How The Wise Decide

New Yorker article

The recent New Yorker article on Obama economic advisor and wise leader Larry Summers gives more insight into the way he makes decisions.  As the top economic advisor to the President, Summers is in a situation where his decisions and advice will have enormous impact on our economic future.

Harvey Golub's new position

Wise leader Harvey Golub turned around struggling American Express with great success.  Now he is taking on an even greater challenge, as he has agreed to become non-executive chairman of AIG.  Golub's involvement is an exciting step for the company and for the country.

AMA Podcast

Aaron recently gave an interview to American Management Association.  The discussion is about the six principles of How the Wise Decide.  You can listen to the podcast at the following link.

http://podcast.amanet.org/edgewise/leadership/128/aaron-sandoski-on-how-the-wise-decide/

Obama's Letters

When listening to the stories and decisions of the leaders in How the Wise Decide, many spoke about how they stayed in touch with the "man on the street."  Some of the anecdotes made it into the chapter, Go to the Source, including a story of Orin Smith reading letters from customers and non-customers while serving as CEO of Starbucks.  So you could imagine our surprise when we read about President Obama doing the same thing as part of his daily routine at the White House.  The New York Times captured Obama's letter reading approach in an April article by Ashley Parker.

http://www.nytimes.com/2009/04/20/us/politics/20letters.html

Rick Wagoner

We couldn't have said it better ourselves:

http://www.nytimes.com/2009/03/31/opinion/31holstein.html

Listen to Larry on Fiscal Stimulus

In his New York Times column on January 29, David Brooks discusses why wise leader Larry Summers, now a top economic advisor to President Obama, has the right vision for the stimulus package.  Brooks argues the current package must be changed to meet the three important parameters Summers laid out:  (1)  timely;  (2)  targeted;  (3)  temporary.  We completely agree.  The current stimulus package seems to have lost any sense of a vision to guide it.  President Obama needs to get back to Larry Summers' vision on this very important issue.  We are talking about $800 Billion.

Genchi Genbutsu

Akio Toyoda is about to take over as President of Toyota, and he needs all the help he can get as the automotive industry falls into its deepest slump in decades.  Toyota will soon announce its first annual loss since 1950, which it expects to come in around a staggering $4 billion.  The New York Times did an article on Toyoda's management philosophy, which can be summed up in the Japanese phrase "genchi genbutsu", which literally translates into "go to the spot." 

 

We have high hopes for Mr. Toyoda as he brings the principle of Go To The Source center stage.  Mr Toyoda ran the company's operations in China himself.  He frequently shows up at the General Manager of Lexus' office in the U.S. to discuss new ideas.  During a recall last year he even made an unannounced visit to an Ann Arbour, MI pick-up truck dealership and got down to examine the undercarriage of a truck in his business suit.  This type of hands on, in the field approach will be critical for all of the major automakers as they try to get their businesses back on track.  They must have their fingers on the pulse of their businesses.  So far, Akio Toyoda is setting an example that his employees and the U.S. CEOs should learn from.

President Obama - Don't Fear Risk

Barack Obama enters the White House this week with the entire world watching and with expectations high.  He is popular and he has made many promises to many people.  President-elect Obama has a lot to lose.

In How the Wise Decide we talk about the phenomenon of loss aversion.  Individuals are so worried about the possibility of losing that they fail to take into account the relative probabilities of winning and losing and the relative magnitude of the gains and losses.  Loss aversion leads individuals to fear loss so much that they run from the sight of risk.

Obama cannot let loss aversion and our country’s fragile position drive him away from risk.  Many options that might look risky at first – trillion dollar deficits, investing hundreds of billions in alternative energy, diplomacy vs. force with our enemies, solving the nation’s entire infrastructure problem now vs. only tackling a piece of it – could actually be lower risk in the long run vs. not pursuing them.  Obama must foster an environment where he creates and entertains seemingly risky options to find the ones that will produce the best long-term results for our country.  If he fears risk, he will lose out on many potential solutions that can make our country great once again.

