Required Readings Summaries

* Teams and good performance are inseparable
* Teamwork represent a set of values that encourage listening and responding constructively to views expressed by others
* Group work is NOT same as team
* Working-group focuses on individual goals
* strong, clearly focused leader
* group’s purpose = organizational mission

* individual work product
* efficient meetings
* measured by influence on others (ex. financial performance)
* discusses, decides, delegates
* Teams require both individual and mutual accountability
* Shared leadership roles
* Specific team purpose that differs from mission
* Collective work products
* Open-ended discussion and active problem-solving meetings
* Performance assessed by work products
* Discusses, decides and does real work together

A team is a small number of people with complementary skills who are committed to a common purpose, set of performance goals and approach for which they had themselves mutually accountable.

Teams:
* Common commitment
* Develop direction and momentum towards a common purpose * Invest a lot of time exploring, shaping and agreeing on a purpose * Translate a common purpose into specific performance goals * Different from organizational mission

Building Team Performance:
1. Establish urgency, demanding performance standards and direction 2. Select members for skills and skill potential, not personality 3. Initial
impressions are important
4. Set clear rules of behavior, such as contribution
5. Set a few immediate performance-oriented tasks and goals 6. Regular fresh facts and info
7. Exploit power of positive feedback, recognition
Skills required in a team:
* Technical/Functional expertise
* Problem-solving / Decision-making
* Interpersonal skills

Classification of Teams:
1. Teams that Recommend Things
a. Project group, safety groups; predetermined completion dates 2. Teams that make or do things
b. Manufacturing, operations, development; ongoing activities 3. Teams that run things
Teams will become the primary unit of performance in a high-performance organization most practical and powerful vehicle at top management’s disposal

Nov. 16 #1: Level 5 Leadership
Level 5 Leadership:
* Someone who blends extreme personal humility (modesty, determination, takes on blame, thinks for the future) with intense professional will (high standards, intense achiever, credits others) * Transforms a company from “good” to “great”

* Darwin Smith: a shy, awkward yet fierce and stoic level 5 leader (transformed Kimberly-Clark) * Humility + Will = Level 5
Other Factors:
1) First Who
a. People first, strategy second
b. Getting the right people to do the right jobs
2) Stockdale Paradox
c. Contradictory belief that they face the most brutal reality that
believe that they will prevail eventually 3) Buildup-Breakthrough Flywheel
d. Transformation from good to great builds with momentum overtime

4) The Hedgehog Concept
e. Simple and focused
f. Understand:
i. What company can be best at
ii. How its economics works best
iii. How to ignite passion among people
5) Technology Accelerators
6) A Culture of Discipline

g. Disciplined people – no need for hierchy
h. Disciplined thoughts – no need for bureaucracy
i. Disciplined actions – no need for excessive control
Level 1 – Capable Individual
Level 2 – Contributing Team Member
Level 3- Competent Manager
Level 4 – Effective Leader
Born or Bred? – Two categories of people: those who just who don’t have it in them (at most a level 4 leader) and those who evolve into a level 5 leader (sometimes under certain life-changing circumstances)

Nov. 16 #2: What Leaders Really Do

Management| Leadership|
Coping with complexity (large corporations)| Coping with change (technological change, international competition)| 1. Planning and budgeting| 1. Setting a direction|
2. Organizing and staffing| 2. Aligning people|
3. Controlling and problem solving| 3. Motivating and inspiring|

1) Setting a direction vs. planning and budgeting
a. Setting a direction is more inductive (through patterns, data) i. Important for short/long-term goal setting
b. Planning works best as a complement for direction setting

2) Aligning vs. Staffing
c. Aligning: getting people to understand a vision, which leads to empowerment ii. Clear target, same direction
d. Management is more about “organizing” people; structure, training, incentives

3) Motivating vs. Controlling
e. Motivation: energizes people satisfies basic human needs iii. Sense of achievement, recognition, involvement iv. Coaching, feedback
v. Reward
Informal Relations are important help coordinate leadership activities. Well-led businesses tend to recognize and reward people who successfully develop leaders.

