Economic Thinking

Did a shiver go down your spine when you read the title of this post? For some reason, economics and economic thinking has gotten a bad reputation. Many people just hear the word economics and they have flashbacks to bad ECON101 courses, playing the stock market game in high school, or cramming the night before an exam to memorize how supply and demand graphs move around. For people who don’t understand the basic principles of economics, it seems like a series of abstract semi-math problems.

I’ve always found this to be a bit tragic - not just because I think economics is great, but because many people are very good economists in their day-to-day lives. Fundamentally, economics is about making decisions in a world of scarcity, which involves weighing the costs, benefits and risks of alternatives. If you watch a typical people, they tend to be good (not perfect) about making choices with their own scare resources.

So why does the average person get a chill down their spine when they see the word “economics”? Usually it starts a bad experience with a class, book, or an economist. Then, many people tell me that they are “bad” at economics. Yet, I would wager you could take many of these “bad economists” and put them in a situation where they weigh the costs, benefits and risks of alternatives and pick an alternative that works best for them, they will do well.

So what makes this difficult when we come to work? Besides the fact that the range of alternatives may be much greater within an organization (due to more resources), think about everything you need to understand in order to make a good economic decision:

  • Benefits: In our own personal decisions, we know exactly what the value scale is — I prefer this over that. At work, we have to be well-connected to the vision and values of the organization to have a good grasp on what exactly the benefits are.
  • Costs: Accounting costs are one thing and economic costs are another. When we make decisions in our personal lives, we only have to worry about our opportunity cost (and maybe the costs of a few others around us). At work, because there are so many people who may share in the costs of the decision (like when a team takes on a new project), there are many opportunity costs to consider.
  • Risks: In our own decisions we can judge how much risk we’re willing to take on. At work, we have to align our risk appetite to that of the organization’s.

The good news is that economic thinking comes natural to many of us. The other side of the coin is that economic thinking at work requires us to be intentionally connected and knowledgeable, which can take time and effort.

What have you done in the past to learn more about economic thinking? What are some ways we can practice better economic thinking at work?

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Vision Statement(s)

The purpose of the Vision Dimension is to determine where and how, given our capabilities and available opportunities, the organization can create the most long-term value for customers and society. This is a big purpose – one that requires a good deal of thought and a good grasp on reality. A well-done vision will address the needs of customers, the organization and society while taking into account what the group can achieve.

In case you hadn’t guessed, a vision statement just doesn’t hack it. There is no way a vision statement alone can summarize all the thought, effort, and nuance of a vision. There is no way a vision statement can tell employees everything they need to know in order to make good decisions. There is no way a vision statement can inform our thinking on variety of possible outcomes inherent in every business decision. There is no way a vision statement can help us predict the future.

Vision statements are not intended to be the point of the Vision Dimension. Instead, vision statements are tools intended to support the purpose of the Vision Dimension. Once an organization has a good grasp on its vision — including a reality-based view of their own capabilities and the opportunities — a vision statement summarizes their thinking. When an employee reads a relevant vision statement, it should remind her of how and for whom she creates value. In an ideal world, it will remind her of the pertinent detail and nuance the Vision Development Process discovered. A vision statement that flows out of and supports the purpose of the vision can help employees make decisions because it will remind them of the right things.

So if you read a vision statement and it doesn’t trigger some deeper thought or help you make decisions there are some of possibilities why:

  •  The vision statement isn’t well written.
  • The vision of the organization just doesn’t make a lot of sense. 
  • The vision hasn’t been well communicated. 
  • The vision statement isn’t written for you.

For those of us working in large organizations, there are likely many vision statements that could apply to you. In my role, the vision statement of the larger corporation just isn’t meaningful for what I do day-to-day. Instead, I often refer to the vision statement of the MBM Team (which connects to the larger corporation vision). When I read the vision statement of the MBM Team, I don’t just see a single statement. I read a single statement that causes all sorts of things to flash through my mind.

For instance, one phrase in our vision statement says that we advance MBM by building capability. When I read that, it reminds me of our point of view about how people change, learn, and grow. Also, it helps me make decisions about how I interact with customers. Often, I find myself asking, “Is this going to build capability or is this just doing the work for them?” This phrase causes me to pause and think about the many conversations and the varied research we’ve done about how individuals absorb and apply knowledge.

Sometimes it makes sense to have multiple vision statements. I use the MBM Team vision statement as an overarching approach to my work, but I also have project vision statements when I have a long term project. Most of my role in the past two years has required me to work on long-term projects. A vision statement is incredibly useful for projects that are particularly large, new to the portfolio of projects, or last a long time.

