The 80/20 Principle: The Secret of Achieving More With Less

Every now and then, you will come across a book that gives you the "WOW" feeling after you have read it. I have that feeling after reading "The Black Swan", "Fooled by Randomness", "Who Says Elephant Can't Dance", etc. Well, I would rank this book by Richard Koch to be among the must read books on business and management. The term 80/20 principle or Pareto Law is so commonly used in daily business and management situations and the realisation of this principle and putting it into practice is what separates effective managers and leaders from those struggling to make the leap to the next step. The relevance of the principles highlighted in the book is more pronounced in the new digital age given that everything is moving at breakneck speed and things are supposed to be completed "yesterday". It also seems to appear that the world is moving towards the ratio of 90/10 or even 95/5 from 80/20 but regardless of the actual ratio, it serves to remind us how the world works and things are not proportionate and we should wise up and focus our limited energy and resources on things that matters.

 

As usual, the following are some of the exerpts from the book which I find useful and I hope you will find it useful too (words in BLUE are my own opinions):

1) ...... what happens first, even something ostensibly trivial, can have a disproportionate effect.

2) A small lead early on can turn into a larger lead or a dominant position later on,........

3) Improving on nature, refusing to accept the status quo, is the route of all progress: evolutionary, scientific, social and personal. George Bernard Shaw put it well: 'The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.' (I have earlier posted a section from the book by Alan Axelrod (Gandhi, CEO) titled "Get Ready to be a Lonely Leader" and the above statement reminds us that the road to greatness can sometimes be lonely)

4) Long-term clients tend not to be price sensitive. (Richard Koch reminds us it is more worthwhile to focus on existing or long-term clients)

5) Choose our careers and employers with extraordinary care, and if possible employ others rather than being employed ourselves.

6) Only do the thing we are best at doing and enjoy most.

7) The 80/20 Principle applied to business has one key theme - to generate the most money with the least expenditure of assets and effort.

8) A product has only to be 10 percent better value than that of a competing product to generate a sales difference of 50 percent and a profit difference of 100 per cent. (This is true in almost every aspects of life from business to sports. Teams that qualified for Champions League may be 10% better than teams that don't but in terms of revenue, teams that qualified stand to reap extra revenue of up to 90% more (90/10 ratio) and that is why it can make or break a team depending on qualifications to the lucrative Champions League. Note: The ratio is only an example which I am making up from gut feeling and not based on actual numbers).

9) If you can identify where your firm is getting back more than it is putting in, you can up the stakes and make a killing. Similarly, if you can work out where your firm is getting back much less than it is investing, you can cut your losses.

10) Outsourcing is a terrific way to cut complexity and costs. The best approach is to decide which is the part of the value-adding chain (R&D-manufacturing-distribution-selling-marketing-servicing) where your company has the greatest comparative advantage - and then ruthlessly outsource everything else. (This statement is easy to understand. We all have limited time and resources and as such, it is best to focus in the area where we can do our best. In my opinion, there is an optimum size for a given company to balance between being overly complex which may results in loss of focus and inefficiency but at the same time, an optimum size to spread fixed cost, e.g. overhead costs. The same principle also applies to each individual. We should focus on the part which we can value-add and delegates the rest.)

11) All organizations, especially large and complex ones, are inherently inefficient and wasteful. They do not focus on what they should be doing. They should be adding value to their customers and potential customers. Any activity that does not fulfil this goal is unproductive.

12) Note that there are always apparently good reasons trotted out as to why you need the unprofitable 80 per cent of products, in this case the fear of 'losing stature' by having a smaller product line. Excuses like this rest on the strange view that shoppers like to see a lot of product they have no intention of buying which distracts attention from the product they like to buy. Whenever this has been put to the test, the answer in 99 per cent of cases is that delisting marginal products boosts profits while not harming customer perceptions one jot.

13) ..... do not start your project until you have stripped it down to one simple aim. (Focus, focus, focus).

14) Faced with an impossible time scale, [project members] will identify and implement the 20 percent of the requirement that delivers 80 percent of the benefit. Again, it is the inclusion of the 'nice to have' features that turn potentially sound projects into looming catastrophes.

15) In the planning phase, write down all the critical issues that you are trying to resolve. (If there are more than seven of these, bump off the least important). Construct hypotheses on what the answers are, even if these are pure guesswork (but take your best guesses). Work out what information needs to be gathered or processes need to be completed to resolve whether you are right or not with your guesses. Decide who is to do what and when. Replan after short intervals, based on your new knowledge and any divergences from your previous guesses.

16) Impatient people don't make good negotiators.

17) One of the most important decisions someone can make in life is their choice of allies.

18) Productivity on most projects could be doubled simply by halving the amount of time for their completion.

19) Hard work leads to low returns. Insight and doing what we ourselves want lead to high returns.

20) ..... make everyone repeat back to him what they were going to do.

21) Once in your profession, if making money is really important to you and if you are any good at what you do, you should aim to become self-employed as soon as possible and, after that, to start to employ others.

22) Spend your time and emotional energy reinforcing and deepening the relationships that are most important.

23) You alone cannot make yourself successful. Only others can do that for you. What you can do is to select the best relationships and alliances for your purposes.

24) Spend more time with the contacts you enjoy, particularly if they can also be useful to you.

25) 10 golden rules for career success:

i) Specialize in a very small niche; develop a core skill.
ii) Choose a niche that you enjoy, where you can excel and stand a chance of becoming an acknowledged leader
iii) Realize that knowledge is power
iv) Identify your market and your core customers and serve them best
v) Identify where 20 percent of effort gives 80 percent of returns
vi) Learn from the best
vii) Become self-employed early in your career
viii) Employ as many net value creators as possible
ix) Use outside contractors for everything but your core skill
x) Exploit capital leverage

26) Increasingly, the most important class distinction in advanced societies is not ownership of land or even of wealth, but ownership of information.

27) Whether you are employed, self-employed, a small or large employer or even the head of state, you have core customers on whom your continued success depends.

In summary, this is a good book as it opened up my mind that I should focus my limited time and energy on the important 20% that will give me 80% of the results. This is important as we move up the management chain as time would be a major constraint and we need to focus our energy and resources on value-added works and not bogged down by "routine" works. It is important for any manager/leader to be able to make this leap or else, they will be held back in their progress and to me, this book certainly helps.

The Arrogance of Growth

I was fortunate enough to read an article by Mr. Rajeev Peshawaria who is the CEO of ICLIF, a leadership think-tank titled "The Arrogance of Growth" and wish to share the three simple rules by Mr. Rajeev which I find useful:

1) Try to help as many people as you can even if they seem of no use to you. You never know when they might be of help. At the very least, you can only benefit from their best wishes and gratitude.

2) When you walk into a meeting, ask three questions before giving your opinion. Even if you are totally convinced about the topic at hand, asking three questions might give you some new information, and prevent you from digging yourself into a hole.

3) Seek more to learn, and less to preach. By all means share your expertise and vast knowledge, but also try and learn something from everyone you meet.

Remember, it is important to be a leader who inspire confidence but is not arrogant. Again, it's a fine line again. So, to be a good leader, it is all about striking the right balance.

