• The knowledge-relevancy framework highlights the importance of new information

• Individuals and organizations start with a base of existing knowledge (status quo)

• Over time, this knowledge base becomes obsolete - it loses relevance in the future

• Investments are needed to acquire new information and avoid falling out-of-date

• If measures are not sufficient to maintain knowledge, it exposes an information gap

• By contrast, seeking information gain leads to a growth in knowledge and better positions you for thriving in the future

Too many of us take comfort in today’s status quo

I recently gave three presentations on blockchain, parametric insurance, and the future of insurtech at an agribusiness risk conference in Sacramento. After one of my talks, a woman approached me afterward and complimented me on having a “positive attitude” about new technologies. Her kind words caught me off guard: in my speeches, I generally try to educate professionals on technologies and trends that I believe will impact our future. My goal is to provoke thoughtful reflection and stimulate meaningful discussions about the future, not to be an unabashed optimist.

The woman alluded to a general belief based on her experience that most people are resistant to change. This is undoubtedly true for most people and organizations. I’ve written about the painful acquisition of hard-earned knowledge that we gain in our career journeys before achieving mastery of our craft. The same is true at an organizational level: firms gain a base of knowledge and capabilities that defines their competitive position and reflects today's status quo. The catch is that, as time progresses, if we do not seek to acquire new information and translate it into knowledge, our existing knowledge base becomes obsolete and loses relevancy.

Seek new information to avoid losing your knowledge

It should be clear that individuals and organizations must continually seek and acquire new information over time to remain relevant. The catch is that most of us do not do so in a strategic manner. There is a broad spectrum (represented by the width of the three arrows projected into the future on the chart above) of possible outcomes. Consider the following three reference points to guide our thinking about this process:

1. The new information gathered is insufficient to replace the rate at which existing knowledge is lost (this represents an information gap over time)

2. The new information gained precisely offsets the knowledge that is becoming obsolete (the same amount of knowledge is maintained over time)

3. The new information gathered is above that which is becoming obsolete over time (this represents an information gain over time)

When functional knowledge (that which is not obsolete) is being reduced over time, individuals and organizations struggle to keep up with unexpected future developments. Actions tend to be in the form of adjustments best positioned to manage the decline, but a decrease is inevitable. In real terms, this loss of functional knowledge over time could be represented in many ways. Perhaps employees retire or are laid off, reducing the amount of tacit knowledge available. Alternatively, if your firm runs on outdated technology, finding people who code in COBOL and FORTRAN becomes increasingly challenging. Another possibility is that customer tastes shift in ways that were not anticipated (think about “cord cutting” and shifting from cable television to streaming). However the loss of functional knowledge materializes in real life, the root cause is that new information is not being translated into functional knowledge fast enough. This makes it challenging to keep pace in a world of rapid change.

Now consider the opposite: how does functional knowledge grow over time? New knowledge comes from new information: this can be in the form of new people with different expertise or innovation efforts that yield new insights, for example. Conceptually, I distinguish between organizations that seek to maintain their functional knowledge over time and those seeking to grow it. Organizations must strive to learn and adapt to keep knowledge relevant and actively counteract the inevitable obsolescence curve. Rather than managing the decline of knowledge by seeking to plug a few leaks in the ship, learning implies keeping the boat afloat over time. This requires a higher level of resource investment to maintain relevance by seeking new information to replace the functional knowledge that is inevitably being lost over time.

Ambitious individuals and organizations seize on the opportunities provided within the knowledge-relevancy framework: they seek growth through information gain to expand their functional knowledge over time and thrive in the future. Such actors are looking to shape the future rather than merely respond or react to it. To achieve this, people and firms must embrace new information and actively seek to translate it into new functional knowledge. Experimentation is critical to gain new information and insights. Sufficient resources must be invested in gathering new information; for example, through robust innovation efforts such as pilots or proofs-of-concept (POCs) representing a mix of offensive and defensive innovation projects. These efforts have the advantage of being unique to you: they represent intellectual property (IP) with inherent value regardless of whether it can be monetized.

Where do you stand on the knowledge-relevancy curve?

So where do you personally stand within the knowledge-relevancy framework? Where does your organization stand as a whole? Are you making sufficient investments in being a lifelong learner? Do you have more of a passive approach to navigating through future changes or shaping them? Which areas, both individually and organizationally, do you see knowledge becoming obsolete? Using the knowledge-relevancy framework, you can contemplate your approach to the future, identify gaps, and formulate strategies and tactics to address areas of need or opportunity. Here are some potential areas to consider:

• Examine your talent recruitment, development, and retention strategy and tactics and identify areas where you need improvement.

• Identify where significant gaps in knowledge exist and actions to address them - perhaps you lack expertise in a particular discipline, subject area, or technology?

• Look at how information flows within your organization. Are the right people connecting? Is there an opportunity for serendipitous interactions or only intentional communications such as meetings or e-mails?

• How does information flow in from outside your organization? Do you rely heavily on a single source, such as outside consultants or subscriptions?

• Are you generating new information internally through innovation, experimentation, data science modeling, marketing, surveys, etc.?

• What techniques do you see leading organizations within your domain employing to stay relevant and shape the future competitive landscape?

Using the knowledge-relevancy framework, you can gain valuable insights into how well your organization processes new information and builds upon your existing knowledge base to maintain or grow your competitive position in the future.

• The price of a good or service conveys powerful pieces of information

• Prices are valuable because they are expressed in terms that are easily understood

• A big challenge arises when prices are distorted by outside influences (subsidies)

• When setting prices, consider the signals you are sending to your customers

• When considering prices, ask if the total economic costs are adequately included

• When prices appear to be too low, look for hidden costs in your transactions

The power of the “price signal of risk” in insurance

I spend several years in the mid-2010s as a leader at USAA with a specialty in property underwriting in disaster-prone areas. We worked hard as a team alongside actuaries, product managers, and claims experts to find a balance between making homeowners insurance products that were both available and affordable for customers while remaining profitable for the company. We used sophisticated tools, including catastrophe modeling, aerial imagery, and artificial intelligence, to accurately assess risk probabilities. Due to the uncertainties involved, there was a lot of room for methodological differences and statistical error. Given the need to properly assess over 5 million addresses, we needed to ensure our approach scaled and did not drive up expenses or lead to a poor customer experience.

As part of this process, we had a philosophy of working with our customers to help them understand their risk and identify actions they could take to strengthen their homes and property, seeking to reduce the likelihood of a loss occurring or the severity of the damage should one occur. Unusual among most insurance carriers, we exposed some of the same data we used in our analysis to the public and provided them with a categorical assessment. Homes were rated as low, moderate, high, or very high risk across several perils such as flooding, high winds, and wildfire. Despite this desire to educate homeowners and help them make sound decisions, these descriptors were generally too broad and vague to be meaningful. What is the difference between moderate and high? High and very high? How much time and money should I invest in protecting my property - a known and fixed cost - compared to “rolling the dice” that nothing bad will happen while I live here? Worst case, isn’t that why I purchased insurance in the first place - to compensate me in the event of a loss?

One area where we could gain a lot of traction was in Florida. The state had a program called Florida Building Code (FBC) credits that provided steep discounts on insurance premiums for features such as roof-to-wall connections and openings protection such as hurricane-strength shutters. While homeowners premiums in the state were the highest in the nation on average and could exceed $10,000 annually, these discounts often ranged in the thousands. As a property owner, it was fairly straightforward to do the math: you had a good sense of your premiums and how much you could save by purchasing a home with strong features or retrofitting to harden your home against wind and water damage from hurricanes. In short, there was a price signal of risk: instead of vague terms such as “high risk,” your insurance premiums and discounts communicated your level of risk in precise, easy-to-understand units ($).

Cost considerations: interest rates and profits

The price signal of risk - insurance premiums - are a powerful source of information for economic actors. In addition to helping homeowners fully understand their risk of loss from a hurricane, they can also influence home builders, local zoning officials, state government leaders, and public policy, to name a few stakeholders. Roughly speaking, a home that costs $10,000 to insure annually is 5x more likely to suffer a severe loss than one that costs $2,000 to insure. The math is crude; undoubtedly, this is a gross simplification - but that is precisely the point. Economic actors do not have to be insurance experts: the price signal of risk alone contains enough information to guide their decision-making.

More broadly, we see this same impact on the larger economy when considering macro trends such as the level and changes in interest rates and inflation. Concerns over an economic recession have led to mass layoffs over the past year. Investors are prizing profitability over growth. Ironically, it may prove that we will avoid what felt like an inevitable recession. If so, the reason we avoided one is likely because of the independent decisions and actions that firms took to adjust their businesses. While not formally coordinated, the information signals from economic indicators such as CPI inflation and federal funds rate act as part of the “invisible hand” mechanism oft mentioned as the defining feature of capitalism.

Be aware of hidden costs in your transactions

Unfortunately, we cannot always rely on prices to convey all relevant information. I previously wrote about the end of an era for cheap tech-enabled lives in Forestview. Prices have been rising partly due to supply chain constraints due to COVID-related challenges. Still, many rates have also risen for prices that were artificially low to drive growth for services such as ride-sharing and streaming video that aren’t directly related to the pandemic. Additional price-related adjustments are also being made: tipping is now standard for ride-sharing (and seemingly everything else), and streaming services are raising prices while introducing ads for their cheapest tiers.

Other motivations behind economic transactions can be hidden and are worth considering. For example, the new rival professional golf league LIV Golf has lured several top names from the established PGA Tour over the past year. There has been a fierce debate about the intentions of the Saudi-backed LIV tour and questions about whether it can be self-sustaining from a purely economic standpoint. (It does not appear to be at the moment or for the foreseeable future.) More examples abound: think about climate change and related investments and costs or the rise in polarization following the rise of social media and Big Tech. The point here is that, too often, the costs we need to consider come in the nebulous form of “very high risk” rather than more easily quantifiable forms like the dollars and cents of insurance premiums. Prices are a critical source of information that works exceptionally well in general precisely because they allow us to ignore more details. Too often recently, they fail to tell us a complete story.

• There are three primary considerations for selecting sources to be well-informed

• First, look to see what the incentives are that motivate a source to provide info

• Second, investigate what methodology a source uses to produce its information

• Third, look to trusted social networks to see which sources they rely upon for info

• Misinformation is hard to discern; we rely on others’ expertise to assess accuracy

• Who we trust and the information sources they use greatly influence our choices

Where do we turn to for good information?

In my last article, I wrote about the four stages of the information cycle that fuel data-driven decision-making in organizations. I was in the airport this week traveling to a conference where I was speaking, and I was surprised to see AI in a headline in my local newspaper (right above the one about our annual rodeo, complete with a photo of a cattle drive). While ChatGPT has dominated many news stories this year, I was shocked to see it leading above the fold for a general-interest city newspaper. The article focused on the potential use of ChatGPT on college campuses locally and how professors were planning to address concerns about grading and plagiarism.

Historically, most people have relied on mainstream news organizations for information and to broaden their knowledge base about the world. Seeing two front-page articles about ChatGPT and the San Antonio Rodeo and Stock Show adjacent to each other wouldn’t have seemed as jarring in prior decades: this was how information was packaged and presented to people. However, this sort of non sequitur is increasingly uncommon today. I trust the local paper to provide reliable information about the upcoming rodeo. I have less faith in its ability to deliver a thorough article about the pros and cons of using ChatGPT in schools and universities. But why is this? The reporters and editors for both stories are likely using the same methods and standards. The issue comes down to trust: I expect that a local newspaper is a good source of information on local events, but less so for cutting-edge technology and its implications on society.

Think like a scientist when selecting info sources

In the book The Misinformation Age: Why False Beliefs Spread, authors Cailin O’Connor and James Own Weatherall outline models of how information is consumed, how it spreads through social networks, and how that process changes our beliefs (or, in the case of polarization, hardens them). The early chapters focus on models of how scientists form opinions because the authors contend that scientists, more than the general population, seek truth and believe that the process by which information is gathered matters. A fraction of the information scientists seek is from their research and experiments, and a much larger part is from the scientific community, both directly and indirectly. Scientists work alongside colleagues at their workplaces and collaborate with peers from other institutions. These collaborations yield direct sources of additional information that are valued. Significantly, the value placed on the data and findings depends on the trust level that a scientist puts in their colleagues. Trust depends on many factors, but one primary factor is the incentives that are in place for each scientist. Some incentives are related to the job, such as securing research grants, and some are institutional goals and objectives. For example, research funded by individual firms or industry groups may differ from that performed within a university or government laboratory.

Scientists make different choices about how to approach their research; they make decisions about the appropriate methodology to use. Many involve small but essential choices: often, there are tradeoffs in terms of cost, time, and quality. When a consensus forms among a group despite differences in approach, the diversity strengthens the findings. Conversely, debate ensues when there is no consensus, and further studies are performed to help settle the disagreements and inform decision-making in the future. Knowing how differences in methodology are used to develop data and information affect scientific findings helps narrow down the areas in question where more digging is needed to get closer to the truth.

