Feeds:
Posts
Comments

The Big Idea

The business literature over the years has been bombarded with a good number of paradigmssome rudimentary and others selfaggrandizingthat more often than not stringently tell management what to do in order to make progress. Though theories have by far aided leaders and corporate executives on their way to operational success, most books have not conscientiously explored and disentangled the complex process of execution. It is at this point that Bob Prosen slots in his brilliant opus, Kiss Theory Good Bye, where he provides a clear-cut how-to and stepby- step instructions for obtaining unprecedented results in the organization. By utilizing proven tools and actions that, when appropriately employed, facilitate growth and profitability, the author propels companies to hit their targets and get ahead in the most practicable, trouble-free kind of way. This book is a groundbreaking book in that it allows the reader easy comprehension and application of the managerial mantra, Kiss Theory Good Bye. The book demonstrates that there is purpose in going back to the basics, and that which appeared all too trivial, will in fact work no matter at what stage the company finds itself in.

The Clutter that Conjecture Creates

Accepted wisdom is indeed a manager-traveller’s guide to the islands of competitive advantage and the mountains of profitability. But when there is too much of rigorous thinking, when there is a hefty framework of watertight philosophies, often managers/leaders shroud their natural instincts and miss the part where answers were emphatically under their noses. As a result, there is a glaring gap between vision and reality, or between mapping the journey and arriving at the destination. The book deftly illustrates that what managers’ need are not byzantine schemas smothered with grand business plans that often take too long to achieve results. But rather, they need a pragmatic toolkit or a roadmap to guide them in carrying out their tactics and successfully achieving their financial and operating objectives. In a world that is constantly in a state of flux, what they need are straightforward answers that can be deployed without delay to augment their organization’s performance.

Consider the following queries as related in the book:

. Does your company spend too much time planning and too little time executing those plans?

. Are you frustrated because too many decisions end up on your desk?

. Are you concerned about finding and retaining top talent?

. Do you spend too much time following up to ensure things get done?

. Do you want to increase accountability so you get the results you need?

. Are you concerned about consistently meetings your operational and financial commitments?

. Do you wonder whether your entire workforce is fully focused on meeting your

organization’s top objectives?

. Does your company use a defined process to reduce inefficiency and eliminate work?

. Do you receive too much date instead of the information you need to make

accurate, timely decisions?

If the answer to these questions is a resounding “Yes!” then the book is the valuable

way out, as it provides a way to pro-actively free an organization from the grips of stasis and the shackles of inefficiency.

One of the more compelling parts of the book is Prosen’s identification of the “Five Crippling Habits” in any company that can delay or offset long-term sustainability and profits.

Five Crippling Habits that Attack from Within

1. Absence of Clear Directives

Sometimes, managers and leaders spend so much time giving so many directives, that none are clear and by the time they know it, their desks are inundated with a myriad responsibilities they can no longer commit to and that their staff, cannot either due to pressure and confusion from impulsively delegated tasks without prioritization. Prosen stressed that it doesn’t work this way: there cannot be too many goals with one shot no matter how powerful that shot is. In this scenario, employees are either misled or snowed under the bulk of work and as such, they can neither stay

focused on the company’s most important objectives nor determine what must be accomplished first.

2. Lack of Accountability

Being able to differentiate between excuses and real problems is an essential part of management, according to Prosen. Managers must measure results against goals. Interestingly, Prosen states in the book that not only must employees be measured, but managers along with everyone else in the company, must be held accountable. Prosen stressed that being responsible to people, not for them is key in accountability. It is also just as important to be able to differentiate between excuses and real problems, to help remove any roadblocks to results.

3. Rationalizing Inferior Performance

Analyzing mistakes or flaws in any business process enables managers to continue to identify areas for improvement. In short, it affords them a sharper understanding of the operational trajectory, taking into account what must be retained, what must be improved, and what must undergo urgent metamorphosis. The author held that fashioning defensives, which substantiate inferior performance only plunge the organization into deeper malaise. It takes away time for quiet introspection of solutions and derails the organization’s momentum for picking itself up and going back on the race.

4. Planning in Lieu of Action

A lot of top business officials consume their precious resources on planning, hiring consultants whom they hope will anchor their organizations to soaring heights and skyrocketing productivity rates. Yet little do these managers/leaders know that delivery and execution matter more than the detailed reports and business sketches of how the organization ought to proceed. The plan is a systematic way of putting

things in perspective, but business leaders cannot attain results where actions are lacking. Prosen stressed that the most effective plans are those with specific measurable goals that can be easily evaluated on an ongoing monthly basis. He also advocates long-range plans covering three to five years as useful for setting and directing communication to senior management.

5. Aversion to Risk and Change

Very few managers are adept at affecting change as they themselves hardly ever Kiss Theory Good Bye by Bob Prosen embrace it with conviction. Often managers consume an enormous amount of time remaining in their comfort zones. A lot of organizations experience the low ebb of their business objectives primarily because their leaders do not possess the temerity to dare the different. They would more willingly navigate customary or familiar territory that had always assured them of the same (yet rather marginal) outcomes than try a newer or fresher approach that could have spelled a difference in profitability had they calculated the risks and overcome their trepidation.

