cement manufacturers and mining corporations might be next. The sooner you map your firm’s GHG emissions and estimate the risk that an interest group or government targets you in the near future, the better.

Decreased access to capital markets. The last new risk that we identified as compared to our last post on climate related risk for companies, is a funding risk. As climate change becomes more of an issue, investor demand for green bonds is increasing. At the same time, investors are backing away from industries that run greater risk from climate change (these risks are, essentially, all other risks described here). Moody’s, a rating agency, puts energy firms and car makers, for example, in a higher risk category. This can obviously translate in lower stock prices and higher premiums in bond markets. Big investors are adopting climate strategies rapidly. Allianz, for example, is not putting money in firms that derive more than 30% of their energy from coal; and even the biggest asset management firms like BlackRock have set-up dedicated green-bond funds fueled by investor demand. Another recent development is that rating agencies are threatening cities with downgrades if they don’t do more on climate change mitigation (also see asset and infrastructure risk below). Companies might well be next.

Asset and infrastructure risk. As 2017 proved, with hurricanes Harvey and Irma as horrifying examples, climate change increasingly poses a threat for assets and infrastructure. As wet places get wetter and stormy places get stormier, cities around the world are making plans to raise roads and improve drainages. Your business would be well advised to do the same. As an example, you could use impact models (such as the Inter-Sectoral Impact Model Intercomparison Project (ISI-MIP)) to establish which of your business locations are at risk, and implement a mitigation strategy for those locations accordingly. We could not find any specific examples in The Economist of businesses that have already implemented mitigation strategies for asset and infrastructure risk, however. It mainly refers to cities and governments to take action to protect assets and infrastructure. Your firm should follow the example of cities.

Price and yield risk. What we discussed for asset and infrastructure risk, more or less also holds for price and yield risk. Although The Economist acknowledges the risk (‘by 2050, even if temperature rise is successfully limited to 2°C, crop yields could slump by a fifth’), we could not find any mention of individual firms that are already affected by this. Again, this should not be a reason for a wait-and-see attitude. A good starting point is the Agricultural Model Intercomparison and Improvement Project (AgMIP). This major international collaborative is an effort to improve agricultural simulation and to understand climate impacts on the agricultural sector at global and regional scales. AgMIP produce highly useful maps for your businesses to gauge the impact of climate change on yields for crops in your supply chain.

Industry climate change risk profile

Reading through the business risks in the previous section, you will have been able to quickly assess if your firm faces a particular risk or not. By deconstructing climate change risk into seven distinct business risks (i.e. regulatory, reputational, shareholder pressure, lawsuit, funding, asset & infrastructure, and price & yield), you now have a tool to help you decide if the – arguably – abstract concept of climate change is relevant to your organization.

By way of summary, we have added specific industries (mentioned in The Economist articles that we consulted) to the individual business risks identified. This isn’t to say that other industries aren’t impacted by each type of business risk. See the table below:

Coming up with the right strategy mix to mitigate these risks might not be easy. Renewable energy, insurance policies, carbon capture and storage, (higher) internal carbon prices, improving drainages, moving production locations: they could all be visited as possible solutions. Keep in mind that the combination ‘climate change’ and ‘business’ does not feel like a realistic combination. We would argue that this is normal human behavior, since climate change is not a risk that has hurt your business in the past. But we hope to have shown with examples taken directly from The Economist, that your competitors and fellow business organizations are already fully taking on business risks stemming from climate change. A final word of caution from Nicholas Taleb:

People in risk management only consider risky things that have hurt them in the past (given their focus on ‘evidence’), not realizing that, in the past, before these events took place, these occurrences that hurt them severely were completely without precedent, escaping standards.

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6 Tips to Foster Practical Wisdom in Decision Making

Aristotle might be best known for ‘inventing’ science (see my discussion of The Lagoon – how Aristotle invented science) and being a rather rational kind of chap. Although this is certainly true, and you can learn a lot from reading his treatises (his extant works read more like lecture notes than books) such as On the Soul, Physics, and Metaphysics, I stumbled upon the interesting Aristotelian term phronesis that translates as ‘practical wisdom’.

