Category: Leadership

George Marshall’s 1920 Letter on True Leadership

“I am certain in the belief that the average man who scrupulously follows this course of action is bound to win great success.”

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George Marshall must be one of, if not the most under appreciated leaders in American history, and certainly of the 20th century.

Not only was he the military genius in charge of the US Army during World War II and the most directly responsible for its success, he was considered the primary leader of the Allied War effort by every major Allied leader. Roosevelt found him indispensable as his Army Commander, Winston Churchill called him the “true architect of victory” in the War, and even Stalin claimed he'd personally trust his life to Marshall. General and future President Dwight D. Eisenhower was his disciple.

It was Marshall who, from a standing start of a few hundred thousand soldiers, raised an army of millions and oversaw the major operations that would lead to the liberation of Europe. (Brilliantly recounted by Rick Atkinson in his three volume series.)

Churchill put Marshall's best qualities — his leadership in the worst of times — on display when he wrote:

There are few men whose qualities of mind and character have impressed me so deeply as those of General Marshall … He is a great American, but he is far more than that … He has always fought victoriously against defeatism, discouragement and disillusion. Succeeding generations must not be allowed to forget his achievements and his example.

Sadly, outside of military circles, that example does seem a bit forgotten.

Marshall is now mostly known for his genius Marshall Plan, which sought to re-build Europe (including Germany) in the aftermath of the war. But he was much more than that.

Before World War II, Marshall had a long and distinguished military career, including as the primary aide to General John J. Pershing, the Commander of the American Expeditionary Force in World War I. And during this time, Marshall wrote a letter that perfectly exemplifies the qualities of a great leader. It would go on to be included in his posthumously published World War I memoir, Memoirs of My Services in the World War, 1917-1918.

Here, Marshall lays out the four qualities required to be a successful leader in a war situation.

What strikes us most about them is that they are neither complicated nor available to a select few nor specific to war at all. They are simply hard. And if Marshall's life is a testament to anything, it's that the ability to do hard things at the right time is the essence of a great leader.

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November 5, 1920

General John S. Mallory
15 University Place
Lexington, Virginia

My Dear General Mallory,

Last summer during one of our delightful rides I commented on the advice I would give a young officer going to war, based on my observation of what had constituted the success of the outstanding figures in the American Expeditionary Forces, and you asked me to write out what I had said. A discussion with Fox Conner this morning reminded me of my promise to do this, so here it is.

To be a highly successful leader in war four things are essential, assuming that you possess good common sense, have studied your profession and are physically strong.

When conditions are difficult, the command is depressed and everyone seems critical and pessimistic, you must be especially cheerful and optimistic.

When evening comes and all are exhausted, hungry and possibly dispirited, particularly in unfavorable weather at the end of a march or in battle, you must put aside any thought of personal fatigue and display marked energy in looking after the comfort of your organization, inspecting your lines and preparing for tomorrow.

Make a point of extreme loyalty, in thought and deed, to your chiefs personally; and in your efforts to carry out their plans or policies, the less you approve the more energy you must direct to their accomplishment.

The more alarming and disquieting the reports received or the conditions viewed in battle, the more determined must be your attitude. Never ask for the relief of your unit and never hesitate to attack.

I am certain in the belief that the average man who scrupulously follows this course of action is bound to win great success. Few seemed equal to it in this war, but I believe this was due to their failure to realize the importance of so governing their course.

Faithfully yours,

George C. Marshall
Major, General Staff
Aide-de-Camp

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If you're interested in learning about Marshall, there are several good books written about him including Leonard Mosley's biography, his own WWI memoirs in which this letter is printed, and Winston Groom's book about Marshall, Patton, and MacArthur and the winning of the war.

Leaders and Followers, Planners and Doers

The author Marshall Goldsmith has a gift for taking classic theories and adding to them, or slightly modifying them, to construct something new and interesting.

A good example of this is what he does with Situational Leadership in the book Triggers: Creating Behavior That Lasts – Becoming the Person You Want to Be.

