July 2014 – RATIONALLY BOUNDED

I was being THAT guy in the cab. After changing destinations a few times chasing the elusive blue dot that represented my friend in the park, I finally had the decency to apologize to the driver. He chuckled in an understanding way “My job is just to comply.”

The response was in jest, but it really struck me. Should anyone’s job description be so limiting? Computers have command lines, people shouldn’t.

Aside from the moral implications of world reliant upon dictated service, let’s look at the economic consequences. When you assert a task on someone it implies that your idea of that person’s productivity is better than their own.

In some cases this is totally appropriate; a more senior employee or manager may have the experience necessary to give people challenging tasks that help them grow. But if we underestimate of the talents of others, or worse – continually put our immediate needs over their goals, we leave a lot of potential on the table. That lost opportunity exponentiates when we make these mistakes for entire segments of the population across entire industries: transportation and hospitality to name a few. The time and energy poured into driving a car could be used to teach a new language at a public school or host a restauranteur at a local farm.

Firms that understand the efficiency of using technology to free human labor from jobs best left to machines are organizations that understand half the battle of “Digital Era” economics. Google has made heavy investments in transportation automation with it’s huge effort into driverless cars and landmark stake in Uber. Tech innovation alone has costs though; It hurts for those caught in the transition.

Thus, the other half of progress will come in finding and deploying the unique strengths of those who have been pushed into a box for so long. Once employees move “out of the weeds”, firms will have to organize around human strengths in order to capture the full value of improvement in technology. Firms can cut costs with automation alone, but will severely lack in competitive innovation and market connection without the crucial, complementary inclusion of human networks.

We often hear diversity as a requisite for modern business but why should it be more than a social norm? Because it’s one of the best ways to build an organization that takes both a holistic AND agile approach in decision making.

Let’s take an imaginary interaction between Maria and Volkswagen.

Maria is in the market for a new car and heads to her local VW dealership to browse the new models. She wants a safe, sporty drivewith storage space in case she decides to move across town, but nothing too flashy. Oh, and it has to have the latest iPhone sync capability so she can jam on the road. But today she’s in a hurry; it’s one o’clock, there’s a client call at two, and traffic was pretty bad. The dealer has one chance to make a good impression.

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So he absorbs what he can with Maria’s vague requirements and picks up øor a segment of what she was trying to communicate. Ømight be the bare minimal – a safe, sporty drive.

The salesman is also busy and has been hard pressed to sell more cars – sitting down with Maria to painstakingly examine every model’s pros and cons won’t fit his schedule and she may not be interested in that level of detail anyway. So, he calculates an offer with the first product that came to his mind when he heard sporty – the Bug.

Maria mentioned the other specs too, but the salesman misses these details because he’s biased to attach importance to some data points over others. It’s worked in past sales, so why dig deeper?

Now this may not seem like a big deal at the moment. But what happens if this sort of bias or gap occurs at scale, i.e. becomes systemic? What if everyone at Volkswagen is looking at ø and responding around that finding, but not incorporating other sources of information?

If Volkswagen salesmen continue pairing women to Bugs, they might miss a better match (and higher value proposal) with other products. A Passat coupe, for example, has more features, better storage, and maybe a higher safety rating, and still fits the desire for a sporty drive.

The true danger occurs when employees don’t know these blind spots exist. Statisticians call this scenario a Type II error. A false confidence prevails in your beliefs about the market and your understanding of consumers. Since you weren’t including women’s opinions of the Passat into your model, it would be impossible to find you were off target. The data points to the Bug, but that average understanding is flawed, it’s not the true mean!

Incorporating a more diverse set of data would help the salesmen understand a more complete picture of market preferences and respond accordingly. In statistics terminology, they would have a more representative sample of the (sub)population(s) which would include previously omitted, but relevant, information into their analysis. The result would reflect a broader and more accurate view of possible solutions to provide consumers.

But even this model is far too simplified. In the digital era with thousands of touch-points across geographies and media there is an inherent mandate to embrace higher orders of complexity. One data point at the “new” understanding of “reality” isn’t enough – there is no longer a single, planned equilibrium in the market.

Software could automate the parsing of different online communities or transaction histories, but ultimately the creative process of building and offering products for these clusters will rely upon human empathy and ingenuity. In order to capture the variance of market characteristics, a firm needs a wide range of backgrounds in it ranks. Diversity should expand beyond gender and race to encompass a broader spectrum of demographics including income, geography, and values.

An organization with a deep portfolio of perspectives will innovate at scale by engaging these groups with far more efficiency and accuracy than an org with a singular POV. In the 21st century when market sentiment is changing at the drop of a viral video or a trending blog, business can be won or lost depending on how that information is absorbed by the organization. But it’s hard to absorb new ideas and dynamic information if you only have one type of person working for you.

Diversity is more than a nice thought, it’s the new survival tool.

Month: July 2014

“My job is just to comply”

The (Statistical) Importance of Diversity