Many leaders perceive the pain of change to be more damaging than the pain of maintaining the status quo. As an offshoot, companies are slow in trying to revolutionize themselves and when they do, it is often too late.

The Opposite Side of the Coin:

Five Attributes of Highly Profitable Companies

Bob Prosen related that years of hands-on experience with and mentoring of companies and a number of non-profit organizations have enabled him to devise a practical and highly actionable set of behaviors for organizational success, which he dubbed as the Five Attributes of Highly Profitable Companies. These include:

1. Superior Leadership

This entails a relentless pursuit of vision and results. Superior leaders have exceptionally learned by heart, the intricacies of management. These leaders have resolute determination and an unassailable passion for outcomes. They strive to be unfailingly objective and know how to unravel truths. They recognize what their subordinates do and reward them accordingly. They think ahead, talk less, and act almost instantaneously on every malfunction.

Also, superior leaders are:

. Instigators of Loyalty and Trust –they meet commitments with uncompromising integrity, delegate with confidence, and empower people to claim ownership of their outputs;

. Employers of Smarter People– because their egos are firmly intact, superior leaders hire people smarter than them and recognize the power in building an outstanding team of diverse and talented individuals. They place the right people in the right positions so they never have to worry about recurrent tutoring that obviously disrupts progress;

. Initiators of a Dynamic Corporate Culture– they emphasize professional ethics and morals and champion exemplary employee performance. They root out office politics that often trounces the spirit of teamwork and foster an atmosphere not of competition but of collaboration. They align the entire workforce to meet the organization’s top objectives and maintain a holistic view of the business. They “open their doors” and provide an avenue for open and compelling dialogue with their employees.

. Master Communicators–they communicate and integrate objectives with clarity, honesty and candor. They have the ability to listen and engage in reflective thinking before making comments or criticisms. They articulate goals explicitly and do not confound their people with over-reaching concepts.

Reality Check # 1: Does Your Leadership Team Measure Up?

For managers and top executives, here are essential questions, which, Prosen maintained, you need to ask yourselves in assessing the effectiveness of your leadership team:

. Does the company have the right top objectives supported by the entire senior management team?

.Are you keeping people focused on achieving the company’s top objectives?

. Are you managing people too closely?

. Have you hired the right people?

. Have you eliminated ineffective meetings and implemented conversation for action?

. Have you made results visible, made people own their output, and utilized a system that rewards results not effort?

. Are you helping people prioritize actions in alignment with the company’s most important objectives?

2. Sales Effectiveness

Sales effectiveness is the company’s lifeline. A vigorous revenue stream is one of the bare essentials a company must have power over for its survival. Since sales is one of the most objective aspects of business measurable by numbers, deteriorating sales performance may predictably signal the demise of functional operations. As such, managers/leaders must have the knack for constructing realistic forecasts that aid in consistently meeting the sales plan and its targets.Creating a strong sales team is both a science and an art, combining systemic analysis with creative strategy. A winning line-up of sales people practices diligence in identifying the right profitable customers and in calculating their sense of urgency to buy. By closely adhering to crucial sales metrics such as number of sales calls with decision makers, number of proposals delivered, number of signed contracts, and year-to-date revenue and margin comparisons with the sales plan, sales managers are able to establish accountabilities and robust quotas while maintaining ethical standards for their people. They prioritize the value of marketing, adroitly assess probabilities of success at different stages of the selling process and don’t clutter the pipeline with opportunities that have low prospects of a sure hit.

Reality Check # 2: Does Your Sales Team Measure Up?

Managers/leaders should bear these key questions in mind:

. Does my sales team consistently meet or exceed revenue and margin goals?

. Does my sales team focus on selling the company’s existing products and services and minimize one-offs?

. Does my sales team enter accurate and timely sales data into the company’s Kireporting systems?

. Does my sales team know the competition in-depth and how to attack it?

. Do I involve senior management to help close important new business and  pursue the business we can win?

. Do I track products sold to ensure that the correct product mix and associated margins are being achieved?

. Do I regularly check the accuracy of our pipeline forecast by comparing what was projected against what was closed?

3. Operational Excellence

One of the secret recipes for organizational success is the company’s exceptional capability to always be cost-efficient, which is done through continuous process improvement, forecasting performance, and isolating areas that negatively impact on cash flows. Managing costs is a balancing act and as such, it must be done with utmost rationality to ensure that all costs are unambiguously tied to the business plan. The major task is to know the company’s cost structure by periodically carrying out cost accounting. Cost accounting allows companies to grow its cost structure in the right proportion and focus its energies on winning.

In relation to this, Bob Prosen stressed that companies ought to invest in their financial accounting systems because markets and regulatory requirements change often even without their knowing. With an accounting system tailored to the business, managers can immediately adjust costs with confidence and remain competitive. An effective accounting system would enable a company to scale its growth, thereby increasing margins with revenue.

