Move on

Decision-making, in every realm, has become more complex in today’s world. In business, technology and policy, contemporary decision-making has to deal with two major aspects – uncertainty and flexibility. Materials taught in business schools, the intuition gained by managers from the past and the choices considered by policy-makers are at odds with this new reality. This inability to consider uncertainty and flexibility systematically in decision processes is leading to suboptimal performances of businesses, incorrect selection and design of ideas, outdated education materials and inappropriate polices.

In policy, politicians mostly concerned about the next elections, propose and select choices that may make tactical sense to the public but rob the country of its ability to be long term competitive. In healthcare, the question has to be how to consider technology, demographic and disease uncertainties and create policy choices that are flexible enough to change with the long term goal of improving the health of the populace. Improving overall health provides far more flexibility to the system than treating disease. In energy, focus has to be on process and product innovation through R&D in emerging alternatives than tactical choices of where to dig for oil and how to transport it. In monetary policy, uncertainty can be substantially reduced by a fixed money supply target and such an outcome will encourage investment far more than all the fancy quantitative and qualitative easing that is going on. In education, system flexibility can be increased by creating a higher diversity in choices and moving away from contemporary views. High school education may be important but a more important question is what prepares today’s students for tomorrow. Most of the education today is targeted at making students good employees in a world where such jobs are scarce. If education is targeted at innovation, entrepreneurship and the ability to add value, that will improve overall flexibility of the system to manage future uncertainty.

Businesses do not fare much better either. Large companies reflect a structure that was created in industrial revolution where managers were put into position by the owners of the firm to improve labor productivity by reducing absenteeism and injecting negative reinforcements. Most companies continue the same structure in a world where only innovation actually add value to the firm. Innovation, however, does not happen like clock work and whether the employees punched in and out at the right time has no implication for the growth and viability of the firm. Business schools continue to teach archaic materials such as accounting and finance, largely focused on commodity production enterprises without realizing that such companies will be fully automated in the future. Accountants with sharpened pencils and financiers moving money around from basket to basket, add little value in the modern world. It is only the ability to conceive, design and market real products, processes and technologies that add value to the economy. Even in marketing, where the focus is on segmentation, pricing and promotions, businesses are out of touch with the modern reality. Businesses, thus, have two major challenges – their managers today have not spent the time to educate themselves of the challenges of the modern world and their future managers are given the same irrelevant training in schools as their predecessors.

In technology, the situation is no different. The tendency has been making incremental improvements to existing ideas rather than conceiving dramatically new ones. Part of the blame has to go to the capital providers, who count the days to exit as soon as they invest a dollar and they force entrepreneurs to be tacticians and risk managers. Further, the herd mentality and consortium investing have also led to overinvestment in incremental and similar ideas. As demonstrated by the meager cross-sectional returns to venture investing, incrementalism is a costly behavior with disastrous consequences to the economy. Today’s capital providers are using yesterday’s techniques to manage uncertainty and in the process, substantially reduce the flexibility of the nascent firms they invest in. They spend substantial time arguing about how to divide the pie but little thought goes into how to substantially change the status-quo and grow the pie.

Lagging innovation, led by bad policies, outdated business practices and incrementalism, reduce the flexibility of the whole system. Ironically, most of these behaviors emanate from a desire to manage personal risk but that leads to a higher level of uncertainty for the individual and the society.

Ref: Decision Options : The Art and Science of Making Decisions. Gill Eapen http://is.gd/dobook

Flexibility : Flexible Companies for the Uncertain World. Gill Eapen http://is.gd/flexbook