Who you trust matters as much as what you read

Scientists are experts in their field, but what they possess in terms of depth of understanding is at the cost of breadth. Even within a particular discipline, the branches are so varied that “it takes a village” to further our base of knowledge of our world. So scientists rely heavily on academic journals and publications to develop their expertise. Importantly, they do not rely on any source of information: scientists trust peer-reviewed journals that publish studies with citations to other work and describe the research in a replicable manner. (This is more of an ideal than is commonly practicable; rarely is someone else’s study fully replicated.) For many researchers, particularly in academia, getting published in a peer-reviewed journal, often cited by other works, is the gold standard they strive to achieve. The entire process of “publish or perish” is a form of a trusted social network that scientists have as a community. More than any single source of information, scientists trust each other based on their shared values.

Most of us are not scientists, and we do not have the time, patience, or intellectual horsepower to make it through peer-reviewed scientific papers. However, we can approach what we choose as our sources of information similarly. For any given source of information, it is crucial to understand their incentives.

• Are they subscription-based or free?

• Do they take advertising?

• Are they supported by a large institution such as a corporation, industry association, government, or special interest?

• In short, how do they make money?

In addition to incentives, examining the methodology a source uses to produce information is vital.

• Do you know if this information is original or passed along from other sources?

• How did they approach the collection of the data contained in this information?

• Has this information been fact-checked and peer-reviewed?

• If this information is later proven incorrect, will they edit or retract it?

• Does this information reflect a set ideology or appear to be more balanced?

Finally, consider your social network in your personal and professional lives. Which people do you trust the most? If there are groups of people you trust on a particular topic, do you rely on them about any subject? What are your limits or checks to verify the accuracy when someone relays or comments on information? A common mistake is trusting people in your circle too much: while they may have proven reliable on a particular topic, they are likely not correct about everything. It is an easy mental shortcut to take - I trust everything X person says because they have been reliable in the past - but avoid the temptation to outsource your thinking. Look to build up your own independent sources of information, then compare notes with colleagues to see where you agree and disagree, just as scientists do with their compatriots.

• To make sound decisions, you must make good use of all available information

• The information cycle provides a 4-step framework for dealing with data

• First, information is incomplete and must be gathered from a variety of sources

• Second, as information is acquired, it is often inconsistent and conflicting

• Third, information that is incorrect must be discarded to resolve discrepancies

• Lastly, people must interpret information to make sound data-driven decisions

We are drowning in data, yet decisions are difficult

My grandfather was an engineer and an educator who worked on developing radar at MIT during World War II and later served as the Dean of Engineering at Syracuse University for many years. As a child, we would drive from Michigan each summer to the farm he had purchased in upstate New York to spend a week with family. The farmhouse was relatively small, and I distinctly recall the maze in the dining room and living room areas created from the stacks of magazines, newspapers, and books my grandfather read. He would often share interesting facts and stories on a wide range of subjects with us in conversation, and he passed this love of news and media down to my father, who continues to subscribe to several newspapers and magazines today. While my father’s place does not have a maze of magazines, his dining room table has been taken over by stacks of periodicals. (Occasionally, I wonder if my dad is single-handedly responsible for keeping some of these publications in business!)

While most of us don’t subscribe to as many newspapers and magazines anymore, we still consume lots of information about the world in our personal and professional lives, primarily online. I won’t spend much time in this article discussing the ills of misinformation, propaganda, and “alternative facts,” except to recognize our need to be mindful of the information we consume.

In my grandfather’s time, there were fewer sources of information. Much of what made it to his farmhouse was filtered and curated by writers and editors in hidden ways. I don’t mean to imply there was anything nefarious about this, but the reality is that publishers come with biases, just as all humans do. They also faced economic realities - media is ultimately a business and needs to earn revenue from subscriptions and advertising. These incentives can skew the coverage that’s provided in the publication. While the ethos of news gathering was a “just the facts” mindset and desire to “show both sides,” a simple review of the vastly different editorials found over the years in the Wall Street Journal and New York Times shows that even well-respected newspapers can come to vastly different conclusions based on the news.

The four stages of the “information cycle”

Previously, I have written about the importance of relying on information to shape strategy and managing your information diet to find a healthy balance. In this article, I want to share the concept of the four stages of the information cycle. It is self-evident that we are gathering data and information continuously in our daily lives and business, and this process is never complete. The fact that information gathering is a continual process can make decision-making challenging: the temptation for “analysis paralysis” is real. However, the opposite is also true and more prevalent in my experience: people are prone to jump to conclusions and taking action despite not having enough information. Humans are pattern-recognition machines; we see a set of facts emerging and instantly compare that with our prior experiences to make judgments. The more experiences we have, the quicker our minds make judgments - often ignoring other data that contradicts our instincts or remaining unaware of what additional facts are needed. We are “predictably irrational,” in the words of Dan Ariely: we constantly make the same mistakes due to factors such as confirmation bias and the availability heuristic.

To combat our instincts and built-in biases, I recommend following these four stages:

1. Incomplete

We start the process with incomplete information and must gather data, facts, stories, and images to fill in the gaps in our knowledge. Since we are unlikely to obtain all possible data points when making a decision, we must start the journey by identifying the critical gaps in our understanding and continue to refine this list as we acquire more and more information. Many people use the analogy of an onion: to find the core, we must peel back one layer at a time. Some information is readily available, while other information is more difficult to obtain. Identifying the most impactful sources to use is a crucial step in the gathering phase.

2. Inconsistent

The next stage in the cycle is identifying the areas where the information you have gathered is inconsistent. The fact that some of the data is in conflict or not in alignment is not necessarily a bad thing. If all of the information you have gathered is always consistent, it is likely a sign that you need greater diversity in your sources. When information conforms nicely, it tends to support a particular ideology that may be logically consistent and tells a compelling tale but is not grounded in reality. Be wary of stories that are too tidy. Embrace the messiness and seek to go further in the information cycle to sort out the discrepancies.

3. Incorrect

Once you have identified inconsistencies in the information you have gathered, the next step is to find out which parts are incorrect. Some of the information you have is wrong, misleading, or out-of-date. Just as children who play a game of “telephone” rarely relay the original message correctly at the end, there is a high likelihood that some of the data needs to be discarded, updated, or revised. Be sure to capture how and when mistakes are made and adjust your gathering procedures. Perhaps you’ll find that some outlets are unreliable or that specific sources work best in combination. Finding and fixing inaccuracies and discounting unverifiable information is essential in finding the proper way to weigh disparate data when making decisions.

4. Interpret

Lastly, once the process of gathering, reconciling, and curating information is completed, there is a need to interpret what it all means and decide on actions to take. I think back to my early days working as a research assistant at the Federal Reserve Board and the myriad of economic indicators I monitored. Some data series were more reliable than others, and we placed more weight on specific observations. However, when all the available data were considered together, a clearer picture of the economy began to emerge that would inform decisions on adjusting interest rates and monetary policy to drive economic growth while keeping a lid on inflation. Economic data was vital, but we also relied on stories from sources such as the Beige Book compiled from different regions across the country. In addition, there were robust debates among the many Ph.D. economists who worked at the Fed about what all of the information meant for policy, and different interpretations were common. Finally, all of the information, including interpretations from the staff, was summarized and packaged together for the Chair and members of the Federal Open Market Committee (FOMC) to debate before a final vote was taken on whether rates should be adjusted.

Use innovation to fill in information gaps

I’ve written extensively on innovation in the past for Forestview (you can check out the complete archive at your leisure). I firmly believe that a major reason to pursue innovation efforts is to help you make more informed decisions. When looking to shape the future, there is a dearth of information that makes it hard to make an informed decision. By identifying information gaps, designing small experiments to answer critical questions, and gathering valuable data as part of your overall objectives for a pilot or project, you can significantly reduce risk by reducing the number of unknowns.

A great example is a small blockchain initiative I was involved with at a previous employer. We did not know much about the technology and there was a wide range of opinions - mostly uninformed - on whether or not it presented a significant opportunity for our firm. Fundamentally, we could not provide any sort of estimate on the potential financial impact: it could have been worth $30,000 or $300,000 or $3 million or $30 million or $300 million. We honestly had no idea! Because of the large amount of unknowns and upside potential, it made sense to make small investments around pursuing blockchain initiatives to help us learn and clarify whether a larger investment was justified and how it should be prioritized alongside other capital investments. By positioning innovation initiatives to be primarily about learning and discovery, not return on investment, you can gain a lot of valuable information at low cost that helps you make better decisions about the future.

• February’s theme is the role that information plays in shaping our perspectives

• In moments of extreme stress, it is easy to act emotionally instead of rationally

• Gathering information continually from a wide variety of sources is essential

• Even facing the same set of facts, people can draw very different conclusions

• Having diverse perspectives provides a balance to put information in context

• Be pragmatic, not ideological, to adjust your actions when new information arises

Admiral Nimitz: a calm presence under stress

My wife and I recently toured the National Museum of the Pacific War together. She had visited in the past, but I had not been there. The museum focuses on a central figure, Admiral Chester Nimitz, and tells the American story of World War II in the Pacific, which is often less well-known than the European campaign. A pivotal moment in the war was the appointment of Adm. Nimitz to be the Commander-in-Chief of the Pacific Fleet following the devastating attack at Pearl Harbor in December 1941. Nimitz was initially targeted for the role a year earlier by President Franklin Roosevelt but had turned down the position at that time because there were 50 Navy officers more senior, and he did not want to be seen as “cutting in line” by being promoted from a 2-star directly to a 4-star. Nimitz was unconventional among many senior military officers at the time: he was reserved, rarely got angry, and managed to command respect from all he encountered, from junior enlisted to his superiors in Washington, DC.

In his excellent new biography Nimitz at War noted historian Craig Symonds provides a portrait of the scene in Hawaii once Nimitz arrives to take command. Rather than tear into the senior officers who failed to anticipate the attack, he explicitly forgives his predecessor, Adm. Husband Kimmel, noting that the same outcome could have occurred if Nimitz had previously accepted the command a year earlier. (There is a lively debate today about whether Kimmel was a scapegoat for the attack or dropped the ball.) Rather than dismiss the opinions of Kimmel and his staff, Nimitz carefully assessed each person’s reactions to what happened and what actions the Pacific Fleet should take moving forward. Interestingly, as Symonds lays out, men who played down the possibility of an attack because they underestimated the operational capabilities of Japan had more of an aggressive mindset, seeking retribution against the Japanese quickly. Conversely, men who were more fearful of the strength of the Japanese tended to prefer a defensive posture that focused on preserving the remaining assets of the Pacific Fleet rather than fighting back. In short, depending on the person’s previous stance - whether a successful Japanese surprise attack on Pearl Harbor was possible or not - influenced their next position.

Assessing information and how people process it

The challenge for Adm. Nimitz as commander of the Pacific Fleet was to chart the right strategy to achieve American objectives to win the war. He was under constant pressure from his boss, Adm. Ernest J. King, who was outspoken and hyper-aggressive. (There was a joke among underlings that the J stood for “Jesus.”) Nimitz had previously led the Bureau of Navigation in Washington, DC, and had mastered the art of managing up and bureaucratic politics. While King initially dismissed Nimitz as a mere “paper pusher” incapable of command in war, Nimitz proved to be a collaborative yet decisive leader over time.

One of Nimitz’s best traits was gathering information and putting it in context while also accepting that there were many “unknowables” that did not cause a delay in his decision-making. Nimitz valued hearing opinions that differed from his own, but he also assessed his leadership team upon arrival to determine which ones were relentlessly positive or negative, aggressive or defensive. Nimitz looked for leaders who were not ideological but practical, those capable of changing their opinions when new information warranted. He valued the counsel of people who were not simply “yes men” but were thoughtful and reflective when contemplating tricky situations. Moreover, there was much less access to information then, and ships conducting operations at sea rarely communicated by radio for fear of giving away their positions. Once Nimitz and his leadership team made a decision, it wasn’t possible to micro-manage it based on early and incomplete information. Instead, Nimitz had to delegate responsibility to the task force and ship commanders to make adjustments as necessary based on what they encountered.

Be decisive under uncertainty but not afraid to change

In the early days following Pearl Harbor, President Roosevelt informed Adm. Nimitz of his “Europe first” strategy for World War II, which meant that as commander of the Pacific Fleet, he would have to make do with less. Given the enormous losses at Pearl Harbor and the lack of an immediate surge in resources to make up for their absence, Nimitz was under pressure to adopt a defensive posture that minimized further losses. At the same time, Nimitz knew that the troops' morale was at an all-time low, and successful acts of aggression would go a long way toward turning the tide of the war. So he sought to identify and plan for actions that he could achieve in the short run, all while keeping the broader objectives of retaking control over the Pacific in mind. Rather than risk direct confrontation at first, Nimitz looked to disrupt Japanese supply lines as part of a vision to isolate their soldiers and focus on direct engagement only when necessary on select islands, all while building back up American naval strength over time.

Nimitz did not wait until the American fleet was back at full force to act aggressively, nor did he relent when initial assertive actions went wrong such as losing the oil tanker USS Neches from a torpedo strike. Instead, Nimitz and his leadership team adjusted their approach over time in recognition of the realities they faced. The Neches incident showed that Japanese torpedos were much more damaging than initially estimated and the importance of preserving oil tankers, whose numbers were even more limited than battleships. Aircraft carriers became more critical as warplanes could be used not just to scout enemy positions and strengths but attack effectively as well. While the decisions led by Nimitz and his team were not perfect, overall, the even-handed approach to processing information and making data-driven decisions was an essential part of the ultimate successes at sea of the U.S. Pacific Fleet.