In The Nichomachean Ethics, Aristotle explains that practical wisdom (phronesis) is something else than scientific knowledge (epistēmē). In the sense that practical wisdom is rooted in action and can essentially create different realities (or outcomes) by taking action; scientific knowledge, instead, describes how reality is:

(..) since scientific knowledge involves demonstration, but there is no demonstration of things whose first principles are variable [such as decision making in reality], and since it is impossible to deliberate about things that are of necessity, practical wisdom can not be scientific knowledge nor art [technē, a technique, in the sense of making things]; not science because that which can be done is capable of being otherwise, not art because action and making are different kinds of things. The remaining alternative, then, is that it is a true and reasoned state of capacity to act (…).

This passage is pregnant with implications for managerial decision making. Although you should make use of scientific insights if they are available, and you should take into account knowledge on how to build real-life things (i.e. cars, bridges, consumer products, etc.), managerial decision making often has other, less tangible characteristics. For example, think about creating a strategy, an organizational structure or a company culture. Some characteristics of this kind of decision making that spring to mind are:

  • Uncertainty. You probably do not have all the knowledge and all the details. Outcomes cannot be predicted with certainty and are, thus, contingent.
  • Context-dependent. You are not taking a decision in isolation: How will my competitors act? What will my employees think and do? How will my stakeholders react?
  • Non-demonstrable outcomes. There are no scientific rules. There is not even an exact copy of the problem at hand.
  • Action-oriented. Your decision entails an actual follow-up in the real world; in a way, you will alter reality with your actions.
  • Multiple outcomes possible. Your actions will alter reality. But, the outcome is not fixed as it would be if there was scientific certainty. You change the outcome by taking different actions: you can create endless variations in strategies, organizational structures or cultures, for example.

Professors Ikujiro Nonaka and Hirotaka Takeuchi, in their Harvard Business Review article, call for ‘wise leaders’ to make decisions in such a context:

Dependence only on explicit knowledge prevents leaders from coping with change. The scientific, deductive, theory-first approach assumes a world independent of context and seeks answers that are universal and predictive. However, all social phenomena – including business – are context dependent. (…), the world needs leaders who will make judgments knowing that everything is contextual, make decisions knowing that everything is changing, and take actions knowing that everything depends on doing so in a timely fashion. They will have to see what is good, right, and just for society while being grounded in the details of the ever-changing front line. Thus, they must pair micromanagement with big-picture aspirations about the future.

Echoing Aristotle and Nonaka & Takeuchi, I therefore conclude that (managerial) decision making is not a science (epistēmē) and not a technique (technē). But, rather, it is applying practical wisdom (phronesis) to a situation that demands an analysis and a wise decision when facing uncertainties and incomplete information. Now, with Hardin, we can ask ourselves the question ‘What operations are implied by these statements?’ Or, ‘What does this mean in practice?’

In the following paragraphs, I will therefore offer 6 tips to operationalize the concept of practical wisdom.

Tip 1: use your mission and vision as a guiding principle in decision making

In taking on any decision, hold it against your mission and your vision. Your organization’s mission tells you the organization’s reason-of-being: why does your organization exist in the first place. The vision tells you what you are trying to achieve in the medium to long term. For more on one of the most important aspects of business (i.e. your mission), see my blog on business fundamentals.

Tip 2: get to the essence of a problem or a decision

Always ask yourself these questions: Why is there is a problem? What are we trying to solve? What are we trying to achieve? Nonaka and Takeuchi describe it as ‘relentlessly asking what the basis of a problem or a situation is.’ They go on to describe routines to do just that at two Japanese multinationals:

At Toyota employees ask “Why?” five times to get to the root cause. At Honda they ask the “A, A0, and A00” questions. A questions are about specifications – such as “What should the horsepower of this engine be?” A0 questions are about concepts – such as “What is the idea behind this engine?” A00 questions are about the essential goals of the project – such as “What is this engine for?”

