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Wednesday, 15 October 2008

Just How Stupid are our Leaders?

Probably more than we have ever dared to think.  We are starting to suspect that their thinking may be based on deep and fundamental  ignorance. It is a terrifying thought.

An extract from

Stumbling and Mumbling  Chris Dillon’s Blog 14th October 2008

On the subject of our economic leadership -

…….. “I thought: “But surely they’ve learnt from statistics and experience by now. Their risk management can’t be as terrible as Taleb claims. I know bosses are stupid, but they can‘t be this gibberingly, imbecilically, carpet-chewingly, moronically cretinous, can they?” I suspect most economists thought my way.
It looks like we were wrong and Taleb right.
But this isn’t because Taleb had any great insights into the nature of risk. It‘s because he thought banks‘ risk managers were idiots, whilst economists didn’t think so - not even me.
In doing this, however, we were just following economists’ standard procedure - of assuming that agents were if not rational then at least not wholly stupid. “ ……..

There were over 30 comments, all by erudite and thoughtful experts – and for me, all missing the point.  I selected this  extract from Chris' blog because it highlights our core message

“To get Different Results you must apply Different Thinking”

As we say in our web site – if you always do what you always did, you will only get what you always got.

And that is what the economists, the financial analysts, the bankers - and the government – have been doing.  And that is why, when the balloon finally ran out of the hot air they had all been spouting, the fall was so fast and so catastrophic.

As an engineer, I learned the Laws of Thermodynamics. Amongst them were two topically relevant concepts - 
- All types of Perpetual Motion Machines are impossible.
- All transactions involving Energy are "lossy".

Wealth is the Energy that powers our social existence. The same rules apply.
We have had 12 years of the leaders of our economy ignoring, or trying to conceal,
  "lossiness" and imagining they had a Perpetual Motion Machine of Wealth – truly not understanding that they were doing.

We engineers learned that the energy efficiency of any device depends on how close we can make it to a hypothetical Perpetual Motion Machine – in other words – on how much we can reduce its “lossiness”. 

In ChangeWORLD we know, not just from experience but from rock solid research, that the organisations that massively outperform the rest, and that will be least threatened by the current economic shambles, are in fact those with the least “lossiness”, the lowest waste and the highest quality of business process .  They are the ones that, on our Competitive Strength Report scale,  will rate as “Free”.  There are very few.

The majority, with the Comparative Competitive Strength level of “Comfortable”, are now faced with the prospect of a very rapid, unexpected and enforced transition into “Constrained” - the doorway to The Abyss, total failure.  There will be absolute carnage over the next 18 months.  There does not have to be – there could be more survivors if they can apply Different Thinking fast enough.

The same rules and logic  apply to Government, and to our national economy.  If we have an excessively “lossy” economy, it will have low Comparative Competitive Strength.  It will become, inevitably, “Constrained”,  facing The Abyss.  Our leaders have indulged themselves in the illusion of success, ignoring the “lossy” economy, during the exceptionally benign economic conditions of the “NICE” decade.  Self-deluded and smugly claiming "Excellence" they were actually only “Comfortable”.  Now everything has changed, and they don’t know how to face The Abyss.

Like we all are, right now.  Have you noticed the number of references to the “Abyss” in the last two weeks?

Our absolute screaming  frustration is that all of this is known – and all has been ignored – because it is predicated on the idea  that:

Solid and sustainable Wealth is the outcome of applied and continuous effectiveness of performance. 

That has never been what the wheelers and dealers of the City, Whitehall and Westminster have ever wanted to hear – it is what they have never been able to do – it is what they have never understood.  And, sadly, it appears that the economic experts (as their lap dogs) have snoozed on their leads next to their food bowls!

Do you want to know what you can do right now to pull your business away from the Abyss?  Are you going to do it to them before they finally do for you?

Learn  more about the Competitive Strength and – Thinking Differently?  Have a look at our ChangeWORLD web site and the Competitive Strength Report web site.

Wednesday, 1 October 2008

God Save us from Experts!

