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Views from the Prairie

May 12

The Illusion of Stability

As human beings, we want things to be stable. We want steady progress on projects, steady delivery of services, and strong, steady corporate ownership. We want the world to be predictable. Courses such as "How to Predictably Grow Revenue" are constantly being promoted. Athletes are measured on how predicable their performance is. A news headline is, "Season awards: In strange season, no player more consistent than LeBron". Yet, our search for stability carries within itself the seeds of its own destruction.

The world is not stable and predictable.

When we operate as if the world is stable, we eventually lose. Because the world is unpredictable and chaotic, we can only force the illusion of stability for only a short time. The longer we force that illusion, the larger the gap between our operations and reality and the harder our efforts will fail.

Because customers want us to be predictable in and unpredictable world, corporations that have provided that predictability have done well - for a while. For a long time, IBM did quite well providing the best typewriters and punched card sorting machines and produced one personal computer keyboard that was clearly the best available and some people still treasure their copy.

When we think that we have tamed the world and made it predictable, all we do is to make things worse in the long run.

It is human nature that some one will push the limits. When we perceive the world to be stable, some people will take on more and more risk and make more profit for a while. We take the wrong risks. For example, when supply chains are not stable, companies built up warehouses of supplies so that they could operate even when shipments couldn't get through. With "just in time" delivery of supplies, huge amounts of capital can be freed up, but the company takes on the risk of needing to shut down when supplies can't be delivered.

Similarly, in high finance, when the housing supply was seen to be stable, more and more creative ways to bet on house mortgages were developed which drove the housing market into an unstable situation. The recent losses at JP Morgan Chase are another example.

Likewise, the electric grid is perceived to be very stable. Because of that stability, we are making it more interconnected every year. It is becoming one of the most complicated and highly interconnected machines we have ever built. That makes it far more likely to fail and failures are increasing every year. A huge solar flair could potentially destroy hundreds of transformers in a matter of minutes destroying parts of the grid for months.

In unpredictable times, it is important to look for demographic changes and technological advances that haven't had full impact yet. That means that a corporation needs to consider radical changes to the full product line and think how that might happen. If we don't, some new competitor will.

Who to hire in crazy times?

Corporations are known for hiring people that fit in. Over time, a stable corporation hires more and more people who like and support the stability that it offers. The net result is that the corporation is full of people who know about and can handle predictable situations, but are incapable of handling chaotic situations.

So, who to hire when a corporation is facing a chaotic situation?

In a chaos, the only way to stabilize the situation is to use unstable responses. Chaos responds in ways other than what is expected. Thus, management is in a constant "act - reevaluate - new action" mode.

When things are crazy, you want to hire people who can handle crazy situations. There are two types of people who can: those used to breaking the rules and those who lived with others breaking the rules. There are such people out there, but few corporations want to hire them. Few corporations want people who do not follow the corporate rules.

One group of people who are used to dealing with crazy situations is those who have successfully handled natural disasters. Disaster planning used to be very structured. However, people have found that such structure fails when the disaster doesn't follow the plan. Instead, current thinking is to have the planning focused on making sure that communications happens between all the parties and allow the disaster response to be highly adaptive. The more adaptive and creative in how to make things work, the better the disaster management seems to be.

When in chaotic situations, other companies will be laying off their top talent in a frantic attempt to survive. Watch for these top talent and scoop them up when you can.

Risky World

One of the most challenging parts of statistics is getting a truly random sample. Recently, researchers at the Australian National University used vacuum as the fastest way to get randomness. Vacuum has sub-atomic particle spontaneously appearing and generating noise. Instead of trying to get rid of the noise, they use that noise as the source of the random numbers.


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