Simon Sinek: How Great Leaders Inspire Action

This video from www.ted.com is so inspiring that I have to share it with all of you. The question that we have to ask ourselves everyday is WHY? Why do we get out of bed? Are we doing something which inspires others and give us sense of satisfaction? For fellow engineers, we have to remember that people makes decision based on emotion and less on rational thinking. So, we must be rational (we are still engineer) and at the same time also touches the customer's emotional heartstring. The customer must believe in us and that we are doing something which is in their best interest (not ours).

Enjoy!

For those who cannot view the video, please follow the following link:

http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action.html

M.Zuiko Digital ED 60mm f2.8 Macro Lense

Was recently bitten by the photography bug and this picture was taken when I tried to look at the bright side when I found my house being attacked by termites. My boss was kind enough to borrow me his brand new Zuiko 60mm f2.8 macro lense which I tried it out for the first time with my Panasonic GF3. By my own low standards, I kinda like the pictures.

 

(Picture taken with f/5.6, 1/60 sec, flash on)

 

 

(Same picture but with some editing using Lightroom in less than a minute by my wonderful colleague and sifu in photography, Darryl)

 

 

My own experience for trying out macro photography for the first time:

 

1) Abundance of patience is required. Was practically lying on the floor waiting for the "model" to come out of his/her hole.

 

2) A mini tripod is handy.

 

3) As you can see, my focus is out and my sifu has recommended me to brush up by reading the following articles:

 

http://en.wikipedia.org/wiki/Hyperfocal_distance

http://www.dofmaster.com/hyperfocal.html

http://www.cambridgeincolour.com/tutorials/hyperfocal-distance.htm

 

Really like the lense but I don't think I do justice to the lense. Interested readers may refer to http://www.robinwong.blogspot.com/ on his review of this fantastic lense.

 

 





The Intelligence Paradox: Why the intelligent choice isn't always the smart one

The title of this book by Satoshi Kanazawa immediately caught my eye because I have always wondered why those who generally did well in school are usually less successful in life, i.e. in making friends, maintaing a relationship or in business. I always thought that perhaps it is because of our education system where it rewards people who are good in traditional subjects such as mathematics or science based subjects which eventually led to safe but unspectacular life, e.g. doctors, engineers, accountants, etc. but many other life subjects such as how to make friends, being street smart, the instinct to spot talents and manage them, financial acumen, etc. usually cannot be thought in school and can only be acquired from real life experience. The book did answer some of the questions and some of the important points from the book are quoted here for your reading pleasure (Words in blue are my own opinion):

1) Intelligent people are only good at doing things that are relatively new in the course of human evolution. They are not necessarily good at doing things that our ancestors have always done, like finding and keeping a mate, being a parent, and making friends. Intelligent people tend not to be good at doing things that are most important in life. (First of all, I have to agree with this statement. We have always seen how brilliant people ended up being social outcast and we know that to be successful in life, we cannot live on an island. My interpretation is perhaps, intelligent people find it hard to connect with the rest because their thinking is different. Well, the challenge for intelligent people is perhaps to be less intelligent in certain situations and don't have to be correct in everything. Sometimes, life is to be enjoyed and some imperfections make this world such an interesting place).

2) ...... the law of evolution by natural and sexual selection, which states that the ultimate goal of all living organisms is reproductive success. All living organisms in nature are designed by evolution to reproduce and make as many copies of their genes as possible.

3) Savanna Principle: The human brain has difficulty comprehending and dealing with entities and situations that did not exist in the ancestral environment. (A principle coined by Satoshi Kanazawa).

4) The human brain implicitly and unconsciously assumes that all ostracism is costly, just as it assumes that all realistic images of people whom they see on a regular basis (and who don't try to kill or harm them in any way) are their friends, even when these people are on TV. (Basically, it states that our subconscious brain cannot differentiate between TV and reality and TV shows influence our life more than we know it).

5) No human traits have a heritability of 0; genes partially influence all human traits to some degree. (This is know as Turkheimer's first law of behavior genetics).

6) In fact, most personality traits and social attitudes follow what I call the 50-0-50 rule: roughly 50% heritable (the influence of genes), roughly 0% what behavior geneticists call "shared environment" (parenting and everything else that happens within the familty to make siblings similar to each other), and roughly 50%  "nonshared environment" (everything that happens outside of the family to make siblings different from each other). It turns out that parenting has very little influence on how children turn out. (Striking isn't it and it seems to go against conventional wisdom? A parent is only important in providing the genes but how their children behaves are less influenced by their own behaviour but more by the external environment).

7) Among adults, intelligence is about 80% determined by genes.

8) Early childhood experience do affect adult intelligence, but they mostly function to decrease adult intelligence, not to increase it. (What Satoshi Kanazawa is saying is that intelligence is dependence on genes and no matter what you do during childhood will increase it. You can only fulfill your genetic capability).

9) ...... there are very few childhood experiences that will increase adult intelligence much more than their genes whould have inclined them to have.

10) So the more equal the environment between individuals, the more important the influence of genes become. (From point 9) above, childhood experiences, parenting, etc. is only important to ensure the child realise its genetic potential such as enough nutrition, opportunity for education, etc. but in many developed countries where child malnutrition is not a big problem and easy access to education is provided, the genes are more important compared to parenting. So, is it worth to have all the extra tuition classes?).

11) So contrary to popular misconception, genes largely (though, even for adults, never completely) determine intelligence.

12) Thus, according to the basic principles of quantitative genetics, the fact that general intelligence is highly heritable suggests that it is not very important for our survival and reproductive success........

13) This theory suggests that more intelligent individuals are better than less intelligent individuals at solving problems only if they are evolutionary novel. More intelligent individuals are not better than less intelligent individuals at solving evolutionary familiar problems that our ancestors routinely had to solve.

14) ...... this new finding can potentially explain why less intelligent individuals tend to enjoy the experience of watching TV more than more intelligent individuals do. (Darn, I enjoyed TV a lot. Well, after reading this book, it is not too good to be too intelligent. Just a little bit more intelligent is the best).

15) The more intelligent you are, the later you marry.

16) ...... more intelligent individuals are more likely to be stupid and do stupid things.

17) ..... liberals and other intelligent people lack common sense because their general intelligence overrides it. They think in situations where they are supposed to feel. In evolutionary familiar domains such as interpersonal relationships, feeling usually leads to correct solutions whereas thinking does not. (This explains why intelligent people is usually not good in relationship. They think too much and may sometimes feel relationship is a waste of time!).

18) More intelligent people reject the "simplistic" solution offered by common sense, even though it is usually the correct solution, and instead adopt unnecessarily complex ideas simply because their intelligence allows them to entertain such complex ideas, even when they may be untrue or unuseful in solving the problem at hand.

19) The average intelligence in society increases the marginal tax rate (as an expression of people's willingness to contribute their private resources for the welfare of genetically unrelated others) and, partly as a result, decreases income inequality. The more intelligent the population, the more they pay in income taxes and the more egalitarian their income distribution. (Interesting point isn't it?)

20) Just like the human mind, smoke detectors are designed to be "paranoid". This is known as the "smoke detector principle". (This principle states that our mind is designed to be paranoid because it is safer to err on the safe side. This is similar to the design of smoke detector where the smoke alarm tends to sound alarm even where there is no fire because the risk of the smoke detector not sounding the alarm when there is a fire will results in death while false alarm is a small inconvenience we pay for our survival. So, it is natural that our mind always picture the worst case scenario because that is how our brain has evolved from the days when we have to avoid being eaten).