Nov. 9 – Integrative Thinking: Choices, conflict and the creative spark Feature story: Michael Lee-chin’s crisis of whether or not to sell AIC’s stocks (as he supported them for many years) when they were falling dramatically. He then decided to purchase many of one stock, Mackenzie Financial Group, one of AIC’s major holdings this saved AIC as it became Canada’s largest private mutual fund company.

Leaders have the predisposition and capacity to hold two diametrically opposed ideas in their heads. * Our minds are “opposable”
* It can hold 2 conflicting ideas in constructive tension, and use the tension to come up with a more superior idea * “First-rate intelligence” – F. Scott Fitzgerald * “Multiple-working hypotheses” – Thomas Chamberlin Integrative Thinking shows a way past the limits of “either/or”. It allows us to integrate one advantage without sacrificing the other

Ex. Four Seasons a hotel with the intimacy of the original motor inn yet the amenities of a large conventional hotel

Nov. 2 #1 – Becoming an Integrative Thinker
The 4 Steps of Decision-making:
1) Salience
a. What do we choose to pay attention to? What features are relevant to our system? 2) Causality
b. How do we make sense of what we see? What sorts of relations do we believe exist between the various pieces of the puzzle? 3) Architecture
c. Model is being constructed
4) Resolution
d. What is our decision?
Everyone builds their understanding of the world in similar manners through mental models, thus creating “clashing realities”.
2 ways to avoid clashing models:
1) Avoid – attempt to crush other models, believing that they do not exist; avoid conflict 2) Seek out and leverage model crash – enjoys tension; leads to insights of great insight and resolutions 3 elements of forming personal knowledge system:

1) Stance
a. Recognize that existing models does NOT equal reality (just an image) b. Seek out model clash and leverage opposing models
c. Believe better models always exist
d. Believe they can find a better model
e. Willing to wade into complexity
f. Give themselves the time to create; aren’t rushed to find ‘answer’ 2) Tools/models
g. Generative Reasoning rather than solely Declarative Reasoning i. DR = True/false? Deductive logic (“what must be”) and inductive logic (“what is operative”) ii. GR = Abductive logic (“what might be”) new solutions h. Causal Modeling rather than Conventional Wisdom

iii. CM = “based on what I’ve seen, this is how x relates to y” iv. CW = “under what conditions does x cause y? What is the driving force fuelling this causal relationship?” more sophisticated and creates solutions i. Assertive Inquiry rather than Reliance on Advocacy

v. Advocacy: “I know best, I must get other to comply” vi. AI = “I have a view worth hearing, but I may be missing something…consider alternatives” 3) Experiences
j. Deepen mastery and mature originality

Nov. 2 #2– Munger, Lesson on Elementary Worldly Wisdom
1) All too little worldly wisdom is delivered by modern education.

1) Without models from multiple disciplines, you’ll fail in business and in life. a. Need models in head MULTIPLE models from MULTIPLE disciplines b. Permutations and combinations (elementary math)

c. Accounting (and its limitations)

2) Always tell people WHY they’ll be more likely to comply

3) Engineering models are the most reliable

4) Organisms, people and companies who specialize can get terribly good in their little niche d. Economy is like an ecosystem
e. Specialization is key
f. Advantages of scale

5) Other economies: geometric, advertising, information, psychological

Oct. 19: Charlotte Beers “Hello Video”
* May 1992: Charlotte Beers was appointed CEO of advertising agency Ogilvy and Mather. * O&M suffered through difficult times in late 1980s * They did not believe Beers had the potential initially to pull the company back up * The “Hello” video was sent to all 7000 of Ogilvy’s employees

Nov. 9 – Plous: The psychology of Judgment and Decision Making Chapter 10: The Representativeness Heuristic
Focus: the processes by which decision makers reach their conclusions and the biases that can result from this process “Heuristics”:
* General rule of thumb
* Reduces time and effort needed to make good judgments/decisions * Disadvantages: may lead to systematic biases
People often judge probabilities -“by the degree which A is representative of B; the degree to which A resembles B” ex. As the amount of detail increases, its probability should decrease but its representativeness (and hence likelihood) increases – don’t be misled! The Law of Small Numbers – Tversky and Kahneman: A belief that random samples of a population will resemble each other and the population more closely than statistical sampling theory would predict

