Musings on Strategic Investigation, Performance Improvement, and Rhetoric

Gracious Investigation

“Happy is your grace that can translate the stubbornness of fortune into so quiet and so sweet a style.”
Shakespeare, As You Like It
“Let us be just to him”
Dickens, Dombey & Son
A particular human quality enhances the otherwise emotionless rigour of analysis.   When this quality is present, we get to understand matters more completely, make better-informed decisions and increase our chances of getting agreement.  When it’s absent we get an incomplete perspective, weakly informed decisions, and maybe grudging agreement.  The best word I can muster for this quality is graciousness.
I promise I’m not going to preach, pontificate or pretend that I embody graciousness.  But I hope what I’m going to say is relevant to clear thinking and good decisions, and maybe even insightful.
First, here’s what I mean by graciousness: being generous to another person’s perspective if it sits uneasily with our current one.  I’m not talking about thoughtlessly accepting someone’s opinion or pacifying pretend agreement.  I am talking about allowing someone else’s position to challenge ours.
I’m not advocating graciousness as self-sacrificing altruism.  I truly believe that graciousness benefits the thinking of the person being gracious.  By giving a fair hearing to arguments against our initial suppositions we can grow beyond the constraints of our conscious and unconscious beliefs.  When doctors believed “bad humors” caused disease, they didn’t wash their hands after handling cadavers.  Sometimes, their next task would be delivering a baby.  They changed this fatal habit only when they allowed germ theory to usurp their old mindset.  This ultimately gracious acceptance of a challenging view made them better doctors.
The self-serving benefit isn’t entirely inside our own minds.  Graciousness can help us have more constructive debate.  If we graciously welcome other views, conversations become more of an open dance than a defensive fist fight.  Counterparts might even want to dance with us again, and not duck away from us like when were a stubborn, self-justifying, graceless smarty-pants.
I haven’t been able to find any scientific studies to back up my assertions about graciousness aiding understanding; but the process of science itself is a convincing example.  You know the approach: start with a thesis; challenge it with different perspective, an antithesis; then look at the evidence and logic for each; and finally come up with a new thesis, a synthesis, that’s better than the one you both started with.  Continue repeating the process for the betterment of humankind until the end of your particular golden age.
Try taking this approach without being gracious about the antithesis.  Oversimplifying the extremes of history, we seem to have a choice: gracious consideration of challenging views (golden age, renaissance, freedom of expression, democracy), or defensive dismissal of those challenges (dark age, reaction, broadcast dogma, dictatorship).
Graciousness also helps us better turn our analysis into action.  We become better company: more accepting and more acceptable.  We’re good to bear when proven right, and happy when proven wrong.  And when we make decisions, others will more likely embrace them.  
Anecdotal evidence is everywhere for how graciousness makes good company and acceptable leaders.  Think of the people whose personalities you most admire, whose company you would seek, and whose advice you would follow.  I’ll bet they’re gracious.  It’s not entirely for his insights that Mandela is invited so many dream dinner parties.
Everyday evidence about the consequences of lack of grace is also plain.  Look at the ranting graceless nitpicking comments below many online articles, and see how quickly the discussion deteriorates into defence, attack and ad hominem attacks.  I’ll bet you don’t respect the ranters, that you find it difficult to accept their good points.  I’d guess there’s about zero chance you’ll follow their advice.  Even the excellent Socrates, clinical but graceless, ended up with a choice of exile or hemlock.
That’s enough about not being defensive.  I also want to clarify that being gracious isn’t the same as defensiveness’s opposite: being a doormat.  Graciously accepting challenge gives us permission to graciously challenge others.  We can then occupy the firm ground of listening, considering and agreeing or disagreeing graciously, rather than the easy, low extremes of shutting up shop or murmuring martyrish acceptance.
Though I’m convinced it’s worthwhile, I find it a tough quality to adopt: emotionally harder than defensiveness, and mentally harder than pretending to agree.  I find it even harder the more heated the situation.  Maybe this required wherewithal is our biggest self-imposed barrier to enjoying graciousness’s merits.  I’ll let Hemingway make a final emotional appeal that works on me:
“By ‘guts’, I mean grace under pressure.”

