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BROKEN CHAINS, THE STUFF OF OUR LOST PERSPECTIVE.
A THOUGHTFUL HEADS-UP FOR BUSINESS
If you believe small observations can signpost big, unnoticed, issues, read on …..
I recently had a conversation with the owner of a Linkedin group who thought a post I wanted to publish had a tenuous relationship with his specialist subject. My response was that there was a close association between his group and some of Linkedin’s other representative groups of knowledge management (KM), human resources (HR), experiential learning (EL) and business education, which were all referenced in my post.
I further suggested that economic history, business history and corporate history, which were also represented through a smaller clutch of groups on Linkedin, were similarly part of the one common objective of them all – to achieve good and better decision-making, itself in a devoted group.
Although an accurate accusation of being irrelevant on a dedicated Linkedin group would be justified, the lesser charge of being tenuous does provide evidence of my wider observation that the more we specialise, the more disconnected we appear to become. In my experience with initiating discussions, some groups – seemingly loyal to themselves alone – find it difficult to mutually engage. I’ve also had discussions rejected or spammed when the contribution clearly addresses a/the larger related issue.
All this might seem like ‘small potatoes’ – it is – but the observation suggests a behind-the-scenes outcome that commerce and industry’s decision-makers seem unprepared to acknowledge and unable or unwilling to address.
In Linkedin’s case, the groups don’t realise how closely related they all are but the net effect of what is otherwise familial estrangement is that they individually place themselves in so-called silos, with nary the desire to mutually commune. However much individual disciplines gets discussed, refined and/or improved, these self-imposed disconnects – I call them broken chains – serve to lessen their potential role available within the greater organisation. They illustrate how ‘more is less’, an expression that describes how, however much is being invested in today’s changed workplace, a disproportionately lower outcome results.
If my ‘broken-chains’ observation is accurate, there must be some enduring effect, difficult to pin down precisely but there’s no argument about what’s happening to productivity and productivity growth, which are big indicators that investment returns are on the slide. The fall in some geographical areas is dramatic (in the UK, for example, the current levels of individual output is at a 25-year low and almost 20% below our main competitors). Some experts think that the wider decline is temporary until the next big techno development kicks in but the edifying point is that that they don’t know why exactly. Given that the modern workplace has not fully adapted to the changed workplace environment – notably the very flexible labour market and the attendant constant migration of employers’ unique knowledge and experience – I’m suggesting that commerce and industry’s broken chains can help the explanation.
As challenging a problem familial estrangement must be at the corporate level, the effect can be even more explicitly illustrated when the phenomenon extends to whole industries and where the net outcome is both demonstrable and deeply dysfunctional.
Witness the deeply worrying example in health care, where the soil sector, farmers, food manufacturers, the pharmaceutical and pesticide industry and doctors all operate independently of each other. The soil scientists have given farmers a nutrient-deficient way of increasing production. To compensate, food manufacturing introduces into their product chemical additives, only a small fraction of which can be absorbed by the human body, a state that inevitably compromises the human immune system. Competition has also encouraged manufacturers to further add sugar, salt and trans-fats (they call these additives ‘bliss factors’ to sell their wares), all of which have hosted a range of opportunistic diseases to fill doctors surgeries and hospitals. Into this multiple whammy happens the pharmaceutical industry, whose experts have impressively invented pills for all reasons that extend the life of many. In the First World, the result is generations of elderly people, still with low immune systems, dying uncomfortably and expensively on Zimmer frames. In the Third World, they just die.
What’s happened is that both organisational structures and industry sectors have become disengaged. The separated and interconnected sectoral specialties have, between them, all contributed to a problem now harmfully affecting the health of more than a quarter of the world’s population (source: World Food Programme, 2007). In truth, neither the individual silos nor their parent organisations would admit to any responsibility for their downstream consequences, leaving dithering Governments to try and sweep up the mess, notably futilely.
One common factor of this problem seems to be size – and size features in another meaningful example of broken chains’ upshot of ‘more is less’. Government itself is often the largest single organisation in countries with ambidextrous departments, defined skills and large budgets. Using World Bank data from 104 countries over a seven-year period to 2011, the University of Georgia’s Professor Jeffrey Dorfman, an economics specialist in how policy redistributes wealth, concluded that more Government spending means less economic growth (Forbes, December 10, 2013).
Size also features as one of the contributory factors behind the 2008 debacle around the banks, where their interconnected activities covered everything from housing to nearly everything else. It is instructive that few of the main players in that saga saw it as anything to do with the familial estrangement of connected silos, where – to quote another idiom – the separate entities ‘couldn’t see the wood for the trees’. One of the definitions of this saying is that affected entities are unable to understand what is important in a situation because they are giving too much attention to detail.
All this provides evidence of yet another knowledge-based ‘black hole’ for decision-makers and is a boost for the emerging movement known as Evidence-Based Management (EBM), which is establishing itself in medicine and some political policy-making. Studies have shown that, among doctors for example, only about 15% of their decisions are evidence based. And elsewhere, although senior executives are ultimately responsible for what happens in their organisations, the reason for lapses “could be more to do with the quality of decision-making than in any intentional unethical behaviour” (‘Decisions without Blinders’, Harvard Business Review, January 2006).