21) Pascal's wager. The 17th-century French philosopher Blaise Pascal (1623-1662) argued that given that one cannot know for sure if God exists, it is nonetheless rational to believe in God. If one does not believe in God when He indeed exists (Type II error of false negative), one must spend eternity in hell and damnation. In contrast, if one believes in God when he actually does not exist (Type I error of false positive), one only wastes a minimal amount of time and effort spent on religious services. The cost of committing Type II error is much greater than the cost of committing Type I error. Hence one should rationally believe in God.

22) The woman decides when and with whom sex takes place; the man doesn't.

23) Contrary to popular belief, more educated women and women with more demanding careers do not have fewer children and are not more likely to remain childless.

24) ...... boys inherit their general intelligence from their mothers only, while girls inherit their general intelligence from both their mothers and their fathers.

25) So, women influence the general intelligence of future generations very strongly, through their sons and through their paternal granddaughters. (Choosing the right wife is very important!)

26) ..... intelligent people make more money and attain higher status in organizations, because capitalist economy and complex organizations in which most people work today are entirely evolutionary novel. (I don't quite agree with Mr. Kanazawa here. In modern complex organizations, some people are more successful if they are better in people skills which is not evolutionary novel as cavemen also need to have good people skills in order to survive and be the leader. As such, I would think that intelligent people will be successful in areas such as engineering, medicine, etc. while they are generally poor managers, politicians, etc. It is not surprising that we don't see many intelligent politicians. Hahaha).

27) ..... intelligent people lack common sense and have stupid ideas. (I would think stupid ideas here mean the idea is against acceptable social rules which intelligent people sometimes feel it is not necessary to follow).

In summary, the book is enlightening in a sense that it explains in a scientific and quantifiable manner why intelligent people are different compared to less intelligent people. It essentially drives home the message that intelligent people are good at doing things which are relatively new in the course of human evolution such as mathematics, science, etc. and because of that, may end up bumbling over evolutionary familiar tasks such as making friends, being a good parent, etc. It shows that intelligent people are typically different compared to others such as they have higher tendencies to be gay, is a night owl, drink and smoke more, etc., i.e. different. The book does seem to repeat the same themes towards the end which makes it a little less interesting once we get the idea that intelligent people are different.

STOP 114A

Just doing my bit to support "STOP 114A". It is really a crazy Act where you are presumed guilty unless proven otherwise. I hope my beloved Malaysia is not going down towards a failed state because of greed and corruption.

Using Sex to Sell Struggling Spanish Real Estate

For those who believe that property prices will never come down. Property investment may not be the safest investment!

http://www.bloomberg.com/video/using-sex-to-sell-struggling-spanish-real-estate-CEsDa~K7R7Of~voUmzsk6A.html

Get Ready to be a Lonely Leader

My latest reading list is two titles by Alan Axelrod with the first being Gandhi, CEO and next on my list is Napoleon, CEO. The reason that I have chosen the two titles is to compare whether there are any distinct differences in leadership qualities between the two and also similarities. Gandhi and Napoleon offer such contrasting personalities where comparison between the two would be interesting. Gandhi is universally known as the compassionate and non-violent leader while Napoleon is sometimes labelled as the power hungry warlord and even to the extent of being called the anti-Christ. Perhaps, both amazing leaders are born out of circumstances to suit the turbulence of their respective era. I would imagine Gandhi barely surviving in the war-torn era of Napoleon and similarly, Napoleon would delights the British army if he choose the violent path if he is in Gandhi's shoes.

Anyway, I am now in the middle of Gandhi, CEO and one particular "lesson" in the book immediately strike a chord in me based on my actual experience of managing (trying to manage) a company. The lesson is to be firm and not popular. I must admit, it is difficult in trying to implement unpopular decisions especially if you are not the founder of the company. When you are promoted within a company and you have transformed from being one of the colleagues (us) to them (management), certain decisions can be viewed as apple-polishing, evil management trying to squeeze everything from the staff, not protecting the welfare of the staff, etc. Anyway, after reading through the lesson in Alan Axelrod's book, it has re-affirmed my commitment to do the right thing and not the popular decision. At the end of the day, we must answer to our own conscience only. I however, do not agree with Alan Axelrod's title in his lesson, i.e. "Get ready to be a lonely leader". I don't think leaders have to be lonely. If we are firm, ethical and sincere, people with the same qualities will appreciate it. Only those who fail to see the bigger picture will view our decisions with hostility and if such person cannot appreciate our qualities, we should not be losing sleep over it. As such, for me, the title of the lesson should be "Get ready to lose friends who do not share your views as long as your conscience is free. You will make other great friends on the way".

The following paragraph is extracted from the book by Alan Axelrod titled Gandhi, CEO (only words in BLUE are mine):


GET READY TO BE A LONELY LEADER

"It is a superstition and ungodly thing to believe that an act of a majority binds a minority."

- "Passive Resistance," Hindi Swaraj, 1909


Some CEOs are autocrats, others are democrats. Neither extreme is an optimal leadership policy. To impose authoritarian will on the members of an organization is to treat them as functionaries rather than as thinking human beings. Quite apart from the damage this does to individual morale, such a policy is a bad bargain for management because it fails to make full use of the company's costly human assets. Consider two workers: They are both paid the same salary; one uses 100 percent of her talent, the other 10 percent. Which worker represents the greater value for the company? The answer is self-evident, of course, yet authoritarian managers will fully sacrifice 90 percent of the value of their human capital when, by reflexively and inflexibly imposing their policies and procedures, they fail to allow an individual to use, to express, and to act on his or her uniquely valuable perspective and talent.

The democratic CEO, whose leadership is based on bending to the expressed will of the members of the organization, makes a different kind of mistake by her unquestioning assumption that the majority should prevail. Is her objective to please as many of her employees as possible? Or is it a belief that the majority is more likely to get a given issue right than the minority?

If the first answer is correct for a given CEO, we should question whether pleasing one's employees is even a valid goal for an enterprise? Is it likely to produce a profit, let alone the best possible profit? Almost certainly not. More valid goals might include creating customer satisfaction, producing a worthwhile product, and creating shareholder value. All of these-and preferably some combination of these-are more likely to contribute to productive sustainability than aiming to please the members of the organization.

Growing a productive and profitable enterprise is the surest way to create satisfaction among all the constituents of a company-especially the workers, whose ongoing livelihood depends on the ongoing success of the firm. Yet to achieve and sustain profitability, the CEO may from time to time have to make decisions that run contrary to the expressed will of the majority of his employees.

So be it. There is nothing sacrosanct or even inherently valuable about thoughtlessly bowing to the majority. It is also a fallacy to assume that the majority is more likely than the minority to be right. The classic refutation of this belief is the historical example of the many centuries during which the majority was convinced that the world was flat.

In the end, a leader must act with the well-being of every stakeholder in mind. This may mean sometimes making unpopular decisions, and it very often requires departing from the perceived wisdom of the majority by relying instead on advice from qualified experts or on your own understanding of the issues. Leadership, it is often said, can feel very lonely. The reason for this is simple: Leadership is lonely. Done right, it comes down to the decision of a single, solitary human being. Every other attitude, belief, or policy relating to leadership is either subordinate to this truth or is an instance of self-delusion.