Tip 3: understand the difference between epistēmē and phronesis, and when to use it

You don’t usually need scientific knowledge to make wise decisions (although it can be part of the data that you need for to make a decision, of course). Recognize the existence of practical wisdom (phronesis) as opposed to scientific knowledge (epistēmē). In a funny example, Nassim Taleb explains how relying on epistēmē in a situation where phronesis might be more suited, can lead to serious mistakes. He calls this the green lumber fallacy:

In one of the rare noncharlatanic books in finance, descriptively called What I Learned Losing a Million Dollars, the protagonist makes a big discovery. He remarks that a fellow named Joe Siegel, one of the most successful traders in a commodity called “green lumber”, actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried.) And he made it his profession to trade the stuff! Meanwhile the narrator was into grand intellectual theories and narratives of what caused the price of commodities to move, and went bust.

Tip 4: use heuristics (rules of thumb)

According to Taleb ‘heuristics are simplified rules of thumb that make things simple and easy to implement. But their main advantage is that the user knows that they are not perfect, just expedient, and is therefore less fooled by their powers.’ Using heuristics does not require scientific knowledge but can give you insight into what’s going on pretty quickly. In turn, you might be able to use these shortcuts for your decision making. A powerful heuristic, for example, is the 80/20 rule or Pareto principle that states that in many events 80% of the effects come from 20% of the causes.

Tip 5: develop your own heuristics through practice and experience

In practical wisdom, experience and practice take precedence over scientific rules. Through practice in the real world, you might be able to create your own heuristics about your specific (business) contexts and realities. In time, you will develop rules of thumb, or even a ‘feel’, for how things play out for your organization in a specific (Aristotle uses particular) situation. In The Nichomachean Ethics, this concept is illuminated as follows (emphasis mine):

Nor is practical wisdom concerned with universals only – it must also recognize the particulars; for it is practical, and practice is concerned with particulars. This is why some who do not know [i.e. do not have scientific knowledge], and especially those who have experience, are more practical than others who know; for if a man knew that light meats are digestible and wholesome, but did not know which sorts of meat are light, he would not produce health, but the man who knows that chicken is wholesome is more likely to produce health.

As an example, read why I use redundancy (as a heuristic) in project plans.

Tip 6: read widely

Now that we have established that (organizational) decision making is practical wisdom instead of science, you might want to practice as much as possible (and create your own practical heuristics along the way). Another way to expose yourself to as many situations as possible, and see how people react to and solve problems, is reading. Peter Drucker famously said that management is a liberal art. Liberal because management is about broadening general knowledge and experience; and an art because management is practiced by doing. So, pick up some philosophy, some history, and some literature once in a while to broaden your exposure to more Aristotelian particulars. A place to start? See last year’s holiday reading list.

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Holiday Reading to Blow Your Mind (and expand your perspective)

If reading up on philosophy can make you a more creative and effective manager, why not start by reading some non-business books that focus on contemporary philosophy?

Harvard Business Review argues that philosophy, through an increased ability for self-reflection, makes you a better leader. Reading philosophy:

(…) can promote business success by helping leaders to identify their values and strategic goals, synthesize information to attain those goals, and implement strong action plans.

Bloomberg writes about how philosophy can make you a better manager because it helps you to develop empathy (i.e. put yourself in someone else’s shoes). There is a warning though:

[Philosophy] doesn’t lead to easy answers, but it does help lead to the right questions. And that’s the true value of philosophy in business life. It can lead (…) to valuable self-reflection. But perhaps more importantly, it can help us think more clearly about the practical issues we face every day.

