Past performance is not indicative of...

Quick shot for a Wednesday that feels like a Tuesday in the middle of what I promise you will feel like a really long week instead of a short one come Friday.

Recently Business Insider ran a piece on the retirement and parting thoughts of Gerard Minack, formerly at Morgan Stanley. In Minack's last investment note, the long time investment pro offered his take on why professional investors and advisers usually do better at 'beating the market' than do amateur, or retail investors - also kind of unusual when careful investing in broad market index funds offer the amateurs among us a pretty decent alternative that will generally at least match market returns.Triangles

Here's Minack on why the pros possess an advantage over the amateurs:

The good news for the professionals is that many amateurs persist in trying to beat the market and, in aggregate, they seem to do a significantly worse job than the professionals.

The biggest problem appears to be that – despite all the disclaimers – retail flows assume that past performance is a good guide to future outcomes. Consequently money tends to flow to investments that have done well, rather than investments that will do well. The net result is that the actual returns to investors fall well short not just of benchmark returns, but the returns generated by professional investors.

In the investing context that's was of interest to Minack, amateurs tend to overweight funds and stocks that have been doing well, and underweight, (or even miss entirely), those funds and stocks that are poised to do well in the future. And to him, the mantra of past performance being a good indicator of future performance, (or even the best indicator), was the main reason.

It makes sense in this context. Just because Apple stock kept going up and up and up seemed to indicate it couldn't go down. Until it did. And took a lot of investors with it on the way down, (admittedly many of the same ones who rode it up as well).

But outside of finance and investments, I wonder too, if lots of us fall victim to the 'past performance --> future outcomes' bias too often as well. It's easy to feel that way I suppose. It feels safe. It's hard to argue against usually. When you don't know what will happen next, or know what a person will do next the easiest thing, (and sometimes the only information you have), is too examine what just happened and assume it will continue.

I once wrote something about being a true visionary or innovator means imagining the future as something wildly and incredibly different and not just an incremental shift of the past. But that is really hard to do, as Minack's observations about investing remind us.

I've got some suggestions for your screenplay

Not really, and unless you are up to something on the side, you probably don't even have a screenplay (or a short story or a book for that matter). But what you might have, still, is that problem of folks in the HR and even IT game have been lamenting just about forever - no 'real' business people take you all that seriously.

For whatever reason the people in the organization that get to decide the 'what' of what people do are more important and 'strategic' than the people that (largely) are responsible for finding and hiring those people in the first place (HR), and identifying, procuring, deploying, and maintaining all the technologies that the people rely on every day (IT). That is probably true in most organizations and it's also true that it's unlikely to change unless HR and IT start to think a little differently about the problem.

I was thinking about this over the weekend when I read this piece in the New York Times, Solving the Equation of a Hit Film Script, With Data, about a new method or process where Hollywood film scripts are evaluated, and suggestions for improvement given, based on data-driven analysis. How does the process work? From the NYT piece:

Netflix tells customers what to rent based on algorithms that analyze previous selections, Pandora does the same with music, and studios have started using Facebook “likes” and online trailer views to mold advertising and even films.

Now, the slicing and dicing is seeping into one of the last corners of Hollywood where creativity and old-fashioned instinct still hold sway: the screenplay

A chain-smoking former statistics professor named Vinny Bruzzese — “the reigning mad scientist of Hollywood,” in the words of one studio customer — has started to aggressively pitch a service he calls script evaluation. For as much as $20,000 per script, Mr. Bruzzese and a team of analysts compare the story structure and genre of a draft script with those of released movies, looking for clues to box-office success. His company, Worldwide Motion Picture Group, also digs into an extensive database of focus group results for similar films and surveys 1,500 potential moviegoers. What do you like? What should be changed?

Pretty interesting and still in this age of data trumping everything kind of unusual. Although even as I recently wrote about here, data and algorithms and machine learning approaches encroaching on formerly 'creative' endeavors are starting to pop up more and more.

Applying intelligence, Big Data, and more powerful technologies for improving movie screenplays does more than just fix up the dramatic scene in Act III, it allows a guy like Vinny Bruzzese, who as far as we can tell had no 'real' movie experience, to become an influential participant in the movie-making process.