In summary, for me, it is important as a leader to listen to all and values their opinion. After evaluating all opinions, it is important for a leader to make decisions based on big picture. As such, a test of whether a person is ready to be a leader is his ability to see things from different perspective, from view of staff, management, stakeholders, clients, competitors, etc. It is also important to have strong belief that you are doing the right thing. Some people will label strong leaders as lack of compassion and profit-driven with staff welfare ignored but histories have shown us that even leaders as compassionate as Gandhi needs to be firm in his belief that he is doing the right thing. Whether we are doing the right thing or not, only time will tell.

p.s. I am hoping to include the review of the book by Venerable Master Hsuan Hua who is a famous Buddhist teacher and draw some leadership lessons from his writings. Even though I have only started on his book, I am sure he will agree on the need to be firm and not bow to the majority. However, it is important to differentiate the effort of a spiritual leader where it should not be profit-driven but for an enterprise, profit is a must and should not be viewed as a dirty word. Whether we choose to be a leader in a profitable enterprise or charitable organisation is entirely up to an individual and there is nothing wrong with either decision. What is wrong is if we mistake working for a profitable enterprise but trying to implement charitable decisions or working for a charitable organisation but trying to implement profitable decisions.

Good luck!

Something is wrong with the financial world!

Asian Stocks Rise Amid Optimism on China Stimulus Outlook. That is one of the title of the article in today's Bloomberg's website. The title really got me baffling. It really seems that financial markets belongs to another planet while the rest are on Earth.

Well, I am no economist or financial expert but what I find wrong with the title is that the markets are "happy" that there is now a higher possibility of China stimulus. What prompted the higher possibility of China stimulus? Weak economic data from China and we are "happy" because China has shown signs of a weakening economy?

Of course, having stimulus will definitely buoyed the markets because it means more money is available in the market but that is definitely not something to be "happy" about. If the market rises because of more stimulus, it simply means that the financial markets are really a big "gambling" table and people are just rushing to "grab" as much money before the music stops. I thought share markets were created so that people can invest in a company which has the potential for good profits in the future but lacked the capital to realise their vision in the present and hence, the need to raise capital for expansion. Now, share markets are really like a big pyramid scheme. You just get more "suckers" buying into the scheme and once the buying stops, it will just collapse and then re-start again.

The current scenario is like a company (China) who is struggling because their clients (Europe) is not buying their products as much as they used to do. So, profits are going to go down. So, the company has decided to give all their employees higher salary (stimulus) so that they are going to buy more products from their own company to offset the reduced orders from other clients. And their clients are also telling the company's staff that they are saving too much. They should spend their additional salary and buy more products to keep the company afloat. The key question is are the employees buying something which will add-value to their future earning power? It is okay for stimulus if it is for construction of a much needed transportation system, university, etc. (not construction of ego-satisfying monuments) as it will create jobs and demand for products and at the same time, the completed infrastructure will add-value to the future. It is like a company investing to upgrade for example, their IT infrastructure. What if the stimulus (extra money) only results in higher stock price valuation, higher house prices due to speculation (not due to actual demand for first-time housebuyers), increased purchase of luxury goods, etc? This is like the company staff buying all the extra T-shirts, handbags, shoes, etc. that the company produces to keep the company's profit. It doesn't sound very sustainable isn't it?

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

This book by Nassim Nicholas Taleb is such a wonderful book and I would rank it as one of the must read book for anyone. It explains in a very simple and easy to read manner the role of luck in life and in the stock markets. This is important because there are many books out there "teaching" us how to be successful in life and how to be a millionaire, etc. Modern marketing techniques also tend to make us feel inferior if we don't own the biggest house, the fastest car and go to the most wonderful holiday. However, merely possessing the traits of successful people, such as hardworking, good communications skill, etc. would not guarantee success. Don't get me wrong. Such traits are very important but sometimes, we need to tell ourself that we just need to try our best and the rest is out of our hands and should not feel too depressed if the reward does not seem to commensurate with the effort. Whatever will be will be.

For me, the book also communicates an important lesson that we all should bear in mind with regards to our success in life or stock markets. Are the success really attributable to our skills or is it merely luck? Are we so blinded by success that we think that we are on top of the world without realising a change of luck may undone everything that we have worked so hard for? As such, this book would serve as a good reminder to us to be cautious and not be over-confident and deluded. Again, this book is a must-read and if you read it together with Tim Harford's The Logic of Life, the insights would be even more revealing and I am sure it will make you think much more.

Some excerpts from the book which I find useful (words in blue are my personal opinion):

1) Mild success can be explainable by skills and labor. Wild success is attributable to variance. (There are two ways to look at this statement. For extraordinary success, e.g. Bill Gates, a large portion of his success is probably due to luck, i.e. at the right place at the right time, etc. Don't get me wrong. Bill Gates is a brilliant guy and I think he deserved it but so do many other guys who may be even more brilliant and hardworking than him but we know how far they are from Bill Gates. Another way to look at that statement is that if we want to achieve wild success, risk taking is a must or else you would not have the chance to encounter the super luck or the variance needed. Just be aware that for every Bill Gates, there are countless university dropouts who are barely able to feed themselves).

2) Behavioral scientists believe that one of the main reasons why people become leaders is not from what skills they seem to possess, but rather from what extremely superficial impression they make on others through hardly perceptible physical signals - what we call today "charisma", for example. The biology of the phenomenon is now well studied under the subject heading "social emotions". (Body language matters!)

3) As a derivatives trader I noticed that people do not like to insure against something abstract; the risk that merits their attention is always something vivid. (Knowing this helps especially if you need to convince clients, customers, etc. on something. Focus on something vivid which they can relate to).

4) ....... rational thinking has little, very little, to do with risk avoidance. Much of what rational thinking seems to do is rationalize one's actions by fitting some logic to them. (Think properly. Are you guilty of this?)

5) Psychologists call this overestimation of what one knew at the time of the event due to subsequent information the hindsight bias, the "I knew it all along" effect. (This reminds me to look at people's "failure" if I were in their shoes and don't be too quick to pass judgement on other's mistakes).

6) Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties. (So, the key is perseverance and continues to upgrade one's skills and relevancy in this fast paced and ever-changing environment).

7) The wise man listens to meaning; the fool only gets the noise.

8) ..... at any point in time, the richest traders are often the worst traders. This, I will call the cross-sectional problem:  At a given time in the market, the most successful traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists - because these professions are more immune to randomness. (The same with engineers. If you are good, don't despair if your situation currently is not as good as you would have liked. With time, your skills would get better and your conditions will generally improve with time).

9) Psychologists recently found out that people tend to be sensitive to the presence or absence of a given stimulus rather than its magnitude. This implies that a loss is first perceived as just a loss, with further implications later. The same with profits. The agent would prefer the number of losses to be low and the number of gains to be high, rather than optimizing the total performance.

10) ....... not to approach anything as a game to win, except, of course, if it is a game.

11) ...... extreme empiricism, competitiveness, and an absence of logical structure to one's inference can be quite explosive combination.

12) ...... an open mind is a necessity when dealing with randomness.

13) ..... survivorship bias implies that the highest performing realization will be the most visible. Why? Because the losers do not show up. (This explains why we usually think it is easy to be a successful businessman because we don't see the not so successful businessman. This is also why highly educated people usually don't make a lot of money. This is because they know the real odds of making it in business and as such, most of them ended up not trying. Maybe sometimes ignorance is bliss?)