The Economist writes that real thought-leadership can only be achieved through reading ‘a few great thinkers’:

Inward-bound courses would do wonders for “thought leadership”. There are good reasons why the business world is so preoccupied by that notion at the moment: the only way to prevent your products from being commoditised or your markets from being disrupted is to think further ahead than your competitors. But companies that pose as thought leaders are often “thought laggards”: risk analysts who recycle yesterday’s newspapers, and management consultants who champion yesterday’s successes just as they are about to go out of business. The only way to become a real thought leader is to ignore all this noise and listen to a few great thinkers. You will learn far more about leadership from reading Thucydides’ hymn to Pericles than you will from a thousand leadership experts. You will learn far more about doing business in China from reading Confucius than by listening to “culture consultants”. Peter Drucker remained top dog among management gurus for 50 years not because he attended more conferences but because he marinated his mind in great books: for example, he wrote about business alliances with reference to marriage alliances in Jane Austen.

As much as I would love to dig deep into Thucydides here, I’ll keep it contemporary for now. Therefore, for this year’s holiday reading list, I selected some contemporary philosophy books by authors in the sphere of the humanities (a psychiatrist, an economist, a historian, and a moral philosopher among others).

It struck me that every single one of these authors has a different take on the state of our world and culture. Some argue that we (humans) are going into the right direction and there is a lot of progress in different fields. Others argue just the opposite. I find this quite intriguing. In the picture above, I’ve tried to put the books from this year’s holiday reading list on a scale from ‘pessimistic’ to ‘optimistic’. In discussions, some have suggested that the ‘pessimists’ should really be labelled ‘realists’; and those realists actually show much more insight in what it means to be human. I tend to agree. On top of that, people also suggested that one scale might be an oversimplification of where the authors stand: that it should be possible to introduce a second (and even a third axis). They probably have a point there too. However, I decided to stick with the scale for now. Both as a provocation to you, the reader, and a reminder to myself that I still have to come up with a better understanding than the ‘pessimist – optimist’ (or ‘no progress – progress’) dichotomy.

My recommendations for this holiday are (roughly in the order I read them, so ‘optimists’ and ‘pessimists’ in no particular order):

War, What Is It Good For. Ian Morris. This Professor of Classics at Stanford University argues that war has actually made society more productive and safer. It’s a sweeping view of world history from pre-historic times to the present. He introduces beautiful concepts such as the lucky latitudes, stationary bandits, and caging. Add to that the role of fortifications, cities, chariots, bronze, and gunpowder in shaping our civilizations (and the mere geographical (!) position of Germany that would lead to its tragic role in two world wars), and you have a book that will change your view on the role that warfare has had in the history of the world. In a review for this book, a Professor of Biological Anthropology at Harvard writes: “This book is equally horrific and inspiring, detailed and sweeping, light-hearted and deadly serious. For those who think war has been a universal disaster it will change the way they think about the course of history.”

Why Grow Up? Susan Neiman. Susan Neiman, a Harvard educated moral philosopher, held positions at Yale and Princeton, and is now director of the Einstein Forum in Berlin. This short book struck me because of the simplicity of its idea: in our lives we should always strive to bridge the gap between what is and what could be. Being a grown up is all about trying to bridge that gap through your endeavors. Whilst knowing that you can never really bridge the gap, and, very important, at the same time being comfortable with the idea that you will never reach your destination. In the process of reading this short book (perfect length for the holidays!), you will get acquainted with what Rousseau, Kant and Hume had to say about growing up (and how Neiman disagrees with them). She stresses the virtues of travelling, reading fiction, and living and working in other cultures than the one you grew up in. Two snippets (of many) that I especially liked: “We are kept dazzled by a wealth of small decisions”, and “Kant thought the Stoic advice was made for gods, not humans.”