Recently a good friend of mine has been through a very unpleasant health scare. Whilst on business in Australia he was overcome by highly debilitating chest pains that pretty much completely immobilised him. Whenever he made any effort to move about the pains kicked in unbearably.

My friend has a history of heart and artery related problems which he has been told will require surgery at some point. He had taken all his medical notes with him as a precaution which he gave to the Australian medics when he was admitted to hospital. They carried out all sorts of tests but could not find a cause for the pains. However they assured him it was not heart related.

Eventually he was crated up and shipped back to the UK. Not a pleasant journey but he made it. More test and observations, still no answers and still "definitely not to do with your heart/ arteries". Last week he had an especially bad attack and was rushed into hospital again. This time and for the first time, either in Australia or the UK, they decided to carry out an angiogram. They discovered three blocked arteries including one that was 99% blocked, operated immediately and the problem is now both identified and resolved. This is after two and half months of suffering and anxiety for my friend and no answers from the combined medical experts of two advanced developed nations!

Now I am no expert. I have not done the 5 years at medical school and all the other training besides to make me technically qualified to comment on this case. However if anyone had asked me "have they done an angiogram on Terry?", given what he has told me previously about his condition I would have replied "well I am sure they must have".

This has got me thinking about another group of experts who are currently putting us all through suffering and anxiety. For example:
  • Did all these property developers really look into the market for new offices/shopping centres, flats etc.etc to ensure that the demand was really there? Well I'm sure they must have.
  • Did the banks do a thorough study on whether the strategy of falling over themselves to lend on any property deal to build more new shops/offices/flats etc. etc was sound? Well I'm sure they must have.
  • Did Northern Rock consider what they would do if their main source of funding from the wholesale markets was suddenly to dry up? Well I'm sure they must have.
  • Did Bradford & Bingley fully assess the risk of granting all those buy to let and self-certificated mortgages? Well I'm sure they must have.
  • Did all those financial institutions work out why it was such a good idea to lend money to people who cannot afford to pay it back? Well I'm sure they must have.
  • Did the accountants who signed off the big banks' accounts all reporting record profits over the last 5 years or so carry out a thorough audit? Well I'm sure they must have.
  • Has Hank Paulson worked out what he will actually do with $700bn to bail out the US banking system? Well I'm sure he must have.
And so on.

Why do the "experts" get so much wrong and let us all down so often? Because they think like experts and are incapable of adapting their thinking in the face of change. In fact they dislike and even fear change because it challenges their expert status by making their expertise outdated. They think that because they are experts then only they can come up with the right answers (Hank Paulson a graphic and disastrous example). Even when they cannot find the answer they cannot envisage anyone else being able to because they are not "experts".

So once again we say, what is needed is different thinking and for experts it's accepting they probably don't know and that they need to learn how to find out. In fact this kind of thinking, accepting you don't know but knowing how to find out, is one of the characteristics of the few truly excellent organisations on the planet. What is more research has shown that these excellent organisations consistently outperform the rest and are best able to cope with the nasty surprises. To find out more about why this makes sense and how crucial it is visit the Changeworld website.

Different thinking is especially needed in our banking and financial sectors, their regulators and the governments that ultimately set the frameworks through fiscal, monetary and economic policy. If the thinking does not change then given the same circumstances the bankers, financiers and their associated organisations, will do exactly the same as they have just done, with exactly the same results.

Will the thinking change? Right now I am not hopeful. When I read as I did yesterday in an article by Hugo Dixon in the Daily Telegraph that Barclays and Nomura have set aside a reported $3.5bn in bonuses for the staff of guess who - Lehman Brothers! This it is reported to be based on what was paid in 2007 to the staff of the Lehman's business being bought by Barclays and Nomura. How can basing this year's bonus on last years boom numbers make any kind of sense? As I said I am not hopeful.

However for all our sakes and futures this has to change. We all of us have to insist that is does. This blog and the articles that we have and will continue to write and disseminate are just one part of the effort we are making to get this message across. We would love to hear from people who agree with us, or have another view, or even those who disagree.