Reality Check #3: Does Your Operational Excellence Measure Up?

. Does the company receive accurate and timely cost reports that promote effective decision-making?

. Do we have a deep understanding of our competitors’ cost structure and can we respond quickly to changes?

. Do we effectively manage employee productivity?

. Do we have a defined process for eliminating rework and inefficiencies?

. Are deviations from the costing plan analyzed and thereafter avoided?

. Are we able to effectively manage projects within the time and budget allotted?

4. Financial Management

Financial management drives the company’s economic engine. It is according to Prosen, “about perspectiveproviding context for decisions, holistic solutions, alternatives, and ideas for positive change.” Financial management also hubs on control and provides companies with the required checks and balances to understand and monitor fiscal performance. The author enumerated some of the most decisive functions lodged under financial management.

These include:

. Acquisition authority–who can commit the company to purchase Kiss Theory Good Bye by Bob Prosen  Contract authority– who can sign for the company

. Capital allocation–who decides where and when to make capital investments

. Financial justification–how investments are approved

. Audit process–when and how to verify that investments yield committed returns

. Checks and balances–ensures that internal financial functions are separated adequately to avoid loss and embezzlement

Reality Check #4: Does Your Finance Team Measure Up?

In evaluating the competence of your fiscal experts, Prosen indicated that managers/leaders must ask if the finance team:

. Proactively provides specific business recommendations to improve company profitability?

. Accurately captures results, converts data into information, and provides reports that enable effective decision-making?

. Always operates with utmost integrity?

. Provides real-time data analysis?

. Have a deep understanding of the business that enables them to make qualified, actionable budgetary recommendations?

. Provides early-warning information by tracking key internal and external fiscal indicators?

. Continually negotiate better terms on all contracts, leases, and vendor agreements?

5. Customer Loyalty

No company treads the failure curve when it devotedly champions customer service.  Managers/leaders must not disregard the adage, “The customer is always right.” By applying this focus in an organization, a company pro-actively responds to the customer and therefore builds and maintains an atmosphere of customer loyalty. No matter what the issue with the customer, Prosen details the company’s responsibility to meet the customer on his/her field and be responsive to their needs. The book advocates going above and beyond in all your efforts with meeting customer challenges or issues that might arise. In this regard, Prosen argued that customer satisfaction surveys must be institutionalized to encourage constructive feedback and other customer responses. This greatly helps companies weigh up their product options and strategies. Posen advocates to always exceed customer expectations. If there are product slip-ups, effective managers do not respond to customers with false promises but rather proactively tackle any issue with the bottom-line goal of customer loyalty and long-term satisfaction.

Customer Service Questions #5: Does Your Customer Service and Support Measure Up?

. Do we consistently under promise and over deliver?

. Do we resolve customer problems quickly?

. Do we take all customer feedback seriously?

. Do we have a mechanism to reduce problem recurrence?

. Do we consistently measure customer loyalty and improve results?

. Do we continually explain ongoing value to existing customers?

. Do we have a clear and concise value proposition based on consumer demand?

. Will all our customers continue buying from us and do they give us testimonials and references?

. Do we hire sales and service people with the unyielding commitment to service?

The Ten Commandments of Superb Execution Kiss Theory Good Bye by

1. Choose your direction–where exactly is the company headed? Start developing/refining concise mission statements

2. Determine your competitive advantage–tap your intellectual capital and engage in valuation processes. Know what you know and how much you know of it.

3. Assess if you’ve hired the right people for the right position–do away with impetuous recruitment. The candidates track record and what she/he knows matter more than whom she/he knows

4. Anticipate and Analyze Risks–scan the competitive playing field. Has it been levelled? Are you in the zone or lagging behind? What could possibly result from one of your competitors’ moves? Do you have a contingency plan?

5. Do not linger on plans–once a plan is concocted, do not hang around. Execute right off the bat and secure it with the appropriate budget and individual objectives.

6. Establish an accountability-based culture–make people feel important by recognizing their own niche in the corporate world and giving them full reign of their outputs. Slot in due dates and progress meetings and be hard on outcomes, not on people.

7. Discard damaging political behaviour— practice open debate followed by agreement, not compromise. Curtail the building of turfs and internal boundaries.

8. Communicate effectively–clarify information, talk in person, and open your doors. Free your ideas and encourage criticisms from subordinates. People know what is important because you tell them directly and unambiguously. Think before speaking. Know the little people. Coach patiently.

9. Measure what matters most –complacency must be ruled out. Focus on the critical few, not the important many. Measures are only the means to results. Craft objective metrics designed to monitor your own progress/performance.

10. Hold your ground and never let it go–never pull away from your mission. Sustain your sovereignty with transparency and unparalleled responsibility. Be fair. Never provoke incitement and never give in to its challenge. Protect your stance by finding and seeing yourself in others and setting good examples.

