Topic: Management


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How to Avoid Vanity Metrics: Getting Under the Hood of Business

VanityMetrics

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Mental Models Used: ,

Most organizations have analysts reviewing financial and operational information on a regular basis – the objective being to gain some kind of meaning from information, and to capture that meaning with a metric or metrics.  Analysts are generally providing descriptive information (telling us how we’ve done) or predictive information (telling us how we suspect we will do).

But many commonly used metrics don’t provide any actionable insight.  In other words, they’re just for show.  These are called vanity metrics.  Other times metrics don’t properly measure the underlying data, potentially resulting in what only appears to be a valid metric on the surface.  This is called an Isomorphism.

A metric is only as valuable as its ability to decipher underlying data.  When metrics are properly developed and implemented, they become meaningful because they capture the drivers that lead to the behaviors and decisions desired.

A great resource for understanding metrics is the book Lean Analytics.  Although geared to start-ups, the logic used is widely applicable to organizations large and small.  You will find much of this logic in the following paragraphs.  Read More »

Giving Information Meaning: The Rise of Business Analytics

BAnalytics

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Business Analytics is the scientific process of transforming data into insight for making better decisions.  Data doesn’t always cooperate with this process, as it is often massive and messy.  But no matter what condition data is in, we use business analytics to make decisions with it.

In order to make these decisions, we have to understand the ultimate value that various combinations of this data can present.  So, we measure it.  That is, we measure what data carries: information.  Measurement is what informs uncertain decisions, and almost all decisions are made under uncertainty.  Read More »

Three Mental Models Great Managers Use

Shangri-La

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Organizations, left unattended, move toward disorder.  The realities of Parkinson’s Law – the idea that work expands to fill the amount of time allocated to complete it – have been well documented.  So, Parkinson’s Law helps to explain why organizations naturally evolve towards disorder, and ultimately poor performance.  Managers, of course, act to correct this.  An array of mental models assist managers in working against this natural disorder, but there are three primary mental models that produce the majority of the results:  Read More »

The Story of Les Schwab and His Pride in Performance

Schwab Close

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Business often comes down to a core set of principles.  And the story of Les Schwab is no exception.  Keeping things in their simplest form (Reductionism) is what allows us to arrive at a core set of principles, but this is often difficult to do. Reductionism is a key aspect of understanding anything.  If we apply this concept to business, it always comes down to people.  It really comes down to decisions, but decisions are made by people.  And what I love about the Les Schwab story is that he so clearly understood the importance of this.  He loved people.  And if you’re in business, it really helps to love people – no matter how weird, how exotic, how aloof, or how awkward.  Read More »

Is There an Ideal Team Size?

Teamwork

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People are always looking for ways to get things done better or faster.  Depending on the task, that can often mean putting together teams.  Of course, a team isn’t always the best way to accomplish something.  I mean, there’s obviously no need to create a team to do something an individual could do as well or better.  However, if a team makes sense, what is the ideal team size?

Unfortunately, there’s no consensus on what the ideal team size should be.  This is probably because there just simply isn’t one.  And that, of course, is fine.  But everyone seems to have an opinion on what’s best.

Steve Jobs liked to keep his teams to no more than 100 people so that he could remember names; Peter Drucker said teams work best, as a rule, if they have three or four members (and should normally not exceed five or six); Google likes to limit teams to a max of six people; 37Signals thinks three people is the optimal team size for a product release; Reid Hoffman (of LinkedIn) would likely refer to Dunbar’s Number to substantiate groups of up to 150.  And the list could go on…  Does this mean that teams are effective at any size between three and 150 members?  It’s more likely that this simply means teambuilding is a situational exercise, and nothing more.  Read More »

The Most Important Organizational Behavior: Empathy

Empathy

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Mental Models Used: ,

Peter Drucker once noted that the basic personality profile of an individual has been formed by about age five.  If even close to true, this has noticeable effects on organizational behavior within a group.  It implies that trying to alter someone’s personality to “better fit” an organization is a fruitless exercise.  But although attempting to change people is likely wasted effort, understanding them is most certainly not.

Understanding people, or the ability to share feelings with them, is what we call empathy.  And a group using empathy in its communications with each other will create stronger connections between themselves.  Stronger connections = better performance.  And as a side benefit, using empathy within a group often creates an environment where empathy is naturally used for communications or interactions with people outside the group as well.  And this is just like a little waterfall of goodness.  Read More »

How to Meet a Deadline: Mental Models Every Project Manager Should Know

univac

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In order to get things done, we often use deadlines.  This is especially the case when managing projects.  Deadlines are often created, but rarely met.  There are a lot of reasons for this, but a good portion of it can be explained by Cognitive Misjudgment.  A combination of the Over-Optimism Tendency and the Excessive Self-Regard Tendency are generally to blame when we aren’t able to meet our deadlines.  The Over-Optimism Tendency explains why we often overestimate our ability to get things done – an excess of optimism is the normal human condition – and this tends to lull us into a false sense of comfort despite an impending deadline.  Most people call this procrastination.  The Excessive Self-Regard Tendency explains why we often don’t provide for enough time to realistically meet a deadline in the first place – we constantly mis-appraise our abilities on the high side.

But there are certain ways to combat these cognitive misjudgments, and the first is following what is generally considered the standard formula for carrying out any project.  Deadlines become a whole lot easier if this formula is followed.  Read More »

There’s No Best Age to Start a Business: The Story of Sam Walton and Wal-Mart

Walton

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After graduating from the University of Missouri in 1940, Sam Walton took a job with J.C. Penney.  He was 22 years old.  He spent five years with J.C. Penney learning the retail industry.  In 1945, Walton became an entrepreneur and bought a Ben Franklin variety store in Arkansas for $25,000.  He was 27 years old.  Walton spent five years growing his Ben Franklin store.  But in 1950, after Walton’s landlord refused to renew the five year lease he had on the Ben Franklin store location, Walton had no choice but to sell the franchise.  He sold it for a fair price, and then had to start all over again.  Walton was now 32, and it was at this age when he opened his first Walton’s Five and Dime (again in Arkansas).  But it wasn’t until he was 44 years old that he opened the first Wal-Mart.  It was a very gradual progression.  So, does age really matter when starting a business?  I doubt it.  There is no best age to start a business, no perfect time – none of that.  And Sam Walton is the perfect example of this.  Read More »

How to Avoid a Bad Business: The Ravages of Commoditization

Busy

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Certain aspects of business can behave in fairly predictable ways.  One of the ways, which is more painful than funny, is the tendency of products or services to become commodities over time.  When this happens, it’s often five mental models that come together and drive everything towards commoditization.

First of all, Zipf’s Law (R.I.P. George Zipf) has been repeatedly observed in many different environments.  Zipf noticed that the most common word in the English language appeared 10 times more often than the tenth most common word.  He noticed it in other languages as well – he got excited.  What he really noticed was the phenomenon we now call “winner takes all.”  So in any market, this is at work.  Get to number one – it’s just better that way.  Read More »

How Great Leadership is Created: The Building Blocks of a Super Company

City13

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People don’t want to be managed, but they are absolutely willing to be led.  How do I know this?  There is a cognitive bias that we all suffer from called the Authority-Misinfluence Tendency.  Charlie Munger summarizes it as follows: “Man was born mostly to follow leaders, with only a few people doing the leading.”  It’s just the way we are.

But just because people are willing to be led, doesn’t mean that any type of leadership will be effective.  Read More »