Principle of Universal Options

Whatever the challenge, field or situation, there are options to invest in to hedge risk and unceirtainty.



This is a rather bold assertion, but I believe it to be very true. Some examples:

Stock market: Options and other derivatives.
Commodity and currency markets: Hedging or futures.
Business and personal economy: Insurance, portfolio management,
Personal health: Excercise, healthy food, vacations
Personal Career: Education, training, parallell ventures
Project Management: Real Options, Risk and change management
Engineering: Modularity, flexibility
Medicine and psychology: Alternative treatment forms

My note to self? Whatever the challenge, there will be heging possibilities that for a limited cost will reduce the risk we are facing.

Evolutionary Prediction - The Wisdom of the Crowds

From my point of view, the biggest single paradigm shift in human history can be marked by the introduction of theoy of evolution and the theory of natural selection. The theory not only gives us meaning in understanding the past, it is the basis for the most powerful ways we have to predicting the future.



First and foremost, it opened up a totally new perspective on the whole concept of humans and where we come from. Old school religious theories were thrown out (even though some hardcore bible-enthusiasts still cling to sci-fi concept of intelligent design).

Secondly, and maybe just as important it gave us a general reference model that can be used outside the domain of biology. Topics like desease spread, stockmarket behaviour, agriculture, development of societies, climate change to the control of robots are today modeled and inspired by evoutionary principles. Th set of theories analytical models are now so detailed that they are or close to be proven.

Due to this last reason, an evolutionary prediction model given these theories would be rather neat. We could predict - given a set of factors - how humans, may evolve, how a desease will spread or maybe how societies may evolve and in that way use the models to set in countermeasures that can reduce the impact of an unwanted trend. There will never be a psychohistory like Isaac Asimov describes in his foundation series. Still, I believe the predictive gains would outweigh the misses.

As can be expected, this evolutionary prediction idea is not new. Darvin himself set out several predictions and many were proven. Some examples can be found here. There are also several evolutionary and genetic algorithims that are used extensively in many scientific fields - like the ones mentioned above.

What is most exciting though in relation to evolution , is the insights so well described in The Wisdom of Crowds (Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations).



Its central thesis is that a diverse collection of independently-deciding individuals is likely to make certain types of decisions and predictions better than individuals or even experts. To exemplify, lets mention a few cases from book:

1. The best predictor of the next president in the US is a betting market on the next president.
   
2. The best predictor of the number of jelly beans in a jar is a average vote between a diverse group of people.

In many ways this is exactly how evolution descibes it. The best solution is the most likely to survive given a diverse and selfish set to select from. The volume of the crowds is the selector.

This evolutionary crowdsourced prediction method has just started to be implemented. One of the best examples is how google has set up internal crowdsourcing to perform strategic prediction. Nice results! I bet Google will survive for quite some time in the evolutionary game of corporations. ;D

Broken Windows

Have you ever left a cup on the kitchen table and an hour later the whole kitchen is a mess?



If you have you have experienced the broken window theory:

The observation that a few broken windows in an empty building quickly lead to more smashed panes, more vandalism and eventually to break-ins. The tendency for people to behave in a particular way can be strengthened or weakened depending on what they observe others to be doing.

The thory developed by Dr. Keller in the beginning of the eighties has been a role model for crime reduction in several US cities and studies show that it has some sense to it. According to the theory, the prevention of the effect is to stop all kinds of small crimes - like grafitti, shoplifting etc - and violent and serious crime will drop as well. Since the theory was implemented in practice in many US cites (most famous is New York), you can see that violent crime rates dropping in many US cities.



Yes there are critics to the theory, but it still makes sense. Personally, I see that the insight is relevant in so many other areas that affect us - from the private to our business lifes. Hence, a great idea.

Clean you desk, wash your car, put the cups in the washing machine, allow no sloppy work in your team. Who knows what may happen if you don't.

Hype Cycles

The technology maturity hype cycles of 2009 from Gartner were just released. Since working as a consultant during the boom years around Y2K the hype cycle model has fascinated.

It is such a simple way to chart a very complex phenomena and convey a smart insight at the same time.

Highlights this year is that cloud computing and e-book readers are at inflated exceptions and are about to crash. Another assertion is that microblogging services like Twitter/Facebook are about to crashing this instant due to spam and noise. Wikis on the other hand are on the return.

Gartner might be right about their predictions and they are probably wrong on several as well, but that is not the only point. Thanks to this model, discussions start and new ideas pop up. Sit down and design your own hype cycle it in your business area, and its almost magical how the pieces fall into place and insights start to flow.