The lessons for today’s world remain relevant for leaders. As I’ve written in the past, there is a direct connection between the information diet people consume and the stories they create to make sense of the world. In turn, these stories inform their strategies and actions. By seeking out a wide variety of information sources, relying on a trusted team to consider and reflect on the right course of action without pretext, and knowing when to make timely decisions and avoid “analysis paralysis,” you can help develop and refine a successful strategy for your organization. Additionally, when seeking to innovate in war or business, finding a balance between offensive and defensive tactics is vital to maximizing effectiveness over the long run.

• Many senior leaders make it clear they do not want to hear bad news or excuses

• This mindset can quiet criticism internally but avoids addressing weaknesses

• Fully acknowledging limitations leads to discussions about how to overcome them

• Part of a sound strategy is identifying the right levers you can pull to affect change

• Being honest about your ability to execute sets up organizations for future success

Why wavering and waffling should be welcomed

On most days, I take my youngest daughter Sienna to school in the morning. The first bell rings at 8:15 am, and classes begin at 8:25 am. The drive to school from our house is usually 10-15 minutes, but it depends on several factors, including whether we hit the traffic lights just right, traffic, construction, accidents, etc. We generally strive to be out the door by 8:00 am. More often, Sienna scrambles into the car a few minutes late.

Our morning routine is strikingly predictable:

• Sienna apologizes for running late

• She makes excuses for being tardy (e.g., brushing her teeth or using the restroom)

• Sienna asks me if we will make it to school on time

• I respond by saying, “I think so, but I can’t be sure”

• Sienna gets upset and tells me that Mom always promises to be at school on time

• I point out that those promises are unrealistic and outside of my control

• My assurance that “I’ll try my best” are met with skepticism and worry

While a trivial example, Sienna’s refusal to listen to my caveats and careful analysis of the factors influencing whether we will make it to school on time aren’t too dissimilar from many senior leaders. Despite leaders like Kim Scott, who champion the concept of radical candor, the reality is that dissent is not well tolerated in most organizations. Some excuses can be self-serving to lower expectations and look good in front of peers, but others are legitimate limitations that should be more thoughtfully addressed. I’ve written previously that rowing in the wrong direction is OK based on my prior experiences at USAA. Still, waffling and wavering - much less outright disagreement - too often remains taboo in most workplaces.

Confronting limitations provides needed clarity

Despite my wife assuring Sienna that she’ll make it to school on time, there are few levers she can pull to ensure such an outcome. Consider what few factors are in her control:

• The speed of the vehicle

• The route that is selected to school (GPS can provide some guidance here)

• How strictly to obey traffic laws (e.g., run a red light, speed in school zones)

By comparison, there are many factors mostly or entirely outside of her control:

• The congestion on the roadways

• The timing of the traffic lights

• The presence of road construction

• The possibility of an accident along the way

• The weather

• The vehicle that is driven and the chance of a mechanical breakdown

In many situations, such as driving to school in the morning, there are limitations that influence whether an objective is achieved, most of which are outside our control. Ignoring or pretending limitations are not present means they will often appear again at the end - in the form of excuses - if we fail to achieve our goal. Yes, it is reassuring to promise blindly that an objective will be met up front, but this is incomplete without acknowledging and planning for the obstacles and risks that may be in our way. By considering these factors up front, we can arrange for actions to overcome such limitations while we still can do something about them. The possible levers that can be used can be categorized by type, cost, and timeframe. For example, in the long run, my wife or I could purchase a new car with faster acceleration to shave off seconds from our drive to school. In the short run, a much cheaper and more effective alternative would be to leave our house earlier.

Explore options alongside your ability to execute

When considering what levers or options are at your disposal, it is helpful to classify them into broad categories. Levers can be separated by which capabilities are internal (within your control) or external (outside your control). Here are a few examples of internal levers:

Internal levers

• Labor (employees, contractors)

• Money (operational expenses and capital investments)

• Resources (data, technology, raw materials, infrastructure, real estate, etc.)

• Knowhow (contained within people, systems, and processes)

• Corporate culture (determines how effectively individual parts work together)

External levers

• Laws and regulations

• Infrastructure (transportation, currency, networks, etc.)

• Societal culture

• Geography

• Macroeconomic trends

When cataloging limitations, it is valuable to identify which ones are internal constraints and which ones are imposed externally. Internal limitations are more within your span of control, but it is unrealistic to assume that all of these can be overcome in the short run. Additionally, many internal limitations may remain unaddressed even in the long run: too many resources are needed to overcome every obstacle, so choices must be made and prioritized.

For external limitations, it is helpful to categorize further which ones can be internalized, which can be influenced, and which are “gravity issues.”

• Hiring, partnerships, and acquisitions represent ways to shift external limitations by internalizing them

• Examples of influencing include lobbying, marketing, and public relations

• Gravity issues are external limitations that nothing can be done (as in “you can complain gravity is responsible for holding you down, but you can’t change it)

By considering and classifying limitations that may prevent you from achieving your objectives, you can shape your strategy to plan the most impactful actions. Being realistic about your ability to execute will ensure that the odds of your strategy being successful are much greater than simply “wishcasting.”

• There are reasons why the status quo exists: it indicates an equilibrium point

• Using systems thinking helps conceptualize complexity and how changes occur

• Thinking in systems helps leaders identify key “actors” and change “factors”

• Stakeholders generally act because of incentives that are found within a system

• It is hard to shift motivating factors; often, an external “shock” is required

• When formulating a strategy, create stories about possible shocks to assess threats

Use systems thinking to find “actors and factors”

I am far from an expert on systems thinking, but one of the most insightful books I’ve read in my life is Thinking in Systems by Donella Matthews. Looking for systems (which are all around us) and diagramming them helps me gain insights into why certain behaviors occur, especially when they are unexpected. Earlier this month, I wrote Forestview articles on the need to develop a holistic worldview and how to distinguish between meaningful mega-trends from fleeting fads as part of your strategy formulation process. When thinking about your organization, its purpose, and its activities from a high-level perspective, it is valuable to identify all the significant actors (i.e., stakeholders) involved and the factors that motivate each. I previously wrote about the adage “you get what you measure” and how success metrics significantly shape corporate culture. In addition to the limitation of metrics as motivators, overcoming our human tendency to take comfort in the status quo is hard. Most people with significant experience in their job have attained a large amount of tacit knowledge and mastered their roles. These employees are hard to win over when attempting to motivate change from within your walls, absent a crisis.

I recently came across the example of higher education to illustrate this challenge. In their book Academically Adrift, authors Richard Arun and Josipa Roksa argue that American colleges and universities fail to adequately provide the necessary critical thinking, writing, and reasoning skills that employers are demanding in our highly competitive global economy. (Note that some of their research findings have been subsequently disputed, and debates continue to rage about the relative performance and value of post-secondary education.) In particular, more and more students are attending colleges to obtain their undergraduate degrees in hopes of improving their earning potential after they graduate, yet providing a quality undergraduate education doesn’t often appear to be a top priority at most schools. Instead, universities are building much more lavish dormitories and campus amenities for students. At the same time, more and more courses are taught by graduate students and adjunct professors. By contrast, tenured faculty interactions with undergrad students are de-prioritized in favor of time spent on research, publication, peer reviews, and grant proposal (not to mention endless staff meetings and administrative tasks).

While the authors contend that the quality of undergraduate education is declining in the U.S., the costs to attend college continue to rise for families with no end in sight, leading to a $1.7T student debt crisis. The current student loan forgiveness program announced by President Biden is currently on hold, awaiting oral arguments next month before the U.S. Supreme Court. Even if these initiatives end up going forward, however, it may prove to be the case that reforms to student loans may increase the amount of debt that future students incur. This is precisely the opposite of what we might expect to occur with a policy change! If the federal government - heavily involved as a “buyer” in providing grants and subsidizing student loans - is not going to change the post-secondary education system meaningfully, what will? Arun and Roksa argue that no actor in the current system has a clear incentive to change the costs or quality of undergraduate education in the United States.

Changes from external shocks, not internal shifts

In Academically Adrift, the authors provide a myriad of economic and sociological evidence to argue that our post-secondary education system in the U.S. is heading in the wrong direction. Students are expressing buyer’s remorse for their college education. Employers are unhappy with their choice of recent college graduates. Student debt is a drag on the overall economy and can create increased income inequality. Yet, Arun and Roksa contend that despite numerous attempts to sound alarms and push for reform, the system is not likely to change from within. Why? Because each of the main actors remains incentivized to continue to act in similar ways. Arun and Roksa argue that the mission of higher education has shifted over the past decades. Intended initially to instill moral values and critical reasoning skills in young adults to shape them as citizens and prepare them to be active participants in democracy and civil dialogue, today’s colleges are much more focused on “credentialism.” In other words, the degree from a university is the “product,” and students are “customers,” with schools competing as “suppliers” in a marketplace to offer their services.

What do these customers want? Well, most students wish to minimize their time studying and maximize their time socializing and pursuing recreation. Colleges help in this process by ensuring faculty do not require excessive academic demands on students and offer stimulating activities such as rock climbing walls or lazy rivers on campus. One way to influence faculty members is to base their evaluation on student survey feedback and to employ fewer full-time tenured faculty and more adjunct professors whose status is more tenuous. Parents are happy to go along with this state of affairs because they want their children to enjoy their college years before the reality of the “real world” hits home, where daily lives prioritize time in the workplace. It all adds up to what one university president cited as their primary objectives: “parking for the faculty, sex for the students, and athletics for the alumni.”

Invest in scenario planning to hone your strategy

Now that I’ve diminished your view of higher education, my larger point is that, absent an existential crisis threatening institutions' ability to survive or a “burning platform” for short, building a mandate for change from within is tricky. It often takes one or more external factors or shocks to force change upon organizations. Creating a healthy culture of continual reinvention is challenging, as I outlined in my story about New York City last summer. In that example, the bankruptcy of the City in the 1970s led to a crisis that forced major changes, subsequently leading to a stronger sense of community that allowed NYC to weather further shocks such as 9/11.

Shocks can be political, economic, technological, or environmental. (They can be demographic, but these usually play out over a more extended period unless caused by political forces, such as refugees and immigration crises sparked by violence and war.) Competitive threats, such as a new entrant into a market in which your organization competes, could also serve as a shock but are generally easier to foresee and plan for. For example, when Kia first entered the marketplace for vehicles, their cars were aimed at the price-sensitive consumer, far from the target audience of luxury brands like BMW. Over time, Kia moved more upscale in their offerings while BMW and other luxury brands lowered the price of their entry-level offerings to capture a larger market. The firms suddenly were competing in a similar space. (This is one illustration of The Innovator’s Dilemma that can be seen as a shock but is a predictable pattern that repeatedly occurs.)

So how can you identify possible shocks before they disrupt your business? First, organizations can attempt to improve sub-optimal systems by finding leverage points that can serve as a small window that leads to broader change. Second, leaders can identify potential threats, discuss and prioritize them, and engage in scenario-planning “what-if” exercises as a team. I recommend creating stories for each factor and seeing how these stories impact your overall strategy. Ask questions such as:

• What factors would change the incentives (behaviors) of actors in our system?

• What are the sources that could lead to the emergence of these factors or shocks?

• What is preventing each shock from occurring today?

• What condition(s) would have to hold for these factors or shock to materialize?

• What warning signs should we look for that external changes may be coming?

• How should we respond broadly to a given shock? How soon do we need to?

• Are there any major risks or unknowns in our responses? Can we reduce them?

• Are there changes we can make internally now to mitigate external shocks later?

Finally, ensure that an individual or team is responsible for monitoring for external factors that could threaten your organization, identifying the potential ramifications of a shock, and when to trigger your response plans. Too often, these scenario planning exercises are held as part of a robust strategy development session with senior leaders and then are subsequently forgotten about or ignored as day-to-day demands take over again as they inevitably do.

• Without strategy and planning, your organization isn’t likely to accomplish much

• Conversely, sticking too tightly to rigid plans often leads to missed opportunities

• Ideally, you want to find a balance - but how can you count on spontaneity?

• Agility - the ability to shift priorities quickly - is essential in times of rapid change

• Have a flexible mindset and avoid being too rigid in pursuit of the wrong goals

Scoring goals in hockey by getting “puck luck”

We are approaching the middle of winter in North America, and hockey season is hitting the halfway point in the National Hockey League. I’m grateful that my favorite team, the Detroit Red Wings, is finally competitive again after missing the playoffs for six straight seasons. I watch as many games as possible, and it has been enjoyable to see the team have a bit more success after hiring a new coach in the offseason. Hockey is a sport that can be pretty random: the small rubber puck flies around the rink and can take crazy bounces off players, the boards, and the net. Some goals demonstrate players' remarkable skills; others result from opportunistic bounces or “puck luck.” While coaches preach an overall philosophy to their team and make strategic choices about which players should be in the lineup against opponents, many wins and losses are due to chance.

