Monthly Archives: November 2008

Free Swimming Assessment – Rasch Measurement Demonstration

The Scientific Leader is pleased to give away our free Swimming Assessment Measure (SwAM), based on Rasch Measurement.  By giving it away, our goal is to introduce the simplicity of the Rasch approach in a way that is helpful to teaching children how to swim.   After developing it based on professional swimming instructors’ own checklists, I found it invaluable for focusing my son’s swimming lessons on the areas he needed to work on.  Rasch allowed him to avoid focusing on tasks he had already mastered, and those that were too hard.  I was pleased to watch him progress up the chart as he mastered more and more swimming skills.

We would be pleased to work with any other swimming professionals to continue to improve and expand this instrument.  We also ask that anyone who uses it, shares their data with us as you collect it, and email to sales@scientificleader.com

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Silver Lining to Financial Crisis?

Excellent leaders persevere in the face of adversity such as the current financial crisis.  We need to help our people through difficult times, with personal resiliency and authentic optimism about the future.  We have to be candid about the dire situation of the financial markets and the significant pain and suffering that awaits employees in countries affected by the downturn. In the US, the likely long-term recession or horrific possibility of a sequel to the great depression is a possibility we must acknowledge.

But today, November 27 2008, is the day people in the US celebrate those things we appreciate.  On Thanksgiving, can we also have a vision of the big picture beyond the painful side of the crisis?  Can we credibly claim an upside?  The Scientific Leader thinks so.  I’ll outline some of the potential good that may come to business as a result of this difficult time, and welcome your own ideas:

  • Demise of Snake Oil
Could it be that a massive financial belt tightening across industries and boarders will cause leaders to consider the evidence before they buy?  I suspect that managers and employees will be more prudent than ever before, when cash is extremely limited.  As Bob Sutton notes that 90% of Consultant’s advice is crap; those of us in the 10% minority who use evidence may see an uptick in our business.

  • Respect for Uncertainty

Too few leaders historically cared about risk and uncertainty as major aspects to business management.  But the recent high-profile collapses may have changed this forever.  Lazy managers and leaders of the past would rely more on intuition and judgment instead of the more complicated and tedious methods that use probability.  But as Richard Feynman once noted, “Mother Nature Can’t Be Fooled”.  The scientific method requires uncertainty to approximate the truth.  Leaders who seek to manage risks and returns would do well to study the leadership methods to measure and value risk and uncertainty.  These include Monte Carlo and Real Options methods as part of a portfolio in managing Enterprise Risk. 

  • Substance trumps slick

Will companies managing through this downturn tolerate glitz without substance?  Will the trash and trinkets given away at large-company meetings lessen?  I don’t know for sure, but I suspect there will be less tolerance for this in the near term at least.  The free t-shirt for the “flavor of the month” initiative may be as endangered as the constant initiative churn that burns capital without creating value.  Demonstrable value may come into vogue again.  The Scientific Leader’s “Cue See” model attempts to be a practical way of discerning and improving the value creation process.

  • Global Cultural Savvy

With the US Dollar likely to follow the way of Zimbabwe, firms heavily dependent on the dollar will have to hedge their risk.  Even small to medium sized firms may be wise to consider holding retirement and other assets in foreign equities, currencies, bonds, and hard assets like gold.  To do this, Americans will have to learn more about other countries rules.  In many cases, people will find that places such as Singapore and Hong Kong have even more freedom than the so called “land of the free”.  Americans may have more sensitivity to different ways of working and doing things, rather than a mindless, “US is Best” mantra of the past.  Businesses like Peter Schiff’s Euro Pacific Capital are staged to take their business and help them diversify.

What upsides do you see from such a crisis for business?

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Marriott Brand Equity Overcomes Hiccups

I’ve been fond of Marriott Hotels for many years.  Marriott properties are consistently clean, affordable, and the restaurants are good.  I especially liked the J.D. Marriott in Hong Kong – their Dim Sum breakfast was amazingly good.  Because I’ve had such a good experience, I strongly prefer Marriott to other brands.

Recently, my family took a vacation to the Marriott Timber Lodge.  They offered us a special deal, as “Marriott Rewards” members with tens of thousands of “points” from prior visits, and we got a great bargain.  But after we reserved our room, my wife noticed some bad reviews on tripadvisor.com about this particular property.  They claimed that lackadaisical European students took jobs there to ski, but didn’t give good service and that the rooms weren’t clean.  Worried, but skeptical, we called customer service.  The representative politely reassured us that we had numerous sources of recourse if we were less than satisfied, so we went ahead and checked out the hotel ourselves.