Bob Prosen accentuated that companies would do well by doing good–following these commandments and finding purpose and meaning in their work. Profitability can be directly linked to overcoming the crippling habits and applying the attributes of superior leadership. The book is a manual for all business leaders or entrepreneurs who want to succeed long-term in growing their business and exceeding their initial expectations.

Thanks,

Hanmant

We live in a strange world.

Millions in India would like to buy homes to live in.
Or offices for setting up a new venture.
Or shops for starting a business.

——- To All Warren Buffett Fans ——-
Have you ever wondered which stocks Warren Buffett would buy if he were investing in India? Well, if you want to know how to build a Buffett like portfolio based on the principles of the second richest man in the world, you do not have to look too far.

But buying real estate – or renting it – is still way beyond our means.

So we save our money in safe places waiting for that wonderful day when we can buy that home we need.
Or the office for the new venture we wish to start.
Or the shop for the new business we wish to start.

One of the places where we park our money is in bank deposits.

Much of it is parked in the PSU banks – the public sector banks that are owned by the government of India.

According to data from the Reserve Bank of India (RBI), PSU banks account for 74% of the total bank deposits in the country.

Well, what does the PSU bank do with all our money?

They do what all banks are supposed to do: lend it on to someone else at a higher price (the lending rate).
The difference between the lending rate and the borrowing cost (what the banks pays you for your deposits or what it may pay other banks and companies to borrow money) is a margin that needs to cover all the salaries and costs of maintaining a branch.

No harm in that.
None at all: that is the business of all banks whether PSU or private banks.
If there was no profit in the banks, we would not have any banks.
That would be a problem.
So banks which lend money to others and earn a good return on it are a good thing to have around.

Immerse yourself in 2008
But there is something interesting in the RBI data on what banks have done with your deposit money.
But, before we head there – we need to remind ourselves where the world was in December 2008.

Lehman Brothers had gone bust in September 2008.
Merrill Lynch had to be rescued by Bank of America in a shotgun marriage arranged by the US government.
AIG had to be bailed out.
While most Indian banks were healthy, there were concerns that a few banks (which had relied on excessive foreign lines of credit for their excessive growth) may not have money to repay their foreign loans and needs to be “rescued” by the RBI.

Indian companies, in general, had borrowed about USD 20 billion from foreign banks and investors.
This USD 20 billion included what Tata Motors had borrowed for its acquisition of Jaguar, or the working capital borrowing by an Indian company using “cheaper” foreign money to invest in its Indian businesses.
By October 2008, the foreign banks were told to send all their money back to “home country”. Their parent banks were in trouble and they needed all the money back in safe US government or UK or Euro government bonds.
Foreign banks were not only refusing to lend any new money to any Indian company, but they wanted all the loans that were falling due returned. They refused to “revolve” or extend the loans.

Too add doom to the gloom, many mutual funds were holding debt issued by Indian real estate companies and these companies were not able to repay this debt.
The Indian companies had parked their surplus cash with these mutual funds. They now wanted it back (to repay their foreign bank loans or for use in their own operations), and the mutual funds could not repay it.
Ouch!

The Indian stock markets were collapsing.
And the general consensus (uh, not from me) was that the Indian stock market could head as low as 4,000 to 6,000 levels from the 8,000 levels of the BSE 30 Index.

And the final knock-out punch: the sale of shares by foreign investors (uh, speculators will be more accurate) to the extent of Rs 70,000 crore and the act of converting this into US Dollars led to a decline of about -30% in the Indian rupee in the year 2008.

Even the sweet and normally confident anchors on TV channels looked like Rakhi Sawant – one day after being with a child.
The financial newspapers stopped publishing photographs of attractive models to add colour to their India fantasy stories.

That, then, was the India we were in.
December 2008.
Please roll back your mind to that period.

And add the spice: there was an election coming up.
Which many believed (eh, not me) could take India into the bullock cart age.

Rescue me!
Let’s take a quick peek at what was happening to real estate developers.

People had stopped buying real estate.
Salaries were being held back – the days of the guaranteed 25% annual increase were over.
Jobs were at risk.
Offices were empty.
Businesses were closing down.

Real estate developers were about to go bust.
They were desperate for cash.
There was no money inflow from the sale of real estate.
But there were debts to be repaid.
And the real estate developers also had payment obligations for all the land that they had agreed to buy as they went about building their “land banks”.

In this environment, what were the PSU banks doing?
They were pretty busy lending money for real estate.

Table 1: Your friendly neighbourhood bank is here J

in Rs Millions

May 29,2009

May 23,2008

May 29,2007

Loans given (excludes agriculture loans)

25,582,500

21,747,670

17,515,780

Real estate loans by all banks

944,990

621,780

451,600

Real estate loans to total loans given by banks

3.7%

2.9%

2.6%

Growth in real estate loans

52%

38%

Growth in total loans (excludes agriculture loans)

18%

24%

Source: RBI data

Between May 23, 2008 and May 29, 2009 the loans given by banks (excluding the loans it makes for agriculture) grew by +18% – from Rs 21,747,670 million to Rs 25,582,500 million.