Because good fortune from unexpected outcomes occurs on a routine basis in hockey, a common refrain captures this element of the sport: “They don’t count how - only how many.” In other words, the result is the same whether a goal is scored as the result of a well-executed plan or an unexpected bounce. The winning team is the one that scores the most goals in the game - regardless of how they occurred. It’s an instructive lesson for those outside of hockey to learn. While having a sound strategy and solid plans are essential elements of success, being open to new opportunities that suddenly present themselves is also critical in today’s rapidly changing world.

Being comfortable with being uncomfortable

In the last edition of Forestview, I referred to the book Like, Comment, Subscribe by author Mark Bergen on the history of YouTube. One theme that recurs throughout the story - and in many other instances - is the immense energy and devotion employees have to achieve metrics that senior leaders have set for the company at the expense of different objectives. For example, in the mid-2010s, there was a big push to boost users' time watching videos on YouTube to attract high advertising revenues and combat rivals such as Facebook. This goal is relentlessly pursued even after many creators raise concerns about the amount of bullying online, the rise of conspiracy theories and misinformation, and the elevation of fringe personalities such as Alex Jones of InfoWars. The book makes clear that senior decision-makers were in a Silicon Valley “bubble” of sorts that prized “free speech” and assumed that the “marketplace of ideas” would sort out which videos deserved to be seen the most - ignoring the fact that new and powerful machine-learning algorithms were creating an echo chamber for the alt-right through increasingly refined recommendations.

As I mentioned in the last edition of Forestview, one of the challenges with shaping the future is that there is not always a clear roadmap. Having an overall vision, building a strategy, and developing plans to deliver intended outcomes is essential, but there also needs room for feedback loops and adaptation. Leaders need to be comfortable with being uncomfortable: they will continually face a lot of uncertainty. In these environments, it’s best to be open to various possibilities and listen to a broad cross-section of voices.

Improve listening to avoid negative outcomes

Books and movies love to play the “blame game” after the fact. Tales of corporate misfortune abound; think of recent books and related shows on Theranos and Uber, for example. Every horror story or account of misfortunate seems like a series of voices inevitably emerging with the basic message of “I told you so.” A common refrain from senior leaders is that they find themselves in unforeseeable situations. Yet, the presence of those dissenting voices belies this. The real issue is that there is always a range of opinions on important topics, and it’s rarely apparent at the moment which ones will prove prescient. When there are differing views on the proper actions to pursue, some people will inevitably be disappointed if their ideas are not implemented.

The temptation is for senior leaders to fall prey to confirmation bias: elevate the voices that reinforce their preconceived notions or beliefs and diminish or ignore dissenting views. This is where leaders must improve their listening skills. The best trait of one of my former employers, USAA, was the attention they paid to customer complaints. It often drove us crazy as employees due to the large number of resources and attention we devoted to investigating and resolving negative feedback. Still, complaints served as a “canary in the coal mine” that commonly surfaced real issues that USAA could resolve quickly and cheaply before they blew up into full-blown crises. The ability to listen to a full range of voices and quickly adapt as needed allows firms to avoid negative outcomes and seize upon new opportunities. By allowing for spontaneity and serendipity alongside set plans, your firm can fully take advantage of good “puck luck” when it comes your way.

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• Most organizations spend too much time focused internally when setting strategy

• Outside perspectives provide different viewpoints but are often not sufficient

• Firms underinvest in trying to uncover key trends that could impact their future

• Shallow identification of trends can lead you in many different (wrong) directions

• Develop a repeatable process to learn what trends affect you and how to respond

Setting a direction is hard without any guardrails

I’m fascinated with all things related to innovation and the future, and I have a particular fondness for content that provides “a history of the future.” Having read books on companies such as Google, Apple, Twitter, and Facebook, I’m forever fascinated by the ideas that sparked their initial insights and how each company evolved over time. There are always “sliding doors” moments and inevitable questions on why a particular direction was taken over another possibility. As I recently wrote, companies often settle on a delicate balance between pursuing a proactive vision of the future based on the idea of founders or senior leaders (“strategy”) and reacting to the latest unforeseen crisis (“survival”).

The latest book of this genre that I am currently reading is Like, Comment, Subscribe by author Mark Bergen on the rise of YouTube. The book characterizes many missteps made before and after its acquisition by Google. As with many of these real-life stories, I have more empathy for the firm after reading the book despite some questionable decisions by its leaders. Here’s the reality: There are few guardrails and guideposts along the way. Shaping the future is hard. Of course, it would be valuable for firms to avoid obvious missteps - but how can this be done systematically?

Beware of bad analogies and misaligned metrics

Two recurring lessons that appear in the story of YouTube (among many startups) are:

1. The struggle to find suitable analogies to help guide you

2. The lack of effort to identify potential unintended consequences

The first lesson is one that I rarely see much written about or discussed, but it is critically important. When faced with a new technology that unlocks new possibilities, people struggle to grasp all of the implications fully. This is natural and unsurprising. To comprehend the ramifications of a radically new opportunity, people often look for analogies or parallels that help to guide their decision-making. In the case of YouTube, Bergen shares the image of the Body, complete with the Head, Torso, and Long Tail. The Head, in this instance, refers to quality programming that stimulates audiences similar to what was found on television and in movies produced by Hollywood. The Torso refers to the core of YouTube, the millions of individual creators that initially gravitated to the site to share and watch amateur videos in hopes that they “go viral” and generate tons of views and buzz online. The Long Tail refers to topics such as kitesurfing that are too niche for major TV channels but, given lower production costs, can draw niche audiences and collectively drive traffic to YouTube.

This Body analogy is helpful to visualize what YouTube is and who it is for. However, a problem arises when using this analogy to guide strategic decisions. Who is/are the target audience(s)? How can we best monetize this new technology? Over and over throughout the story, YouTube pursues all parts of the Body without regard to how one initiative impacts the others. For example, lots of time and effort are spent at the Head courting Hollywood stars to create content for YouTube in hopes of scaling it to appeal to wider audiences. The Torso, meanwhile, is relatively neglected - thousands of individual contributors don’t scale in the eyes of Google - so enterprising creators come together to form multi-channel networks (MCNs) of amateur stars, giving them access to tools and resources to produce videos while taking a cut of their revenues. It isn’t until much later that YouTube pivots to more fully embrace its biggest asset - the legions of regular people that suddenly have access to means of production previously reserved for studios. I’d argue a“democratization” analogy - similar to other Web 2.0 technologies such as blogs and social media - would have been better than the Body. This is the problem with selecting a poor analogy: it often leads you to pursue the wrong courses of action. It leads to inefficiency at best and is a death knell at worst.

To address the second lesson, I’ve written in past editions of Forestview about the need to beware of how misaligned metrics drive the wrong behaviors and the need for diverse viewpoints to be heard and incorporated into decision-making. Google is famous for setting objectives and key results (OKRs) and devoting enormous resources to achieving them. In the story of YouTube, the desire to respond to perceived competitive threats leads to “moving the goalposts” several times, disrupting the company internally and the external creators and partners it relies upon. For example, when Google sees the rise of Facebook as a threat, it responds by prioritizing time spent watching videos over the number of views and engagement metrics such as ratings and comments. Changes in the YouTube recommendation algorithm to favor longer videos has a negative impact on creators who produced many of the early “viral” hits that drove the initial growth of the site.

Later, in an all-out push to promote Google+ as a rival social network, YouTube creates friction with its users by requiring a Google+ login to upload videos. Google publicly announces that over 300M people use Google+ while not acknowledging that the vast majority are doing so only because YouTube is forcing them to! It isn’t until much later that Google+ is deemed a failure and dies slowly, wasting resources and annoying customers. It is evident to many employees at YouTube that decisions by top leaders at Google are actively hurting their product. However, the YouTube top brass are reticent to challenge Google’s senior leaders. The leadership council and co-founder Larry Page quickly dismiss attempts to communicate concerns. Despite promoting a “radical candor” culture, there is never a complete discussion of the widespread ramifications of the strategic guidance on Google+ to YouTube.

Look to distinguish between a trend and a fad

Attempts to accurately predict the future are always fraught, and you’re bound to make mistakes along the way. So how can organizations improve upon creating strategies that stick without ignoring the unintended consequences of their decisions until they grow too big to ignore? I recommend spending more time at Square One: formulating a narrative worldview that broadly explains key trends and phenomena you observe. Why is this important? Because without taking the time to develop a sufficiently nuanced worldview, you’re likely to pick out an available analogy to support your strategy and run with it. You don’t want to select your strategy first and then back into the justification for it through storytelling and handwaving. There should be facts and figures supporting your strategy to the extent possible, and critical assumptions for “known unknowns” should be well documented and revisited.

Which trends matter? First, it needs to be sufficiently broad-based to be meaningful in the macro view: these are big-picture mega-trends. Small trends matter only if they are expected to become significant trends later. Fads may be buzzworthy but won’t make a difference when shaping a strategy. My daughter Felicity recently reminded me of what a fad looked like when she recalled how obsessed she was in 3rd grade with Silly Bandz at summer camp. (For my younger daughter Sienna, her 3rd-grade fad was fidget spinners.) A meaningful trend is a movement that signifies a shift in the status quo and is expected to persist over time. No activity indicates business as usual; small, temporary shifts are fads that can generally be ignored.

Second, the trends should be categorized to place their impact in context. When working with organizations, I use the following four categories to focus on:

1. Demographic, societal, and behavioral trends

2. Economic, financial, and political trends

3. Technological trends

4. Market-specific and competitive trends

• Demographic, societal, and behavioral changes tend to shift less quickly over time and are easier to see and assess (although they can occur more rapidly than we realize). Because the shifts are more gradual and play out over a more extended period, I like to start here.

• Economic, financial, and political trends tend to be more predictable over months and less predictable over the years; they are easier to forecast in the short- to medium-term.

• Technological trends are easier to spot but the hardest to assess in my experience; some trends catch on quickly, and many do not catch on as expected. In this area, I like to think in very broad categories, such as the rise of artificial intelligence (AI) or cloud computing, and less in terms of specific technologies, such as ChatGPT. I don’t mean to imply you shouldn’t get down to this level. Still, technologies are prone to “leapfrogging,” so it’s better to explore high-level trends such as miniaturization and Moore’s Law than go too deep.

• Market-specific and competitive trends are the easiest to spot for your in-house experts but tend to be shorter-lived depending on your industry. A word of caution here: it’s easy to overreact to a specific competitor’s action while also overestimating the competitive benefits of your actions. For example, many organizations have spent the last decade on digital transformation journeys to modernize their core systems infrastructure at the cost of millions of dollars. This is necessary and important work - but if everyone in your industry follows suit, you aren’t likely to gain a lasting competitive advantage.

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• Setting the right strategy starts with formulating a coherent “view of the world”

• This worldview can change over time as new insights become clear; it is not fixed

• When senior leaders coalesce around a shared vision, this forms a foundation that is critical in formulating a sound strategy that inspires and motivates employees

• By minimizing threats, you risk being too reactionary to unexpected developments

• Go beyond generalizations and share your worldview to stress test and refine it

Sound strategy starts with a coherent worldview

How do you begin the process of developing a sound strategy? For many organizations, this starts with the development of a mission statement that broadly gives purpose to your organization. Additionally, some version of a SWOT analysis identifying strengths, weaknesses, opportunities and threats is often performed, commonly with help from an outside consulting firm. Consultants and leaders with prior experience working in other organizations can add value in benchmarking your firm alongside competitors and speak to best practices they have used successfully. Areas for improvement are identified through discussions and prioritized. Potential projects are scoped and the required investments in terms of resources are estimated. Collectively, a strategy (of sorts) is formulated which speaks to the future direction of the organization and provides justification for the investments that have been decided upon by senior leaders.

In my view, what is usually missing from this process is a broader examination of key trends and the development of a narrative or “worldview” that attempts to explain what is happening, why it matters, and how your organization plans to respond. Such narratives are simplistic by nature; just as a statistical model is an abstraction of a real-life phenomenon, so are worldview narratives. However, both the process to develop a coherent narrative that senior leaders can agree upon and the final version can be illuminating. Attempts to craft a worldview will inevitably involve seeking answers to key questions:

• What fundamental changes do we see since the last time we refined our strategy?

• What are the major themes or trends in our world today? How do they impact us?

• What assumptions did we make about how things would play out last time? Which ones proved correctt? Where did we miss the mark?

• Does our worldview narrative adequately describe trends we currently observe? If not, how does the narrative need to change to better reflect reality?

• Where are the gaps or unknowns in our story? What info is needed to fill them?

• If this story about how our world is correct, what does this imply for our organization? How should we respond to be well-positioned in the near future?

• Assuming our worldview is incomplete or inaccurate, where are our biggest blind spots? Are there some key assumptions that our strategy rests upon? Can we build in agility and adaptability to allow us to quickly pivot if/when necessary?

Think deeply about threats and how to respond

In my experience, one of the biggest shortcomings of strategy formulation is not thinking deeply enough about threats to your current business model. Yes, organizations pay lip service to traditional and even some non-traditional competitors like Big Tech. Too often, however, companies are so focused on achieving their annual objectives that they are not well equipped to step back and process what is going on in the outside world in a systematic way. Few organizations have a true competititve intelligence team, and those that do are often more narrowly focused on the specific actions of a limited number of known competitors. How many taxi companies foresaw the rise of ride sharing? They were likely much more focused on other transportation firms, not startup technology firms. The same is true of hotel chains - they were likely much more focused on known rivals than Airbnb and VBRO.

