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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

Enjoy!

~Alexey


gold price charts provided by goldprice.org

S** sells

August 9, 2012 Leave a comment

I don’t know what you thought this post would be about. But if you are suprised by the content of it, I’ve probably proven a different point than what I originally wanted to make ;-).

The title of this post is “Simplicity sells”.

When you are working on a project, no matter what it is about, you always become the specialist of what you do. You know every detail of it. You know about it’s strengths and applications and you probably also know about it’s weaknesses and exceptions. The downfalls which you knowingly implemented, the one’s that are just not economically to solve and the one’s that you just don’t have a solution for.

It is good to know all of them, because YOU need to know about them when you are executing the project. But does everybody else who isn’t part of the project-team need to know about all of these details as well?

People you are presenting your projects, solutions, and ideas to are interested in the big picture. They want to know what the problem is and why and how you solved it. And when I say “how you solved it”, I mean that more in a “what the solution looks like”-way.

When you get to present or sell something: Keep it simple. Don’t annoy people with details they don’t care about. Communicate your message in a way that everybody who isn’t familiar with the topic at all, can get the idea. Don’t get me wrong: You need to know the details and you need to be prepared to explain them in the case somebody asks for them, as well. It’s just: “If somebody asks for them”…

It’s always better to keep it sharp and short, and stimulate some discussion about details that matter to the audience.

So, simplicity sells…

 

Sebastian

 

Service Power Thinking

January 9, 2012 Leave a comment

Almost every object humans produce and sell, can be viewed either from a goods-oriented or service based perspective. When selling a good what we aim to trade is a physical, tangible article. We may want to sell shoes, cars, vacuum cleaners or video cameras. All of the aforementioned items are simply equipment, the value of which is limited by its function and qualities. For example, a customer would pay more money for a high quality car and less for poorer quality, but at a certain point, the quality of the car reaches its maximum as does its value. At this point if we want to add any additional value to our item we need to bundle a service along with it.

What if we were not bound by the limiting perspective of selling just cars? What if what we really provided was an enhancement of the social status? Then we could sell our goods at exceptionally high prices, far above the value of its function. In the luxury goods industry the service is letting everyone know that people who buy certain goods are of a higher social status. By acquiring luxury goods one may benefit from all the marketing services provided. Luxury industry figured out how to attach value to an item without being restricted by diminishing returns of better quality, but is such approach limited only to this specific context?

How can we apply this service perspective in our own jobs to spark innovation? How can it be applied to electricity providers? Pharmaceutical Industry? Or airlines?

Categories: Alex, Service