But the loans given to real estate grew by +52% – from Rs 621,780 million to Rs 944,990 million.

This period is for May 2008 to May 2009 – in a few weeks we will get data for the period October 2009 over October 2008.
That data will probably be more telling.
Global credit markets froze after Lehman’s collapse and the “growth” in loans may be more than what this “older” data shows.

But even this “old” data shows the huge rescue of the real estate developers.

It should be noted that “loans to real estate” does not include the loans made to individuals who borrow money to purchase their homes. Those mortgage loans grew by 5% confirming the data from the real estate industry that home-buying has slowed down considerably.

According to industry estimates (and a research report by a foreign stock-broking house), the growth in the number of new homes sold in 5 cities (Bangalore, Bombay, Chennai, Gurgaon, Hyderabad) has declined.

Between April, May, and June of 2008 there were 15,000 units sold in these 5 cities. This works out to an average of 33 units per day per city.

From then on it went into a tailspin and reached the low level of 5,000 units for the period January, February, and March of 2009.
This works out to an average of 11 units per day per city.

It has since picked up – mostly in Bombay – to an estimated 9,000 units for the 3-month period July, August, and September 2009.
This works out to an average of 20 units per day per city.

The point is: there was a small growth in homes purchased – so there was no significant growth in loans given to individuals for purchasing real estate.

But there was a huge (+52%) increase in loans shown to real estate developers – loans given to keep the real estate companies afloat.

Given that foreign banks were asked to send money back home and not to lend in India, much of this increase in “loans to real estate” was probably made by the Indian banks.

And given that ICICI Bank (the largest) and many other Indian private sector banks were being careful and re-assessing the risks they had taken in many previous loans, the chunk of the “loans to real estate” must be from the PSU banks.

Your bank deposit, helps keep real estate prices up!
So, there it is:
You wish to buy real estate but are waiting for it to decline to a price that you can afford to pay.
Stock prices jump around too much so, correctly, you don’t wish to put your idle money in stock markets because you may need the money at anytime to buy real estate.
Your bank deposit is with the PSU bank.

The banks have used your money to give it as a loan to real estate developers.
Their act of giving the loan to real estate developers gives them badly needed cash.
The real estate developers no longer need to sell their real estate to get “cash flow” to stay alive.
They got the money from the banks.
Now, the real estate developers can charge you a higher price for real estate.
They can sell it on their terms.
Their terms, of course, are to make a 100% to 300% profit from you.

So, if the calculations in Table 1 above are correct, then the loans to real estate developers were about Rs 323,210 million or Rs 32,321 crore.

Table 2: The British taxed our salt; the powerful “tax” our real estate

May 29,2009

Growth in real estate loans, in past one year (Rs million)

323,210

Avg cost of construction (Rs/sq ft)

2,000

Square feet financed (millions)

161.61

Avg property size, sq ft

1,000

No of homes denied, directly

161,605

These Rs 32,321 crore was – from a cash flow perspective – the equivalent of selling 161,605 homes of 1,000 sq ft each.

So, some 161,605 homes that would otherwise have to be sold by the real estate developers to generate cash flow for the developers (to match the loans they got from the banks) have not come to the market to be sold.

Instead, an estimated 34,000 homes were sold for the 12 months ending May 2009.
And property prices had fallen by -20% to -30%.

What would happen to real estate prices if banks had NOT given these loans (from your deposit money) and if 161,605 homes had to be sold in the 12 months ending May 2009?

The 161,605 homes that did not come to the market are 4.8 times the homes that were sold in the 5 cities in that same time period.

You saw what happened when foreign investors sold Rs 70,000 crore of stocks?
The BSE-30 Index collapsed from 20,500 to a level of 8,000.
A decline of -69%.
But real estate developers have a friendly banker.
That is why property prices have fallen “only” by -20% and are now heading up again!

So, why this sudden friendship?

Well, we had a national election coming up.
Politicians possibly need money to fight elections.
Though this may be a coincidence.

And then many politicians – across political parties – possibly have someone they know from their family in the real estate business.
And they needed to rescue them.

The foreign banks stepped out, the Indian banks stepped in.

The governments control the PSU banks.
A suggestion, a nudge, a wink, or a phone call is all it takes.

And a little bit of your money.
Just a little bit.

Rs 323,310 million of extra money that went to the real estate developers is only 1% of the total bank deposits in the country.
What’s a little 1% between friends?

But it is sufficient to ensure that real estate prices may not fall to levels that are affordable for you.
For the aam aadmi that every Finance Minister and every government and every politician is so worried about.

Mahatma Gandhi walked to the sea and made his own salt.
The politicians were all there to pay homage to the great soul on October 2nd.
Dressed in their white khadi and solemn faces.

Like the Mahatma, you can protest, too.