Why Let Facts Spoil the Narrative?

I've just finished reading a very shakey due diligence report, in which one of the key questions to review was the impact of the recession on the company under investigation.  The report author covered the beneficial effects of recession on services (comparable to those of the target company) that people mainly use in their own homes.  The report talked about increases in satellite and cable TV subscriptions, growth in Dominos deliveries, and the trend to "staycations", and implied that, as a result, everything would be OK.

A question kept coming to my mind as I ploughed through this nonsense.  This question was: "But the recession has been happening for about a year - why don't they just look at what's been happening to the company?".  The analyst could have looked at sales, customer churn, average customer value, new sign-ups.  And they could have looked at them before, during, and after recession (now we're coming out of it for a short while).  They could have compared the company's performance to changes in disposable income, or employment, or interest rates, or consumer confidence.  They could have just looked at whether they rose or fell.  The data was available and staring them in the face; but they didn't look at any of the vast array of facts at their disposal, and instead indulged in this staycation narrative.  I'll let you guess whether the facts confirmed, contradicted, or made irrelevant, the report's conclusions .

I kept asking myself why any sane analyst would display such disregard for information.  After some reflection on examples of similar behaviour, here's my conclusion: given the choice between some compelling facts and a compelling narrative, people will often prefer the narrative.  From everyday observation, there are legion examples of people ignoring or skimming over facts that might get in the way of a good story.

This preference can be, literally, fatal; and if you'll indulge a longer-than-usual post, I'll illustrate it with a historical example.

A nineteenth century physician called Ignaz Semmelweis analysed the high incidence of childbirth mortality of Puerperal fever at one of the wards of Vienna General Hospital.  He noticed that Puerperal fever was high in wards where the same doctors also conducted post-mortems, and showed that if doctors washed their hands with chlorine solution after working with cadavers, then Puerperal fever incidence declined dramatically.

His data is hard to challenge:

Unfortunately, Semmelweis's facts didn't fit the narrative of the day.  Prevailing theories of health related to the balance of the four humours of the body, and the role of "bad air" in the spread of disease.  In fact, his implication, that lack of cleanliness in the surgeon was a cause of the disease spreading, was considered insulting to the gentlemen who administered medicine and surgery.

Semmelwies was roundly criticised, and his observation and recommendations were dismissed by the mainstream, despite their obvious life-saving results.  It was only after Pasteur's work into germ theory became accepted 20 years later that the establishment embraced the findings of, the by then dead, Semmelweis.

So coming back to my point.  There will always be an accepted or acceptable narrative to explain anything, be that the four humours of nineteenth century medicine, or the various dubious adspeak marketing theories we hear today.  We can pretty much guarantee that by blindly following the narrative, we will be proven as gullible, closed-minded and wrong as those olden-day physicians.  Alternatively, we can ignore the narrative for a moment, and just have a quick  look at the facts...

Copyright Latitude 2009. All rights reserved.

Related links.

On Ignaz Semmelweis

On truth, bias and disagreement

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN

You Can't Take Vision to the Bank

She sat, watching him in the manner of a scientist: assuming nothing, discarding emotion, seeking only to observe and to understand.

A description of Dagny Taggart, “Atlas Shrugged”, by Ayn Rand

Earlier this year I worked with two companies that couldn’t be more different.

Company one is one of the most respected names in the FTSE, and operates in a classic recession-proof sector.  Company two is an unknown business in an unfashionable declining sub-segment of the telecoms sector.