Another challenge to thinking holistically is the bias to attribute all successes to internal efforts and look for external reasons (excuses) when falling short of plan. Throughout my time in the insurance industry, I heard a lot about missing profit targets due to factors outside of our control (such as severe weather) but rarely did we attribute better than expected results to good fortune. We are so focused on our own efforts that, when we have success, it is tempting to pat ourselves on the back. When we fail, it’s easier to search for external factors beyond our control first before we look in the mirror. Finally, it is also tempting to blame poor execution before asking whether our strategy was sound in the first place. We see this in sports all the time: it is fairly evident when the head coach makes a poor game-management decision, such as when to use their time-outs or substitute players, but much harder to assess whether their overall strategy was lacking until an entire season (or more) is played.

Go beyond generalizations to inform your actions

My advice for improving your corporate strategy is to look at three areas in particular:

1. Have you created a coherent narrative or worldview that captures the current state of your competitive landscape and where it appears to be heading?

2. Have you identified key trends based on data and impartial observations and documented key assumptions that should be re-examined periodically as part of developing your strategy?

3. Have you taken time to thoroughly document threats to your existing competitive position - real and imagined - and ranked them in order of size and importance? Do you have plans to address the most relevant threats and contingencies in place if and when unexpected developments occur?

To properly address all three, you need time and engagement from all aspects of your organization. Too often, strategic discussions are rushed, crammed into days full of meetings which mostly address operational concerns. Even if you take time to do an offsite planning effort, interruptions throughout the day are practically inevitable. Finding the time and space to focus on assessing your current strategy and refining it is challenging. The problem is that when the necessary time and effort are not put in, the elements listed above become a mash of generalizations and platitudes. Strategic direction must be more than a “word salad”. Resource investments must be more than a list of “pet projects” that each senior leader favors, but are only loosely related to one another and support a grand strategy to meaningfully push your firm forward. Be as specific as possible in articulating your worldview, the trends you see and threats your perceive, and be sure to document and revisit key assumptions at least twice yearly.

• As we embark upon a new year in 2023, people are solidifying plans for the future

• Formulating sound strategies is more complex in today’s world of rapid changes

• When a crisis inevitably occurs, plans go out the window, and we become reactive

• Planned strategies are hard to implement because people settle for the status quo

• By contrast, significant changes occur quickly in a crisis when survival is at stake

• Smart organizations capitalize on chaos and “never let a good crisis go to waste”

The process of creating most strategies is broken

With the beginning of 2023 and a new calendar year, many people are returning to the workplace and reassessing their goals and objectives. As part of this process, it is common to revisit high-level strategies that have been put in place to guide your organization forward. Strategic planning has been part of the fabric of most firms for decades, reaching a high point in the mid-1960s following a shift from military planning during World War II to corporate boardrooms. The strategic planning process has been, and remains, quite challenging, as this classic Harvard Business Review article from 1994 highlights. In the piece, author Henry Mintzberg focuses on the art of formulating strategy and asserts that the role of planning is to support the execution of the strategy, not to dictate its direction. Strategy and innovation are inexorably tied together: this dynamic is the topic focus of Forestview this month.

In this HBR article, Mintzberg distinguishes between analysis - the realm of planning - and synthesis - the domain of strategic thinking. He states:

The outcome of strategic thinking is an integrated view of the enterprise, a not-too-precisely articulated vision of direction…Such strategies cannot be developed on schedule or immaculately conceived. They must be free to appear at any time and at any place in the organization, typically through messy processes of informal learning…” (emphasis added)

In my years of experience, the characteristics Mintzberg describes as vital in developing effective strategies are seriously lacking in most firms, large and small. There is generally a standard timeframe and process that occurs, often annually. There are lots of meetings and drafts of slide decks and well-choreographed talking points that hew narrowly to a tight narrative almost exclusively inwardly focused. Rarely are outside trends, competitive forces, or external threats recognized and discussed in detail; they are often acknowledged but seldom explored in depth by a diverse team.

Bring in outsiders to avoid strategic blind spots

You’ve likely heard of the adage, “people don’t plan to fail; they simply fail to plan.” This saying possesses wisdom, but it leaves out that a poor plan can sometimes be worse than no plan. Things generally go off the rails whenever these events occur:

1. A poor strategy is executed, and results differ from what was expected

2. A sound strategy is poorly executed, and results differ from what was expected

3. One or more crises occur, throwing off plans and survival “gut” instincts kick in

In today’s unpredictable world marked by accelerating change, you can count on #3 occurring; in other words, plan for the unexpected to happen. A great way to see this visually is by looking graphically at the major Google Trends in 2022. While these headlines may or may not have caused your plans to change, I’m sure you experienced your own “headlines” that caused chaos and confusion in your personal and professional life. Humans typically bypass rational thought when stressed and go with their core instincts. This is the reason that professional athletes and military members, among others, train so much: the routines they practice constantly will become so ingrained that they are “instinctive” when facing an unexpected challenge.

While none of us can predict the future with perfect accuracy, we can attempt to anticipate and respond to disruptions better. One way to do so is by bringing in outside perspectives to avoid groupthink and strategic blind spots. This often takes the form of external consultants, but it doesn’t have to be: customers, suppliers, providers, key partners, and even internal focus groups can widen the aperture of your strategic lens. The more outside perspectives you bring, the more Mintzberg’s “messy process of informal learning” can occur to refine your strategic thinking. By doing so, your organization may be better positioned to anticipate a “crisis” and have a plan in place to respond before it hits the headlines. This is also where the nexus with innovation efforts occurs. Innovation teams are explicitly tasked with ideation, designing experiments, and “thinking outside the box” to challenge conventional wisdom.

Go beyond survival; seek to thrive after a crisis

One of the biggest challenges with effectively executing your strategy is overcoming humans' built-in inertia towards staying with the status quo. Unless there is a “burning platform,” people find comfort in familiar routines. Manufacturing a crisis internally is tricky. I’ve been part of successful organizations that mapped out ambitious plans for change because “we want to stay ahead of the competition.” Unfortunately, these initiatives often drag out and lose momentum because people do not fully embrace the need for changes. A typical mindset is “this too shall pass,” and this way of thinking is not necessarily wrong. Organizations often see wave after wave of leaders seeking to affect change, only to be replaced before much change actually occurs. Unless survival is at stake, it is hard to motivate bold action. Winston Churchill famously said to “never let a good crisis go to waste” when advocating for the creation of the United Nations. Albert Einstein stated that “there is no challenge without a crisis.”

The problem with switching to a reactive mode and waiting in anticipation of chaos is that, in these moments, well-manicured strategies and plans go right out of the window. Instincts kick in, and leaders go with their gut. A better approach is to prepare for the unexpected and be ready to act boldly. A McKinsey study in 2013 following the Great Financial Crisis found that most firms, counterintuitively, did not make many changes in their operations - despite the economic calamity and greater appetite for new approaches. Furthermore, the authors found that firms surveyed who made what they describe as “high levels of resource reallocation” performed more than 2x better than firms with low levels of resource reallocation as measured by total return to shareholders. They conclude that “resource reallocation is a muscle that requires exercising in good times and even more in bad times.” In particular, as many firms experienced in 2022, as new sources of capital dry up, organizations must move even more decisively to avoid calamity and seek to capitalize on the crisis.

The bottom line: it takes both a strategic mindset and a survival mindset to develop a clear direction for your organization that charts a course forward while also anticipating the unexpected, which can present opportunities to speed up needed changes and separate yourself from the competition. When a crisis does occur, as it did for Southwest Airlines in 2021 when it had to cancel many more flights than its competitors due to severe winter weather, it is better to seize that moment to make necessary adjustments in technology and processes to avoid a similar crisis in 2022.

I wish you health, happiness, and continued success in 2023! Please consider subscribing to Forestview if you haven’t already and share with friends and colleagues who may find this content valuable.

-Rob

Fooling ourselves on the limits of our expertise

I was thrilled to hear this week that scientists have made a breakthrough in creating a nuclear fusion reaction that produces more energy than it uses. I won’t pretend to explain the significance of this discovery or what it means for our future - but my father could. He devoted his life to finding ways to deploy nuclear energy for good, specifically on simulations of nuclear fusion reactions. I recall spending time in his office as a child surrounded by huge stacks of dot-matrix printouts containing results from thousands of statistical simulations. My mother was an elementary school teacher. Her job was much more relatable, and easy to explain to my friends what she did for a living. To this day, I can’t explain what my father did other than he earned his Ph.D. and was a postdoc for years who continued to assist his thesis advisor in their research. I know that he used computers a lot, co-authored several technical articles in academic journals, and went to Japan for two weeks once for a conference.

With the dawn of the Internet and the explosion of information at our fingertips, it is much harder to determine who is a true expert and who isn’t. I could read a bunch of articles this week about the nuclear fusion breakthrough and attempt to summarize what it means for society, but that does not make me an expert. If I did so, I might credibly fool many people into thinking I was an expert on nuclear fusion. How is this possible? Because others know as little as I do about the subject, a few hours of reading would provide me with enough talking points to be slightly more knowledgeable on the topic.

Expertise is relative - who is a true expert?

My father is a true expert on nuclear fusion: he devoted years of study and original research to the discipline. Regarding other subjects, my dad’s knowledge is quite limited. For example, Dad always asked me, an economics major, why the United States did not raise marginal tax rates back to over 90%. His logic? Tax rates were as high as 94% in World War II, which preceded incredible prosperity in the country. I spent a long time explaining to him some of the unique facts of that era and why those conditions were not applicable in modern times, but he never gave up hope. I resigned myself to the fact that, while my father was brilliant, there were many areas in which he was reasonably ignorant - as we all are.

As I wrote in the last edition of Forestview, we are forced to strike a balance between areas where we use our unique knowledge as domain experts to go deep with the need for a broad, shallow knowledge of a generalist. The big problem: we usually do not recognize when we move between our areas of expertise and ignorance. Author Tom Nichols's book The Death of Expertise documents this challenge well. Nichols is most alarmed that ignorance has become considered a virtue in many circles. The denial of science, the use of algorithms that feed us what we want to hear to reinforce our biases, and the ability to become wrapped up in our echo chamber all feed into the dismissal of the value that true experts bring to society. If we live in a post-truth world, this implies that we also live in a post-expert world.

The main problem with expertise: tunnel vision

Growing up in a family of educators, I have always valued academics and building a base of knowledge and domain expertise. As an innovator, I have also come to learn the limitations that come with specialized knowledge. Domain experts often go a mile deep but an inch wide; as a corporate innovation leader, I always said that my job was to go a mile wide and an inch deep. I was explicitly tasked with not being responsible for achieving specific metrics to boost current-year performance; instead, my team was fortunate enough to be some of the few individuals charged with pursuing future growth and profitability.

To accomplish this objective, we had to maintain a broad view of the future and how to steer our organization. We would consume research and scouting of emerging technologies and new startups but then turn to internal experts to help us stress test ideas and strategies, products and services, projects and investments. In doing so, we asked teammates to think broadly: to avoid the “gate agent problem” and provide holistic feedback. By contrast, our team needed to be adept at listening as generalists and not quickly dismissing their concerns as specialists. In dismissing hard-earned expertise, you can be doomed to failures that could have been easily prevented if the proper modifications and adjustments were made.

How to value collective intelligence while avoiding analysis paralysis

The key to balancing the generalist and specialist views is to know the limits of your knowledge and seek a broad spectrum of perspectives. First and foremost, acknowledge the areas where you are an expert and where you are not. Next, determine ways to find the expertise you lack - this is often another person or group. You may need to fill some gaps yourself (this is where tools like the Internet and social media can be so valuable). When bringing together a group of experts, you need to find ways to integrate their perspectives and, usually, make decisions on actions to take. It can be helpful if a clear consensus forms, but there will almost always be disagreements, and the best path forward is not obvious. In these cases, it helps to have a process for coming to a resolution. This can be as simple as asking a person of authority to decide or as robust as the evidence-based process advocated by Ray Dalio in his book Principles. New advances such as artificial intelligence can also guide humans as part of a community of knowledge that helps facilitate decision-making.

I hope that Forestview has helped bring you some new perspectives and food for thought in 2022. If you have missed any past editions, you can view the archive and catch up on any articles that may interest you. Be sure to share any items of interest with friends and colleagues and start a conversation! It is through meaningful discussions that the most profound learning occurs.

I’ll be off for the remainder of the year to enjoy the holidays with loved ones, and I hope you have the opportunity to do the same.

Wishing you health and happiness,

- Rob

• The amount of knowledge required to navigate the world is ever expanding

• Our ability to truly comprehend a challenge is limited to our domain expertise

• Being an expert in one area does not translate into other domains; you need help

• New tools and resources are providing assistance to help us see more possibilities

• Synthesizing diverse viewpoints and a strong vision help leaders shape the future

Which is better, the fox or the hedgehog?