Walk up to your neighbourhood bank branch manager and ask him, “How much of my bank deposit in your bank is going to fund real estate developers who then keep prices so high that I cannot afford to buy real estate?”

Maybe you wish to give your deposit to a bank that only gives real estate loans to individuals who buy homes or offices or shops?
You can deal with banks that refuse to give money to real estate developers.
This small act will force the real estate developers to sell those 161,605 homes that they would need to sell to pay back the loans from your bank deposits.

And then you can buy your real estate at a more “real” price.

Finance remains a very corrupt business, in my humble opinion.
As does real estate.

So, where does that leave the financing of real estate in the ranking tables of corrupt businesses?

I wonder, I really do…..

Thanks,

Hanmant

The Black Swan

“The Impact of the Highly Improbable”

By Nassim Nicholas Taleb, Random House, 2008

A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, afterwards, we concoct an explanation that makes the event appear less random and more predictable than it was. The astonishing success of Google was a black swan and so was 9/11.

For Nassim Nicholas Taleb, black swans underlie almost everything about our world -from the rise of religions to events in our personal lives. But because humans are hardwired tolearn specifics when they should be focused on generalities, we are unable to truly estimate opportunities and are not open enough to rewarding   those   who improbable event with rewarding   those   who improbable event with

Why You Need this Book

The revelations in this book explain everything you know about what you don’t know. It offers surprisingly simple tricks for dealing with black swans and benefiting from them.

ON THE PLUMAGE OF BIRDS

Before the discovery of Australia, people in the Old World was convinced that all swans were white – an unassailable belief as it seemed and completely confirmed by empirical evidence.

A Black Swan is referred to as an event with the following three attributes:

First, it is an outlier, because it lies outside the realm of regular expectations and nothing in the past can convincingly point to its possibility.

Second, it carries an extreme impact.

Third, in spite of its outlier status, human nature tries to make up or concoct a logical explanation for its occurrence to make the event explainable and predictable.

Black Swan logic makes what you don’t know far more relevant than what you do know. Consider that many Black Swans can be caused and are exacerbated by their being unexpected.

Look into your own personal life for instance. Either your choice of profession, meeting your mate, your exile from your country of origin, the betrayals you faced, or your sudden enrichment or impoverishment. How often did these things occur according to plan?

LIFE IS VERY UNUSUAL

There are two possible ways to approach phenomena.

The first is to rule out the extraordinary and focus on the “normal.” The examiner leaves aside “outliers” and studies ordinary cases.

The second approach is to consider that in order to understand a phenomenon, one needs   first   to   consider   the extremes-particularly if, like the Black   Swan,   they   carry   an extraordinary cumulative effect.

Almost everything in social life is produced by rare but consequential shocks and jumps. All the while, almost everything studied about social life focuses on the “normal,” particularly with “bell curve” methods of inference that tell you close to nothing.

Why? Because the bell curve ignores large deviations, cannot handle them, and yet makes us confident that we have tamed uncertainty. The nickname for this in this book is GIF – Great Intellectual Fraud.

THE BOTTOM LINE

The beast in this book is not just the bell curve and the self-deceiving statistician, nor the Platonified scholar who needs theories to fool himself with. It is the drive to “focus” on what makes sense to us.

Living on our planet, today, requires a lot more imagination that we are made to have. We lack imagination and repress it in others

HISTORY AND THE TRIPLET OF OPACITY

History is opaque. You see what comes out not as the script that produces events but

the generator of history. There is a fundamental incompleteness in your grasp of such events since you do not see what’s inside the box and how the mechanisms work.

The human mind suffers from three ailments as it comes into contact with history referred to as the triplet of opacity.

They are:

a. The illusion of understanding, or how everyone thinks he knows what is going on in a world that is more complicated (or random) than they realize

b. The retrospective distortion or how we can assess matters only after the event as if they were in a rearview

c. mirror (history seems clearer and more organized in history books than in empirical reality); and

The overvaluing of factual information and the handicap of authoritative and learned people, particularly when they create categories-when they “Platonify.”

THE BEST (WORST) ADVICE

How did career advice lead to such ideas about the nature of uncertainty? Some professions, such as dentists, consultants, or massage professionals, cannot be scaled:

There is a cap on the number of patients or clients you can see in a given period of time. If you are a prostitute, you work by the hour and are (generally) paid by the hour. Furthermore, your service is necessary for the service you provide. If you open a fancy restaurant, you will at best, steadily fill up the room.

In these professions, no matter how highly paid you are, your income is subject to gravity. Your revenue depends on your continuous efforts more than on the quality of your decisions.

Moreover, this kind of work is largely predictable. It will vary not to the point of making the income of a single day more significant than that of the rest of your life. In other words, it will not be Black Swan driven.

So the distinction between a writer and a baker, a speculator and a doctor, a fraud and a prostitute, is a helpful way to look at the world of activities.

It separates those professions in which one can add zeroes of income with no greater labor from those who need to add labor and time (both of which are in limited supply) -in other words, those that are subjected to gravity.