14) Optimism, it is said, is predictive of success. Predictive? It can also be predictive of failure. Optimistic people certainly take more risks as they are overconfident about the odds; those who win show up among the rich and famous, others fail and disappear from the analyses. Sadly. (Despite this statement, I still think that optimism is good. This is especially for people like engineers, doctors, etc. Because of what we read, we generally knew the odds and therefore, we need some optimism to balance our life or else we will be paralysed to act or to try out new things. Isn't that sad?)

15) Judging an investment that comes to you requires more stringent standards than judging an investment you seek, owing to such selection bias. (Simple common sense right? If someone is selling you something, of course he/she will be bias towards making the sell rather than protecting your interest.)

16) It is obvious that the information age, by homogenizing our tastes, is causing unfairness to be even more acute - those who win capture almost all the customers (This is the new reality of the globalized world - any slight advantage over your competitor will results in disproportionate lucrative profits)

17) ...... there are routes to success that are nonrandom, but few, very few, people have the mental stamina to follow them. Those who go the extra mile are rewarded.......Most people give up before the rewards.

18) One cannot make a decision without emotion. (It is important that we realise this in management and also business. We tend to complain why some client make lousy decisions even though it is obvious. It is probably because engineers tend to look at the logical aspects and forget about the emotional aspect of the decision. To convince someone, we need to approach from both logical and emotional aspects and emotional aspects are probably more important)

19) Say you own a painting you bought for $20,000, and owing to rosy conditions in the art market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate - only an emotional investment. Many people get married to their ideas all the way to the grave. Beliefs are said to be path dependent if the sequence of ideas is such that the first one dominates.

20) My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.

21) ..... research on happiness shows that those who live under a self-imposed pressure to be optimal in their enjoyment of things suffer a measure of distress.

22) We know that people of a happy disposition tend to be the satisficing kind, with a set idea of what they want in life and an ability to stop upon gaining satisfaction. (Do you know what you want in life? Do you keep on switching the goal post, e.g. you initially aim to own a big house and a nice car and with some measure of financial security for your family but upon reaching that goal, you are now dreaming of a ferrari and two house each for your children?)

23) People who get promoted to important positions usually suffer from tightness of schedules.

In summary, I have always enjoyed reading books by authors such as Malcolm Gladwell and Nassim Nicholas Taleb simply because they are always unconventional and tends to look at things from a different perspective. This makes reading their books so refreshing and it always give me renewed energy to fully enjoy work and my life. The last point (Item 23) does ring a bell for me (I am not in that important position) but sometimes, it does feel that schedules are always tight and it does affect us from being a better human being and co-worker. So, at the very least, after reading this book, I vow not to take little things too seriously and to enjoy this adventure we call life while it last.

p.s. Euro 2012 is shaping up to be quite exciting with England beating Sweden 3-2. I'll bet that if England went on to beat Ukraine and qualify for the next round, every England supporters will start believing that they are good enough to win it. Me, I am putting my money on Germany.

The Logic of Life: Uncovering the new economics of everything

Tim Harford who wrote the Undercover Economist is one of my favourite author and I guess he introduced me to the practical world of economics. For this book, I would recommend readers to make comparison to Nassim Nicholas Taleb's "Fooled by Randomness" which I would cover in my next posting. This is because this book by Tim Harford is essentially on the validity of rational theory in economics while "Fooled by Randomness" is clearly not a fan of rational theory. With both sides clearly presenting convincing arguments, reading both of these books really set my brain on overdrive and I hope you will also find the same pleasure in reading the works of these two excellent authors. Well now, let us see what Tim Harford offers us first:

1) ........ people suddenly value objects more highly simply because they own them. They won't trade even when logic suggests they should. Economists call this 'the endowment effect'. (Realising 'endowment effect' is important to any investors as it explains why a lot of us failed as investors because of such emotional defect, i.e. we are not rational)

2) The endowment effect is irrational, and it's real - but it does not influence experienced people in realistic situations. (The key to overcoming our emotional defect is by realising it exists and with experience)

3) On playing poker: A player who never bluffs will never win a big pot, because on the rare occasions that he raises the betting, everyone else will fold before committing much money.

4) 'Of the two possible motives for bluffing,' wrote Von Neumann in Theory of Games, 'the first is to give a (false) impression of strength in (real) weakness; the second is the desire to give a (false) impression of weakness in (real) strength.'

5) The auction, by contrast, finds the biggest sucker. (Have you ever wondered why things need to be sold via auction. The primary purpose is to find the biggest sucker because usually the final price would far exceed the value of the material in an auction especially when there is active bidding. This is known as the 'winner's curse'. As such, to get the best value from an auction, we need to be rational and stick to our estimated value of the auction material)

6) ........... we are more fussy when we can afford to be and less fussy when we can't: crudely speaking, when it comes to the dating market, we settle for what we can get. (Of course, this is a general statement and applies to majority of the population but I would think it is true. Not between me and my wife though, ours is a match made in heaven. Hehe)

7) It is a harsh truth about the world of work that for many professionals, the more work you have done in the past, the more productive each additional working hour becomes: a perfect example of economies of scale. (That is the good thing of being a professionals such as Engineer, Doctor, etc. The reward usually commensurates with the effort put in. But don't forget the element of luck. Two people who is equally smart and puts in the same amount of effort will not enjoy the same amount of reward. The discrepancy is usually much smaller in professionals but more pronounced in professions where luck is perhaps more important - e.g. businessmen?)

8) .......what Adam Smith wrote about the excessive division of labour: 'The man whose whole life is spent in performing a few simple operations... has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He... generally becomes as stupid and ignorant as it is possible for a human creature to become.'

9) When I wrote 'performance pay encourages performance', I was right, but with a crucial hidden premise - that performance can be measured, and thus rewarded. (Spot on. If someone refuses to accept pay based on measurable performance, I would doubt his capability).

10) So, workplace tournaments encourage workers to sabotage one another and to demand higher bonuses if success is largely a matter of luck. (Important to have transparent reward scheme and to award high performers in order to avoid encouraging workers from sabotaging one another)

11) ....... the more grotesque your boss's pay, and the less he has to do to earn it, the bigger the motivation for you to work with the aim of being promoted to what he has. (Honestly, I am not too sure about this statement. It could be a ploy to justify the high salary of bosses. Hehehe. But seriously, to me, this model has serious flaws because it can be subjected to exploitation. For instance, the boss may simply underpay his staff while giving them the false hope that they can enjoy the rewards "some day". When the staff realises his ploy, the staff will probably resign and then the boss will simply replace him with "fresh lamb". A more sustainable model would be based on performance all the way to the top)

12) Glaeser and Sacerdote found, for example, that it was tall buildings (rather than simply large ones) that really failed to keep the streets around them safe. Each additional floor in your building increases your risk of being robbed in the street or having your car stolen by two and a half percentage points - if your building has twelve storeys rather than two, your chance of being mugged rises by a quarter.

13) ......... your neighbourhood makes a big difference to your health and happiness, but that it will not drag down your test scores, lead you into crime, or prevent you from finding a job. Your neighbourhood matters, but it is not your destiny.

14) Countries that somehow created an environment in which smart, well-educated people could learn from one another would tend to grow rich. (The same applies to company?)