In reflecting on this year, I continue to seek a balance between narrowly targeting my focus to serve a specific audience and keeping my aperture as wide as possible to see the bigger picture and share that view with others. As you can see from a picture of my bookshelf above, I have always had a variety of interests. (I’ll admit this is a small fraction of the books I own; my Kindle allows me to carry thousands more titles in digital form.) This reminds me of the old proverb, later popularized by Isaiah Berlin, about the hedgehog and the fox: “a fox knows many things, but a hedgehog knows one big thing.”

In his classic book Good to Great, author Jim Collins introduces The Hedgehog Concept, where he argues that firms must answer three questions to make the leap as an organization:

1. What are we deeply passionate about?

2. What can we be the best in the world at?

3. What will best drive our economic or resource engine?

By contrast, Nate Silver is the author of The Signal and the Noise and founder of the FiveThirtyEight website devoted to data journalism. Silver outlines his core philosophy in an essay titled What The Fox Knows and has embraced Fivey Fox as his company’s mascot (complete with its own subculture).

So which is a better path to pursue personally and professionally: should you seek to be a fox or a hedgehog? In reality, we all have some of both characters within us. Rather than choosing to model yourself after one or the other, it is more important to identify the balance between the two that you wish to strike - and recognize your limits on both ends of the spectrum. A hedgehog is likely to intimately know key details that are the critical difference between failure and success while subject to tunnel vision. By contrast, the fox is expected to recognize what direction an organization needs to move in but fails to appreciate the importance of buy-in from technical experts.

Why does Forestview exist, and who is it for?

It’s been exciting to start my own small company, Forestview Insights, in 2022 after 25 years of working in large corporations and governmental institutions. As any entrepreneur knows, you quickly realize that you’ve traded one set of problems for an entirely different set of challenges, and I’ll share more about my journey in future posts. My main focus for the business and this newsletter has remained the same: to provide you with concise yet thoughtful content that sparks your own ideas and spurs conversations with colleagues, associates, and others in your network.

The top question I have received during the year is a basic one. Who is Forestview for? I have wrestled with the answer, and my views on this continue to evolve. As a former people leader responsible for innovative projects, my teams and I needed to continually educate ourselves on the latest industry trends, technologies, and competitive market strategies. To do so, we relied upon each other first and foremost: having an open and honest dialogue among professionals with different domain expertise and diverse viewpoints was critical for our success. Additionally, we relied on industry publications, consultants, social media, and third-party vendors. Unfortunately, many of these sources came at a substantial cost or were biased toward embracing a specific solution set (or both!).

My goal in launching Forestview is to provide you with meaningful insights at little to no cost compared with alternatives and help you and your organization make smarter decisions. In short, my intended audience for Forestview is anyone who seeks to lead change and help shape the future of their organization. This can be at the top level - board and C-suite - down to the lowest position within your firm. Your formal role within your organization is less relevant than your purpose. Are you someone who thinks beyond their specific role and domain expertise to focus on the big picture? Do you seek to connect with others to gain knowledge and perspective that lead to better individual and collective decision-making? Are you curious about current trends that are shaping our future without being sold a specific solution set? If so, then Forestview is for you.

Want to become smarter? Start a conversation!

As loyal readers know, I love to read books and attend industry conferences and events to stay on top of meaningful trends in our rapidly changing world. The task is fun but never-ending: there is always more to learn. Actual knowledge comes from not just absorbing new information but synthesizing it. I’ve had the fortune to see this dynamic firsthand. As the author of The End Of Insurance As We Know It, readers have repeatedly told me how many insights they have gained from reading my book. I credit this less to any brilliant ideas I shared and more to the synthesis I provided across how emerging technologies are changing the insurance industry. Bringing together a set of trends and developments into a coherent narrative unlocked new insights for my audience over and above each individual piece of information they had previously consumed—context matters.

The best way to make sense of trends and data is to talk to others. Do they see the same thing? Do they share the same interpretation? Do they agree on the implications for your organization? Tools such as artificial intelligence can significantly aid humans in identifying patterns in a data-filled world, but people are needed to find meaning. From the hedgehog perspective of each person’s domain expertise, a fox can start creating a mosaic that outlines the big picture. Both foxes and hedgehogs can put together a strategic vision and actionable plan that each department or area can execute. Neither a fox nor a hedgehog alone is perfect for leading change within an organization: both roles are required to maximize your chances of success in shaping the future.

• Looking to sell more products? Consider revamping your service offerings!

• Companies that look for “flywheel” effects can rapidly boost revenues

• Membership models and subscription services can unlock lasting value

How one decision can lock in customer loyalty

With the end-of-year holiday season upon us, my wife Dani and I have been shopping for presents like many parents. As our kids have grown older, their wish list has become more expensive, and their technology needs greater: laptops, tablets, iPhones, etc. Our days of waiting in line on Black Friday at Best Buy for deals on flat-screen TVs are over: many of our holiday purchases are now made online on Amazon. Yet we sometimes go to brick-and-mortar stores to get a feel for major purchases such as appliances.

Recently, Dani and my youngest daughter Sienna visited Best Buy to look at new laptops. Sienna found one that is a significant upgrade over her old Chromebook and should last her through middle and high school. Dani called me from the store as she considered the options for a protection plan on the computer. In addition to the standard offerings, she told me about Best Buy's Totaltech membership. For just under $200 annually, Totaltech combines numerous service offerings into one, including:

• Free 24/7/365 tech support from their GeekSquad experts

• Up to 24 months protection plan for purchases

• Free 2-day shipping, delivery, and standard installation

• An extended time of up to 60 days to return items

• 20% discounts on labor for repairs

• Discounted pricing for members

Totaltech is modeled after Amazon Prime and the myriad of benefits offered for Prime membership. Wisely, Best Buy even suggests on their website to consider giving Totaltech as a gift for others.

Getting the best of both worlds: recurring revenue and increased customer loyalty

On the phone, Dani and I discussed the relative merits of Totaltech. The cost was high: $200 annually for a protection plan on a $1,000 laptop was certainly not worth the price. However, one appealing aspect of Totaltech is that the same protection plan also covers additional purchases at no cost. So part of the calculus was whether we expected to purchase more appliances and technology we would want to protect over the next year. We discussed our need for a new refrigerator and another laptop and decided that becoming a Totaltech member was worth the price.

Now that we are actively shopping for holiday presents, some of the implications of our decision to purchase Totaltech have become clearer, and the benefits to Best Buy are brilliant.

• Best Buy gets an additional $200 in revenue immediately

• This revenue recurs annually unless we decide to cancel - which would end the protection pan coverage for our new laptop and any new purchases we made

• Since the marginal cost of protecting new purchases is zero, we now have a strong incentive to start our search for a new refrigerator and technology at Best Buy

• Even if the price of these new products is higher at Best Buy, we are still likely to purchase from them because the cost elsewhere includes both the price and cost of their protection plan for a given product

The bottom line: we have now gone from periodic customers of Best Buy products to loyal customers, all because of a service offering.

Customers are valued; members are treasured

I have seen first-hand the mindset difference between customers and members for two decades while working at USAA. The company is a member-owned association, and customers are always referred to as members. The difference could cynically be viewed as mere semantics, but I firmly believe there is a tangible difference in the mindset of how you view those who purchase your products and services. Customers are transactional; the term implies a one-time engagement. A loyal customer may engage in multiple transactions over time. Members, by contrast, feel like part of your enterprise - they play an active and collaborative role in your success.

Author Robbie Kellman-Baxter wrote a book called The Membership Economy, which highlights the relevant distinctions between customers and members. Kellman-Baxter emphasizes a mindset shift from anonymous transactions to valued relationships, and modern technology, such as cloud computing and artificial intelligence, allows companies to develop relationships at scale. Customer acquisition costs are high, and it is cheaper to retain an existing customer than find a new one. By re-examining how your firm relates to your customers, it is possible to explore whether or not a more immersive, all-encompassing service offering such as Totaltech or Amazon Prime can help you both increase recurring revenues and customer loyalty simultaneously. Firms should spend as much time discussing business models as they do products and pricing; rethinking the right way to do business can yield outsize results quickly and cheaply without needing a significant capital investment.

• December is “quick hitter” month - condensed editions on a range of topics

• The most common issue I’ve been asked to speak about in 2022 is talent

• Despite inflation, layoffs, and fears of recession, finding leaders remains a priority

• The problem starts at the beginning: identifying leadership potential

• In the absence of better methods, firms keep defaulting to selecting top individual contributors

• We need to find better ways to evaluate leadership potential early on & nurture it

Why superstars are rarely the best coaches

If you are a sports fan, the end of the year has a lot to offer. Many domestic leagues are in full swing, and the World Cup is down to the final eight teams. As a lifelong fan of several different team sports, I’ve learned that there is a common theme: the best superstar players often do not make great coaches. There are many theories on why this is often the case, but the most common is that superstars find it challenging to relate to all of the players and the ability to bring them together to achieve a goal. More commonly, top coaches were marginal professional players in their sport or may not have even made it to the highest levels. Top coaches often struggled and bounced around from team to team - crucially, they were exposed to various coaches, players, and organizational cultures. They weren’t catered to like a superstar player: they had to earn respect and find a role within the team structure to be successful. This experience helps top coaches as they make the transition from player to coach; it also ensures that they have to spend time working their way up the ladder in various roles as assistant coaches rather than being handed the top job right away.

High-profile professional sports teams go beyond hiring top superstars as coaches and instead evaluate potential coaches based on leadership qualities such as vision, communication, and interpersonal skills. Why do other industries struggle with the same idea when hiring leaders? It’s not a secret that hiring and retaining top talent is a business imperative; it’s the most common question I received from companies this year, even though I am not a recruiter or HR specialist. Yet most organizations continue to hire top individual contributors (their “superstars”) into entry-level management positions, with full knowledge that employees leave a company first and foremost because of bad frontline managers. Why does this cycle keep repeating itself with no end in sight?

The process is broken, but we can’t seem to fix it

The leading reason firms keep hiring superstars instead of top coaches is the way they evaluate performance and abilities. How do you decide if someone is worthy of a promotion to a leadership role? First and foremost, firms look at how well they perform in their current job. When evaluating job performance, they are usually objective criteria (“metrics”) and subjective criteria (“soft skills”). Superstars not only meet the goals set for them in terms of metrics, they far exceed them. There is little debate about their achievement; the numbers are what they are. (As an aside, there is room for debate about whether firms are using the right metrics to evaluate performance, but the point is that every job usually has some measurable criteria by which employee performance is judged.) By contrast, the “soft skills” are subjective: rank ordering is more challenging.

When assembling a candidate pool to be considered for a leadership position, organizations first look at objective performance and then evaluate subjective criteria. Put another way, firms initially develop a pool of candidates based on top performance based on metrics, then conduct interviews and otherwise seek to assess soft skills and leadership potential from that group of candidates. Here is the problem: the “fringe players” who do not have the objective metrics of the “superstars” but possess outstanding leadership skills never make it in the consideration set. I often think back a decade ago to my first leadership role overseeing a team of underwriters at USAA. One of my employees, Caroline, was an outstanding communicator who often took the lead at our team huddles. Her leadership qualities were evident to anyone who spent a moderate amount of time around the group. The problem? She could never hit her weekly productivity goal as an underwriter. I had many conversations with Caroline in our 1:1s that if she could find ways to meet her productivity goals (not even exceed them), I could strongly advocate for promotions and leadership opportunities on her behalf. Unfortunately for the organization, she was never able to. Caroline eventually left the company, taking her nascent leadership skills with her.

Rethinking ways to identify leadership potential

It would be ideal if there were a standardized way to quantify leadership skills so that we can measure other aspects of job performance. Unfortunately, despite the research and assessments developed over the years, it remains a challenge for organizations to identify top coaches within their walls or to bring them in from outside. Sports teams don’t always get it right: we read stories about a coach getting fired practically every week. Franchises have a lot at stake in terms of multi-million dollar athletes working in multi-billion dollar leagues, yet they continue to churn through leaders and coaches in many cases. The one realization that sports teams have made over time, however, is that coaching and leadership require a specific set of skills and abilities; it does not matter how many goals or points the coach scored or even whether they played professionally at the highest level; what matters are leadership qualities, defined as a unique mix of abilities that may be hard to quantify but valuable in its own right.

As we rapidly move into the new year and beyond, it is worth pausing and considering how your organization identifies candidates for leadership positions, the hiring process, and how leaders are evaluated individually and collectively within your firm. As inflation continues to rise, so do wages and labor costs; as a result, the price of picking poor leaders has never been higher. Re-evaluating your entire approach to talent has never been more urgent, and that begins with hiring and retaining the right coaches to support your people.

• Distrust has become a typical attitude among people over the past several years

• Increasingly, government and media are becoming less trusted institutions

• Trust is increasing in businesses, as are expectations to affect societal change

• Gen Z is the generation of creators of content and place trust in influencers

• Brands are increasingly working with influencers to build up trust with customers

Changes in the trust barometer around the globe

Attention has been given this month to two major international congregations: the G20 Summit in Indonesia and the COP27 United Nations Climate Change Conference in Egypt. It is not a surprise that global leaders continue to gather together to work through the world’s toughest challenges. What is noteworthy is the amount of trust - or lack thereof - that many citizens place in their government institutions, political leaders, and the media, covering their every move.