BLINDNESS TO THE BLACK SWAN

Now, there are other themes arising from our blindness to the Black Swan:

We focus on preselected segments of the seen and generalize it to be the unseen: the error of confirmation.

As much as it is ingrained in our habits and conventional wisdom, confirmation can be a dangerous error. Our inferential machinery that we use in daily life is not made for a complicated environment in which, a statement changes remarkably when its wording is slightly modified.

Consider that in a primitive environment there is no consequential difference between the statements “most killers are wild animals” and “most wild animals are killers.” There is definitely an error here but, it is almost inconsequential.

Our statistical intuitions have not evolved for a habitat in which these subtleties can make a big difference.

THE NARRATIVE FALLACY

We fool ourselves with stories that cater to our Platonic thirst for distinct patterns: the narrative fallacy.

We like stories, we like to summarize, and we like to simplify, to reduce the dimension of matters.

The fallacy is associated with our vulnerability to over-interpretation and our predilection for compact stories over raw truths.

It severely distorts our mental representation of the world. It is particularly acute when it comes to the rare event.

The narrative fallacy addresses our limited ability to look at sequences of events without weaving an explanation into them, or, equivalents, forcing a logical link or an arrow of a relationship, upon them.

Explanations bind facts together. They make them all the more easily remembered. They help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding.

There is another, even deeper reason, for our inclination to narrate and it is not psychological. It has something to do with the effect of order on information storage and retrieval in any system, and it’s worth explaining here because of what is considered as the central problems of probability and information theory.

The   first problem   is   that information is costly to obtain.

The second problem is that information is also costly to store -like real estate in New York. The more elderly, less random, patterned, and narrated a series of words or symbols are, the easier it Is to store that series in one’s mind or jot it down in a book so your grandchildren can read it someday.

Finally, information is costly to manipulate and retrieve.

We, members of the human variety of primates, have a hunger for rules because we need to reduce the dimension of matters so they can get into our heads. Or, rather sadly, so we can squeeze then into our heads.

The more random information is, the greater the dimensionality, and thus, the more difficult it would be to summarize. The more you summarize, the more order you put in and the less randomness it becomes. Hence, the same condition that makes us simplify pushes us to think that the world is less random than it actually is.

And the Black Swan is what we leave out of simplification.

Indeed, many severe psychological disorders accompany the feeling of losing control of – being able to “make sense” of -one’s environment.

Platonicity affects us here once again. The very same desire for order, interestingly applies to scientific pursuits – it is just that. Unlike art, the purpose of science is to get to the truth, and not to give you a feeling of organization, or make you feel better. We tend to use knowledge as therapy.

LIVING IN THE ANTECHAMBER OF HOPE

We behave as if the Black Swan does not exist: human nature is not programmed for Black Swans.

Many people labor in life under the impression that they are doing something right, yet they may not show solid results

for a long time.

They need a capacity for continuously adjourned gratification to survive a steady diet of peer cruelty without becoming demoralized. They look like idiots to their cousins, they look like idiots to their peers, and they need courage to continue.

No confirmation comes to them, no validation, no fawning students, no Nobel or Shnobel. Then bang, the lumpy event comes that brings them grand vindication. Or, it may never come.

It is tough to deal with the social consequences of the appearance of continuous failure. We are social animals. Hell is other people.

We favor the sensational and the extremely visible. This affects the way we judge heroes. There is little room in our consciousness for heroes who do not deliver visible results or those heroes who focus on process rather than results.

Even economically, the individual Black Swan hunters are not the ones who make the bucks. Some blindness to the odds or an obsession with their own positive Black Swan is necessary for entrepreneurs to function.

The economist William Baumol calls this “a touch of madness.” The person involved in such gambles is paid in a currency other than material success: hope

SILENT EVIDENCE

What we see is not necessarily all that is there. History hides Black Swans from us and gives us a mistaken idea about the odds of these events. This is the distortion of silent evidence.

The idea is simple yet potent and universal. Silent evidence pervades everything connected to the notion of history.

Silent evidence is what events use to conceal their own randomness, particularly the Black Swan type of randomness.

We have seen several varieties of the silent evidences that cause deformations in our perception of empirical reality, making it appear more explainable (and more stable) than it actually is.

In addition to the confirmation error and the narrative fallacy, the manifestations of silent evidences further distort the role and importance of Black Swans. In fact, they cause a gross overestimation at times and underestimation of others.

THE LUDIC FALLACY OR THE UNCERTAINTY OF THE NERD

We “tunnel”, that is, we focus on a few well-defined sources of uncertainty, on a too specific list of Black Swans (at the expense of the others that do not easily come to mind).

What is the ludic fallacy? Ludic comes from ludus, Latin for games In real life you do not know the odds; you need to discover them, and the sources of uncertainty are not defined.

Economists who do not consider what was discovered by non-economists worthwhile, draw an artificial distinction between “Knightian” risks (which you can compute) and “Knightian” uncertainty (which you cannot compute), after one Frank Knight, who rediscovered the notion of unknown uncertainty and did a lot of thinking but perhaps never took risks, or perhaps lived in the vicinity of a casino.

