What Would You Do?

Grab a pen and paper, I’m giving you an assignment. Below are three relatively common management situations. On your paper, pick at least one (feel free to try it with all 3) and write down your initial reactions. What questions would you ask? What things might you try to learn more about?

Situation 1One of your direct reports continues to bring you proposals far outside of what your group typically does. You want to her understand the scope of what the team does without crushing her desire to bring ideas to you.

Situation 2: A member of your team has given his two weeks notice. Your recruiter has asked you for a job description. You look at the one you used the last time this type of position was open, but it’s outdated.

Situation 3: You decide to take a job in another part of the business. You need to figure out how to get connected to what your new team is doing.

Check out below the cut to see a few thoughts.

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A few links

As you can imagine, there is a lot going on behind the scenes in the MBM world. I am going to do my best to keep updating, especially as Good Profit is published and there should be lots to think about. Below are a few links that have some connects with MBM stuff:

  • Thanks to Jody for passing along an article about how 3D printing may help to save the endangered rhinos. This is another example of how entrepreneurs can create value by seeing what is needed in society and trying to meet the needs.
  • The above article got me thinking about environmentalism and reminded me of this video.  Recycling is one of those things where using good economic thinking can help us make the world a better place. (Full disclosure, the scholar in this video is one of my favorite professors in grad school).
  • Occasionally I’ll check out TED talks because they are just so interesting. Here’s a video featuring a guy who deals with a lot of start ups. He’s got a theory about why some succeed and some fail. It helps illustrate why in MBM we make sure we don’t think good decisions ensure good outcomes. There is something about the complexity of the world that means sometimes good ideas fail.

What have you been reading lately? Leave us some links in the comments.

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How to Drive Diversity

It’s an expectation of leaders and supervisors to advance the MBM culture. One piece of that is having a diverse workforce that can help to create more value than we would have otherwise (check out last week’s post for more that). So how does a supervisor or leader drive diversity? Here are a few thoughts – please add any you have in the comments section.

  • Take it seriously: Put time and effort into exploring what a more diverse team might be able to do for you. Work with people who have some expertise in the area – HR or other leaders – to help you have a vision of a better state when it comes to a diverse team.
  • Think about the types of diverse thinking that could make your team more effective. Notice I wrote “diverse thinking.” Knowing what you lack can help you seek out people who can fill in the gaps. Perhaps your team makes a product that is used in the food industry and you need someone who can help you understand the concerns of restaurant owners. Maybe your team produces products that are used in diapers (yes, I have a baby at home). Understanding daily reality of diaper usage could lead to better ideas about how to improve the experience.
  • Be aware of your biases: Most people tend to like people with common experiences. For instance, most people are delighted to find people who went to the same college as they did. It’s much easier (in my opinion) to like someone who cheers for the same NFL team as you do than someone who cheers for the Pittsburgh Steelers (sorry Steelers fans).
  • Try something new: Perhaps you take a chance and invite someone to a brainstorming meeting who you’ve never worked with before. You may get a taste of what a more diverse team is like. Maybe you interview someone with an interesting degree – someone who you may have not even thought about bringing in before.
  • Stay disciplined: Stay focused on value-driving diversity and don’t compromise when it comes to culture. While we certainly want diverse thinking, we must have people who share our values and beliefs.

What else can leaders and supervisors do to have more diverse thinking in their teams?

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Diversity

Diversity is a key mental model in MBM and a key part of our culture. The Guiding Principle of Respect is:

Treat others with honest, dignity, respect and sensitivity. Appreciate the value of diversity. Encourage and practice teamwork.

With so many things in the news lately – some good, some very bad – that seem to draw attention to the many differences among people, I believe now more than ever that MBM organizations need to appreciate the value of diversity.

This mental model can be difficult to understand because (at least in the US) the word “diversity” has come to have two connotations:  legality (in terms of protected classes) and physicality (only visible differences matter). The result of these two strong connotations is that many companies have a legally-driven approach to diversity. In other words, the diversity they care about the most is the kind of diversity that keeps them from getting into trouble or physical diversity that can look good on publicly-facing websites.

In MBM organizations, we absolutely follow the laws and regulations of the land. So the part of diversity that many companies spend a good deal of time and energy on, is actually part of the Guiding Principle of Compliance. I’m assuming all MBM organizations are doing that piece of it, and if you’re part of an MBM organization where you have questions about the compliance part of diversity please reach out to your HR community, as they are typically the best people to answer questions.

There’s an aspect of diversity that is so much deeper than the compliance-related parts. If you look at the dictionary definition of diversity, it simply means “differences” or “variety.”  So if I were to take the phrase from the Guiding Principle and replace it with a synonym, it would read “appreciate the value of differences.” To my ear, that has a different ring to it that the on-the-street definition of diversity – one that is much broader than just physical differences.

