Archive for the ‘Culture’ Category

How long is your attention span?

January 21, 2013 Leave a comment

Human brain has an interesting tendency, it strives to create explanations (or better word would be models) for the environment it observes. Evolutionary speaking, this trait is highly advantageous, it allows humans to adapt and predict their environment, thus increasing chances of survival. But it also creates false positives, builds models and finds order where none exist, as for example in creating constellations out of a random spray of stars in the night sky. While the night sky is an example of how humans find order in dimensional world, we should also note that false positives may exist in the temporal continuum.

Consider, for example, a recent graduate, who becomes a young aspiring commodities trader circa 2000. It would not take long for her to learn that her peers who advise their clients to buy gold are getting substantially bigger paychecks than she does. So she asks her coworkers for their strategies, their models and explanations for how gold behaves. Wether or not those explanations are correct does not actually matter, as long as they predict higher gold price and do not substantially deviate from industry thinking, none of them can be proven wrong. Fast forward to 2012, our graduate is now a 32-year-old successful senior manager, who built her career in gold trading, and received hefty bonuses for the past 10 years. The reason for her success is her unyielding faith in the value of the yellow metal, her peers who doubted that the gold rise in the past are working for her now, since they were not promoted as quickly.

What should interest us in this discussion is the gold pricing model that this manager developed in her head over the years. It can be as simple as a single sentence, or a complex mathematical model, but the key question we must ask is whether or not it is biased. Is it biased? After all this manager was rewarded for a very particular behaviour for the past 10 years, her peers were punished for predicting lower gold prices, her whole career was based on 10 years of rising gold prices, the echelon of her analysts, senior and junior, have similar behaviour cultivated in them since the first day they join the firm. Are they biased? Would they not try to look optimistically on any kind of evidence presented to them, not try to find an explanation for why the gold should rise again after a dip, just as it did before? Furthermore, this slightly skewed view propagates through the ranks with each one adding an additional twist of optimism until reality becomes grossly distorted. How can a person, in a position of power, be objective when all he/she was presented with during her career is a single side of the coin? Can human attention span be long enough to incorporate macroeconomic forces, which take decades to play out, into mental models that humans so eagerly construct?

For most of us gold trading is of little relevance, but principles at play apply to situations that rest much closer to home. Consider for example a banker, who is measured on his yearly performance, while the loans that he makes are for periods longer than 10 years. Would he care if the loan is defaulted on 7 years from now? Probably not, the loan book could have been sold on or he could have changed jobs several times since then. You can realize how this sort of behaviour could quickly become a reckless one. If banking is not personal enough for you, consider a manager who is responsible for plant maintenance. He is presented with a choice, to save some money now or spend it to upgrade plant’s equipment, if he saves it now then he is rewarded, albeit at the risk that the machine will have a higher chance of a breakdown (but when? 1,2 or maybe 3 years from now?). How long is his attention span?

In conclusion I would like to share several quotes that drive home some of the principles discussed.

Abraham Maslow “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

Ralph Linton “The last thing a fish would ever notice would be water.”

Daniel Day-Lewis  “Perhaps I’m particularly serious, because I’m not unaware of the potential absurdity of what I’m doing.”

Several movies: Anatomy of a DisasterHow the banks never lose

And several interesting articles: Morgan Stanley, Warning to Banks



gold price charts provided by

People or Process Reliant

November 2, 2012 Leave a comment

During my comparatively short career I had the chance to work in a start-up business, a medium size enterprise and a large corporation. Needless to say that there are many obvious differences among the three, but one particular aspect that I would like to draw our attention to today is the process of enterprise growth.

At first we need to ask ourselves what the thing that we call an organisation is. Unfortunately, the sheer volume of information related to organisations makes defining its essence a daunting task, even with Google’s help. For the purpose of this article we will construct our own definition, which will draw upon Culture Management and Knowledge Management concepts:

An organisation is a set of behavioural patterns, which are influenced by individual employees, codified norms and historical behavioural patterns.

Four important concepts are tied together in this definition:

Firstly, we assume that it is through behaviour of its employees that an organisation exhibits its presence.  It’s common to see definitions that emphasise on the culture or brand as the essence of the organisation. However, these definitions are ill-suited for our purpose because they don’t go far enough. While causes that elicit employee behaviour are multiple, our proposition is that behaviour is the ultimate variable affected. Culture is important, it affects behaviour,  but so does a policy manual.

Subsequently, we propose three sources of influence that do affect behaviour: individual employees, codified norms and historical behavioural patterns. Individual employees bring their own experiences, habits and initiative into the organisation. Whether or not their habits become part of the organisation depends on a variety of factors, which will be discussed later. Codified norms are another source of influence and refer to actual procedures set out in various policy manuals.

Lastly, historical behavioural patterns consist of how the organisation and people in it traditionally behaved (this portion often described as culture) and significant “out of norm occurrences”. For example, let’s say fraud occurred in the organisation and people in the organisation were so shocked as to become extra vigilant, then the organisational culture would be “anti-fraud”, yet past fraudulent behaviour had significant influence.

Once our framework for analysis is set up, we can ask ourselves how a young company differs from a mature one.

In my experience, young companies are (surprise!) people driven. With little codified norms and virtually no historical behavioural patterns to restrict individual creativity, employees and especially founders are able to set a foundation, good or bad, for organisational behaviour. Mature organisations, on the other hand, have processes and policies in place to restrict influence of individuals. Specific employees are not loger able to do what they like, but need to meet minimum explicit or implicit performance standards, or are restricted in the ways they can perform their functions. On one hand, such development is often critiqued since large organisations are notoriously slow in adapting to change, on the other hand, by codifying behavioural norms, managers can objectively evaluate and adjust organisational behavioural patterns.   The most peculiar situation happens in growing organisations, where the need for explicit standards and instructions is clearly visible due to increased efforts spent by employees in coordinating activities, yet each position within the organisation is attached to a particular individual and presents itself to managers as a vague black box, “we sort of know what this employee does, but aren’t sure how he does it”.

Anyone wishes to share their experiences in start-up, growing, or mature organisations?