He takes the original ideas postulated by Paul Hersey and Ken Blanchard in their theory of Situational Leadership and adds an interesting spin, allowing us to use some of the insights more personally.

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Situational leadership is the idea that one needs to constantly adapt their leadership style to the ever changing environment in which they operate.

If a specific style works in one situation with one particular individual, that doesn’t mean we should adopt that style for all people and situations. However, in part because success is reinforced, that is generally what we do.

Hersey and Blanchard’s premise is that leaders need to adapt their style to fit the performance readiness of their followers. Readiness not only varies by person, it also varies by task. Followers have different levels of motivation and ability for different tasks.

Leaders need to acknowledge that situations change along with the readiness of their staff. To be most effective, different people require different types of leadership.

Hersey and Blanchard outlined four distinct styles:

  1. Directing is for employees requiring a lot of specific guidance to complete the task. The leader might say, ‘Chris, here’s what I’d like you to do, step by step. And here’s when I need it done.’ It’s primarily a one-way conversation, with little input from the employee.

  2. Coaching is for employees who need more than average guidance to complete the task, but with above-average amounts of two-way dialogue. Coaching is for people who both want and need to learn. The leader might say, ‘Chris, here’s what I’d like you to do,’ and then ask for input: ‘What do you think, Chris?’

  3. Supporting is for employees with the skills to complete the task but who may lack the confidence to do it on their own. This style features below-average amounts of direction. The leader might say, ‘Chris, here’s the task, How do you think is should be done? Let’s talk about it. How can I help you on this one?’

  4. Delegating is for employees who score high on motivation, ability, and confidence. They know what to do, how to do it, and can do it on their own. The leader might say, ‘Chris, here’s the assignment. You have a great track record. If I can help, just ask. If not, you’re on your own.’

The four styles are quite different. The idea is to try and measure the need of your employee and choose the style that best fits them at that particular moment in time. The measuring process needs to happen continually for you to be most effective. The style which best helps Chris in situation X might not be the the one that will help him in situation Y.

Now for the twist.

Hersey and Blanchard’s situational leadership is a perfect analogue to a hidden dynamic that exists within us when we attempt to change our behavior. It’s the same dynamic whether you call it leader and follower, planner and doer, or manager and employee. The terms are interchangeable as far as I’m concerned.

As we go through life making plans to be a better friend, partner, worker, athlete, parent, son, or daughter, inside each of us are two separate personas. There’s the leader/planner/manager who plans to change his or her ways. And there’s the follower/doer/employee who must execute the plan.

Goldsmith argues that whether you are trying to lead other people or lead yourself, the obstacles are very much the same. You still have to deal with all the variables in the environment: temptations pushing you away from your objective, motivation issues, and self-discipline issues. One result is that we tend to be superior planners but inferior doers. We talk a good game.

If you take a moment to think of a recent plan that you devised but never executed, you’ll realize that Goldsmith is onto something here. Would a successful leader come up with a beautiful plan, throw it out to their employees, and then walk away and hope for the best? No.

To improve the odds of success, a leader would check in. They would look for obstacles to remove. They would want feedback on progression. They would be an active part of implementing the plan. We know this, yet we don't do it in our own work and lives. We don't manage execution.

What if the planner in each of us, like an effective leader with his or her subordinates, could size up the situation at any point during the day and adopt the appropriate management style for the doer in us? It’s a simple two-step: measure the need, choose the style.

It gives you such a new perspective to think of your goals in this way. It allows you to step back from the situation and clearly see where you are getting off course. Just step into execution mode and out of planning mode, as any good hands-on leader would do.

We don't adequately weigh many of your past experiences/failures. This may be a willful denial of why you have failed at a task in the past or it could simply be that you’ve never taken the time for reflection.

It’s not just environmental intrusions and unpredicted events that upset our plans. It’s also our willful discounting of past experience. We make plans that are wholly contradicted by our previous actions.

The planner in us is convinced this time it will be different. Yet if you don't understand why you failed, you're doomed to repeat folly. Learning from our mistakes is key to increasing the odds to achieve our personal and professional goals.