So what value can we get from differences among employees?

  • Connection with our customers: It seems to me that the US is getting more diverse all the time – people with different passions, backgrounds, living situations, etc. — if we cannot understand our customers, then how are we going to find ways to create value for them? Having employees that help us understand the wide variety of people who we want to serve can create tremendous value.
  • Innovation: Innovation by its nature requires divergent thinking. For those of you who have formally studied innovation, divergent thinking is often a core of any innovation process. It’s much easier to have a wide variety of ideas if you have folks with diverse backgrounds, experiences, educations, etc. While some of this is reflected in physical differences, much of it are things we cannot see.
  • Staying connected with reality: We operate in a quickly evolving world. Imagine the value we could get from having a bunch of different employees who read different websites, move in different social circles, read different books, attend different conferences, are passionate about different things, etc. Think of the value that could be created from the knowledge that abounds if employees were exposed to all sorts of different things going on in the world. We would better connected to reality.

The Guiding Principles aren’t just the values and beliefs that we share at MBM organizations – they are a competitive advantage. Appreciating the value of diversity is one way we can be better than our competition and create more value than we would without a diverse workforce.

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More on comparative advantage

When it comes to applying any mental model discipline is key. We have to have the discipline to recognize we need to use a certain mental model, the fortitude slow down to take the time to do it properly and the courage to do something differently if that’s what needs to get done. In my last post, I listed some situations where using comparative advantage can be useful. Let’s look at applying it properly and why it may require courage.

Once you realize that comparative advantage might be a good mental model for the situation you face, here are some questions that can help you think through it:

  • Who or what is the comparison group? If you’re trying to assign a new project, it’s silly to include someone who couldn’t get the work done. Writing down the names of the people who might be involve helps you define the comparison group.
  • What are their alternatives? Once you’ve written down the comparison group, think about what they’d have to give up working on to do the project. If you’re a supervisor, this may mean pulling out the RR&E Summary Documents.
  • What is the highest valued alternative (opportunity cost) for each? Just writing down the alternatives doesn’t get you to opportunity cost. You have to identify the highest valued alternative. Also, be disciplined to just include the things they’d have to give up doing — not everything they might do. (In other words, if you have to choose between golfing, sleeping or cooking, if you choose sleeping, you don’t give up golfing and cooking — you just give up the 1 you’d be doing if you weren’t sleeping).
  • Who is giving up the least? Once you know the opportunity cost for each person or thing involved, you can decide who has the comparative advantage by identifying who is giving up the least valuable activity. This is not always as easy as it seems. A good understanding of the vision is necessary to compare and contrast different value creating activities.
  • Is there anything else I need to consider? Don’t blindly follow comparative advantage. There may be some very good reasons to choose someone without the comparative advantage – perhaps a development opportunity or something – but we have to be deliberate about it and not use it as an excuse to get out of making hard choices.

Applying comparative advantage requires more courage than a typical mental model because it can result in doing things in a counter-intuitive way. One of the famous conclusions from this mental model is that the person who is the best at something isn’t always the right person to do a job. Having the courage to do things differently – going against the grain of just looking at strengths – is a requirement of using this mental model. The good news is that if we can apply comparative advantage even some of the time, we’ll create more value than if we just did things the same ol’ way we always have.

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A few stray thoughts on comparative advatange

I’ve been doing a lot of thinking about comparative advantage lately and have a random assortment of thoughts about how it is applied (or misapplied) inside an organization.

Comparative advantage is NOT just another way of saying strengths:

  • The word “comparative” is key — you have to have a comparison group.
  • There’s nothing wrong with talking about strengths. Knowing one’s strengths and weaknesses is critical for making good decisions about a variety of things.
  • Comparative advantage should evolve as opportunity cost evolves. By making it about strengths (which tend to evolve, but at a slow rate), we can fool ourselves into thinking that if we have it figured out once we’re set.

Comparative advantage must be about opportunity cost:

  • By definition, the person with the comparative advantage is the person who has the lowest opportunity cost (gives up the least). If you aren’t thinking about opportunity cost -the highest valued alternative – you are not thinking about comparative advantage.
  • As alternatives change we must reevaluate opportunity cost. For instance, the opportunity cost of an accountant may change drastically during tax season. We cannot fall into the trap of thinking that once we “get it right” our work is done.

There are a number of circumstances in which comparative advantage can inform your thinking:

  • Assigning new projects among a team
  • Re-optimizing
  • Recommending an employee to a new position
  • Reallocating responsibilities when someone leaves
  • Forming a new team
  • Combining people from several different areas to work on special projects
  • Deciding which facility should make a product
  • Choosing outsourcing or building in house
  • Others

Anytime you must choose among a group of people or facilities, comparative advantage is a good mental model to work through because it will help you to maximize throughout the organization.