Ex. every part of the sequence does NOT have to appear at random The Hot Hand – Gilovich, Vallone, Tversky: people perceive that the chances of an event increases as past identical events are successful past events have no effect on future outcomes

Ex. basketball shooter: the more they score, the more likely they’ll keep scoring however this is untrue sine the chances of the next basket is not different from the player’s overall probability of making a basket Neglecting Base Rates – when given background information, people tend to use it more often when it is consistent with their intuitive theories of cause and effect (base rates are particularly important when the event is very common or very rare)

Ex. when predicting a student’s average given the number of hours they study and the income they make, people will take the study hours into consideration (since it’s causal) but not the base rates of income Nonregressive Prediction – extreme performances tend to be followed by more average performances (regression toward the mean is typical); the factors “true score” and “error” occasionally come to produce an unusual outcome but it usually returns to normal

Ex. when predicting a the GPA of a student who scored high on a single test, it is more reasonably to predict the average GPA rather than a high one, to allow for regression Chapter 11 – The Availability Heuristic

A rule of thumb in which decision makers “assess the frequency of a class or the probability of an event by the ease with which instances can be brought to mind” * Can lead to systematic biases

* Some events are more available than other NOT because they occur more frequently or have higher probability, but because they are easier to think about (more recent, more emotional etc) * Ex. chances of dying from falling airplanes parts are 30 times greater than chances of getting killed by shark, however the latter is much easier to imagine and thus more “probable” * Three general questions

* What instances do availability heuristic lead to biased judgments? * Do decision makers perceive an event as more likely after they have imagined it happening? * How is vivid information different from other info?

An Imaginative Study: when an individual imagines an outcome, it makes that outcome more available and thus increases the estimated probability that it will occur The Limits of Imagination: when an outcome is more imaginable, it is rated as more probable; however these two have no direct relationship Denial: when an event is extremely negative (ex. nuclear war), then imagining its occurrence may not make it seem more likely Vividness: usually refers to how concrete or imaginable something is, or how emotionally interesting or exciting it is, or how close something is in space or time * Decision makers are affected more strongly by vivid info than by abstract or statistical info (ex. presentations > readings) * Vivid information has ultimately more influence than pallid information Conclusion: Many times, the availability heuristic provides reasonably accurate estimates of probability, but sometimes it can lead to critical biases in judgment. Chapter 12 – Probability and Risk

Infamous “game show problem”: there are 3 doors of which there’s a car behind one and a goat behind one; you should always switch doors after the host reveals a door HIGHER possibility of winning Confusion of the Inverse: when the probability of an event is mistaken due to inversion; always pay close attention to the “prior probability” (it is the best probability estimate of an event before a new piece of info)

Ex. the odds of breast cancer is 1% and the x-ray results is about 80% accurate; if the x-ray results come out positive, the odds of breast cancer is actually only 7.5% (rather than what many believe to be about 75%) It’ll never happen to me: all things being equal, positive outcomes are viewed as more probable than negative outcomes Compound Events:

* Single event = simple event; multiple events = compound events * A and B = conjunctive; A or B = disjunctive
* People tend to overestimate the probability of conjunctive events and underestimate disjunctive events Conservatism: once people form a probability estimate, they are often quite slow to change the estimate when presented with new information (takes a lot more observations to change opinion) The Perception of Risk: highly subjective; we are more willing to accept “voluntary” risks (those we impose on ourselves such as smoking) than “involuntary risk (ex. Electric power generation) 1) “Dread Risks”

a. perceived lack of control, dread, fatal consequences (corresponds most to generic beliefs) 2) “Unknown Risks”
b. unobservable, unknown (ex. genetic and chemical technologies) People usually relate risk levels to “catastrophic potential” and “threat to future generations” thus they perceive nuclear power as a much higher risk than, say, biking (what experts would say) Recommendations:

1) Maintain Accurate Records
a. Track down how frequent particular events have occurred in the past to minimize recent/primary effects, availability biases etc 2) Beware of Wishful Thinking
b. Ask uninvolved third parties for independent assessment 3) Break Compound Events into Simple Events
c. Evaluate the events individually, then multiply the probability if event if conjunctive; if disjunction, subtract both probabilities from 1, multiply, then subtract from 1 again Chapter 13- Anchoring and Adjustment

“Anchoring and adjustment” – the insufficient adjustment up or down from an original starting value, or “anchor” Ex. Someone who draws “60” is asked, if the % of hunger below or above 60 vs. someone who draws “10” is asked the same question the anchor will be different thus answer will be different as well Thinking about the Unthinkable

* Most studies of anchoring tend to focus on issues which people have little familiarity/concerns about * Anchoring exerts a strong influence on likelihood
* When given low anchor, estimate is lower than no anchor; opposite for high anchor * Questions that include arbitrary numerical references may have unintended effects * When worst-case or best-case examples to illustrate their positions, people’s opinions may be unintentionally pushed to an opposing direction How Real is Real Estate?

* Anchoring is powerful in a real-world setting as well
* By changing one piece of info (listing price of house), real estate appraisals were shifted by more than $10,000 * Experts are not immune to the effects of anchoring

Further Examples of Anchoring
* Estimating how big a tank is needed to hold all the human blood in the world * People tend to start off by world’s population (an anchor) then scaling it down to the size of a cube (still with the anchor) Conclusion

* The effects of anchoring are pervasive and extremely robust * It is difficult to protect against the effects of anchoring * Best/worst- scenarios can lead to unintended anchoring effects * May need to consider multiple anchors before attempting to make a final estimate

Sept. 14: The Triumph of Smith
I. Introduction:
| Capitalism| Communism|
Definition| * A legal system that safeguards private property and permits free trade in competitive markets * Individuals are free to pursue their self-interest * Natural tendency to collusion and corruption| * Property and means of production owned by government * Citizens work for the good of community * Goods and services distributed evenly| Leader| Adam Smith: * “Invisible hand” * Competition maximizes productivity and social welfare by assuring the optimal allocation of capital and labor in economy * Reformer * Although the rich would get richer, the poorer would also be better off * Wrote two books, explaining what motivates human behavior and arguing that a free-market economy was the economic order best suited to human nature

* The fact that the US economy continues to expand despite the many shocks (stock market crash etc) strongly supports Smith’s faith in capitalist system| Karl Marx: * Predicted that capitalism would eventually collapse distribution of income/wealth would become increasingly unequal revolution * Communism will deliver greatest welfare however results have been disastrous (Soviet Union: corruption, destruction, primitive technology) * A revolutionary| Flaws:| How can a capitalist society be protected from being corrupted by the special interests that are an integral part of its political economy?| Never explained how the members of the transitional dictatorship would be chosen| Commonality between Marx and Smith| * Both attempted to formulate comprehensive and integrated models of society, economics and politics * Two of the greatest political economists of all time * Neither fully finished the job alone|

II. Self, Special, and Public Interests

* Although “laissez faire” is often linked with Smith, this phrase does NOT appear in Smith’s work at all * Smith warned that in pursuing their self-interests, capitalists tend to join in powerful special-interest groups at expense of public interest * Capitalists advocate policies that they claim good for the entire nation, but in fact are good only for themselves * Three mechanisms that together work together to counter the political manipulations of the special interests * Self discipline, the competitive market and a system of justice * Smith’s two books paint radically different pictures of human nature: one based on sympathy and social resp., and the other based on self-interest and greed III. Stagnation, Policy Ruts and Free Trade

* In 18th century, mercantilists (stress on foreign trade) particularly outraged Smith * They thought a nation could only prosper at the expense of another nations (positive balance of trade) * High tariffs on imports and subsidies for exports