His data, team of analysts, and statistically-backed conclusions and suggestions, now put him more and more 'at the table' (sorry), where formerly only writers and movie producers used to meet. It doesn't really matter that he didn't go to film school or he didn't spend the 80s directing episodes of Full House, his data-driven solutions make him a Hollywood player.

Influence in business seems to be becoming more about who can gather, assess, and make data actionable, than who has the 'right' degree or experience. And the background of the people who can do that might be a lot different than who normally used to have that kind of influence. 

HR map of the day - time to widen your circle

The map below, initially posted by Reddit user valeriepieris, made the internet rounds last week, so perhaps you've seen it. Or perhaps not, as we seem often in the HR online space (me included), debating about cultural fit and performance reviews and the difference between SaaS and hosted applications, and other such nonsense, when chances are at least more likely information like in the map below will have a more profound and significant impact on our businesses in the next decade.

So here is the map, and then we can discuss what, if anything this should mean to those of us in the Talent game.

So for the US-based Talent pro, this might be kind of surprising, I know it was surprising to me. We know that the world is supposed to be shrinking, but in a way this map doesn't really bear that out. Rather it shows pretty simply that the center of population is on the other side of the world, and packed into a relatively small area. 

So what might this mean, or what might you need to be thinking about with this map in mind?

If you are an older, established company that is having a hard time finding opportunities for growth in your domestic market, then if you are not looking to play inside the circle in some way - then you are effectively cutting out half of the world's population and potential customers.

If you are a newer Talent pro, then chances are sometime in your career you will either need to understand the talent pools inside the circle, or perhaps even have to spend some time working inside the circle yourself. Maybe not today or tomorrow, especially if your shop is in some kind of truly local business. But do you really think you will be working there forever? No time like the present to start preparing for both of those possibilities. 

Last, if you are a parent, or perhaps plan to be a parent one day, this map is just another representation of the fact that the world our children will inherit and have to make their way in will be substantially different than it was even one generation ago. That has probably been true of all generations, but that doesn't give you a pass to ignore what is happening in the world today and to think about how best all of us should be preparing those rock and roll loving young whippersnappers.

So take a look at the map, think about (at least for a few minutes), what it might mean for you. Then, if you must, resume tweeting about how companies need to be more social and how employee engagement is good. 

Somehow, I think all that stuff will mean very little when compared to some of the really big changes happening in the world.

Note: If you need or care about the rough population estimates that back up this conclusion here they are:

World pop: 7+B, so the circle must have more than 3.5B people in.

China pop: 1.33B

India pop: 1.25B

Indonesia pop: 0.25B

Japan pop: 0.13B

Thailand pop: 0.07B

Bangladesh pop: 0.14B

Pakistan pop: 0.19B

Malaysia pop: 0.03B

Philippines pop: 0.095B

South Korea pop: 0.04B

Total from above: 3.524B

Differential advantage via technology? It's hard to find that on a shelf

One of the most widespread and influential technologies of the last 40 years that has not only improved business but actually helped create entirely new businesses is the seemingly mundane shipment tracking number.

That crazy-long string of 15 or 20 letters and numbers that somehow, as if by magic, allows you to determine the location and stage in the shipment process of all the crap essential items you order from Zappos, Amazon, or Warby Parker. If you are old enough to remember what ordering goods from catalogs or mail-order was really like before the days of tracking numbers then I think you'll agree how dramatic an improvement it is, and how it enables businesses to make commitments and consumers to make plans.

FedEx who recently celebrated their 40th anniversary, created the tracking number and invented scores of related technologies and processes that surround the tracking number which remains the core of their shipment process today. It is a fascinating story of innovation that you can read about in this recent piece on Wired.com, Tracking 40 Years of FedEx Technology.

The tracking number, and the associated network, communications, applications, and database technologies that make the number accessible and intelligent to the shipper, retailer, and consumer alike truly represents an amazing story of technological innovation. But it is a kind of innovation that sometimes we lose sight of, particularly those of us who talk about things like 'enterprise' software - systems like ERP or Supply-chain, or even HCM solutions. 

The vast majority of these enterprise systems, and the ones that people (mostly) spent time talking about, are commercial off the shelf solutions. A software company has built these solutions, usually with the insights of customers, partners, and their own internal teams of experts, and then attempts to sell what normally is the same exact system to as many customers as they can.  That's the software business, essentially, and it makes tons of sense for both the customer and the vendor. 