Goldsmith's book is filled with insightful ideas. His decades of experience in coaching leaders is evident throughout the pages; both in the way he highlights his ideas with meaningful examples and the way he explains the evolution in his own thinking. You will find yourself identifying with his client’s issues and walking through the solutions, endowing you with practical tools to help you change your own behavior, whatever your own “triggers” might be.

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Still curious? Check out some other leadership ideas like seeing the world through the eyes of your crew and learning courage during difficult times.

Words Like Loaded Pistols: Wartime Rhetoric

Rhetoric, or the art of persuasion, is an ancient topic that's no less relevant today. We are in a golden age of information sharing, which means you are swimming in a pool of rhetoric every day, whether you realise it or not.

The book Words Like Loaded Pistols: Rhetoric from Aristotle to Obama by Sam Leith is one tool to help navigate our choppy waters. Leith does an impressive job of unpacking rhetorical concepts while also providing all the knowledge and nuance required to be a powerful speaker.

The book is laid out beautifully, with sections entitled ‘Champions of Rhetoric,’ in which he dissects the work of some of the most famous orators. The chapter comparing Adolf Hitler to Winston Churchill is particularly interesting. 

Churchill

Churchill was a prolific speaker: Between 1900 and 1955 he averaged one speech a week. (That’s 2,860 speeches for those who like math). And they were not just speeches; They carried some of the most famous sayings produced in the twentieth century:

Among the phrases he minted were ‘blood, toil, tears, and sweat,’ ‘their finest hour,’ ‘the few,’ ‘the end of the beginning,’ ‘business as usual,’ ‘iron curtain,’ ‘summit meeting,’ and ‘peaceful coexistence.’

While this impressive resume and history solidified his place on the throne of oratory excellence, it’s important to note that he wasn’t a “born speaker” — in fact, he made many mistakes. And he learned. 

Like many of us, Churchill would even get nervous to the point of nausea before addressing the public. To counter this he engaged in deliberate practiceHe would rehearse his speeches in the mirror, modify them as needed, and scribble meticulous notes including pauses and stage direction. In other words, one of history's great orators painfully engaged himself in a process of trial, error, and practice

To shape himself as an orator he learned by heart the speeches of Disraeli, Gladstone, Cromwell, Burke, and Pitt. Churchill combined their example with his father Randolph’s gift for invective. But he added something of his own – and it was this that helped tether his high style to something more conversational. He was a master of the sudden change of register – a joke, or a phrase of unexpected intimacy.

Stylistically, Churchill was known for building up to a great crescendo and then suddenly becoming gentle and quiet. Students of rhetoric recognise this as a device to keep your audience engaged, to surprise it. The joking and intimacy showed his prowess with another important rhetorical device, ethos.

Ethos is about establishing a connection with your audience. A joke can help with this because humor is often based on joint assumptions and beliefs; sharing a laugh with someone tends to make us feel closer to them. It’s human nature to gravitate towards those people who are like us (see the principles of influence). 

Yet, for all the aspects of the ethos appeal which Churchill got right, on more than one occasion he didn’t judge his audience well and was unable to persuade them.

When he was an MP in 1935, his colleague Herbert Samuel reported, ‘The House always crowds in to hear him. It listens and admires. It laughs when he would have it laugh, and it trembles when he would have it tremble… but it remains unconvinced, and in the end it votes against him.’

Much like today, in Churchill’s time parliament was designed for a type of call and response dialogue, not a grand soapbox type speech that he was so fond of.

Leith argues that if it wasn’t for the war, Churchill might have never found his audience and surely would have been remembered much differently, if at all.

The thing about Churchill was that, like the stopped clock that’s right twice a day, he occupied one position and waited for the world to come to him. He spend much of his political career predicting the imminent end of Western civilization — and it was only by the damnedest good luck that it happened to be on his watch that it suddenly appeared to be coming about. If not, he might have been remembered as a self-aggrandizing windbag with an old-fashioned speaking style and a love of the sound of his own voice.