So it’s not about finding or writing THE vision statement. It’s about developing a tool to help communicate, remind, and aid in making decisions. What are some of your experiences with vision statements? Is there a vision statement that works for you and your group? When was the last time your team discussed your team’s vision statement?

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Why bother with theory?

One common misunderstanding about MBM (and about philosophies in general) is that it is a bunch of mental exercises, theory – not practice. So you’re probably not surprised to hear that I often get questions and comments that have an underlying tone which says, “Why even bother with all the theory?” Usually, these come from well-meaning people who are very action oriented (which is a good thing).

Ideas Matter: Movements in History
I believe there is a reason movies like Inception and The Matrix strike a chord with so many people: they are built on the premise that what happens in someone’s mind can be powerful. Moreover, shared ideas have great potential. Think about the major triumphs and failures throughout history: they are all rooted in ideas. For instance, the US was built upon ideas about the proper role of government and the right to life, liberty and the pursuit of happiness. People risked (and lost) much to bring these ideas to fruition.

Point to any number of turning points in history, and they are built upon ideas. From the fall of the Berlin Wall to the Arab Spring to the fall of Apartheid, great changes (both positive and negative) can be traced back to ideas. It is a rare thing indeed for humans to rise up and change without a grand idea — a vision of a better state.

Ideas Matter: Everyday Stuff
It can be interesting to look at the big ideas that caused the great shifts of history. However, ideas matter for everyday stuff and everyday people. Mental models (ideas, theories, beliefs, etc.) impact the way we behave and the way we interpret the world around us. Many of our mental models are built subconsciously, so we don’t even know we have them until something happens we can’t explain.

What’s even better is that we can train our brains to learn new mental models and let go of old mental models. Usually the process goes something like this: unconsciously incompetent, consciously incompetent, consciously competent, and unconsciously competent. Think about a skill you’ve learned in the past like riding a bike. Most people fit this general pattern. Until you try riding the bike, you don’t realize how hard it is. Then, you keep trying and practicing until you reach a point where you can ride without training wheels, but it takes concentration. Eventually, you just hop on your bike and ride. Once you hit the last stage (unconsciously competent), you just do it without even thinking.

Why Bother with Theory?
One of the many reasons there are people dedicated to studying, advancing and growing the theoretical side of MBM is because of the unconsciously incompetent stage. Instead of having everyone discover what works best by trail and error, the mental models (theory) in MBM helps to move one toward being unconsciously competent by starting with useful ideas.

For instance, I could try to figure out how to create value. I could go through a trial and error process or just do whatever without a plan. Alternatively, I could turn to a body of thought, like MBM or any number of management philosophies to get me started. It’s still up to me to learn the ideas, practice and apply. In MBM, we have a distinct view of how to develop a vision (the vision development process), which was developed over decades of business experience AND it is consistent with the rest of MBM.

The theory part of MBM should enable better results because it gives us the benefit of learning from decades of business experience. It’s up to each person to practice and use the mental models that are most pertinent to what they do until they become unconsciously competent at applying them.

Sound theory leads to sound actions. Now imagine for second how if shared ideas can change a society for the better what shared mental models can do for an organization.

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Career Development at an MBM organization

Over the past several months I’ve been thinking quite a bit about career development in an MBM organization. There are many different ways an organization can approach career development. You’re probably not surprised that MBM organizations use a general principles approach to career development. Many of the tools that we use regularly can apply to career development. Here are a few thoughts on career development.

  • The Guiding Principle of Fulfillment seems to be a great place to start when considering career development. There are at least three major things to keep in mind. 1. People who create real value are more likely to be fulfilled (as opposed to the idea that happy people produce more). 2. Fulfillment doesn’t mean “happy all the time.” It’s more of a sense of satisfaction or job well done. 3. Notice value creation is at the heart of this principle.
  • Find places that create win-win situations for the company and for employees. The marketplace is constantly changing. Helping employees improve and grow is good for employees as well as the organization.
  • Subjective value: different employees want different things from their careers. We cannot centralize or force-fit people into pre-made career paths. Instead, by working with individuals and treating employees as individuals, each employee will have a unique plan for developing his/her skills and achieving his/her unique career goals.
  • Rarely does training alone help individuals grow. Training has to be coupled with application.
  • There are a variety of tools that you may already be using that can help your employees learn, grow and develop their careers – RR&Es, performance reviews, and compensation reviews are just a couple.

I’ve found that there is no substitute for experience — doing real work. What have you learned about career development? What other general principles may apply?