According to the global communications firm Edelman, best known for their annual Trust Barometer that surveys 36,000 respondents in 28 countries, faith in government and media continues to decline. By contrast, trust in businesses and NGOs are on the rise. 61% of respondents said they trust in business; only 52% said they have faith in government, and 50% have confidence in the media. Almost one in two respondents said that they see government and media as divisive institutions, which translates into low percentages of people who trust political leaders (42%) and journalists (46%). With the trust placed in business comes responsibility. The latest Edelman Trust Barometer for 2022 shows that 60% of employees want their CEO to weigh in on controversial issues, and 80% of the general population want CEOs to be visible in public policy and to articulate how their companies are actively benefitting society.

Gen Z is socially active both online and IRL

On the front lines of social change are young people under the age of 27. A special survey by Edelman of Gen Z titled The Cascade of Influence shows that 2018 marked a turning point. That year is when “buying on belief went mainstream,” according to the report: 64% of respondents said that they buy brands based on their values and beliefs, a 13-point jump from 2017. This attitude has sustained over time, and respondents indicated that several issues are important to them, most notably how well companies treat their employees (75%), climate change (64%), racial justice and economic inequality (60%).

An essential quality of Gen Z is that they are creators: they have grown up in the age of social media and access to digital technologies that allow them to magnify their voice and influence. 69% of adult Gen Z (ages 18-26) create or share content online weekly, and 30% do so daily. All of this content is influencing not just fellow Gen Zers but adults of older generations. 71% of parents of children under 18 said that teenagers and college-aged people influence their purchase decision. Perhaps more remarkably, 51% of non-parents said the same thing.

Brands can build trust by turning to influencers

The Edelman survey on Gen Z and influencers contains some interesting perspectives. According to their findings, the top 3 sources of credible information to survey respondents were scientists or experts (66%), a person like them that uses a brand (61%), and a brand’s technical expert (58%). Additionally, respondents indicated that the most trusted qualities of an influencer are teaching new skills (40%), making recommendations based on their experience (37%), and sharing the same values (35%).

According to Edelman, trusted brands command a premium: 59% of customers say they are willing to spend more on them. Additionally, 58% of respondents said they are more likely to purchase when they trust a company, and 67% said they would stay loyal and advocate for a trusted brand. Edelman’s findings show that when brands are willing to take action on societal issues, Gen Z is 4x more likely to purchase. Conversely, Edelman’s survey results show if brands do not earn the trust of younger customers, they are less likely to purchase it even if they are initially willing to consider it. The bottom line is that younger people are looking to partner with firms to change the world and share their values; when they see alignment they have an outsized influence on multiple generations due to their high propensity to create content online.

What information sources do you rely on to learn about the world and make decisions? Are you a big consumer of traditional media or social media? Who do you look for as a trusted source of information on purchase decisions? How do you know if a company aligns with your values? Are you willing to pay more to do business with firms that share your beliefs?

• Inflation and rising interest rates are putting more financial pressure on firms

• Similar to the dot-com boom of the 1990s, we are reaching the end of a tech era

• Technology isn’t going away, but we are being asked to pay more for it in our lives

• Some businesses will survive this shift, but many others appear to be faltering

• With uncertainty and layoffs comes a loss of trust both internally and externally

• Trust implies vulnerability; if firms lose customer trust, it is harder to win back

A farewell to our nice customer subsidies in tech

I recently listened to a podcast featuring Derek Thompson of The Atlantic, who described his recent article The End Of The Millennial Lifestyle Subsidy. His basic premise is that the last 10-15 years of near-zero interest rates provided a sea of cheap capital that went, in part, to funding new tech startups that were primarily focused on growth and engagement, not profits. Popular tech firms such as Facebook, Twitter, Uber, DoorDash, and Netflix either offered their services for free (in the case of Facebook and Twitter) or at a significant discount relative to the cost of providing those services (see Uber, DoorDash, and Netflix). The justification was the race to grow market share and achieve scale first, then seek profitability later once their dominant competitive position in the market was secure.

Regardless of how sound this model is as a business strategy, the implication for customers is that we have been living in a bit of a utopia for the past decade. A range of new products and services were at our fingertips at competitive prices. This is true in particular for millennials, who have become adults in their 20s during this period, adopting a comfortable tech-enabled lifestyle offered by new startups. With the advent of lasting inflation in the past year and subsequent rise in interest rates, investors are now prioritizing profits as capital costs have increased substantially. Eventually, inflation should be controlled by the Federal Reserve and central banks around the globe, but this will likely do little to reverse the focus on profitability.

Raising prices, cutting costs, and mass layoffs

Ironically, the tech news site Protocol announced it was shutting down its operations this week. Launched in February 2020, the firm was dedicated to covering the shifts in power with an emphasis on technology. It covered significant developments such as crypto and Web3: all 64 employees have lost their jobs. The timing is unfortunate from my perspective as the demise of FTX that I highlighted last week has led to a debate about whether this marks ‘the death of the crypto dream’ and Web3 with it. Twitter continues to be a fascinating story to follow as Elon Musk desperately looks for people to work at an “extremely hardcore” rate to find a workable business model for what he calls Twitter 2.0, as the current ad-supported model isn’t cutting it. Even Amazon announced layoffs of 10,000 employees this week ahead of the year-end holidays amid fears by employees that “no one is safe.”

Even the streaming wars between Disney+, HBO Max, Peacock, Paramount+, Apple, and Amazon Prime are over due to a halt in subscriber growth rates, an alarming burn rate to build these platforms, and demands by investors for a clear path to profitability from each. Firms such as Netflix are looking to introduce an ad-supported tier and cracking down on loose password-sharing rules that were not enforced rigidity due to a desire to promote growth. Add it all up, and the implication is clear: customers will be paying more for the products and services they use in the future. This will inevitably force choices: which of these offerings will consumers view as must-haves and which are superfluous? In particular, services such as Twitter that were previously free to users looking to capture subscription-based revenue to improve its bottom-line performance may turn off many users, leading to a downward death spiral if the platform is used less and less. This strategy could also open Twitter to competition from firms like Meta, Snap, TikTok, or other tech firms.

As prices rise, can firms retain customer loyalty?

Companies exist to make a profit. The path to profitability can take many directions and be shorter or longer, but ultimately there is no such thing as a free lunch. One key to this shift by firms in asking customers to pay more will be how much trust each firm has earned. In their book The Power of Trust, authors Sandra Sucher and Shalene Gupta make a crucial distinction between reliability and trust. Most people equate trust with a person or company being reliable. But the authors point out that trust goes beyond this level: it implies vulnerability.

To trust fundamentally means to make yourself vulnerable to the actions of others. We trust because we believe they will do right by us. When we choose to trust someone, we willingly give them power over us, trusting that they will not abuse that power. Trust is a special form of dependence, and is predicated on the idea that we can be more than disappointed; we can be betrayed.

-Sandra Sucher and Shalene Gupta in The Power of Trust

The authors share four concepts related to trust that companies must learn and retain over time.

1. Trust is not a binary setting; it is complex and influenced by several factors

2. To build trust with your customers, you must start with your employees

3. Trust that is lost can be regained, but only with time and real effort

4. Once earned, trust creates new opportunities to grow relationships and business

Of note, during the current economic climate of mass layoffs at firms, both large and small, companies need to remember that layoffs can have a devastating impact on the morale of remaining employees. People and processes build products and services that are trustworthy. If distrust enters the workforce because leaders are not transparent about the need for layoffs and the firm's future direction, this could be a problem: a lack of trust has a way of getting into the products and services that customers experience. Trust must first be established among employees, who then are responsible for creating trust in the processes and standards within your organization that lead to earning the trust of your customers.

Have any products and services you use recently changed in price or quality? If so, can you share an example and state whether or not you plan to continue being a customer? How transparent do you feel companies are when it comes to price changes? What about layoffs? What role do external parties, such as regulators, have in building trust? Would more regulation in the crypto world increase the level of confidence? Or is more technology and decentralization the answer instead? Can technology such as blockchain help build trust?

• Recent headlines for Meta, Twitter, and crypto exchange FTX have not been good

• These individual stories raise questions about trust in technology firms

• Trust is more important than ever as we shift to a service-oriented economy

• Firms cannot simply rely on good intentions; trust must be built into processes

• Using a “trust model” helps develop and sustain a good reputation over time

A bit of good news and lots of bad news

Earlier this week, the 2022 midterm elections were held in the United States. Which party will be in control of the House and Senate remains in question as ballots continue to be counted, but the good news is that the elections came and went with minimal disruptions. Some commentators made a note of the fact that most candidates who lost conceded the race to their opponent rather than disputing the outcome. This might be considered commonplace in most years, but it was not something experts took for granted after the contentious 2020 elections. We will likely find out more about how well the respective parties fared this weekend and how the next Congress is shaping up, but it is a positive sign that the process was peaceful, and we trust that the outcomes will be fair.

Unfortunately, several other stories this week in the technology and business world are noteworthy for the lack of trust involved.

• First, the morning after the elections, Meta announced its first-ever mass layoffs of 11,000 employees or 13% of its workforce. This move appeared to be quite a shift for the company from its announcement to Wall Street two weeks ago that it was doubling down on its costly investment in the metaverse. Shares tumbled 18% after the initial report, and the sudden change in direction at Meta is due to the adverse reaction of investors, yet has caught employees off guard.

• Not to be outdone in announcing layoffs, shortly after officially taking over Twitter, Elon Musk has had an adventurous week marked by mass layoffs of 7,000 or 50% of its employees, the resignation of several high-profile executive leaders, and concerns among advertisers about the controversial move to allow any user to obtain the famed “blue checkmark” validation for a small fee, which led to confusion and a rise in misinformation immediately ahead of the US midterm election.

• Finally, the crypto exchange FTX filed for bankruptcy this morning after concerns about its liquidity and security of assets stemming from a CoinDesk report. CEO Sam Bankman-Fried resigned, and his net worth went from $16B to zero in a week. (This happened after Bankman-Fried was the second-largest donor to Democratic candidates this election cycle. His co-CEO Ryan Salame also donated millions to Republican candidates.)

Why building trust is more important than ever

Of course, it is easy to say that building trust is essential: social cohesion depends on it, and both businesses and governments must earn it through their actions over time. Some experts, such as Dacher Keltner, author of The Power Paradox, argue that power accrues to those who share it with others - building up trust in their leadership - and dissipates when those leaders accrue too much power and begin to place their interests above those of the collective. Others argue that trust is more important than ever as the problems we face as a society grows in complexity (climate change is just one example). Whether the issue is how many bots are on Twitter or the potential to be fooled by deepfakes, forces related to technological progress also contribute to eroding trust. It should not be surprising that the intersection of technology, society, and power is continually churning our relationships and ability to form lasting bonds.

In a recent book titled The Power of Trust: How Companies Build It, Lose It, and Regain It, authors Sandra Sucher and Shalene Gupta share that the importance of trust has risen over time for companies, in part due to the shift from a product-oriented to a service-oriented economy. In a product-oriented world, trust must be earned at a particular moment: the point of sale. Trust must be earned repeatedly throughout many interactions in a service-oriented world, including “products” offered as a service. Significantly, technology has changed the very nature of businesses to support service models by:

• providing for greater scale and reach than previously possible

• standardizing interactions far more than is possible with humans alone

• allowing for more connectedness and personalization

However, while technology has helped to build trust in business, it also brings with it new challenges, including:

• questions of data privacy and ownership

• the potential for systematic bias and discrimination

• the threat of mass layoffs and greater income inequality over time

When we combine the chaos introduced with rapid technological change alongside other existing social tensions based on politics, religion, race, ethnicity, gender, sexual orientation, and immigration, Sucher and Gupta conclude that “the world is as uncertain and uneven a place as it may have ever been.”

Build trust in processes, not just good intentions

Many organizations recognize the importance of trust and seek to earn it through their actions. However, as Sucher and Gupta state, trust is not merely built based on good intentions: it must be deeply embedded within a firm’s processes and pervasive throughout all areas of the organization. The most significant gap Sucher and Gupta found in their research is that trust is too often a meaningless buzzword: when trust is not well-defined, there is a gap between what firms say and what they do. Sucher and Gupta outline a trust model which consists of four elements:

1. Competence: the technical ability to deliver high-quality products and services

2. Motives: clarity on your intentions and balancing the needs of different groups to minimize negative impacts on any single group

3. Means: the fairness of your processes and treatment of people, allowing all groups who will be affected by decisions to have a chance to weigh in

4. Impact: the overall effect, both intended and unintended, of your actions on other people and taking responsibility when anyone is unduly harmed

According to Sucher and Gupta, the business world has “done a terrible job of understanding the importance of trust…time and time, our community has flunked trust tests and failed to learn from its mistakes”. Firms in the recent headlines this week, such as Meta, Twitter, and FTX, have failed to adequately weave in trust as a critical factor in their decision-making and business processes, thereby causing significant harm to customers, employees, and society as a whole. By contrast, when organizations intentionally layer in trust throughout their use of technology, processes, and decision-making, they gain greater power and ability to change the world for the better.

