Mr. Niall Ferguson (2010APR23 Wall Street Journal) sums up the U.S. post-crisis financial regulation as a “trilemma” that could optimize to any two of three, but never all three: (a) efficient capital markets; (b) no bailouts to big banks; or (c) a depression-free economy.  ( Mr. Ferguson further  warns against a delusional proposition that bigger government could give us all three.)  Pick two, any two, but not all three.

Other than the interestingly complex content ( the continuing economic debate),  we can learn from that exercise of attempting to identify the core factors of a situation.  Project managers know the classical trilemma of scope, schedules, and budget.  Or, as the sign says at mechanic shop: good, fast, or cheap: pick two, any two.

The past months have seen earthquakes and volcanic activity. It’s easy in our human conceit to forget that this ancient earth’s mantle is shifting ever so slowly but continuously, and with an occasional tectonic shudder.  In a free market, we will see discontinuous corrections, as occasionally hidden faults surface in a precipitous cataclysm.  It was too naive to think that a few bailouts could have eliminated serious structural issues.

A financial institution can be so complex and large that one part of the house touts risky instruments, and another bets against it with hedging derivatives.

Can free market enterprise regulate itself, whose fundamental premise is efficient profitability, as the incessant sea flows in and around to find advantageous crevices? No doubt better regulation is needed, and will come. But could we trust it to come from bigger government, especially one driven by polls and earmarks?

There are parallel problems as well in how national economies are managed. Economic disparities within a common currency are fracturing the European union. Greece, as it turned out, was entirely too creative in disguising its liabilities.  And as it scrambles to keep its economy together, it must do so without control over monetary policy. Unfortunately, sadly, the best Greek drachmas, uh, dramas invariably are still tragedies.

Or take current US foreign policy.  As a culture, Americans often confuse rhetoric and realpolitik. We want our oil, but, in a lack of forthrightness about our petropolitical agenda, trip on our own preachy rhetoric.  We want to curry favorable world opinion and world peace awards.   We must appease the domestic distaste for prolonged wars, and therefore the strategically dubious pre-announcement of our exit from Afghanistan and Iraq.  Yet again, those local heroes we exhorted to the fight will find themselves twisting in the post-US vacuum. Is it surprising that Afghanistan is now scrambling to realign with Iran?

No easy solutions. And no doubt some critics might say Mr. Ferguson’s trilemma is simplistic.  But though initial analyses are nuanced in sixty-four shades of grey, the process must ultimately reduce to three, then two, then a decision of one.    And let’s not feign surprise if Israel finally, preemptively confronts the Iranian nuclear program.

Being strategic is distinct from merely setting the goal: it’s about how we get to the goal.  But the increasing complexity of our environment (dispersion; interconnectedness; fluid environments that act and react continuously) – it requires a new sensibility of learning rather than statically knowing. Of constant reality checks: feedback loops: the jet fighter pilot OODA training.
Practical, effective leadership triangulates amongst goal, resources, and stakeholders (which includes self): and it means continuously navigating, adjusting – not only internally within that triangle, but most especially within the external context.

Fog of war. Dealing with that takes more than having an internal compass which can be tricked into relativism. Find your true north: have an absolute reference point. Very quickly: in a strict hierarchy (no “jeez-that’s-tough” ties, no “Charley Brown” draws: it’s a totem pole), name your top three values, from the top.  Keep it simple, keep it clear, keep it always.

Author Faber talks about a simple rule he had as a Delta force commander: the mission, the men, and me: in that order.

Analysis, political correctness, economics: they’re all about the complex 64 steps of grey.  But decisions are black and white. It’s nice to afford many choices. To soft-focus, to appease.  Or govern for the polls.   But in the end, it’s still about that one choice you have to make.

The complex meltdown has governments exploring more concerted global monetary coordination and regulation.  But what about the diverse fiscal spending policies, even among the EU, and ultimately intractable issues of regional protectionism (all politics, after all, are local)? What to make of US national debt  levels at 60-70% of its GDP; or that in ten years debt interest service will exceed all spending on defense, education and transportation (See WSJ)?

World Science Festival 2009: Bobby McFerrin Demonstrates the Power of the Pentatonic Scale from World Science Festival on Vimeo.

Seat-of-the-pants or so much voodoo? Hardly.  In an earlier post, we reviewed Jonah Lehrer’s book on the neurologic science of how we make rational or intuitive decisions.  But if one approach is rational, does that mean the other is irrational?   Somehow, the book leaves us with only a coy platitude that choosing between “Rational” and “Intuitive” processes depends on the situation.

The purpose of this article is to understand just why the brain would choose one path or the other, and therefore how to use the mechanism to better advantage.  Our premise is that man is a purposeful being.   When we make a decision, then, the process is optimized to three factors: time, familiarity, consequence.