The Silence of Animalson Progress and Other Modern Myths. John Gray. This former Professor of Politics at Oxford, Harvard and Yale doesn’t beat around the bush when he writes about the concept of progress: “Among the many benefits of faith in progress the most important may be that it prevents too much self-knowledge.” In a chapter called Humanism and Flying Saucers, he argues (if the chapter title itself wasn’t self-explanatory): “If belief in human rationality was a scientific theory it would long since have been abandoned”, and “Cognitive dissonance is the normal human condition”. Gray was actually the reason why I put ‘pessimist’ as the label on the left of the scale in the picture above (and you might start to get an inkling why…). Gray uses fiction (cf. Neiman and Heijne) by Orwell, Dostoevsky, and Conrad to show what the actual human condition is like. It’s fitting that Heijne (see below) uses roughly the same authors to come to a comparable gloomy sketch of the status of the world. It’s a beautifully written short book, full of insights that’ll make you question your world view. Although I rate him as a ‘pessimist’, I had to laugh out loud often because of his dark yet witty prose. If there’s one book you should read right now, it is The Silence of Animals.

Our Culture, What’s Left of It. Theodore Dalrymple. I only recently read this 2005 collection of articles after remembering some quotes I read in an old NRC Handelsblad article on Dalrymple. If the hypothesis holds that it is true that understanding other people’s arguments will make you a better decision-maker, I thought I would try to read a more conservative thinker like Dalrymple. He was shaped by working with urban poor all over the world as a prison psychiatrist. This has led to unique insights in the workings of ‘life at the bottom’ (as he calls it in a different book). Something that struck me as particularly insightful (and echoing the work of moral philosopher Jonathan Haidt and Nassim Taleb’s thinking) was: “But critics of social institutions and traditions (…) should always be aware that civilization needs conservation at least as much as it needs change. No man is so brilliant that he can work everything out for himself, so that the wisdom of ages [Taleb calls this heuristics; see my comments on Taleb’s book Antifragile] has nothing useful to tell him.” This is a kaleidoscopic collection of articles on Shakespeare, art, lust, and the transgression of moral standards. The Times Literary Supplement stated: “An urgent, important, almost an essential book (…) elegantly written, conscientiously argues, provocative, and fiercely committed.”

Antifragile – How to Live in a World We Don’t Understand. Nassim Taleb. A must read. I keep coming back to this book. But it’s hard to describe why. A former derivatives trader and risk analyst, Nassim Taleb made himself into some sort of a philosopher-statistician-writer who has held positions at the London and Oxford Business Schools. You could characterize him by being a skeptic; skeptic towards the scientific method (and very much a proponent of heuristics, or rules-of-thumb; also see my remark under Gray’s book):

(…) the best way to mitigate interventionism is to ration the supply of information, as naturalistically as possible. This is hard to accept in the age of the internet. It has been very hard for me to explain that the more data you get, the less you know what’s going on, and the more iatrogenics [harm caused by the healer] you will cause. People are still under the illusion that science means more data.

 He rants against just about anything in modernity:

We are moving into a phase of modernity marked by the lobbyist, the very, very limited liability corporation, the MBA, sucker problems, secularization (or rather reinvention of new sacred values like flags to replace altars), the tax man, fear of the boss, spending the weekend in interesting places and the workweek in a putatively less interesting one, the separation of work and leisure (though the two would look identical to someone from a wiser era), the retirement plan, argumentative intellectuals who would disagree with this definition of modernity, literal thinking, inductive inference [Taleb is very skeptical towards predicting future outcomes by extrapolating the past], philosophy of science, smooth surfaces, and egocentric architects. Violence is transferred from individuals to states. So is financial indiscipline. At the center of all this is the denial of antifragility.

I will not explain what he means with antifragility here; you should find out for yourself by reading this wonderful book. You might be irritated by his ability to put just about everything in a different light in a polemic way. But that’s exactly why you will gain new insights and be able to look at more things from a different angle.