The paradox is nevertheless explicit; that despite individual heights of professional effort and/or achievement, the overall result is often less than triumphant. Forgive the opportunity to mix a few more metaphors – they are truly very good for illustrating different circumstances – but the evidence can’t be clearer, yet our ability to ‘connect the dots’ is seemingly absent. We usually describe this as ‘the left hand not knowing what the right hand is doing’ but the malady seemingly goes further; with each silo – whether at the corporate or industry level – effectively saying it’s the left hand not caring what the right hand is doing. It’s an ‘I’m-alright-Jack’ attitude that proposes that the maxim ‘big is beautiful’ is now more parody than proverb.
Behind the massive scale of these examples is an obvious breakdown in wider awareness within organisations, whether inside corporate disciplines or related-industry sectors.
By awareness, I am referring to the detail of employer-specific innovation as well as tried-and-tested knowledge and experience, important because the former is almost always a function of the latter. With the linking of the ‘old’ with the ‘new’ providing continuity and the uninterrupted direction of travel, the stop-start character of modern commerce and industry – greatly enhanced by the modern flexible labour market – is replaced by the traditional organic way most progress occurs, i.e. one experience leading into another. For ease of classification, the sum total of acquired ‘wisdom’ can be boxed as organisational memory (OM). Without it, the condition that is familiarly known as corporate amnesia – which is the enemy of the comprehensive evidential base – kicks in.
Thereafter comes the main reason for what happens when chains get broken and awareness takes leave – individuals and the organisations for which they work lose their PERSPECTIVE. And deprived of perspective, which is one of the most important components of good decision-making, determinations become relevant only to the short term, the acknowledged curse of much of modern commerce and industry’s inbred character (at least in many Anglo environments).
There is another equivalent classification that I hesitate to use because of its unfashionable connotations in modern business education, even in general education. Mention of the word instantly makes the eyes cloud over but it is nonetheless memory in its most durable format. Prosaically called ‘history’, its chronicle is a seriously underrated agent of knowledge/wisdom, yet its various sub-divisional applications as a management tool is widely disregarded. For one, it can help solve the endemic problem of short, selective and defensive memory recall. For two, it can fill the employer-specific knowledge vacuum imposed by short employee tenure, which is the single biggest explanation for the pervasive dispersal of unique institute-specific experience. For three, it is also key to understanding culture, the backbone of almost all collective endeavour. And finally, it can improve decision-making, whose current taught methodologies still suit old-fashioned and inflexible labour markets, where the treasure trove of the corporate evidence base didn‘t decamp the front door at today’s ‘walkabout’ rates.
I hear the leaden cry of information overload but the reality of the situation is which is preferable: the status quo or an acquired perspective? Actually, the latter is not so far from reality as its detractors might believe.
The long-term of prior experience is ordinarily the responsibility of the standalone subjects of economic history, business history and corporate history, all given seriously neglected attentions. The medium- and short-term falls more neatly into the Cinderella disciplines of KM and IT (represented by our huge data banks of inert records) while the role of learning from all their hard-won intellectual capital is decision-making’s and, crucially, the acknowledged but widely unused discipline of experiential learning (EL). Parenthetically EL, which applies knowledge and experience in a reflective methodology to adapt decisions to changed circumstances and environments, revises the taught one-size-fits-all decision-making practices to accommodate individual employers’ new short-tenure and evidence-depleted work environment. With perhaps the exception of EL, business education and employers ALREADY have these under-exploited disciplines in place.
To acquire better perspective, then, time to make them work harder in today’s changed workplace environment, whether they live down the hall, in the boardroom or even at Linkedin, where Microsoft (median employee tenure four years amid $15 billion failed acquisitions since 2001 and a high level of failed/abandoned products) has taken charge. The latter please note, perspective is precisely relevant to KM, HR, EL, business education, history and many more groups ……
Postscript: My reference to ‘history’, which is widely unfashionable in all education, is, as already indicated, a critical component of how any culture develops itself. Culture – and no less a business culture – is especially misunderstood, its detailed awareness being essential in any attempt to manage it. But its widespread neglect as a subject raises another observation of consequence in society. Many professions (for example architecture, art, music, the military, medicine, politics, science, the clergy and so on) all contain an element of their generic history in their education, awareness that underpins their specific professionalism. Contrastingly, history’s widespread absence in business education and businesses themselves is glaringly evident, suggesting that business and/or management is not considered a profession. This author contends the contrary and suggests that a more ‘history’-savvy workforce, one that intuitively knows more about their employers’ experiences, their industrial sectors’ experiences and their countries’ business experiences within the context of even wider business experience, would automatically improve their own employment, their business practice and their decision-making. Perspective would certainly help to clear my doctor’s surgery!