* Mercantilism was useful during 15th and 16th centuries during Middle Ages, but in 18th century it was just a cover for special interest * Their policies put the state’s power at the disposal of merchants, manufacturers and landlords * Smith believed that public policies should aim to maximize the welfare of consumers mercantilists were unsound because they promoted the special interests of producers at expense of public * All barriers to free trade (tariffs, subsidies etc) reduce competitiveness * The bigger the market, the greater the prosperity! * Increased competition = increased innovation = more quality * The Japanese, believed to be prospering at US’s expense, are slowly abandoning many of their mercantilist policies * More consumer–oriented society, more imports and exports * The fear of stagnation and fear of being left behind are pushing governments to abandon mercantilist policies and instead embracing Smith’s ideas

IV. On ‘Imperial Overstretch’
* The American Revolution was a horrible nightmare for the mercantilists while Britain’s colonial policy was a worse nightmare * Very costly, without being likely to bring any profit; producers benefitted while consumers suffered * Smith suggested Britain to free the American colonies

* Save expense and encourage capital to flow in with increased trade * Soviet Union is heading for a fall
* With 40 million more people, the Soviet economy is less than half of American’s (stopped growing in early 1980s) * Spent a lot of money on defense and war activities

V. The Original Optimist
* 15 years after Smith’s death, William Playfair published a book about the fortunes of various empires in history * stressed “interior causes” rather than imperial overextension as main cause of decline * prosperous nations die off because many of the essential preconditions for prosperity are difficult to sustain is affluent env. * Rising wealth produces increasingly unequal division of property * Debt was the main source of pessimism during 18th century; people were afraid of nation crashing * However Smith believed that even the government’s errors are not enough to restrain progress completely * He was correct: Britain was on verge of Industrial Revolution * LET THE MARKET WORK

VI. The Political Enigma
* Smith believed that a capitalist economy would proper’s “in spite of the extravagance of government, and the greatest errors in admin” * He acknowledged that it is alright to temporarily to violate fundamental market principles in order to achieve a public objective that the market could not do on its own * Government is vital

* Special-interest groups constantly push for some political advantage * Smith was unable to:
* Design a political system that would contain size of government and limit its involvement in economy * Ensure that money does not corrupt the government

Sept. 21: Intro to Martin
Main Focus STERN DIAMOND MODEL
Theoretical Frameworks

* Better decision making depends on the framing of the problems and solutions (what variables to include, which assumptions to choose and what patterns are relevant)

The Diamond Model of Sustainable Growth
* Economic Growth attained by interaction of 4 variables

1. Public Policy Systems
a. Strong political foundation economic growth and activity b. Government – effectively govern, maintain order, citizens have: “impartial rule of law”, equal opportunity (to ensure long term stability) c. Government – makes provision through equitable taxation defense, education and infrastructure

2. An Effective Financial System
d. Effective financial system provides EFFICIENT ECONOMIC EXCHANGE e. Financial Institutions: Promote financial activity through fiscal and monetary policy

3. Vibrant Entrepreneurship
f. Entrepreneurs disrupt economic status quo – introduce new products or services / open new markets / create new combinations of land, labor, capital

4. Sophisticated Managerial Capabilities and Large firms g. Large firms evolve
h. Professional management arises due to increased complexity of large firms i. Recognized advantages of economies of scale and economies of scope i. Economies of scale – reduced unit costs of production ii. Economies of Scope – costs of transactions are reduced through coordination of related activities iii. Increased efficiency Reduces costs enriches society Society’s wealth increases iv. More capital available – to invest in new projects – feeds cycle of growth and increased wealth

Managerial corporations need educated trained in specialized skills human resources human resources come from gov’t investment in education The Role Of Public Policy in Canada
* Foreign public policies – profound effect on Canadian Business

Book Structure (Major changes in Canadian Business over the past century) * Part 1: Laying the Foundations (mid 19th century – early 20th century)

* Part 2: Wars, Depressions and Dynamic Growth (early 20th century – mid 20th century)

* Part 3: The great years (mid 20th – 1980)

* Part 4: The Challenging Years (1980 – early 21st century)