While it wasn’t a flawless stay, the hotel was absolutely beautiful, clean and organized for lots of complimentary fun.  The location is excellent – nearby many nice Lake Tahoe activities and restaurants – right on the Nevada-California boarder.   Our reservation included a sofa bed for our two boys, and when we noticed our room didn’t have one, we were pleased to get a much better and bigger room with a better view.  Kevin, the housekeeping supervisor, gave one of our already discounted nights for free to compensate for our trouble.  The rest of the stay was just great.  We had a wonderful time.

Marriott’s excellent brand is a good example of what Industrial Engineers and Lean Six Sigma practitioners would consider variance reducing mechanism.  These are the sorts of advanced topics The Scientific Leader enjoys teaching to advanced practitioners, called “Black Belts” and “Master Black Belts.  Brand equity is created because companies like Marriott consistently deliver the value they promise.  Consistently good performance causes people to associate all services of Marriott as valuable and consistently good.  Consistent performance is possible because firms like Marriott systematically manage their processes, both inputs such as high quality employees, training and high quality furnishings; and they combine these together so consistently well that it makes customers happy.

Customers return the favor by being willing to give more business, telling their friends and paying premiums beyond those without such a good reputation.  In my case, the brand also overcame some small negative feedback on a Web 2.0 social network.  Because I already had such a good impression of Marriott, I discounted heavily the negative feedback on tripadvisor.com; and now that I’ve experienced Marriott’s Timber Lodge myself, I can completely ignore the negative feedback as we had a great time.

Could Marriott have improved their process and not had the hiccups I experienced, or those of the customers who wrote on tripadvisor.com?  Sure, they can and should.  Lean Six Sigma methods can help.  But Brand involves the complete set of memories I’ve had of all the value I’ve gotten from them.  One “delighter” was that every time I called the front desk, they answered, “How may I serve the Barney family today”?  That’s not happened to me before.  Little touches like this are pleasant surprises, and because my total experience was great, I’m still very loyal and will continue to differentially frequent Marriott whenever I can.  What brands make you loyal?  Have you noticed that superior brands lower the cost of sales and reduce sales variability?  Are you making investments in your company or personal brand? Do you consider your Brand management as part of your Enterprise Risk Management process – to mitigate customer and marketplace risks?

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American and European Human Capital Options

A derivative is a financial instrument that gets it’s value from something else.  One special type is an “option” that gives the owner a right, but not the obligation, to buy or sell an asset.  Human resource, or personnel, employment is a special case of Real Options applied to people. In our case, though, we own ourselves and our labor, but for the right price we’re willing to lease it out to employers and clients for a period of time. 

In the case of employment, hiring an employee amounts to buying (call option) the right to utilize labor for 8 hours a day.  In some cases, the terms of an employment contract are extremely limited, such as contracts for professional athletes and union members.  These amount to a European option, such as the case where the owner of a baseball team has the right to release an athlete, on but not before a certain date.  The more flexible type of employment arrangement is the American option variety.  With an American option, the owner can exercise their right (e.g. liquidate the asset, or fire the employee) without respect to a specific date.  In option terms, letting a person go, or not hiring a consultant for another project is called a “put option”.

But with human assets, there are numerous other options employers can choose to take – including redeploying people to work on new projects, in new departments and in different jobs.  The more flexible a person in having skills and motivation to work in areas that are profitable to the firm, the more valuable the person. 

When mixed with psychometrics such as The Scientific Leader’s Computer-Adaptive Measurement(TM) approach, human capital can be valued the same way as other uncertain financial assets – using Managerial Real Options.  Have you valued your human capital the same way as professional financiers?  Do you know where your human capital is best deployed in the portfolio of job tasks and projects in your firm?  How flexible and adaptable is your workforce – to be able to redeploy them to new work as customers, markets, and economic crises unfold?  Have you considered the option of investing in growing the skills of your employees to increase their value and reduce your risk, through training and development?

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$7.7 Trillion Increases Probability of Inflation: Skills Required for Enterprise Risk Management

In a move suggesting the U.S. Government is role modeling Zimbabwe, Bloomberg reports Fed Chairman Bernanke and Treasury Secretary Paulson are prepared to provide more than $7.76 trillion US Dollars – amounting to half the value of everything produced in the nation last year – to try to rescue the US financial system.  This includes the recent guaranteeing of $306B of Citigroup debt this week and $3.18 trillion already tapped by financial institutions.  The commitment eclipses the earlier $700 billion “Troubled Asset Relief Program”.  This inflation of the money supply – printing dollars out of thin air, and in large volumes – will likely devalue the currency and suggests future runaway inflation.