Company one’s management team is smart and sharp, and would be intimidating if they weren’t such pleasant people.  The Directors have a cadre of direct reports who, to my initial and ongoing bemusement, make sure that everything that reaches the Directors is high level, conceptual and visual.  When working with us, one tried to insist that our presentations contained less data and more pictures – pictures for God’s sake!  But, the thing is, these people weren’t acting dysfunctionally – in every meeting with us, the company Directors dwelt and debated on the concepts and vision, and seemed to skip very quickly over all of our data and analysis.

Company two’s management team is one of the most uninspirational I’ve ever met.  The top two Directors could pass as the two main characters in Peep Show.  But these guys love their numbers.  Every question we asked them in our work with them was answered with numbers, supported by a flood of analysis.  The business is managed using a set of KPIs that would have a quantitative analyst in paroxysms of delight.  Everything is tested, everything is monitored.

Company one has had flat sales in a growing market, and so seen its share decline pretty much continually for the last ten years.  But it now has a striking vision of industry leadership for the future, which might work.  You never know.

Company two has grown revenue and profit more than 20% annually in the time since the management team came on board.  This isn’t from harvesting – new services launched in the last three years now make up about 25% of profit.   Company two’s vision – I’m quoting exactly here – “we’ll try a bunch of things and see what the numbers tell us”.

I think I’ve made my point.  Vision can be appealing, numbers count.

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
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There’s an 80% Chance That Your Analysis is Wrong, and You Know It

In an interview on the excellent Econtalk podcast, Nassim Taleb, the epistemologist and author of the best-selling books The Black Swan and Fooled by Randomness, gave a statistic that blew me away.

The results of 80% of epidemiological studies cannot be replicated.

In other words, when a research scientist studies the reasons for the spread or inhibition of a disease, using all the research tools at his disposal, and is peer-reviewed sufficiently for his results to be published academically, then there is a four-out-of-five chance that predictions using that theory will be wrong, or useless because of changed circumstances.

Taleb gave some innocent, and some less than innocent, reasons for this poor performance.

On the innocent side of things, he raised a couple of human thinking biases that I’ve talked about before: narrative fallacy and hindsight bias. In normal language this combination says that we’re suckers for stories, and when we look at a set of facts in retrospect we force-fit a story to it and we assume that the story will hold in the future. Worryingly, as the amount of data and the processing power increase, then there is an increasing chance of finding accidental and random associations that we think are genuine explanations of what is going on. In a classic example of this, there’s a data-backed study that shows that smoking lowers the risk of breast cancer.

On the less-than-innocent side of things, we can of course use data to fool others and ourselves that our desired theory is true. Taleb is less kind, calling it the “deceptive use of data to give a theory an air of scientism that is not scientific”.

Even more worryingly, if peer-reviewed epidemiological studies are only 20% replicable, then I dread to think about the quality of the 99.99% of other, significantly inferior, analyses we use to make commercial, personal and other life decisions.

So what is Taleb’s solution if we aren’t to be doomed to be 80% likely to be wrong about anything we choose to analyse? He advocates “skeptical empiricism”; i.e. not just accepting the story, which can give false confidence about conclusions and their predictability, but understanding how much uncertainty comes with the conclusion and the reality of the breadth of possible outcomes.

At the risk of sounding pompous by disagreeing and building on Taleb’s thoughts, I’d say there are three things we can do about this if we stop kidding ourselves and admit the truth of our own biases and inadequacies. First, I think we know it when we’re actively seeking a pattern in a set of facts that suits our desired conclusion; or when any pattern we spot seems too fragile, over-complicated or hard to test. We just need to be honest about how biased we are. Second, we also need to be honest about how little we know, and how far wrong we can be, so that we can be ready for scenarios that are much higher or lower than our confidently predicted ranges. Third, we can design a test or pilot or experiment to find out how wrong or over-confident we were.

Would you rather persuade yourself and other people that you’re right, or would you rather know the truth?

Some related links:
Background on Taleb:
Script and MP3 of Econtalk’s interview with Taleb:

Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN