Nicole Gelinasn in The Wall Street Journal explores “The Rise of The Mortgage Walkers” - those that choose to simply walk away from their homes and mortgages and hand the keys back to the bank. The take-away: This may be the most rational choice many have and doing so is the smart thing to do.

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Rob May writes at BusinessPundit on how he struggles with blogging from a skeptical perspective and his wariness of current memes, such as Wisdom of Crowds and Google-worship. The fact is that group think and herd mentality can lead to disastrous decisions. The contrarian position is a healthy one, Rob. Keep it up. (Here, Rob also explores metacognition and its relevance in understanding your thought processes and exploring issues and decision-making at a deeper level)

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Here, Irwin Lazar at CollaborationLoop explores the decision by Yahoo to reject Microsoft’s bid, and the myriad of possibilities such a combination would have on the collaboration market. The New York Times has Yahoo chief Jerry Yang’s explanation of the rebuff.

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The New York Times explores the Art of Persuasion.

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Cooperation and collaboration may rival computers and communications technology as the most improved aspects of business in the past 50 years.   Optimists hope that management by fiat, grunts, and growls will sometime soon be fully replaced by a conscious attempt to arrive at the best solution, regardless of its source.  This, I’m afraid is folly.  Two major problems remain to be solved before we herald in the era of kumbayaesque business practices:

1. The transaction cost of keeping everyone happy, and
2. The elimination of poutology as a career strategy.

Let’s treat them in turn. 

Transaction costs is a technical term from economics.  In it’s simplest form this can be thought of as just what it costs to exchange things in a market place.  More generally, transaction costs can be seen as the direct and indirect costs of obtaining a certain outcome.  So, in a business decision environment we can view transaction costs as the price of paying off the foot-draggers, saboteurs, whiners, and single-focus freaks.   In a highly collaborative environment where consensus and collaboration are valued as an end in themselves (because they are believed to bring about better decision options and execution actions) this cost is not negligible.  Who hasn’t seen a decision delayed, implementation altered, or lowest-common-denominator choices prevail, because someone appeared to object.  This is especially prevalent in hiring decisions, where a single ‘uhmm’ can be seen as the prelude to a veto war. 

Poutological behavior is more pernicious.  While more common among friends and family, pouting is often employed effectively as means to an end in business.   This refers to the act of pouting to gain leverage later.  In a sense, this is a particular type of anchoring bias.  If I pout about a decision today, but then acquiesce ‘because I’m a team-player’ then next time people will, whether they realize it or not, take into account my “magnanimous” gesture.  The net effect is that the pouter has greater leverage coming into the next round of collaborative decision making.   A pouter who is perceived as being invaluable has double leverage since the implicit threat of abrupt departure hangs over the team like Damocles’s sword.

Tomorrows collaboration tools and team training in business school have to do more than just help us collaborate and achieve consensus.  Managing the process of collaborating, disarming the poutologists, and reducing transaction costs are very important to help us avoid the politics of teams, and the dreaded ‘groupthink’ which poorly configured teams often sink to.  Such tools will allow us to prioritise tasks, and maintain a goal-oriented focus, thereby making politically motivated pouting as transparent as a child’s crossed arms and foot-stomping. 

There are three kind of data bigots out there:

1. Those who think their data is precise and torture it to justify any decision they’ve subconsciously already made.
2. Those who think their data is imprecise and then ignore it to justify a decision they’ve subconsciously already made.
3. Those who think Mr. Data should not have been given status as a sentient being, and hence that he was property.

The first two kinds of data bigotry are very common.  They both arise from the same particular psychological bias called “confirmation bias.”  Those of you who have or have been children should be familiar with it:  “You always give him more” is a childish confirmation bias, where the child will take any evidence of advantage to a sibling to be confirmation that the sibling is favored.  Similarly, children will neglect evidence that disconfirms this belief.  Asked if it’s not true that she also got ice cream, the child’s immediate response will be: “Yes, but I behaved better and deserved it” or some similar conclusion.

In business, where we would hope children are not left in charge, we see this same confirmation bias.  An initial hypothesis is supposedly ‘tested’ by systematically collecting and interpreting data to fit it.  I once frequented a little coffee shop that had a great location within walking distance of a major university campus and few competitors.  It should not have been able to fail.  I noticed however that the place kept getting more run down and sloppier as the weeks went by.  Fewer products were on the shelves and not as many people were sitting in there drinking coffee.  It was astounding–I actually saw people turn heel and walk out.  It was an example of a double confirmation bias.  The customers thinking the place was run-down and shabby didn’t trust it to deliver, and the owners seeing customers turn away didn’t want to invest in inventory and upgrades.  Soon it closed, but new owners re-opened a coffee shop and had great success.

The flip-side of using data to test a hypothesis is to deny the availability of data, thus making it impossible to test the hypothesis.  This make it very simple to justify an initial decision.  The example that comes to mind here is strategic decisions where sometimes data is used to justify a decision, but more often than not one or more people will claim no data is available and unguided intuition must be used.  As previous posts here indicate, this is just surrendering to laziness — not a good way to run business.

But why was Commander Data usually referred to as “Mr. Data?”

A company of two has politics in its decision making.  These office politics grow as the number of employees grows.  To examine this, let’s separate between three types of office politics: 1. Those that arise from specialization of functional skills; 2. Those that arise from differences in people’s personalities; 3. Those that arise from internal competition in the company and each employees’ trade-off between corporate and personal success.

We can see the importance of collaboration and establishing priorities as we examine the politics of decision making from these three perspectives. 

First we have the politics that arise from a function-based assessment of how to prioritize a company’s risks and opportunities.  The marketing/financial/operations/sales/etc. perspectives all have value, but they differ in how the evaluate available information, and in the time horizon they consider.  The marketer’s ‘luxury’ of focusing on the future may not be terribly relevant in the mind of a sales manager that needs to meet this quarter’s sales quota.

Then there are personal differences that give rise to politics.  Some people thrive on risk-taking and value a big upside.  Others may think steady-going is the way to go.  Some people like everyone to get along and need consensus building before making decisions.  And then there are the sociopaths and sycophants, the ignorant and the lazy, the smart and the arrogant.  The wallflowers and the wannabes, the we-don’t-do-it-like-that-here old-timers, the know-it-alls, and of course the never-do-wells. 

Lastly there is the simple truth that people change jobs, and that they want to work on things that makes them look good in the eyes of prospective future employers.  Hence, people would rather lead their own cool sexy project with the big budget, than work on someone else’s boring old infrastructure effort.  People’s behavior in order to get their project funded is often the source of office politicking.

Experience tells us that all companies have these dynamics, and that they are the root-cause of negative office politics.  Now it is clearly true that office-politics — especially as a mechanism for fostering healthy competitions of ideas and people — is not all bad.  The true question companies face today is how to harness their diversity of opinion, experience, and attitudes:  that is how to collaborate and prioritize.  Ironically, dispersed workplaces where people have more meetings that are not face-to-face may help here.  When run properly, telephone and online meetings can be very effective as they allow us to focus on the objectives and not the people.  Tools that enable this way of working are emerging–and will provide a way to reduce the negative aspects of office politics, while at the same time enhance the positive aspects.

A fundamental question for business leaders is how much influence rhetoric has on business decisions.  By rhetoric I mean emotional appeals and sophistry, as opposed to presentation of a cogent, fact-based line of thought.  As has been laid out in this blog before, intuition is a very important part of daily decision making.  Powerful as intiution is, however, it is subject to manipulation. 

For example, if two people used exactly the same words to try to convince us of something, we are more likely to ‘believe’ and trust the argument when given by the person we find more appealing.   This was famously illustrated in a FedEx ad some years back.  So, how can one avoid the sirens of corporate stupidity? 

First establish an outcome: What is it that you are trying to accomplish?  What are the parts that influence that outcome.  For example: Outcome: We want to generate 100 new qualified leads this quarter.  What parts are necessary for that?  Part 1: I need contact names.  Part 2: I need to cull through the list and qualify the contacts to those that are most likely to want my stuff.  Part 3: I need to contact the people and see if they are willing to listen to my pitch.  Part 4: I need to validate that they have the money to buy my stuff. 

Second establish possible solutions:  In the example above I might go to the phone book and find contacts at random.  I might go to my personal rolodex.  I might call up friends and ask them for leads.  I might go and buy any of a 100 list of names and call them.  I might go to a conference and find contacts.  I might buy a list and do direct mailings.  I might take out ads in media.  I might run an ‘Internet special’ on my website.  I might hire some people for cold calling.   I may call upon my existing customers.   Bottom line though, you have to look at each alternative and see how well it performs against the parts necessary for the outcome.

Third make sure you understand the alternatives:  Each alternative may or may not be able to meet my outcome.  I will want to know that.  But I also will want to know what each alternative requires me to do.  For example, most of the above alternatives require me to ‘qualify’ the lead with an email or phone call — I have to determine if the lead is for real.  The Internet special if it’s accompanied by a direct ability to buy online might be an exception.  But in general, you cannot make the decision until you understand the alternatives in the context of the outcome.

Fourth make sure you have the resources to implement the alternative(s):  The ‘best’ solution is not always the right solution.  The best solution for you, given your constraints is the way to go.   Getting a mailing list with 10.000 names is not the best solutions if you don’t have the budget to push out 10.000 mailers, or if you don’t have anything to say in the mailers.  Or if you only have home addresses and you are selling  B2B products. 

Here’s a final tip:  You’re already doing most of this.  Either implicitly by trading of alternatives in your mind, or directly by soliciting feedback from different people.  You may even be drawing up a list of criteria, or stating your objectives.  Problem most organizations face:  they don’t know how to pull it all together and make it work.  They don’t know how to collaborate on decision making.  For more on that, visit this shameless plug.

The function that is the title of this post represents the possibility of a wicked infinite regression in American politics: Bush I was in the White House for 12 years (8 as VP). Clinton for 8 years. Bush II has a year left in his 8. Now the cards may well hold a Clinton vs. Bush election. With Mrs. Clinton as a candidate vs. Governor Jeb Bush of Florida as a popular hypothetical choice for vice presidential candidate for the GOP.

So, after 28 years of a Bush or a Clinton in the White House, we may well be in store for an election that will guarantee that number to move to 32. To put that into perspective, think that no one entering the workforce since 1998 (when people born in 1980 turned 18) has ever experienced IN THEIR LIFE a White House without a Clinton or Bush — and that this may be true until 2012 — a span of 14 years.

Ignoring the particular people involved, it seems intuitively obvious that during this time there were other people equally or better qualified in the USA to fill these jobs, whose names were not Clinton or Bush. So how did it happen that the collective judgment of 300 million people resulted in these choices?

In addition to the tragically poor process for selecting the candidates in the first place (see: How not to Choose A Presidential Candidate), there are some psychological biases that helped America along. The first is the mere exposure effect. Basically, it has been shown that we are more likely to like job candidates that we have had prior exposure to — even if that exposure had nothing to do with the person’s fitness for the job.

A second bias is the anchoring effect. Basically, by suggesting a particular answer we can influence all subsequent answers to cluster around this initial anchor — having a last name that simply is the same as a name we hear often in the media can thus make someone more likely to win — absolutely regardless of the merits.

There are a number of other biases that can be seen to enhance the likelihood of candidates getting elected whose primary claim to fame is a last name. A more complete list can be found at: List of cognitive biases.

So the question looms large: is the choice of the American president stuck in a wicked infinite regression — will young people today live and die in a country where there is always a president/vice president who is a Bush or a Clinton?

Former Secretary of Defense Donald Rumsfeld lists his rules for life, politics, and business here. One recommendation for business is to decentralize and move decision-making down and out in the organization. Hat Tip: Andrew at How To Get Better Business Ideas.

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BusinessPundit has revisited a few old gems from the past, including 1) this post from 2004 on introverts, extroverts, and decision-making in the organization, and 2) this post about a novel method of writing down each decision and the desired outcomes to improve decision-making over time.

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Rob May of Coconut Headsets explores how Too Much Information Can Lead to Worse Decisions, where he touches on Representative bias and “the dangers of scenario analysis in business.”

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And our own Andri Haraldsson explores why the US election process is the wrong way to decide who’s going to be president, with a link to a very insightful historical piece by by Lord James Bryce on why great men aren’t elected President.

I remember reading ”The Country of the Blind” by H.G. Wells when I was a teenager.  The story is basically built around the maxim that “In the country of the blind the one-eyed man is king.”  Except the inhabitants of the country of the blind find the antagonist’s obsession with this incomprehensible ’sight’ thing crazy and eventually he is convinced to have surgery to remove his eyes.  Among many other things, this story is about context — and especially the context of decision making. 

Thus, data in context is information.  Information in context is knowledge.  Knowledge in context is wisdom. 

For example:  The number 93 is data.  It’s more than 92 and less than 94 (this btw. is the implicit context of our counting system), but without any further context this data is useless.  If we provide context for this number: “The percent of satisfied customers is 93″ we arrive at some form of information.  This information is more useful than the data we had before, but without further context this information is not very valuable.  Is 93 percent satisfaction good or bad?  I guess that could depend on what type of customers and what kind of service or product we are delivering.  