Human Capital & Risk Management
What skills are required by businesses and individuals to mitigate these risks?  While no one can know the future with certainty, The Scientific Leader speculates that for organizations, as part of Financial Risk Management, the management of money in different currencies becomes a crucial skill.  Financial Risk Management is a subset of the larger Enterprise Risk Management.  For larger firms, Financial Risk Management happens in the Treasury department.    As firms liquidate their dollars and switch to other currencies, and hard assets like gold, they will be more reliant on financial professionals with treasury expertise.  Similarly, the treasury department will likely be every more focused on hedging currency risk with financial futures and derivatives.  All of this sort of work could increase the demand for financiers with treasury expertise, and in the short run increase their salaries significantly if the demand outstrips the supply.  Firms that do not yet select financial professions with objective measures of prudence and conscientousness may also increase their use of pre-hire selection processes, such as our computer-adaptive Work Personality Inventory(TM).

What will be the consequence of this sort of runaway inflation on employees?  The lowest paid employees are likely to suffer the most.  An inflated dollar will purchase fewer goods and services, and the least skilled employees will likely suffer the most.  Employers that are still in business can attract and retain these sorts of employees by providing different sorts of benefits that help them survive the crisis, such as firm-subsidized food and housing. 

How severe do you expect the current recession to get?  What human capital risk mitigation practices are you employing now personally to weather a potential sequel to the great depression?  Confession – I’m moving my assets to Peter Schiff’s Euro Pacific Capital.  What are you doing?

Homeschooled Prodigy Wins Intel Award for Carbon Nanotubes

Discover magazine calls Philip Striech, 17, a “Teen Genius” for demonstrating that a key nanotechnology assumption is likely false.  His research with Dr. James Hamilton of the University of Wisconsin-Platteville, suggests that carbon nanotubes are thermodynamically soluble.  Not only did he Win Intel’s 2007 Young Scientist award, but his research has been published in Advanced Materials journal and discussed in the “Editor’s Choice” section of the journal Science.  At such a young age, he has also co-founded a company, Graphene Solutions to sell the instruments and solvents he’s discovered and is in the process of patenting.  His business plan for Graphene wan him an additional $50,000 victory at a Wisconsin business-lan competition.

I found it fascinating that, along with the various homeschooled national Spelling Bee champions, Streich says, “I really credit my parent’s support for allowing me to try homeschooling.  If I had been in the regular school system, I doubt any of this would have developed”. 

It begs the question – in the US government schoolsystem, one size fits all, and doesn’t allow children with deep aptitude to progress at a faster pace.   I’ve used both government and homeschool options, including K12.com, and clearly the self-paced computer and have found the self-paced portions better for my 5 year old.  What can we do to grow more like Streich?  Does it mean a free market approach and less government control? 

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Cultural Insensitivity as a Human Capital Liability

US Citizen Gary Khera

US Citizen Gary Khera

A North Carolina US Citizen, Gary Khera, was asked to “take your turban off.  This is the United States”, when he tried to make a donation to a local charity, reports local news source WRAL.  In prior years, he mailed in his donation, but this year he wanted to see where his money was going to help the less fortunate.  In a surprising display of insensitivity, the Christian charity refused to allow him to donate his money unless he remove his turban – which is not allowed in his religion.  A video interview with both the mission’s Director, a Reverent and Mr. Khera appears here.

It’s a good example that a closed mind and rigid set of rules can hurt your organization’s ability to serve different types of honest, hard working customers – or in this case, charitable donors.  Hiring and training employees to adjust these policies, and exercise good judgment represents an example of a Human Capital “real option” to invest a bit in selecting culturally sensitive people; and growing them internally with profits to follow.  Ethics aside, the business question is the probability of unique cultures walking through my door is uncertain, and in many cases might be a rare event.  What would it be worth for me to invest a little in selection and training now, for uncertain payoff later.  This is precisely the value of the Real Options method, taught by The Scientific Leader and others.  It is an approach that quantifies the value of choice, given situations of uncertainty.  In smaller locales, like the one Mr. Khera frequents, there may be little value in this sort of investment.  But in cities with massive amounts of diversity, it might be absolutely essential to ensure that a wide variety of customers and donors are happy to do business with your firm.  What losses is your firm likely to experience because you’re exposed to this sort of human capital risk?

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