15) ....... struggling cities attract people with low skills, which means that they are unlikely to create the sort of exuberant innovation seen in more successful cities; and the more that modern economies depend on people with skills, the more serious and insuperable these disadvantages are likely to become. (This explains why property investors are always told to focus on location, location, location. This is because lousy location tends to be trapped in a vicious downward spiral of declining value!)

16) You could explain in a twenty-second TV spot why it's bad for the Prime Minister to be diverting taxpayers' money to his friend Tim, but good luck making the case for free trade in a sound bite. That's a major reason why trade barriers are a popular way to siphon cash to pressure groups: they are deliberately confusing, just as the stock option plans described back in Chapter Four are deliberately confusing. (For me, if any scheme is too confusing, it means that someone is trying to hide something and it is usually no good. For example, the subprime crisis with all the complicated CDS, bla, bla, bla which no one understood except that it created a bloody mess)

17) ..... it's rational to campaign for subsidies if you're in an industry that's expensive to enter and has poor long-term prospects, such as the car or steel industry.

18) A society with more capital investment and more entrepreneurship is also a society that is likely to enjoy higher wages.

In summary, this book provides pleasurable reading especially when you are in the airport waiting for the next flight. I may be ignorant and would like to apologise because I tend to agree with the popular opinion that economist can explain a lot of matters in hindsight but we should not rely on them for predictions about the future. Economics depend too much on a lot of factors such as human behaviour, environment, etc. in order for it to be an established branch of science and we should not expect it to be at the same level as physics, chemistry or engineering. But don't get me wrong, learning from what has happened previously and attempts to understand the underlying causes behind previous economic behaviour is important in order to prevent us from repeating the same mistake. For that, economics does have a role to play as long as we realise its limitations.

I would strongly recommend reading "Fooled by Randomness" by Nassim Nicholas Taleb after reading this book. It would make you think more!

The Lazy Millionaire by Marc Fisher

At first glance, this book doesn't seem to fit the theme of this blog, i.e. business and management books but then again, we can always learn something from anywhere right? In life, there are many ways to define success ranging to how many lives that you have touched and make it better, a life of no regrets and yes of course, how financially successful you are. I am a firm believer that it is alright to make money and lots of money as long as you did it legally, morally and your conscience is clear. Of course moral and conscience can be subjective and I don't think I have reached the level to be fully "enlightened" on this subject. To me, the best way to judge whether you are successful in life or not is the way you are remembered by your family and friends. Anyway, back to the issue of being a lazy millionaire which is the main topic covered in the book. I find the title inaccurate as the more I read the book, I find that there is no way that you can be a millionaire by being lazy. I am not sure whether the title is intended to generate more sales (everyone hopes to be a millionaire with the least of effort) or it actually refers to the stage where you can be lazy after you have successfully manage your finances such that you can actually relax and enjoy life. I think Marc Fisher is referring to the latter and as you will see, it certainly requires a lot of sacrifice and planning in order to reach the stage where we can "afford" to be lazy.

Being a millionaire by your own making (rather than luck/fluke like winning a lottery. But don't get me wrong, you still need a little bit of luck in order to be a millionaire) certainly requires some skills in business and management and as usual, the following are some key insights which I would like to share with all of you aspiring leaders out there:

1) ....... the lazy millionaire tries to use his money (or the bank's money!) to acquire assets instead of creating liabilities! (This set the theme of the book. Can you put off buying that new sport car and use your money to buy assets, e.g. income generating properties, shares, etc.)

2) "If you don't do it right away, you'll never do it!" (We are all guilty of procrastination)

3) "Perfectionism is spelled PARALYSIS!" (This relates to the point above. Sometimes we put off doing something because we wanted to achieve perfection but at the end of the day, ended up not doing it all. To be successful, we must be take action!)

4) If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants. (This is a recurring theme in this blog. A successful leader / manager will strive to surround himself with people who complements our skills and offer something which he/she lacks. Everybody need good teammates)

5) If something can go well, even if there is a chance that it will go wrong, it WILL go well!

6) The Lazy Millionaire is POSITIVE (I guess the Author is trying to make a point that to be a successful person, we have to be positive because pessimism can be paralysing and how can we move forward if we do not dare to take even one step?)

7) Instead of working, loosen your tie, put your feet up on your desk, and ask yourself what you could do to earn more money for your company! (I think the message from the Author is that we must find sometime to think about how to be more profitable. I guess this applies to everything in life. Whether it is about making money or helping others, we must first tune our own mind towards that objective. But if we are too busy just going through life's routines, time will fly and by the time we realised it, it would be too late)

8) On rules for successful afternoon thinking what you could do to earn more money:

FIRST RULE
Don't choose a workday, when you are exhausted, for this task.
You need to be at your best.
You can work when....you are tired!
But when the time comes to think (of profitable ideas) you need to be as fresh as a rose.
In the end, that's how you will be able to smell them!
If you are never as fresh as a rose, it's because you're working too hard....
If you're working too hard, it's because you aren't working effectively....
If you aren't working effectively, you aren't earning enough money....
And if you aren't earning enough money, you won't have any free time....

As a final word, I must say that it is important to differentiate between actual planning and execution (Point 8 above encourages us to think and plan) from daydreaming. A lot of people spent a lot of time thinking of how to get rich (the same for getting fit and healthy, be a better person, etc.) but it never gets implemented. With that, I wish you good luck!

Why Stocks Beat Gold and Bonds by Warren Buffet

In an article published in Fortune Asia Pacific Edition, February 27, 2012, Number 3, the Oracle of Omaha explains why equities almost always beat the alternatives over time and I would like to share many useful insights summarised below:

1) ......... investing is forgoing consumption now in order to have the ability to consume more at a later date. (This definition by Mr. Buffet is very important - some sacrifice now is always necessary for a better future. Investing is about delaying some immediate pleasure so that we can enjoy more in the future).

2) Investment that are denominated in a given currency such as money-market funds, bonds, and other instruments have destroyed the purchasing power of investors in many countries principally due to INFLATION. With the current uncontrolled printing of money in US and Europe, we will likely see further loss of purchasing power in paper money.

3) The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else - who also knows that the assets will be forever unproductive - will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce - it will remain lifeless forever - but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money. (After reading the above, I am not sure what crosses your mind but I sure feel investing in gold is just like a big pyramid scheme. You may make money if you are at the top of the pyramid and get out before the music stops!).

4) Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. At $1,750 per ounce - gold's price as I write this - its value would be about $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all US cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense felling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

5) My own preference - and you knew this was coming - is our third category: investment in productive assets, whether businesses, farms or real estate. (The key word is productive assets).

Happy investing! And by the way, I am ok with gambling (or some people call it speculating) as long as we don't try to fool ourselves by calling it investing.

How the Mighty Fall

I have become a fan of Jim Collins ever since I laid my hands on Good to Great and I have tried implementing some of the concepts in my company. I must admit though that the success of the implementation is not as good as what I would have liked it to be and that is because of my own weakness in following through and persevering. For example, I have tried to implement Stop Doing List in order to streamline some of the redundant work processes but I did not follow through and make it a part of the company's internal system. I find Stop Doing List very useful as companies usually rush to implement new work procedures and very seldom spent time at simplifying or omitting outdated or redundant policies and as a result, as a company grows, it also becomes more bureaucratic and less efficient. I have the impression that somehow we feel more secure if there are more processes irregardless of whether the process actually add values or not. Anyway, back to the review of Jim Collins' relatively new book titled How the Mighty Fall which was released after the 2008 financial crisis. The book is concise and is easy to read. What is appealing is that it teaches us to avoid some of the common pitfalls of failed companies and I always believe that it is important to learn from mistakes and learn from history. The book also enables us to do a "self-check" and assess for our own whether our company is on the way to greatness or heading towards oblivion.

The following are some excerpts from the book which I find useful and I hope you will find it useful too:

1) "All happy families are alike; each unhappy family is unhappy in its own way".

2) There are five stages of decline as defined by Jim Collins:

a) Stage 1 (Hubris born of success) kicks in when people become arrogant, regarding success virtually as entitlement, and they lose sight of the true underlying factors that created success in the first place.
b) Companies in Stage 2 (Undisciplined pursuit of more) stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence, or both.
c) In Stage 3 (Denial of risk and peril), leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data.
d) In Stage 4 (Grasping for salvation), when the enterprise is being thrown into a sharp decline visible to all, the critical question is, How does its leadership respond? By lurching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place?
e) Stage 5: Capitulation to irrelevance or death.

3) Motorola's founding culture which instills a belief that past accomplishment guarantees nothing about future success and an almost obsessive need for self-initiated progress and improvement.

4) ........ concept of hubris is defined as excessive pride that brings down a hero, or alternatively (to paraphrase classics professor J. Rufus Fears), outrageous arrogance that inflicts suffering upon the innocent.

5) ........ innovation can fuel growth, but frenetic innovation - growth that erodes consistent tactical excellence - can just as easily send a company cascading through the stages of decline. (Personally, I think this is an important point. We must ask ourself whether we are losing focus and is pursuing growth without a clear and defined vision. With limited resources, we must use our resources wisely. Sometimes, we also have the tendency to undertake many new ventures without ensuring its successful implementation. A product which is not implemented is wasted energy and resources!)

6) ....... those who resisted the pressures to succumb to unsustainable short-term growth delivered better long-term results by Wall Street's own definition of success.

7) Packard's Law states that no company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company. (Are your organization attracting talent for your company to continue to grow?)

8) Any exceptional enterprise depends first and foremost upon having self-managed and self-motivated people - the #1 ingredient for a culture of discipline. (This should be the goal of all managers or leaders, i.e. the ability to create a team of self-managed and self-motivated people. Imagine the wasted energy if as a manager/leader, you have to spent countless hours managing and supervising your people to perform their tasks to the best of their abilities and most of the time, the results are inferior compared to works performed by self-motivated people)

9) When bureaucratic rules erode an ethic of freedom and responsibility within a framework of core values and demanding standards, you've become infected with the disease of mediocrity.

10) ......... need to build an excecutive team and to craft a culture based on core values that do not depend upon a single heroic leader. (Does the industry or client recognise you or your company? If it is the former, you still have a lot to do in terms of building a great company)

11) ......... while no leader can single-handedly build an enduring great company, the wrong leader vested with power can almost single-handedly bring a company down.

12) When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions:

a) What's the upside, if events turn out well?
b) What's the downside, if events go very badly?
c) Can you live with the downside? Truly?

13) For businesses, our analysis suggests that any deterioration in gross margins, current ratio, or debt-to-equity ratio indicates an impending storm.

14) One common behavior of late Stage 3 (and that often carries well into Stage 4)  is when those in power blame other people or external factors - or otherwise explain away the data - rather than confront the frightening reality that the enterprise may be in serious trouble.

15) Stage 4 begins when an organization reacts to a downturn by lurching for a silver bullet. (Great managers/leaders realise that the recipe for a fast turnaround or silver bullet is "There is NONE. It takes consistent effort over a duration of time in order to turnaround a company to set it up for future growth. Short-term measures only give the company some breathing space in order for it to pursue sustainable long-term growth).

16) The signature of mediocrity is not an unwillingness to change. The signature of mediocrity is chronic inconsistency.

17) "Never forget," Lazier (Professor Bill Lazier of Stanford Graduate School of Business) would say. "You pay your bills with cash. You can be profitable and bankrupt".

18) ......... the right leaders feel a sense of urgency in good times and bad, whether facing threat or opportunity, no matter what.

19) The right people will drive improvement, whether standing on a burning platform or not, and they never take well to manipulation.

20) ....... culture isn't just one aspect of the game - it is the game.

21) Nucor's CEO, DiMicco's philosophies:

a) ....... culture in which management was in service to employees, not the other way around.
b) ....... it is better to hire people with the right work ethic and character and teach them how to make steel than to hire people who know how to make steel but lack the Nucor work ethic and character traits. (I support this statement whole-heartedly. What is important is Attitude!)
c) Instead of focusing on employee rank and status, Nucor emphasized performance (This is important. With this, managers/leaders are sending out a message: If you are good, you will be appreciated. With this, everyone will work towards excellence. To me, good work performance, of course, with good moral/ethics, should be the sole criteria in rewarding employees).

In summary, this is a book which should be in every aspiring managers/leaders' reading list. If you feel that you don't need to read, couldn't be bother or are too busy to learn, you are already in Stage 1 of decline!

YNWA - Carling League Cup 2012 Champion!

WHAT THE DOG SAW and other adventures

Malcolm Gladwell can definitely writes and tells a story. All of his books that I have read so far are very easy to read and what I like most is that it makes me thinks about many so called conventional wisdom. As such, the title of the book is apt as Malcolm Gladwell looks at things from many different perspectives. While I was writing this post, I wondered whether Mr. Gladwell's works can be categorised as business and management books and if I were to teach a subject in business and management, would I include his works as part of my teaching material? I would say yes and it depends on how you look at knowledge. For me, to be a good manager and run a successful business, we need to be innovative and be able to look at things from many different perspectives and if you look at Mr. Gladwell's works, you will realise that there are plenty of references to human psychology and how we tends to see the world as collective human being. Isn't that important in order to be a good manager, i.e. to understand human psychology better? This book is actually a compilation of articles published in The New Yorker and as usual, the range of subjects is astounding ranging from Ketchup, Dog Trainer to more serious issues such as Criminal Profiling and Talent Myth. If we cannot learn anything related to business and management from this book, I am sure the joy of seeing the world from a different perspective will be equally satisfying and show us just how interesting our lives can be.

Similar to my review of Outliers, I would recommend that the whole book to be read in order to do justice to Malcolm Gladwell's literary skills and story-telling abilities. Nevertheless, the following are some of the lessons which I find useful from the book and wish to share with all of you:

1) The pitchman must make you applaud and take out your money. He must be able to execute what in pitchman's parlance is called "the turn" - the perilous, crucial moment where he goes from entertainer to businessman. (Of course, this sounds like common sense now but it is important to remind ourselves that it is important to be able to entertain and at the same time, make business. What is the use of being a good entertainer but is unable to generate sales?)