These thoughts hardly scratch the surface. What do you want to know about comparative advantage?

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A few links

The Magna Carta was a key turning point for freedom in the world and it turns 800 years old this year. Check out this article if you want to learn more about it.

Want to learn more about some of the key thinkers in MBM? I’ve come across two books that are worth checking out:

What have you been reading lately? Leave a comment with any articles or books you think I should check out.

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Why bother with a management philosophy?

Once folks understand that MBM is a management philosophy, most people wonder why MBM organizations bother to put so much energy and effort into a philosophy. Below are some common questions on the topic.

What is a management philosophy?

A management philosophy is a set of values, beliefs, opinions, and mental models that direct how a business should be managed. Usually philosophies have to do with the people side of business. For instance, a common business philosophy may include ideas about how to hire people. Whole Foods is famous for having a team approach to hiring. Whole Foods management philosophy includes strong beliefs about teams and empowerment through group decision making. Google is famous for giving employees time to work on their self-directed projects. This practice is rooted in a belief that autonomy breeds innovation. These practices are part of their management philosophies (even if they don’t call it that).

Why dedicate resources to a management philosophy?

The reality is all leaders who are making decisions for businesses have management philosophies, even if they don’t realize it. What happens in the minds of leaders is important, as their values, beliefs, opinions and mental models will determine how they behave.

Some companies go through the trouble of articulating their management philosophies. The upside is that employees (and candidates for jobs) can decide if they like the philosophy. This can lead to a couple of good outcomes:

  • Employees and perspective employees can choose if they want to work for that type of company.
  • Customers and business partners can decide if they want to do business (or boycott) because the approach to business is clear.
  • Employees are more likely to adopt the behaviors necessary to uphold the philosophy because they understand the values and beliefs and opt in. So, when they make decisions on behalf of the company are more likely to faithfully represent the owners.
  • Employees can bring their ideas, ask questions, and find better ways of managing.

The downside is that it is difficult to articulate a philosophy, remain open to changing the philosophy as it makes sense, and hold employees accountable for acting accordingly when they make decisions on behalf of the business.

Why did MBM take so long to evolve? 

Like many management philosophies, MBM started with some deeply rooted beliefs. The earliest copy of the Guiding Principles was produced in the early 1980s – though many who have been around since before that will tell you there were mental models being used long before that. It wasn’t until the mid-1980s that there was a group of people dedicated to articulating, teaching, and developing MBM. In the 1990s, MBM got its name. If I had time and energy, I could probably develop a timeline of what mental models and tools were added when.

Part of the reason MBM took so long to evolve into what it is today is just that: it wasn’t designed, it evolved. For those of you who have studied spontaneous order or the rules of just conduct, you know that systems that are grown organically often take a long time to emerge and can be difficult to describe. Once they have evolved to a certain point, ensuring they continue to evolve and grow can be tough.

 

If you’re interested, spend some time searching the internet you will see many companies have written down some of their management philosophies. It’s not just MBM organizations that have discovered the benefits of articulating a management philosophy. What other questions do you have about the history of MBM or about management philosophies?

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The role of profit

In MBM, the Knowledge Processes dimension draws upon several important mental models: prices, profit and loss, and free speech. The video below features economist Walter Williams discussing the role of profit and loss in a free society.

 

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Lost In Translation

A recent work assignment involved helping with some translation work — it’s funny because I only speak English (and toddler). Basically, I was able to help by taking the translation and back translating it to English using software. The resulting English would give me a taste for what the reader would be seeing in their native tongue.

Of course, the translator doesn’t know MBM, so there were some interesting translations. However, what most caught my eye was the trends across multiple translations. It got me thinking about how even though MBM is developed in English, it’s still a language unto itself. There are going to be a few things lost in translation.

If the trends in formal translating work hold true, then here are some things we need to help people who are new to MBM with when it comes to the Guiding Principles:

  • The difference between responsibility and accountability can be subtle. English dictionaries often use the words to define one another. There are reasons accountability is in Humility and responsibility is in Principled Entrepreneurship.
  • The word “profitably” in Customer Focus is meant to indicate the way we go about doing business. It should be profitable — or mutually beneficial — for the parties involved.
  • The challenge process simply doesn’t translate. Know the definition and revisit it often. If you’re in a meeting and need a reminder, write it up.
  • “Fulfillment” can translate directly into “money” or something more touchy-feely. Like with all the Guiding Principles, don’t stop at the title: read the description.

What part of MBM have you found could use a little translation or explanation?

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