Over three years, we discussed overcoming loss aversion and using risk to one’s advantage with the 21 major leaders in our book.  Based on our research, here are the five practical rules for conquering the fear of risk that Obama must pursue:

(1)      Identify what really drives the risk.  When Obama is confronted by what seems to be a risky decision, he must ask himself two questions:  What are the one or two factors really driving the risk?  What information do I need about these factors to determine how dangerous the risk actually is?

(2)     Reward people for taking smart risks.  Obama must reward people for making smart decisions, not solely on the outcome of their decisions.

(3)     Test the waters before taking the plunge.  Not all decisions need be made quickly.  Sometimes it pays to let a concept simmer for awhile, experimenting with an idea before you fully commit to it.  Obama should use experiments as they limit downside risk but not upside reward.  If the experiment fails, he will have minimal losses and will have learned something.  But if the experiment works, he can refine the concept and roll it out with significant rewards.

(4)     Create a risk tolerant environment.  People have a natural aversion to being ridiculed and seldom are willing to propose seemingly outrageous solutions to problems.  Yet those outrageous solutions may contain seeds of a whole new approach to tackling a tough problem.  Obama must show his team that he is open to this kind of creative thinking.  This is the time for bold and creative solutions.  He can do this by awarding people for bold ideas and holding no holds barred brainstorming sessions.

(5)     Ask “What would it take?”.  Good is the enemy of great.  That old maxim gets talked about a lot, but seldom is much done about it.  Good is easy, great isn’t.  But the leader who can encourage his people to figure out how great is attainable can reap huge rewards.  Obama must ask the people around him “What would it take to [insert tough goal]?”  Challenge people to think big – it may surprise him how often people know how to achieve greatness, but are just too worried to speak up.

Don’t be concerned with losing President-elect Obama and don’t shy away from risk.  Show that you really are different from other politicians and presidents and think boldly about our country’s future.

Books by THE WISE

Many people have asked us if the wise leaders featured in our book have written books of their own.  The answer is yes, and quite a few.  Here they are:

Active Liberty: Interpreting Our Democratic Constitution

A wonderful book detailing Justice Breyer’s views on interpreting the U.S. Constitution and his judicial philosophy.

 

A Life In Leadership: From D-Day to Ground Zero: An Autobiography

by John Whitehead

John Whitehead is one of the most admirable leaders we have ever met.  He was heavily involved in commanding troops from the front lines during World War II, rose through the ranks at Goldman Sachs to eventually lead the firm, went on to serve as Deputy Secretary of State, and served as Chairman of an endless list of non-profits.  This book captures his remarkable life in his own words.

 

When Bill George left Metronic he began teaching leadership at some of the top business schools.  Now he is at Harvard and has put out two books on what he calls authentic leadership. 

Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value (J-B Warren Bennis Series)

True North: Discover Your Authentic Leadership (J-B Warren Bennis Series)

You can visit George’s website to learn more about his favorite topic – Leadership.  http://www.truenorthleaders.com/

 

The Idea of Ideas by Bob Galvin

A wonderful book that captures Galvin’s philosophies when he led Motorola.  This book is out of print, but we were able to read a copy thanks to the Dartmouth College library.  Major libraries, Amazon and eBay are your best options for picking up a copy.

Since retiring from Motorola, Galvin has been quite prolific with research and writing.  Two other books he published are

America's Founding Secret: What the Scottish Enlightenment Taught Our Founding Fathers

PERFECT POWER: How the Microgrid Revolution Will Unleash Cleaner, Greener, More Abundant Energy  with Kurt Yeager

 

Daniel Kahneman, the sole Nobel laureate in How the Wise Decide, has written many books on the subject of behavioral economics.  Here is a link to those books on Amazon.

Books by Daniel Kahneman

Smart Choices

A friend of ours made an interesting comment the other day about How the Wise Decide.  He liked the book, but wanted to learn more.  Specifically, he was interested in whether decisions have basic structures that everyone adheres to.  It turns out they do.  And the best place to learn it is by reading a book called Smart Choices.  Howard Raiffa is one of the co-authors and is regarded by many as the godfather of decision analysis.