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Creative Destruction

The MBM(R) Guiding Principle of Change states the expectation that we drive creative destruction. Creative destruction is a phenomenon we observe throughout free societies: new things, processes, ideas are created and the old ones go away or decline. Usually it’s not literal destruction. Instead, things stop being made (or are drastically reduced). You can probably think of any number of products that fall in this category: cassette tapes, horse buggies, typewriters, etc..  

Creative destruction can apply to how we do things and idea as well. For instance, think about how you’d go about applying for a new job today versus 20 years ago. Imagine what it would take to assemble a car in a modern day factory versus in 1950. Think about how much science and medicine has changed.

The key to creative destruction is that the new way of doing something is better than the old way. Creative destruction is not painless. Sometimes jobs are lost or a way of life is altered. Sometimes there are individuals who prefer the old way. Yet, creative destruction is progress. New ideas, new invention and new innovation emerge. In free societies, people are free to pursue the new. Often in free societies, the resources to develop the new things are more readily available. We see more creative destruction in free societies than in less free societies.

Below are two videos that can help put some context around the bigger picture of creative destruction out in society. How can we bring this idea into our day-to-day jobs? What are some things we can do or questions we can ask to help push us toward driving creative destruction?

I, Pencil: The Movie

I, Pencil Extended Commentary: Creative Destruction

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Posted in Change, Creative Destruction, Entrepreneurship, Guiding Principles, Mental Models | Leave a comment

Economic Freedom

Earlier this week the latest Economic Freedom of the World report was released. The US stayed in the same general area (at 17th) as last year, but compared to a decade ago (6th in 2003), there’s been a decline.

Below is a long video of one of the authors of the Economic Freedom of the World report giving a more in depth explanation of the report. He frames his lecture by comparing some of Adam Smith’s and Karl Marx’s ideas. If you have the time (the clip is longer than an hour) and want to learn more about economic freedom, this is the clip for you.

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Data, Knowledge and the America’s Cup

Thanks to David for passing along this great video about the technology used in the America’s Cup. While the technology itself is pretty neat, I couldn’t help but think about the difference between data and knowledge. These folks found a way to take data and turn it into something useful.

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Harper

If you take a close look at the preface of The Science of Success, you’ll see a reference to a scholar called F. A. Harper. Harper’s ideas had a great influence on foundations of MBM. I’ve been reading some of his essays lately. I’d encourage any student of MBM to read Harper’s ”Why Wages Rise.”

Here’s a quote to give you a sense of what some of his other writings are like.

Strangely, many who trust the democratic process for decisions in political affairs deride the free market for decisions in economic affairs. Yet the two are the exact equivalents of each other. Only in a free market does everyone have a chance to cast his vote in the election that will decide what is a fair price, wage, and profit, and what should be produced. To contradict the justice of that decision is to contradict the whole concept of justice by the democratic process. Neither the democratic process nor the free market is perfect, but they are believed to have fewer faults and do a better job than any other known device. A sure way to take a shortcut to serfdom is to throw overboard the sovereign rights of all the people, in either the political or the economic realm.

This quote can be found on page 300 of The Collected Works of Floyd A. Harper, in an essay called Freedom and Enterprise.

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Friday Links — And I’m back

Sorry for the long delay in posting. Between some technical difficulties and a personal project (click the “read more” if you’re interested), I’ve not been able to dedicate any time to the blog. Due to the technical difficulties, I had to take down our usual look and for now will stick with this basic look.

I’ll have a more in depth post next week, but for now, here are some links to a few interesting reads:
- Here’s a link to an article called “Capitalism is Awesome.” My favorite part of it goes, “Competitive markets work so smoothly and silently that they fool us modern folk into thinking that the lives we lead are normal – fool us into thinking that poverty (rather than wealth) has causes…”

- In honor of Martin Luther King Jr’s I Have A Dream speech, check out this short blog post, which shows some of King’s final exam questions from his Social Philosophy class. I was delighted to see that King studied (and had his students study) Adam Smith’s ideas.

- I’ve been enjoying a blog called “Ask a Manager” for several months now. While this is not an MBM-based blog, the author shares many of the same values, including acting with integrity and respect.

Continue reading

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Posted in Free Markets, Free Societies, Friday Links, Uncategorized | 3 Comments

Conflict of Visions

If I had my way, there would be a recommended book, everyone would read it and deepen their understanding… but this isn’t how the world works. Instead, I’m taking a two part approach. First, let me encourage each and every one of you to read A Conflict of Visions. Second, I’m going to try to give you a little taste of an important mental model in MBM that is pulled from this book: constrained vision versus unconstrained vision. Hopefully the video will inspire you to read the book (or at least watch the full interview with the author).

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Posted in Books, Mental Models, Principles | 3 Comments