Had he taken economic or financial risks he would have realized that these “computable” risks are largely absent from real life!

Furthermore, just as we tend to underestimate the role of luck in life in general, we tend to overestimate it in games of chance.

If you want a simple step to a higher form of life, as distant from the animal as you can get, then you may have to “de-narrate” that is, shut down the television set, minimize time spent reading newspapers, and ignore the blogs.

Train your reasoning abilities to control your decisions.

Train yourself to spot the difference between the sensational and the empirical.

This insulation from the toxicity of the world will have an additional benefit – it will improveyourwell-being Also, bear in mind how shallow we are with probability – the mother of all abstract notions. You do not have to do much more in order to gain a deeper understanding of things around you.

Above all, learn to avoid “tunneling.”

To be able to focus is a great virtue if you are a watch repairman, a brain surgeon, or a chess player. But the last thing you need to do when you deal with uncertainty is to “focus”. Prediction, not narration, is the real test of our understanding in the world.

THE SCANDAL OF PREDICTION

At New York’s JFK airport you can find gigantic newsstands with walls full of magazines. They are usually manned by a very polite family from the Indian subcontinent. These walls present you with the entire corpus of what an “informed” person needs in order “to know what’s going on.”

Sadly, all this knowledge would not help the reader to forecast what is to happen tomorrow. Actually, it might decrease his ability to forecast.

There is another aspect to the problem of prediction: its inherent limitations or those that have little to do with human nature but instead arise from the very nature of information itself

“NOBODY KNOWS ANYTHING”

You can actually take advantage of the problem of prediction and epistemic arrogance. Here are the modest tricks. Take note that the more modest they are, the more effective they will be.

a. First, make a distinction between positive contingencies and negative ones.

Learn to distinguish between those human undertakings in which, the lack of predictability can be (or has been) extremely beneficial and, those where the failure to understand the future caused harm. These are both positive and negative Black Swans.

b. Don’t look for the precise and the local. Simply, do not be narrow-minded.

The great discoverer, Pasteur, who came up with the notion that chance favors the prepared, understood that you do not look for something particular every morning but work hard to let contingency enter your working life.

c. Seize any opportunity, or anything that looks like opportunity. They are rare – much rarer than you think.

Remember that positive Black Swans have a necessary first step -you need to be exposed to them.

Many people do not realize that they are getting a lucky break in life when they get it.

Work hard, and do not settle for grunt work, but instead, focus on chasing such opportunities and maximizing exposure to them

d. Beware of precise plans by governments. Let governments predict but do not set your mind to follow everything that they say.

It does not mean that governments are useless, only that you need to keep a vigilant eye on their side effects.

e. Do not waste your time trying to fight forecasters, stock analysts, economists, and social scientists, except to play pranks on them.

If you ever do have to heed a forecast, keep in mind that its accuracy degrades rapidly as you extend it through time

THE END

All this philosophy of induction, all these problems about knowledge, all these wild opportunities and scary possible losses, falls in front of the following metaphysical consideration

We are quick to forget that just being alive is an extraordinary piece of good luck, a remote event, and a chance occurrence of monstrous proportions

Imagine a speck of dust next to a planet a billion times the size of the earth. The speck of dust represents the odds in favor of your being born. The huge planet would be the odds against it. So stop sweating the small stuff

Don’t like the ingrate who got a castle as a present and worried about the mildew in the bathroom. Stop looking the gift horse in the mouth – remember that you are a Black Swan

Thanks,

Hanmant

Forbes yearly list offers 2000 large companies active in all kinds of industries. Out of this I am giving list of top 10 world’s largest software companies. The ranking is based upon a multiplication of sales*profits*assets*market capitalization.

  1. IBM
  2. Microsoft
  3. Oracle Corporation
  4. Google
  5. Softbank
  6. SAP
  7. Accenture
  8. Computer Sciences Corporation
  9. Yahoo!
  10. Cap Gemini

IBM (International Business Machines Corporation) – revenue US$103.63 billion (2008)

Microsoft Corporation – revenue US $ 60.420 billion (2008)

Oracle Corporation – revenue US $23.25 billion USD (2009)

Thank you,

Hanmant

Introduction – One of my friend suggest me to read this book “Topgrading Interview Guide”. Finally I read this book!! This is one of my favorite  “business management” books even if it is a bit boring ( long enough!) and presents a general concept that many of us can understand immediately.

The tell about the concept  “hire only A players in your company” –

Here  “A players” it’s referring to self-motivated, intelligent, efficient, influential and culture-fitting people who can excel your business without having to be micro-managed.

This general concept makes a lot of sense, however, the topgrading interview guide takes it to the next level by going into great details on how you should conduct the recruiting process !!

This book would be khazzina for HR guys and gilrs

Thanks,

Hanmant Biradar

Follow

Get every new post delivered to your Inbox.