Two books talk about how our right brain ( Jill Bolte Taylor’s Stroke of Insight) and autistics and animals ( Temple Grandin’s Animals in Translation) think in pictures.  These explain why firemen and emergency medical docs might explain their decision-making in a crunch as “telling a story”. What I believe actually happens is the mind quickly grasps the picture, and compares it against its library of other pictures, and connects that with a particular action and its consequence.

The brain might just preemptively say “No”  to paralysis by analysis. The threat might evoke a survival reflex from our reptilian part of the brain. Consider how food poisoning can evoke a strong aversion to a dish or a restaurant for a long time.  Extending that to an even more  local reflex, my hand drops a hot potato long before the brain yelps  “Ow!”.  Or, then again, our emotional amygdala might make us do things in the name of love contrary to all practical logic.

All these are done for a reason – you see it if you look for the intention.

If you think about it, the three factors from the diagram would easily apply to organizational behavior as well as the hierarchy of delegating decisions.  How, then,  do we put this knowledge to practical use?

First off, it’s a good reminder to step back for better clarity.  Projects are understood in the context of their goals.  Conflicting goals can be refereed according to corporate objectives.  Stepping further back for context, we try to grasp the corporate or individual cultures, and values, then purpose.  In the diagram below, we synthesize Stanford’s excellent summation of strategic implementation:

We offer five key insights:
1.    Behavior is purposeful.   It is sometime unreasonable, but it always has its reasons!
2.    Good intuition is based on nonexplicit reasoning, especially when the situation requires quick pre-cognition.
3.    Intuition is trainable.  Mentors and guided experiences are invaluable to the quicker development of good intuition.
4.    Step back for a broader context.    Asking “why”  five times works here, too:  get a deeper understanding the true purpose.
5.    You determine the culture.  Do people freely question and offer opinions?   Do they feel free to test the edges,  with a reasonable bandwidth for honest mistakes?

Most economists agree that the worst of this financial meltdown is now behind us. ..

The question is, what, if anything will we learn from this disaster? Already economists are subjecting their field to a long overdo critical review… (But) whatt if the problem isn’t economics? What if the problem is a business problem–a failure of management and an absence of leadership? Shouldn’t business and business schools be looking at their practices and precepts with the same critical eye as the economics profession?

What is the business of business school? And what is the purpose of business?

At least once per decade for the last 30 years we’ve seen American business go seriously off the rails. The reengineering fad, Mike Milken and junk bonds, the savings and loan crisis, the dotcom boom and bust, the Long Term Capital Management panic–only a partial, abbreviated history of business disasters–suggest that something systemic is wrong with the way business goes about business. An individual with this track record of crises would be a candidate for an intervention, a time out in a recovery center, and life-long participation in the 12-step program of their choice. Something is wrong–and it’s time to face it.

Business schools teach finance and strategy, marketing and HR, IT and operations management. Those are the courses of a trade school, not the developmental curriculum of a profession.

The first question business schools should teach their students to ask is my Rule #3: Ask the last question first. The last question is, what’s the point of the exercise? Jack Welch famously said it was to maximize shareholder value–a terrible answer in retrospect. Peter Drucker famously said it was to make and keep a customer. What is the answer that fits our situation in 2009, and beyond? Today, business schools need to teach students to ask the last question first–or risk taking their company down the old dead-end path.

The next piece of the curriculum has to be Rule #23: Keep two lists, one that holds what gets you up in the morning and one for what keeps you up at night. Managers and leaders have got to know themselves before they know their businesses. They’ve got to have passion for their work and concern for their world. Otherwise they’re just punching the time clock and risking everyone’s future.

Finally I’d teach Rule #4: Don’t implement solutions. Prevent problems. Everything that will be put in place as a clean up to the mess we’re in now won’t be enough if we keep creating new disasters. We need a new generation of business leaders who anticipate problems and prevent them from happening. It’s smarter, cheaper, and more effective than the every-ten-year clean up we’ve become accustomed to.

Every one of these three rules has two things in common. First, they cut across all the disciplines of traditional business school. They are ways of seeing the world, ways of making sense of everyday business realities.

Refreshing. It is indeed too easy to pop up 500 things, quite different to be able to say, “But here are the three (or five) that matter…”  Our clients would recognize that as one of our favorite reality checks.

We might not lose our way as easily if we stepped back to check the frame.  And perhaps see the larger frame, the newer context.   In 1987 few of us saw the proliferation of programmed trading vibrating into a collapse.  Should we have seen in 2007 how cantilevered derivatives were quickly straining beyond load limits and quickly into a global complexity? If you think you have problems on the coasts, try prying open the minds in the manufacturing corridors that are still locked into linear sensibilities, largely a product of their immersion in physical product processes and the management analogies they derive from that.