2) The turn requires the management of expectation. (To me, this is the keyword to everything and not just on sales. If your wife expects you to give her a 10-carat diamond ring for your 25 years wedding anniversary but you give her a 9.5-carat ring, you can imagine the dissapointment. But if your wife expects a 1-carat wedding ring but you gave her a 9.5-carat ring, I am sure you will be treated like a king. The same goes with salaries, bonuses, Client's expectations, etc. It is a delicate balance here as well because if you underpromise too much, you may not last until the day where you overdeliver. Again, like I said earlier, it's not easy to be a good manager and no one should be under the illusion that there is a silver bullet that can solve every problem)

3) 'I know how to ask for the money'. And that's the secret to the whole damn business. (To technical people, this word seems dirty as generally, technical professionals don't ask for the money and in some countries, talking about money alone may seem to be against the professionals code of ethics. It makes me wonder whether this is why that it has become such a norm in Malaysia that some clients have no remorse whatsoever when they don't pay their consultants. To me, it is ok to ask for the money as long as you discharges your duty professionally and you have carried out your work in the best interest of the public and the Client. At the end of the day, it is a fair trade and we should have no shame asking for what is rightfully ours. Anyway, this deviates from the key message of this point, i.e. one must have the ability to be able to convert one's services into business and receive the money for it. A lot of people can give good presentations/sales pitch or even provided the services but did not manage to convince the potential client that his products/services are worth the money. The ultimate aim for any business is that people would feel happy to pay for your products/services and will feel that it is worth it!)

4) From an experiment by Kahneman and Tversky, a group of people were told to imagine that they had $300. They were then given a choice between (a) receiving another $100 or (b) tossing a coin, where if they won they got $200 and if they lost they got nothing. Most of us, it turns out, prefer (a) to (b). But then Kahneman and Tversky did a second experiment. They told people to imagine that they had $500 and then asked them if they would rather (c) give up $100 or (d) toss a coin and pay $200 if they lost everything and nothing at all if they won. Most of us now prefer (d) to (c). What is interesting about those four choices is that, from a probabilistic standpoint, they are identical. Nonetheless, we have strong preferences among them. Why? Because we're more willing to gamble when it comes to losses, but are risk averse when it comes to our gains. That's why we like small daily winnings in the stock market, even if that requires that we risk losing everything in a crash. (Does that sound familiar - have you ever wondered why so many people lose money in the stock market? It is important that we understand our own psychological weakness)

5) ....... to succeed in the world he could not be just a dog whisperer. He needed to be a people whisperer. (This statement is about Cesar Milan, the famous dog whisperer/trainer. At first, he was not very successful despite his skills and his life only changes for the better when he realised he needs to be a good communicator with fellow human beings as well. This is a recurring theme in my previous post, to be successful in life and your career, it is not just your technical skills that are important, you must be a good communicator and not a lone ranger)

6) Power-law problems leave us with an unpleasant choice. We can be true to our principles or we can fix the problem. We cannot do both. (Sometimes, effective solution may seem harsh and lack of compassion but to be soft and undecisive may cause more problems in the longer term. As such, to be an effective manager, one has to be decisive)

7) ........whether we revise our judgment of events after the fact..........(An important question if one is involved in forensic investigation or passing judgement about others. Sometimes, we can easily point finger at others and give statements such as "The failure is obvious. It is amateur mistakes" with the benefit of hindsight. Therefore, it is important that we ask ourselves the question, what would I have done if I were in the same position at that time with the same amount of information)

8) "Creeping determinism" - the sense that grows on us, in retrospect, that what has happened was actually inevitable - and the chief effect of creeping determinism, he points out, is that it turns unexpected events into expected events.

9) ....... consequences of creeping determinism: in our zeal to correct what we believe to be the problems of the past, we end up creating new problems for the future.

10) Stress wipes out short-term memory. People with lots of experience tend not to panic, because when the stress suppresses their short-term memory they still have some residue of experience to draw on. (For example, it is probably good to give pressure to students to study hard but when it is close to the exam day, it is detrimental to their performance if they are under too much stress)

11) Choking is about thinking too much. Panic is about thinking too little. Choking is about loss of instinct. Panic is reversion to instinct. They may look the same, but they are worlds apart.

12) ......... performance ought to improve with experience, and that pressure is an obstacle that the diligent can overcome.

13) The usual prescription for failure - to work harder and take the test more seriously - would only make their problems worse (This is in relations to choking in relations to stereotype threat resulting in the person taking the challenge too seriously. In the book, Malcolm cites examples that black students aren't as good at test-taking as white students, or that white students aren't as good at jumping as black students. Because of such stereotyping, good black students would tends to choke or think too much during a test which results in their poor test scores. This is simlar to good students taking important exams. If they think about the consequences if they don't do as well as they are expected in the exam, the pressure will makes them choke. So, while pressure is good, one must be mindful whether such pressure is suitable on a particular person).

14) We have to learn that sometimes a poor performance reflects not the innate ability of the performer but the complexion of the audience; and that sometimes a poor test score is the sign not of a poor student but of a good one.

15) Risk homeostasis - under certain circumstances, changes that appear to make a system or an organization safer in fact don't. Why? Because human beings have a seemingly fundamental tendency to compensate for lower risks in one area by taking greater risks in another. (For example, car safety features have improved tremendously over the years but does it reduce the fatality rates. It doesn't seem so. When the car safety features improve, we simply drive faster and tailgate closer. So does it reduces the risk of fatalities by improving car safety features. In a company, it can also suffer similar risk homeostasis where the more checklists produced will just encourage employees to pay less attention to their own works. Worth pondering isn't it? For me, we must not get the wrong message here. It doesn't mean that we have to stop improving car safety features because it doesn't seem to help in reducing risks of accidents. What is more important that we are aware of the risks that we are taking when we decide to drive faster. With improvements to the system, at least we have a choice whether we want to reduce the risk or we decide to take the extra risk. The key is awareness!

I am sure some of you can also relate to risk homeostasis in management where the more you check or manage your subordinates, it seems they will become more careless because they know you will check and solve their problems.)

16) ......final lesson of the late bloomer: his or her success is highly contigent on the efforts of others.

17) "What IQ doesn't pick up is effectiveness at commonsense sorts of things, especially working with people," Richard Wagner, a psychologist at Florida Sate University says.

18) It argued that flawed managers fall into three types. One is the High Likability Floater, who rises effortlessly in an organization because he never takes any difficult decisions or makes any enemies. Another is the Homme de Ressentiment, who seethes below the surface and plots against his enemies. The most interesting of the three is the Narcissist, whose energy and self-confidence and charm lead him inexorably up the corporate ladder. Narcissists are terrible managers. They resist accepting suggestions, thinking it will make them appear weak, and they don't believe that others have anything useful to tell them.

19) The broader failing of McKinsey and its acolytes at Enron is their assumption that an organization's intelligence is simply a function of the intelligence of its employees. They believe in stars, because they don't believe in systems.

20) The talent myth assumes that people make organizations smart. More often than not, it's the other way around. (I would modify this statement a bit. An organization will not be smart if it don't have a system despite having talent. I would disagree with Malcolm Gladwell here as talent within a proper system will make the organization better. In the case of Enron, it looks like they just let their so called talented people do whatever they like without a proper system)

21) ....... if everyone had to think outside the box, maybe it was the box that needed fixing.

22) One of the most important things is that you have to come across as being confident in what you are doing and in who you are. How do you do that? Speak clearly and smile.


In summary, this book once again opened up my eyes on seeing things from many different angles. It certainly makes me a better manager if I remembers the lessons learned from this book (I hope). For that, I would recommends Malcolm Gladwell's books to anyone who is open-minded and is willing to look at things from another person's (or dog's) perspective.

By the way, Happy Chinese New Year and let's hope that this Water Dragon year brings us good health and joy.