GROUND-BREAKING ‘FIX’ TO DETER SHOCKING LEVELS OF FRAUD IN US FINANCIAL SERVICES. A COMBINED EL/IT MODEL WITHIN KM FOR OTHER COUNTRIES?
Three academics out of the universities of Minnesota and Chicago have just published some shocking statistics about financial advisers in the US. In a 10% sample of such advisers working in the decade to 2015, roughly 7% of them have indulged in some form of misconduct or fraud, with some of the largest financial advisory firms having more than 15% of their advisers with similar records of misbehaviour. Whilst the percentage of such dysfunction was unexpected – the academics were guessing a rate of around 1% – the real surprise was that offenders were five times as likely to engage in new misconduct as the average financial adviser.
For individual advisers, it pinpoints a high level of educational and ethical shortcomings and for employers, it identifies an elevated level of tolerance for misconduct, with firms disciplining only around half of offenders with dismissal. Both indicate dire levels of experiential NON-learning, which has encouraged the Financial Industry Regulatory Authority (Finra), the non-government supervisory body for the sector, to initiate a ground-breaking solution using Knowledge Management (KM), Information Technology (IT) and Experiential Learning (EL) to address even further unsettling findings.
What’s happening is that around 44% of sackings are typically re-employed by less reputable firms that have a higher rate of prior misconduct themselves, a finding that unearths another unnerving picture to further reinforce the unwelcome spin-off to retail investors. The researchers found that so-called ‘clean’ broker companies are co-existing with firms that persistently engage in wrongdoing, among them companies that “specialise” in misconduct and which specifically cater for unsophisticated customers in areas with low education, elderly populations and high incomes (source: http://www.valuewalk.com/wp-content/uploads/2016/02/SSRN-id2739170.pdf).
With this scandalously high level of misbehaviour and tolerance for misconduct, it would appear that the standards of individual financial advisers as well as the hiring policies of employers are seriously lacking.
The evidence for these less reputable firms – indeed, even with the brokers who concentrate on more sophisticated clients – confirms the importance of a better way for investors to do their own due diligence on their financial advisers. For this to happen they need the evidence with which to become better experiential learners, where the results of the survey are being made available to investors in a trailblazing way.
Finra is recycling the information in a free-to-access databank that records so-identified “disclosures” (see http://brokercheck.finra.org/) of individual advisers. On a continuing basis, it will track any sort of dispute, disciplinary action or other financial matters concerning individual advisers, including fraud and other wrongdoing. It is intended that when customers get into disputes with their brokers, the results of any formal proceedings (often arbitration) will end up in BrokerCheck, as will any penalties from regulators or others. If the broker has been fired for any cause, this, too, will generally show up, as will any personal tax liens on brokers or bankruptcies that they’ve filed. Pubic access to this database will, hopefully, achieve two objectives – by naming-and-shaming individual advisers, it will hopefully deter the less-than-honest and, in the process, enable ordinary investors to make up their own minds whom to trust with their money.
Where this differs from other similar national projects is that it refers to individuals by name, thought to be a first. In the UK for example, the independent Financial Ombudsman Service publishes its “determinations” – or final decisions – of all appeals but without identifying individual advisers. Business units are identified by name whilst complainants are acknowledged by their initials.
To put BrokerCheck and other similar IT programmes into their operational contexts, they broadly fit into the prevailing discipline known as Knowledge Management (KM) and Experiential Learning (EL), the former being the efficient handling of historic data and resources while the latter is the process of learning through historical experience. Both are designed to enable good and better decisions, with BrokerCheck using explicit knowledge to provide users with an unsophisticated choice between perceived good and less good. EL, which is the more sophisticated use of prior experience, applies both explicit and tacit knowledge in a reflective methodology to adapt decisions to changed circumstances and environments, the process that is plainly behind the resolution to name and shame delinquent advisers. A good example of joint application of two of the main arms of KM, it would seem that the US financial services industry is broadening its attempt to improve its service to its ultimate customers.
I’m a modest investor myself and my choice of financial advisers has mostly depended on personal recommendation and broker-generated hype supported by generalised, oversimplified and confusing information that is always qualified. Down the years I’ve had concerns about my own choices whose reputations are similarly indefinite, with my complaints being expertly kicked into the long grass with the statement that “The value of investments can go down in value as well as up”. Except for team leaders in one example, I was never able to locate the identities of employer-assigned individuals.
Whilst most national financial service sectors have an Ombudsman to supposedly help cut away that long grass, wouldn’t it be practical for other national regulators to similarly survey their own community of financial advisers? If the results were, like the US, equally unwelcome, might not a similar BrokerCheck be fitting? It would certainly help to make investors a little more savvy before the Ombudsman or formalised legal route needs to be taken.
Given the evident employer-allowed misconduct in one country at least, one answer must be to give investors the evidential base with which to better choose their financial advisers for themselves. In truth, BrokerCheck won’t stop all misconduct or fraud. But it is an imaginative and constructive deterrent to an evident problem.