No one is keener than he to listen for just what the client really wants to do – but it’s rarely the same thing as what needs to be fixed. Sadly, my friend the shaman shoots too straight an arrow to pander, and most clients quietly fade away.   My friend shakes his head.  I notice the arrows stuck in his back. The thing is, I’ve walked in those designer moccasins, too.

Whether you are a consultant or a CEO, you’ll find this three-part blog invaluable, and all too painfully familiar.

Part 1: The Fine Art of Getting Fired from Consulting

Get the client to feel enough discomfort with the status quo, and you can wedge that door open. However, serious problems rarely are solved with incremental solutions. The dilemma is that unless you keep him comfortable with the solution ( cost, risk, politics, etc.), you’re out the door.

So here’s how I jumped from a profitable relationship and banzaied into political suicide.

The following dialogue happened over 18 months somewhere along the Detroit-Cincinnati corridor, once known as the country’s tool-and-die center where you’d be more apt to hear about LEAN than AGILE. “Schools of excellence” here pin their sciences on concepts of manufacturing efficiencies for tangible products.

Me: “The coolest thing in decision making is going to be in the latest neurologic imaging clarifying the key role of emotions in decision making.”

Lead: “ Our clients are engineers; they only want practical content. And don’t bring up anything about brain research – that’s a sure kiss of death.”

Me: “It’s more than just practical: in fact, we can’t make real decisions – a real shift in positions– without emotion.”

Me: “More importantly, the more chaotic the situation, the less useful are traditional “rational” methods. Heck, that’s why the whole project-management BOK that people are certified into, is having to be overhauled. The best tools emphasize shorter test-and-feedback loops, instead of massive GANTTs that are impractical for day-to-day management.”

Lead: “Hmm, just like the jet pilots’ OODA loops?”

Me: ”Right! And further, if you think about it, the more you frontload with information content instead of principles, the less limber the model. In fact, the breakthrough in self-learning Artificial Intelligence only came when they shifted from a knowledge-based model, to a learning machine that focuses on experiences from mistakes.”

Me: Getting excited. “And you know why we can’t make major decisions without emotion? It’s about expectations, it’s about a personal desire to be there instead of here – a shift. Learning is expectations versus outcomes.

Me: Waving my arms. “And you know how good salespeople and shrinks create an opening? It’s about wedging in a discomfort – fear is the strongest emotion, especially fear of loss.”

Lead: Stepping back again. “ Uh, that’s interesting theory. But these are engineers. I have to give them something they can use and drill right then. How about probability-v-outcome tables?”

Me: “ Well, everytime we step back for a larger frame, sure – heck, any generalization has to be an abstraction. But it’s hardly just theory – the most exciting breakthroughs are in neurologic studies of decision making.”

Lead: “There you go again…”

Lead: “Hmm. Well, let me take the lead in this meeting with the client, ok…”

Lead: (Nervous steps recede into an empty corridor. )

Me:  Silence.

Next:
Part 2: The Truth About Making Decisions: Real Men Are Emotional
Part 3: The Paradox of Chaos: Simplicity

Matched only by archives in Israel, the Hebrew Union College’s Cincinnati collection and library will be the latest casualty in the worldwide financial crisis.

A massive collection of history …matched only by resources in Israel – hold a physical connection to Jewish history…The Jacob Rader Marcus Center houses the archives, which boast more than 15 million documents on Jewish life. The nearby library holds hundreds of thousands of volumes. That collection includes everything from rare books and ancient scrolls to Bibles, cookbooks and Jewish songs. “There’s no other place like it in the world,” said Brian Jaffee, director of the Jewish Community Relations Council in Cincinnati.
–By Amber Ellis, Cincinnati Enquirer

The College faces having to close its Cincinnati and Los Angeles campuses,  leaving only its Jerusalem and New York campuses, unless people rally to help with its fiscal problems.

A quick side story here:  I first heard of the College from a good friend and mentor.  He was a history buff -  of flags, boundaries, churches and leaders, that in the end was his reason for an agnosticism towards ideologies and religions.

My friend would chuckle wryly about  being a Leipziger kind bullied in a predominantly Catholic school; of his early connoisseurship on just which leather and candles are edible, a ten-year old in the Hitler youth corps being marched in the countryside, and sleeping in cold stables; and yet still later by Russian liberators who singled him out because his capitalist stepfather had owned a bicycle manufacturing company.   My “arian” friend, by the way had to be the most unprejudiced person in actual practice – and made me see my own biases more honestly.