For the vendor, developing, marketing, maintaining, and updating one main version of the solution is simpler, more efficient, and over time, allows them to spend more time and R&D on building new features and capabilities, which potentially benefit all customers. And for the customer, having to not be in the business of creating their own custom solutions for things like Payroll, Accounts Payable, collecting job applications, and asset tracking is a huge boon as well. For only a very few specialized companies, none of these things are fundamental to their core business models.

But having these types of enterprise off the shelf systems in place, configured, and deployed can only do so much for an organization when you factor in the these two elements - that the same solutions are available to everyone in the market, including their competitors, and mostly the processes they support are not core to their differentiating value proposition. Or said differently, a dozen of your competitors probably run the same ATS as you, that looks and feels kind of the same, and candidates hate theirs as much as they hate yours. No advantage gained, (or ceded, admittedly). Yes you can do a 'better' implementation of generally available solutions, and that might make you a little faster to process an applications or more efficient at taking payment discounts than the other guys, but these kinds of advantages are mostly tangential to whatever your 'real' business is about.

So if true technological competitive advantage is hard to come by simply from commercial off the shelf software, then where can it come from?

Let's go back to the FedEx example. Here's some idea of where from the Wired.com piece:

FedEx’s 40-year history is about far more than an unimaginable number of overnight deliveries. It’s a case study in creating a service, then pushing technology forward to ensure that service actually works on a large scale. When it absolutely, positively has to be there overnight, you need powerful technology. And sometimes you have to create it.

In its relentless pursuit of efficiency, FedEx has pioneered and developed technologies later embraced by everything from cellular industry to online retailing and distributed computing.

“On a day to day basis, shipping 10 million packages, you have to have technology,” (FedEx CIO) Carter said. Even if that means creating it yourself.

The advantage comes from technology that surrounds the essence of the business model - the fast, reliable delivery of customer shipments. The technology that enables that mission, that others can't easily duplicate, is where and how technology helps lead to real success. And all of it had to be created from nothing.

The FedEx technology story really is quite amazing and a great reminder that many of the real innovations in technology, and the differential competitive advantage that can be derived from them, usually starts from a blank sheet of paper, and almost never can be found on any vendor's shelf.

The Culture Trap

Short post today - just a call out for you to take a few minutes today or over the weekend to check out a fascinating piece by Ryan on the anthropology blog Savage Minds titled 'When Culture Erases History'.

While on the surface an essay about anthropological field work in the Baja, California region, (interesting in its own right), the piece's essential question, or perhaps more accurately challenge to us is this: Are we too often  confusing 'culture', complex, long-developing, and ever-evolving, with much more practical and visible characteristics of a people or place, (and I'd argue a corporation), like politics, history, land ownership, and economic power?Jasper Johns, Spring, 1986

An excerpt from the article:

This use–or misuse–of the idea of culture is quite common, and I think it’s a clear case that calls for some more anthropological engagement.  Because culture is, after all, one of our bread and butter concepts–even if it has run a bit wild on us (all the more reason to get back into the game, no?).  In the end, I think one role for cultural anthropology–in this specific case and other related instances–is to point out when culture is a viable, meaningful explanatory factor, and, just as importantly, when it’s not.  Granted, sometimes culture can tell us a lot about human differences.  Sometimes culture is the answer.  But when culture is used to make an end run around history (and politics), well, maybe it’s time to take a closer look.

If you're interested at all the the interplay between culture and power and money and the ways that people do or do not get along in an ecosystem, then like I said check out the Savage Minds article for if not the answers to some of these problems, at least for a way to frame the questions and discussions in a useful way.

Sometimes culture is the answer, in anthropology certainly, and once in a great while, in business too,(although I'd submit in the corporate world it's far less a factor than what seems to be currently fashionable to suggest). 

But other times, and maybe most of the time, behaviors and characteristics we think might have some kind of deep-seated or inherent cultural influence turn out to be much more practical and even mundane.

If we don't get along, it could be because of some deep-seated, thousands of years to develop and almost inherent cultural difference between your people and my people. It could be that. Or it could be that you will not stop posting pictures of everything you eat on Instagram.  That probably is the reason, actually.

Hmm. Maybe too heavy for a Friday, especially after this week.

Have a great weekend!