But when the country really was under threat, Churchill’s fierce certainties were what an anxious audience wanted, while his style — steeped in the language of the previous centuries — seemed to encapsulate the very traditions that he was exhorting them to fight for. What at another time might have been faults became rhetorical strengths. That, you could say, is kairos writ large.

What does that last phrase “kairos” mean? It's all about timing and fit:

As a rhetorical concept, decorum encompasses not only the more obvious features of style, but kairos, or the timeliness of a speech, the tone and physical comportment of the speaker, the commonplaces and topics of argument chosen, and so on. It is a giant umbrella concept meaning no more nor less than the fitting of a speech to the temper and expectations of its audience.

You could argue that the war needed Churchill and that Churchill needed the war. And unlike conflicts of the past, he also had access to the public like no other leader had before. You didn’t need to crowd into a square to hear Churchill speak, you needed to only turn on the radio.

One of the virtues of Churchill’s wartime rhetoric, however, was that whatever his peers in the House of Commons thought, he was able to speak — as politicians a generation before had not been able to — directly to the public through the wireless.

After delivering many of his key speeches in the Commons, Churchill read them out on the radio. Here, that presidential style — all that gruffness and avunicularity all those rumbling climaxes — was able to take full effect without being interrupted by rustling order papers and barracking Opposition MPs. He was pure voice.

Churchill indeed was pure of voice, but there was another loud voice in this conflict: Adolf Hitler. When it came to speaking, the two shared many things in common, but their differences were just as noticeable.

Hitler

Hitler understood the power of words: He saw them as a tool which he needed to master if he wanted to achieve his goals. He had a strong vision which he believed in passionately and he knew that he needed his people to share that passion if he was to succeed.

From Mein Kampf:

The power which has always started the greatest religious and political avalanches in history has been, from time immemorial, none but the magic power of the word, and that alone. Particularly the broad masses of the people can be moved only by the power of speech… Only a storm of hot passion can turn the destinies of peoples, and he alone can arouse passion who hears it within himself.

It would seem that Hitler associated passion with anger, his speeches were known to peak with shouting resembling rage. Even when writing his speeches he would work himself up into a frenzy.

Traudl Junge, the young secretary whose memoir of the last days in the Fuhrerbunker formed the basis for the film Downfall, recalled him composing the speech he gave to mark the tenth anniversary of his dictatorship. He started out mumbling almost inaudibly, and pacing up and down, but by the time his speech reached its crescendo he had his back to her and was yelling at the wall.

Like Churchill, Hitler would often practice in front of a mirror and choreograph the whole performance, but he would take it much further. With an eye for theatrics, he would pay close attention to the acoustics of the venue to accent both his booming voice and the martial music that would accompany him. He was particular about the visuals, with his dramatic lights and placement of flags.

Hitler also used pauses to his advantage. While Churchill would use them mid speech to maintain an audience's attention or ‘reel them in’, Hitler would use them at the beginning.

It could go on for anything up to half a minute, which is (you’ll know if you’ve tried it) a very, very long time to stand on a stage without saying or doing anything. When he started – which he’d typically do while the applause was still fading out, causing the audience to prick up its ears the more — he would do so at a slow pace and in a deep voice. The ranting was something he built up to, taking the audience with him.

Hitler liked to control every aspect of his performance and paid close attention to those details that others dismissed, specifically the time of day that he gave his speeches (a lesson infomercials learned).

He preferred to speak in the evening, believing that ‘in the morning and during the day it seems that the power of the human will rebel with its strongest energy against any attempt to impose upon it the will or opinion of another. On the other hand, in the evening it easily succumbs to the domination of a stronger will.’

Hitler had a keen interest and insight into human nature. He knew what he needed from the German people and knew the psychological devices to use to sway the masses. He was even cognizant of how his attire would resonate with the population.

While other senior Nazis went about festooned with ribbons and medals, Hitler always dressed in a plain uniform, the only adornment being the Iron Cross First Class that he had won in 1914. That medal, let it be noted, is a token of bravery, not of rank.