Onbehagen (Discontent). Bas Heijne. A Dutch essay. A sharp analysis on why populism is rising and why that is inevitable. Heijne, a Dutch essayist who studied English language and literature and writes an influential column in NRC Handelsblad, questions if the worldview that he grew up with (i.e. progress) is still valid. With the help of fiction (again, remarkably, Dostoevsky and Conrad) he comes to the conclusion that we should not overestimate human rationality. He writes (book available in Dutch only as far as I know):

Wanneer het humanisme te zeker van zichzelf wordt, wordt het onherroepelijk naïef – en ook hypocriet. De mens laat zich niet rationeel beheersen. Hoed je voor de overmoed van de rede, het idee dat de wereld zich een kant op laat sturen, dat beschaving een blijvende garantie is tegen menselijke agressie en vernietingsdrang. Beschaving en verlichting roepen het onheil over zichzelf af zodra ze blind worden voor tegenkrachten – van buitenaf maar ook van binnenuit.

World beyond Your Head. Matthew Crawford. On my “to read” list for this holiday. From what I read about this book in Heijne’s essay (see above), Crawford goes on a philosophical journey to unravel why our contemporary society is at odds with human nature. The short supply of attention these days is not the result of technology (which helped shape social media and anecdotal news feeds). It is rooted in the philosophical worldview on the self, on the individual. The Guardian writes: “Like the Enlightenment philosophers he rebukes, Crawford makes deductions that stretch commonsense logic to its maximum extent and may have readers performing intellectual somersaults over his reasoning. For those who persevere, the experience should be rich and rewarding.”

Progress. Johan Norberg. This book by Johan Norberg, an economic historian, made this list because of an article in The Economist earlier this year. On top of that, it showed up as one of the ‘books of the year’ in the same newspaper. Also, it seems that this is an upbeat book that sits all the way on the right hand side of my makeshift scale from ‘pessimism’ to ‘optimism’. If you want to learn about the arguments of both the deniers of, and believers in, progress, Norberg’s book seems to be the book to learn about the argument of the ‘optimists’. The Economist writes:

Mr Norberg agrees with Steven Pinker, a psychologist, that humankind is also experiencing a “moral Flynn Effect” [the Flynn effect is a gradual rise in average IQ-scores since the 1930s]. As people grow more adept to abstract thought, they find it easier to imagine themselves in other people’s shoes. And there is plenty of evidence that society has grown more tolerant. As recently as 1964, even the American Civil Liberties Union agreed that homosexuals should be barred from government jobs.

To summarize: whether you are an ‘optimist’ or a ‘pessimist’, you should read up on the arguments of both sides presented in this year’s holiday reading list. These books will present different sides of the argument and will surely help you be a more creative decision-maker. Happy holidays, and happy reading!

P.S. For those of you who worry I abandoned my project “What Every Manager Should Know About…” in relation to the EU-guideline on the disclosure on non-financial information, fear not: I will be back with post #3 in that series – on governance and corruption – in January.

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On the Need for Redundancy in Project Plans

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As a preface to this blog entry, forget about the strict definition of redundancy found in the Oxford English dictionary that tells you redundancy means ‘no longer needed or useful’. As will become clear – I hope -, redundancy is needed to have an option to maneuver when things happen that you could not possibly have predicted. In other words, redundancy gives you optionality. See redundancy not as superfluous but as an insurance. Or, as an investment even.

Projects fail to meet deadlines and budgets all the time. While rereading random passages in Nassim Taleb’s stimulating and provocative books The Black Swan and Antifragile, it struck me that I always try to build a little redundancy in project plans because ‘you never know what will happen’. Almost never taking time to consider the rationale behind my sub-conscious whispering ‘you never know what will happen’.

Taleb shares some nice insights on the reasons why redundancy (in general) is useful. I hope reading this blog entry will make you look at redundancy – and the world – from a somewhat different angle. (In a way, it is what this blog is all about: discussing concepts and tools that change the way you look at the world. Remember Proust? ‘My destination is no longer a place, rather a new way of seeing.’)

I will discuss two of Taleb’s concepts that will make it easier for you to include some well contemplated redundancy in your future projects. Including redundancy will definitely increase the success rate of your projects. But, you need to be able to explain why you included it in your budget. Here’s how to do that.