How is trust defined in your organization? Is trust a core value within your walls? Do you use trust as merely a buzzword, or is it a significant consideration in your decisions and designing your processes? How do you leverage technology to enhance people's trust in your organization? Are the impacts of your decisions considered through the lens of all stakeholders? Do you have a process to capture the input of all groups impacted by changes?

• November’s theme takes a look at the intersection of technology and trust

• The rapid growth in the power of AI has led to new forms of “synthetic media”

• Manipulated media can entertain us, connect us with others, or cause us harm

• Once easy to spot, new “deepfake” technology blows away old, clunky CGI effects

• In a world of misinformation, how can we trust what we see and hear anymore?

• As trust evaporates, so does the foundation that society and institutions rely on

Did the moon landing actually happen - or not?

Last month in Forestview, I examined the power of artificial intelligence and its implications on various aspects of business and life. (If you missed any of my previous articles, you can find them in the archive.) This month, I am shifting focus to the question of trust in society and how it is shifting in the face of technological change. With the recent completion of the midterm elections in the United States, concerns about misinformation have been top of mind. It has felt this season as if no week goes by on Twitter without a headline stating that an unflattering video of a political candidate has been identified as a fake. You might have even seen one or more of them in passing. Many of us feel like we can spot these false narratives relatively easily. After all, altered media has been around for a while, and we have grown acclimated to Photoshop and CGI effects in movies. But you might not know how sophisticated these fabrications have become using deep learning and more powerful computers: deepfakes for short.

Numerous examples of deepfakes can be found through a quick internet search (be aware - a lot involves fake celebrity porn). In his fantastic book Trust No One: Inside the World of Deepfakes, author Michael Grothaus chronicles the vast improvements that have been made in the last 5-6 years, with quality improving exponentially over time. One of the most compelling examples mentioned in the book is the short film titled In Event of Moon Disaster. A couple of creators at MIT teamed up with two AI startups to produce an alternative history of the famous lunar landing in 1969. Based on a speech written for President Nixon in case the mission failed but was never delivered, the fabricated video uses actual archival footage intermixed with AI-based synthetic media that merges the face and voice of President Nixon with an actor. Grothaus states that, while comforted in knowing the moon landing was successful in real life, the alternate reality is a convincing product to anyone not alive to witness it firsthand over five decades ago.

You can’t believe your eyes and ears anymore

Some deepfakes can be fun projects, but in the wrong hands could quickly cause harm. Grothaus points out that, back in 1969, the Soviet Union could have seized on the Moon Disaster video to undermine the credibility of the United States. In his words, “Propaganda has potentially never been so dangerous.” This is why the U.S. Department of Defense has been focused on the threat of deepfakes for a few years now, and China has severely cracked down on their creation. However, as Grothaus highlights, there are differences between the desire by democratic regimes to cut down on disinformation and “fake news” on the one hand and the stifling of dissent and speech in autocratic regimes on the other hand. A balance needs to be found, and countries across the globe are in the early stages of exploring how best to regulate this new technology.

We will soon live in a world where we will need to ask of everything, ‘is this real?’ because we will no longer be able to trust that the photos we see, the videos we watch, and the audio we hear are authentic representations of fact…

At some point in the near future, the majority of audio-visual content that we find online…will be synthetically altered in whole or in part by artificial intelligence.

- Michael Grothaus

It is not simply the fact that deepfakes exist; it no longer takes lots of money and technical expertise to produce a credible deepfake, particularly one of lower resolution that might look good on a phone or laptop but grainy on a large HD screen. The fact that access to this technology is widespread today raises the level of concern about its potential nefarious uses. It is important to remember that similar problems were introduced after the advent of the printing press and the rise of printers and newspapers. When the tools of publication and distribution were suddenly more accessible, there was an explosion in the amount of valuable content and “fake news”. Readers, initially under the impression that everything written in ink was true, learned over time to be discerning customers.

Grothaus argues that digital media literacy is equally important in today’s world. We cannot rely on legislation alone to solve all issues with deepfakes. Similar to efforts to combat misinformation and fake news. One technique for aiding people in evaluating new information is known as the SIFT Method:

• Stop

• Investigate the source

• Find more coverage

• Trace back to the original context

As Grothaus points out, “we just happened to grow up in an era where, until now, video and audio weren’t malleable like other mediums…that era - that aberration - has now passed.” These mediums have changed, and so must our expectations.

What does a loss of trust mean for society?

The loss of trust goes beyond actual deepfakes. The mere possibility of deepfakes opens up a problem known as the “liar’s dilemma.” Even actual events can be denied by those who wish to avoid the consequences of truth. It will be increasingly complex for ordinary humans to determine what is real and fake: according to Grothaus, we will live in a world of unreality. Today, we increasingly rely on AI to detect deepfakes created by AI. There is a game of cat-and-mouse here: as detection AI gets better at stopping deepfake AI, the deepfake AI learns and gets better at avoiding detection. Over time, most humans will look to prominent media outlets and tech firms to know what is real and what is make-believe because they will be the only entities that have the resources devoted to helping us with this problem.

So why happens in a world where we can no longer be sure if what we see on our screens is true or false? If we can no longer believe what we see with our own eyes and hear with our own ears? Deepfakes could create a zero-trust society within the next decade, and that's something we all need to be prepared for.

- Michael Grothaus

Suppose people begin to give up on expending energy trying to determine what is real and what is fake, a condition known as reality apathy sets in. When this occurs, social cohesion is lost because we no longer have the confidence to trust what we see and hear. Without social cohesion, we lose trust. Without trust, many of the institutions that society depends upon begin to collapse: schools, courts, science, news media, and more.

Some solutions have the potential to help, including blockchain time-stamping to create a “digital fingerprint” to help authenticate videos. Another idea is provenance-based capture, where the device used to record the media embeds its unique digital signature that would be impossible to alter. Scrubbing social media feeds might help those concerned that their likeness could appear in a deepfake video depicting, for instance, committing a crime that did not occur. (Each video contains 30 still images per second, so even one 20-second selfie video contains 600 photos for a deepfake AI to train on.) Ultimately, though, the best defense is awareness and education for each of us. We must fight our confirmation bias, our desire to quickly seize upon a new video as evidence that our pre-existing beliefs were correct. The biggest concern is that, even if we can definitively show something is a deepfake, the truth still does not matter to us.

Has a deepfake fooled you before? Have you inadvertently shared a video or audio clip that turned out to be a deepfake? Are you excited about the possibilities of deepfakes - such as bringing back a loved one in videos - or worried about negative consequences? Do you see the potential for positive outcomes with deepfakes? Do you believe deepfakes affected the midterm elections? How worried should we be about deepfakes in future elections? Who do you trust as a source for reliable information on whether something is a deepfake?

• Once considered novelties, computers have become an essential part of daily life

• The rapid pace of change has fundamentally reshaped how computers work today

• Computers are now incomprehensible to humans who do not “speak machine”

• Most people have outdated views on computing; we need to boost our knowledge

• If non-techies remain out of the loop, Big Tech will continue to shape our lives

• We need more diverse representation in both technology firms and “thick data”

Today’s computers run on data, not instructions

When my book, The End Of Insurance As We Know It, came out in 2019, I checked the sales metrics regularly to see how well it was performing. I was interested in how many copies sold each month and the split between the paperback (or “dead trees”) and digital Kindle e-book versions. I was also fascinated with the performance of the book under the Kindle Unlimited program, which is a subscription service offered by Amazon. Readers pay a fixed monthly price of $9.99 each month and have unlimited access to over 1 million titles for no additional cost. Publishers must decide whether or not to include titles in the program, and royalties are paid out based on the number of pages read rather than for each copy sold. For example, my book is over 300 pages long, so if someone reads just 20 or 30 pages, the royalty I receive is only a fraction of the amount received for a traditional sale. So as an author monitoring my sales performance, I see the number of books sold and the number of pages read by Kindle Unlimited readers. That’s right - each page read is being tracked and monitored by Amazon and reported to me at an aggregate level.

The ability to track pages read on a digital e-book initially struck me as a bit strange, but in reality, all of our digital interactions are monitored and tracked. This “data surveillance” is how most technology firms work today; they use vast amounts of digital information (commonly called “Big Data”) to tailor services to their customers. Many people are concerned with what data is used, whom it is shared with, and what rights to data privacy we have. However, the simple fact is that we need to consent to collecting and using our information to receive the benefits of these offerings. Lawmakers in some jurisdictions, most notably in Europe and California, have established rules regarding data privacy. There is also a transition underway in the industry with the elimination of third-party cookies, but today’s computational machines run on data - lots of it.

Speed rules in technology - how do we catch up?

In his book How To Speak Machine, technologist and design pioneer John Maeda shares his recollection of having a stand-alone PET computer in his classroom as a child. (I did too!) The PET was primarily a novelty; it was not connected to any other computers or a network and had limited memory, storage, and processing power, so it was not very useful. The PET required instructions to be provided by a programmer, and Maeda remembers the first program he coded in BASIC fondly that helped manage billing and invoices for his family’s small business. Maeda became fascinated with what he describes as computational thinking when he attended a class on programming and learned that his code could be greatly simplified through the use of recursive loops. Maeda talks at length in the book about how programming a computer obeys logic and rules that do not apply to the physical world, and that the ability to “speak machine” is an important skill for all humans as our lives become so inseparable from the technology we rely on.

Over the course of forty years, computers have grown much more powerful, and perhaps more importantly, they learned to communicate with one another. With the introduction of networking to link computers together and the Internet to connect millions of devices together, computers moved from novelties to necessities. In Maeda’s view, machines now communicate and cooperate together better than humans do. The extreme connectivity of our machines is now paired with the ability to “think” on their own through artificial intelligence. Today’s computers rely less on specific instructions from humans in the form of computer programs and more on machine learning based on neural networks to build “black box” algorithms. The combination of high connectivity and the ability to develop algorithms that cannot be explicitly seen or understood by humans is a worrying tandem to Maeda. Humans are more reliant and less in control of computers than ever before.

Maeda is well-known as a major proponent of the value of good design, but in the book, he criticizes the “gatekeepers” of good design such as museums in favor of a more functional view. Maeda argues that software products and services are fundamentally different than traditional manufacturing: the cost of failure is low relative to the cost of being slow. So firms have embraced the ethos of the Agile methodology and minimum viable products (MVP) over more polished offerings. The ability to collect data, learn from customers, and make refinements quickly and iteratively based on user feedback is the norm today. However, many of these decisions are based on A/B testing and “thin data” and prioritize the needs expressed by the largest group of customers. Maeda advocates for making product decisions based on both quantitative as well as qualitative data. He encourages firms to invest in ethnographic studies, spending time and money getting to know a cross-section of customers individually to build out “thick data” sets and leveraging AI to optimize decisions based on both thin and thick data.

Why inclusion matters in an AI-driven world

Just as speed pushes technology firms to prioritize the collection and use of thin data over thick data, Maeda also observes that speed is one reason for the lack of diversity in Silicon Valley. Building out diverse teams and embracing inclusion may drive innovation spurred by a diversity of thought, but it also leads to more discussion and contemplation that can slow down the decision-making process. This is not necessarily a bad thing: a more deliberate process can ensure that firms avoid making big mistakes and risking reputational harm. But, in Maeda’s view, the shift from a waterfall software development approach to Agile methodology, knowing that mistakes can quickly be corrected in a future sprint, also leads to the deprioritization of building an inclusive team. Mistakes that are made will simply be cleaned up later.

As AI becomes a dominant force in our everyday world, algorithms and not programmers are shaping our destiny. Humans are not constantly poring over the decision-making logic in the same way they once were. AI is not biased on its own; it relies on humans to bring in our baggage. However, once incorporated into AI, factors such as racism, sexism, and inequality can become baked into software solutions. Since programmers aren’t actively rewriting lines of code as the system is continually modified, built-in biases can perpetuate for a long time and not be captured by the massive amount of thin data captured on users. It takes a deeper understanding of under-represented populations - the thick data - to flag issues when they arise. This is one reason why having a diverse team working to develop products and solutions at the beginning is so critical: it helps ensure bias does not get incorporated into the initial MVP.

As I wrote in the last edition of Forestview, the big debates revolving around ethics and AI are not going away anytime soon. Maeda talks at length in his book about our awkward transition to a “Mooreian future” that is governed by power laws and exponential properties rather than incremental changes and linear thinking. To Maeda, the main reason that Big Tech is under so much scrutiny around the adverse impacts of technological change is that they are the only group who truly understand how our world is shifting. Since they are the only people who can “speak machine”, their homogeneity and lack of diversity is a major issue for the rest of society. Part of the solution is to ensure steps are taken to insure inclusion in the development of AI-based products and services. Another part that Maeda advocates for is building up our knowledge among all members of society about how to think computationally so that we become more fluent in “speaking machine”. If we update the operating system in our brains, we will be better equipped to have informed conversations to shape our future together.

Do you feel you are a strong “computational thinker”? Why or why not? How would you evaluate the ability of your organization generally to “speak machine”? How do you balance speed with quality today? How can you ensure inclusiveness without losing quickness in making key decisions? What role does change management play and is your organization devoting enough resources to it? How can you prepare your people for our AI future?