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There Are No Called Strikes and Other Lessons You Learn in Business School

Matthew Frederick teams up with Michael Preis to offer some important learnings from the world of business — which isn’t really a discipline in and of itself but rather, as they write in the introduction to 101 Things I Learned in Business School, “a broad field of endeavor encompassing such diverse disciplines as accounting, communications, economics, finance, leadership, management, marketing, operations, psychology, sociology, and strategy.” Here are some lessons gleaned from a trip to business school. (Some of them, at least.)

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A mission or vision statement driven by consensus is probably so watered down it becomes meaningless. Part of the reason this happens is that when you seek consensus you end up with something that no one at the table can disagree with so you don’t really end up saying anything important.

A mission statement describes the current central purpose and goal of an organization, to guide daily decision making and performance.  A vision statement describes what an organization seeks to become, or the ideal society to which the organization seeks to contribute.

When drafting and evaluating potential mission and vision statements, ask if the opposite of a proposed statement is obviously undesirable. If it is, the statement is obviously undesirable. For example, a university mission statement that says the institution “seeks to produce highly effective productive citizens” is unlikely to have any real influence on employees or students, since no university seeks to produce its opposite—ineffective, unproductive citizens. A more meaningful statement will assert that which is truly specific to the organization; it describes what the organization seeks to do that many or most of its peers do not.

This is reminiscent of the approach Ken Iverson took at Nucor: The company needs a specific call to a specific action. Otherwise, you’re wasting everyone’s time with a watered down message.

There are no called strikes.

Billy Beane, who offers compelling insight on making better decisions and avoiding biases,  is quoted in Moneyball to have said “You can always recover from the player you didn’t sign. You may never recover from the player you signed at the wrong price.” This is reminiscent of what Warren Buffett had to say on the same subject: “In investments, there’s no such thing as a called strike. You can stand there at the plate and the pitcher can throw the ball right down the middle, and if it’s General Motors at $47 and you don’t know enough to decide General Motors at $47, you let it go right on by and no one’s going to call a strike. The only way you can have a strike is to swing and miss.” Turns out we can learn a lot about decision making from baseball star Ted Williams and the fictional character Mr. Market, who was invented by Benjamin Graham.

Adding to our knowledge on Feedback Loops, Frederick and Preis distinguish the difference between positive and negative feedback loops.

In a negative feedback loop, the system responds in the opposite direction of a stimulus, thereby providing overall stability or equilibrium. The Law of Supply and Demand usually functions as a negative feedback loop: When the supply of a product, material, or service increases, its price tends to fall, which may lead to raising demand, which will drive the price back up.

In a positive feedback loop, the system responds in the same direction as the stimulus, decreasing equilibrium further and further. For example, a consumer who feels prosperous after making new purchases may end up making even more purchases and take on excessive debt. Eventually, the consumer (Ed. or Government) may face financial ruin and have to make a major correction by selling off assets or declaring bankruptcy (Ed. read A Parable About How One Nation Came To Financial Ruin). Because positive feedback loops restore equilibrium in their own, often dramatic way, it is sometimes suggested that positive feedback loops occur within a larger, if not directly visible, negative feedback loop.

Speaking of The Law of Supply and Demand: It doesn’t always apply.

The Law of Supply and Demand says that if the supply of a given product or service exceeds demand, its price will decrease; if demand exceeds supply, its price will increase. Rising and falling prices impact demand similarly. When supply and demand are exactly equal, the market is at an equilibrium point and acts most efficiently: Suppliers sell all the goods they produce and consumers get all the goods they demand.

Not all products have historically adhered to the Law. When the prices of some luxury or prestige items have been lowered, demand has fallen due to reduced cache. In other instances, rising demand for a product has led to improvements in technology, increases in production efficiency, and the perfection of distribution challenges, all of which have driven prices down. Electronic technologies have tended to follow this pattern.

Experts are not always the best people to solve problems – it’s more about combinatory play — A point not lost on SenecaSteve Jobs and James Webb Young.

Experts are expected to know a lot, but often it is better to know how to organize and structure knowledge than to simply have knowledge. Innovative thinkers don’t merely retain and recite information; they identify and create new patterns that reorganize known information.

When you don’t think about what you’re doing, you tend to promote the best performer to manager, which is often a mistake. Echoing James March, Preis writes:

Employees who excel in one area of business are often promoted to supervisory positions. But in management, one’s achievements are measured through the actions of others. A first-rate lab researcher promoted to lab supervisor, for example, has to coach, mentor, manage, and help other researchers make discoveries—something that may be beyond his or her abilities or interests. Compounding the problem for the organization is that the department no longer has its best researcher making discoveries on the bench.

Contrary to conventional wisdom, the higher one rises in an organization the longer it takes to implement a decision. (The decisions are more consequential, though.)

Front-line managers can effect immediate changes by directly instructing workers. A sales manager can redirect the activities of sales people immediately, and an accounting manager can make immediate changes in bookkeeping practices. At higher levels of an organization, where employees are more concerned with strategic matters, decisions take more time to implement. If the vice president of marketing wishes to change the style of a product being produced, considerable time will be required to engage feasibility studies, explore design alternatives, investigate the technical methods required, and alter manufacturing practices.

Further to this, the higher one rises in an organization the more one must be a generalist. At the front-line level you often only need direct knowledge of specific activities. Managers need a broader understanding in addition to this knowledge, and they are often missing one or the other.

101 Things I Learned in Business School is a good read; however reading The Letters of Berkshire Hathaway (also freely available) is a better way to understand what an MBA should be teaching. This site, after all, wouldn’t exist without the failed education of an MBA.