Now if we add more context: Our percent of satisfied customers is 93, our competitors’ customers are 95 percent satisfied. OK.  Better, I now have some knowledge that may be helpful.  But still, this is not entirely satisfying.  Is this 2 percentage point difference meaningful?  If it’s statistically so, is it financially so?  Again, we need context to our knowledge: we need wisdom.  Without the wisdom that tells us if the 2 points make a difference or not, we lack the ability to make a wise decision.

Of course context can also vary from one person to another, from one place to another.  What is important in one country may not be important in the next.  What is important today, may not be so tomorrow.  It’s a shifty thing context.  One of the key things I do when I make decisions with other people, is ask them to tell me how important different things are to them — that gives me the ability to discuss the context of their goals/objectives — and it also helps me challenge my own assumptions about the decision.

If an evil scientist sat down to come up with the worst possible way to select the two major-party candidates for president, he or she would have to consider the current selection process a strong candidate.  Here are some of the more glaring flaws:

1. The initial set of potential candidates is totally haphazard.   There was no process whatsoever for coming up with qualified candidates.  Basically a few people with outsized egos and friends with money float the idea that they’d be “really good at being the president.” 

2. The issues (ie., the selection criteria) that we keep hearing about in the popular press are marginally important at best.  Gun control, abortion, gay marriage, and even terrorism are focal points because of their incendiary nature.  However, real issues like foreign affairs, the strategic position of the US military, globalization, who to nominate to the Supreme Court, and the environment are given short shrift as they don’t fit into television micro-news.

3. The selection process is anchored in the choices of otherwise irrelevant states.  Iowa and New Hampshire (population: tiny) have more impact on foreign affairs than the combined 300 million rest of us.  By the time New Hampshire was over the democrats had 2 viable candidates, the republicans 2 1/2.

4. There is no emergency brake, no time for second guessing.  After 6 years of a presidency, there is about 12 months of wrangling without any process to get people in — then the whole selection among these candidates of convenience is completed by fewer than 500.000 to a choice among two. 

5. For more than a 100 years there has been a duopoly on the supply of even these candidates. 

6. To vote in most primaries you have to be willing/able to take off from work on Tuesday.  TUESDAY!! What genius came up with the idea of voting on Tuesday.   Definitely not the guy who wanted people to participate.

How about run-offs?  Even instant run-offs?  How about rotating the states that have early primaries?  How about the major parties using nominating committees that received input from across the country to get a decent set of candidates going?  How about money?  Is it sensible that we choose the person who can most compromise themselves to be the president? 

How about asking the candidates to sketch out what they plan to do once they get into the White House?  Can you imagine hiring someone as CEO, senior partner, even congressman without having some sense of how they might prioritize the tasks they have before them–and would you hire someone whose story shifted depending on what time-zone they were in? 

Surprisingly, it’s always been like this.  A more learned man than I wrote a more learned thesis on this topic some 120 years ago.  Read this excerpt from James Bryce’s Why Are Great Men Not Chosen President?

Business intuition is a remarkably understudied topic.  Intuitively we know that it’s what separates the great from the good.  We call  it by many names, define it haphazardly, and often time ascribe magical talents to people who possess it.  Intuition, btw. isn’t acting without thinking, it’s thinking without awareness.

But can it be analyzed?  Can it be understood?  Can it be learnt?  Can it be taught?  Yes. Maybe. Yes. Maybe.

You can analyze it for sure.  You can come up with many graphs and metrics, but ultimately to understand it you may need to use your, err, intuition.  Similarly, you must be able to learn it, unless you want to believe there is a power on high that doles out business intuition with the wisdom teeth.  So here’s a prescription for how to improve your business intuition:

1. Find a mentor who clearly has better than average business intuition.  2. Figure out what she/he does and how they train their intuition.  3. Seek and create environments that give you immediate feedback about the quality of your business inuition. 4. Think laterally. 5. Seek disconfirming evidence.

If you’re inclined to reading, and don’t mind non-fiction, there is a fascinating book called ‘Educating Intuition‘ you should read.  It’s academic and a little dense, but inside of this book there is a fascinating amount of detail about how your brain works, even when you don’t.  Two key points: 1. your intuition is not fixed and it is always learning and building on previous experiences.  But intuition is generally built in a specific and concrete context and you have to be careful to NOT trust your intuition where you have insufficient reason to trust it.  2. Some environments are better than others for learning intuition.  Immediate and accurate feedback is critical to ensure your intuition improves.