Concept 1: the world is more random than you think

Taleb constantly challenges you on how you look at the world. One of the main themes in his books is that the world is more random than we think, and that we are often fooled by this randomness. In Antifragile he argues:

Black Swans (…) are large-scale unpredictable and irregular events of massive consequence – unpredicted by a certain observer (…). I have made the claim that most of history comes from Black Swan events, while we worry about fine-tuning our understanding of the ordinary, and hence develop models, theories, or representations that cannot possibly track them or measure the possibility of these shocks.

Black Swans hijack our brains, making us feel we “sort of” or “almost” predicted them, because they are retrospectively explainable. (…) Life is more, a lot more, labyrinthine than shown in our memory – our minds are in the business of turning history into something smooth and linear, which makes us underestimate randomness.

In The Black Swan, Taleb claims that large scale events cannot be predicted (and are in effect random to the observer):

I discovered (…) that no researcher has tested whether large deviations in economics can be predicted from past large deviations – whether large deviations have predecessors, that is. (…) My results were that regular events can predict regular events, but that extreme events, perhaps because they are more acute when people are unprepared, are almost never predicted from narrow reliance on the past. The fact that this notion is not obvious to people is shocking to me. It is particularly shocking that people do what are called “stress tests” by taking the worst possible past deviation as an anchor event to project the worst possible future deviation, not thinking that they would have failed to account for that past deviation had they used the same method on the day before the occurrence of that past anchor event.

In Antifragile, he goes as far to call this a mental defect:

I have called this mental defect the Lucretius problem, after the Latin poetic philosopher who wrote that the fool believes that the tallest mountain in the world will be equal to the tallest one he has observed. (Note: Read the wonderful poem on science and philosophy by Lucretius called On the Nature of Things. In the 2007 Penguin edition, the translation of the passage Taleb is referring to actually reads as follows: “And any stream will seem to be, to one who’s never seen a larger, the greatest of rivers (…). Indeed, anything we see, we shall imagine, is the largest specimen of its kind if it’s the largest we’ve laid eyes on.”)

So, taking into account that randomness is a fact of life and we cannot predict big events, there needs to be some redundancy to counter for this. The next time you sit down and think through the things that can hurt your project plan, think ‘randomness’ and ‘Lucretius problem’.

Concept 2: the world is more random than we lead ourselves to believe

A second reason why you need redundancy – there might be more reasons, but my aim here is to introduce two new ways of looking at the world offered by Taleb – is the narrative fallacy. Planning is nothing more and nothing less than a narrative – a story – you create around your project based on your previous experiences with projects. You want this story (the budget and the planning) to unravel according to plan. You take with you all the things – the good and the not so good – that happened in previous projects, create a narrative why this happened, and include that knowledge in your current plan. I wrote about narratives and stories before in my blog entry Successful Businesses and the Halo Effect. It’s almost as if rereading Rosenzweig’s comments on stories in the Halo Effect when Taleb writes:

We like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters. The first of the problems of human nature that we examine in this section (…) is what I call the narrative fallacy. (…) The fallacy is associated with our vulnerability to overinterpretation and our predilection for compact stories over raw truths. It severely distorts our mental representation of the world; it is particularly acute when it comes to the rare event.

And:

If narrativity causes us to see past events as more predictable, more expected, and less random than they actually were, then we should be able to make it work for us as therapy against some of the stings of randomness.

Needless to say, Taleb argues that we are ill prepared for randomness and will always be fooled by our tendency to attach an explaining narrative to events in the past. The narrative, however, will never prepare you for events in the future.

Redundancy as buffer against unforeseen events

The combined effects of randomness of the environment, the Lucretius problem, and the narrative fallacy create a background where you can easily underestimate the impact of unforeseen events in your project (or business plan, or – even – life itself). Build in some redundancy and use the concepts discussed here to rationalize your hunch that tells you: ‘you never know what will happen’. It’ll make your project plans more robust and realistic, and it’ll give you options. A final word from Antifragile:

Redundancy is ambiguous because it seems like a waste if nothing unusual happens. Except that something unusual happens – usually.

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