Access to more info at: http://www.gartner.com/it/page.jsp?id=1124212

90-9-1 Community!

As described here before [1], power laws are very potent at describing many type of phenomena. Latest principle is the 90-9-1 principle of online communities [2].

The concept is simple. In an online community, 1 percent are creators of content, 9 percent are editors of content and the remaining 90 percent are just the curious audience watching. The phenomenal thing is that this rule seems to be proportional, so that getting more creators to a site, increases the editors and the audience.


My bet is that many users act in different roles depending on the site they use, but that there is a small minority of heroes out there that generates most of the community content - and hence drives the traffic.


[1] The Vital Few or the Trivial Many?
[2] 90-9-1 Principle

The Seven Principles of Influence

The book Influence [1] gives a unique guide to how people are influenced by 7 different principles. Here we list them:

1. Perceptual Contrast - when one item is presented after a more expensive one, the first item presented will be considered cheap.

2. Recipocation - when a person is given something he will try to repay, in kind, what he was given. The strategy is to give a person some small favor (a rose, a candy) and get big benefits in return (your purchase)

3. Commitment and Consistency - once a person has commited to something he will continue being consistent to this commitment. Hence, by getting an initial commitment from one you wish to influence, the target will likely by consistent further on with his initial commitment.

4. Social Proof - people will tend to base their beliefs or act upon what other similar people in the same situation would believe in or act after. The social proof principle is the strongest when similar people are the basis for the proof or if the person to decide is unceirtain in the situation.

5. Liking - people tend to say yes to other people they like. Liking can be increased by such things as the others physical attractiveness, similarity, though compliments or through continued contact with the other person.

6. Authority - people with some sort of authority (knowledge, titles, clothes etc) will tend to have influence over others.

7. Scarcity - an item or other sort of quantity that is percieved as scarce will be considered attractive. People assign more varue to an opprotunity when it is considered less available.





[1] Influence: Science and Practice

The Project Magic Triangle 2.0

Standard project theory has this view of the project that it is a triangle. The triangle corners are Time, Cost and Quality and the PM's job is to find the perfect balance between these forces and in that way create results. I believe this model is a model of the past and needs to be ratified - but just slightly. The reason is that these days a project's purpose is first and foremost to create business value and customer value, and needs to be directed by quantified effects related to these.

The Business Model and The Project
I have never found one definition that captures the whole concept of a Business Model, and as is stated under the term on wikipedia[1], there really is no common definition. What I have found is that a true business model must cover three areas:

1. It must cover how value is created for the owner / prime stakeholder


2. It must cover how value is created for the customer


3. It must cover the resources (time, competence, cost, material) needed to create value

For projects - we have Cost and Time which is relatively easy to quantify and Quality is often the magical factor (some define it as defect density, others though customer satisfaction surveys, still others though). In the figure below the two triangles are shown. See the conflict?




The Magic Triangle 2.o:
So let's combine these triangles to make it more logical.

Quality becomes the the Customer Value. Measures must be centered on the customer and will typically be measured though values such as customer satisfaction indexes (CSI's), usability measures and service quality measures. The project charter should have clear and measurable goals for these. These are the first part of the project's effect goals.

Time is really just a function of Shareholder Value. If you come to market mith a solution faster, you will (in most cases) have an advantage. Cashflow will come faster. The shareholder value is most often formulated as a business case (BC) with NPV/IRR values. Measures are typically bound to the BC such as sales volume, market share, cost effectiveness, revenue per customer. These are the second part of the project's effect goals.

Cost is the only part that stays the same compared with the old triangle. You might want to extend it to Resources because that incorporates a great deal more such as competence and location but in reality everything can be bought.

So the main problem with the old model is pedagogical. When you show the CTQ triangle many projects I have seen, they suddenly live in a box. Nothing than the balance between these three factors (as they have traditionally been defined) matter and you end up with a project that succeeds on these. But the effects of the project are an utter failure outside the box. For sales and customer satisfaction the project did not deliver.

To many this may seem elementary. "This is how we do it anyhow!". I agree, many projects have this focus or partly this focus. Many organizations demand BCs for their investments - but many then forget than customer value is just as important. In the "Agile Software Development" movement there has been a considerable and good focus on the cutomer - though the business value has been a little less discussed. You need to balance these forces.

So think RSC (Resources, Shareholder Values, Customer Values) instead.


[1] http://en.wikipedia.org/wiki/Business_model