All cultures, all people-  don’t we all have prejudices? Profiling is often unconscious and instinctual; it’s our limbic survival mechanism for the jungles and urban back alleys,  and we must first recognize that. Think of the convolutions of political correct-speak;  isn’t it,  ultimately, naive and treacherous?

Understanding history is learning a greater empathy,  but also better self-honesty about innate human nature that would exploit, or simply forget.  ( By the way – so who out there knows what and when Galicia even was?  Exactly. )

Interior

The loss of the Hebrew Union College’s  Cincinnati campus would be a discontinuity, of political and cultural significance.   Here is where Rebbeh Isaac M Wise started the Reform Judaism movement in 1875 .  The Plum Street Temple, even just as an aesthetic artifact, is easily one of the most beautiful in the country.

Mine is not just abstract sentiment. I learned a lot from the College’s classes and dialogic seminars, which  offer to the entire community insights into Jewish religion and culture with comparative context provided by Christian priests/ministers and Islamic imams – some of whom are on its faculty -  which is perhaps the kind of understanding that real freedom and peace can come from.

Postscript: Some Must-Reads

You’ll  want to check out a Must-Have list of Exploration titles that are as fascinating as they are enlightening.     By the way – I’ve included Pulitzer-author G. Brooks’ recent People of the Book ,  a serendipitous find  you’ll like for its rich tapestry of realizations.  Great fun read, too.

I once walked for hours through old Jerusalem, and couldn’t help thinking of H. Raucher’s words, “Life is made of small comings and goings, and for everything we take with us, there is something we leave behind“.   The same words echoed in Cairo, as I listened to cyclic arabesques while sitting on the floor of the 12th century  Al-Hussein.

Indeed, nothing happens that ultimately is not part of our own history.

Taking the perspective of a decision maker wanting an efficient search for a keyword’s relationships, and without having to wade through Google’s ad-word gamed-up layout,  NewsSift’s algorithms favor the relevant over the simply current.

In the example below,  I searched “Keynesian” – note five standard relationship groupings offered up that I can jump to.  Second, note the pie charts to the left of the initial results.  (Third, at this point I can simply type in another search key (e.g., friedman ) and it is concatenated to the first search term. )

Cool, cool, cool.

NewsSift Screen

As a surgeon, he also spent his life fighting nature’s relentless law of entropy, and he’d take each patient’s case personally. Yet, in the end, after a week himself in the ICU and a week before he died, he chuckled at my asking what exactly happened, “ Well, you know, the parts are just old.”  Then for the umpteenth time that it had become a ritual, he asked teasingly about our sending my son Kent to live with them. Dad would have been 87 a week later.

Nature’s like its ocean’s perpetual cycle: perpetually evolving into greater complexities that then break down into elemental pieces.

Charles Perrow says that complexity reaches a level where catastrophic failure is not attributable to any single part but rather to factors created by that complexity itself. Perrow in 1984 published Accidents: Living With High Risk Technologies which the New York Times describes as, “a penetrating study of catastrophes and near catastrophes… writes lucidly…. An outstanding analysis of organizational complexity.” At a certain stage, accidents are “normal” – implication: plan for the inevitable.

In an earlier blog, I referred to how the government, and Wall Street and its quants, seem to never learn the humility that there will never be a final perfect solution. Each solution creates new problems. We need then to step back and hopefully see the new, unprecedented larger “frame” – the new context. Just as programmed trading is the likely cause of the 1987 breakdown in the financial markets, in 2007 there were a few lonely hairshirts warning us about “globalization”. At the time, there were a few voices critical of how the quants were creating actuarial fiction – as if risk can be eliminated by simply insuring against it. Each subsequent derivative layer became more and more abstract. There’s a specious optimism that the economy is saved after saving the largest players; that is simply a start, and the meltdown will take months yet to manifest its broad and deep spiral down into the lowest levels.

What’s the difference between risk-asset insurance, and social security, or the Ponzi-Madoff school for pyramidal architecture, or the Mr. Obama’s massive plans for health, education and alternative-energy spending? Denial is a river in Egypt, quips Dr. Temple Grandin. Pyramids, however, are obviously everywhere the alchemist in us thinks we can invent a perpetually self-renewing resource.

Well, I’d be the last to pretend I saw all this then. I know it’s not as easy as “weshouldaseenitcoming”. But I think the global meltdown argues for vigilance for a larger context, the next larger “frame”. Not just seeking answers, but questioning the question. Clearly delineating roles, where external auditors are not your management advisors; where business leaders aren’t their own regulators; where external and internal roles are kept separate; and, perhaps, in the swing from a free market having all the answers, to a presidential hubris in thinking government has all the answers.  Life is not a straight line; nor even a smooth curve.  I think we get closer to truth if we can accept that life is a jaggedy dialectic:that decision making is a continuing correction of the last decision – as pilots might describe flying.