This was a calculated move, an appeal to ethos: I am one of you. It was a tricky balance, because he needed to seem like one of the people but also to portray an air of exceptionality. Why else would people follow him if he wasn't the only one who could do tend to Germany in its time of need?

As a wartime leader, you need to make yourself both of and above your audience. You need to stress the identify of their interests with yours, to create unity in a common purpose. You need, therefore, to cast yourself as the ideal exemplar of all that is best and most determined and most courageous in your people.

As expected, the same type of thing happens in modern politics, which is especially amplified during election time. Everyone is scrambling to seem like a leader of the people and to establish trust while still setting themselves apart from the crowd, convincing us that they are the only person fit for the job.

If you look closely, many of the rhetorical devices examined in Words Like Loaded Pistols are in high use today. Leith discusses a speechwriter for Reagan and one of his Champions of Rhetoric is Obama; these sections of the book are just as interesting as the piece on Churchill and Hitler.

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Still Interested? If you have a fascination with politics and/or Rhetoric (or just want someone to skillfully distill the considerable amounts of information from Ad Herennium and Aristotle’s Rhetoricthen we highly recommend you pick the book up.

Moving the Finish Line: The Goal Gradient Hypothesis

Imagine a sprinter running an Olympic race. He’s competing in the 1600 meter run.

The first two laps he runs at a steady but hard pace, trying to keep himself consistently near the head, or at least the middle, of the pack, hoping not to fall too far behind while also conserving energy for the whole race.

About 800 meters in, he feels himself start to fatigue and slow. At 1000 meters, he feels himself consciously expending less energy. At 1200, he’s convinced that he didn’t train enough.

Now watch him approach the last 100 meters, the “mad dash” for the finish. He’s been running what would be an all-out sprint to us mortals for 1500 meters, and yet what happens now, as he feels himself neck and neck with his competitors, the finish line in sight?

He speeds up. That energy drag is done. The goal is right there, and all he needs is one last push. So he pushes.

This is called the Goal Gradient Effect, or more precisely, the Goal Gradient Hypothesis. Its effect on biological creatures is not just a feeling, but a real and measurable thing.

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The first person to try explaining the goal gradient hypothesis was an early behavioural psychologist named Clark L. Hull.

As with other animals, when it came to humans, Hull was a pretty hardcore “behaviourist”, thinking that human behaviour could eventually be reduced to mathematical prediction based on rewards and conditioning. As insane as this sounds now, he had a neat mathematical formula for human behaviour:

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Some of his ideas eventually came to be seen as extremely limiting Procrustean Bed type models of human behavior, but the Goal Gradient Hypothesis was replicated many times over the years.

Hull himself wrote papers with titles like The Goal-Gradient Hypothesis and Maze Learning to explore the effect of the idea in rats. As Hull put it, “...animals in traversing a maze will move at a progressively more rapid pace as the goal is approached.” Just like the runner above.

Most of the work Hull focused on were animals rather than humans, showing somewhat unequivocally that in the context of approaching a reward, the animals did seem to speed up as the goal approached, enticed by the end of the maze. The idea was, however, resurrected in the human realm in 2006 with a paper entitled The Goal-Gradient Hypothesis Resurrected: Purchase Acceleration, Illusionary Goal Progress, and Customer Retention. (link)

The paper examined consumer behaviour in the “goal gradient” sense and found, alas, it wasn’t just rats that felt the tug of the “end of the race” — we do too. Examining a few different measurable areas of human behaviour, the researchers found that consumers would work harder to earn incentives as the goal came in sight, and that after the reward was earned, they'd slow down their efforts:

We found that members of a café RP accelerated their coffee purchases as they progressed toward earning a free coffee. The goal-gradient effect also generalized to a very different incentive system, in which shorter goal distance led members to visit a song-rating Web site more frequently, rate more songs during each visit, and persist longer in the rating effort. Importantly, in both incentive systems, we observed the phenomenon of post-reward resetting, whereby customers who accelerated toward their first reward exhibited a slowdown in their efforts when they began work (and subsequently accelerated) toward their second reward. To the best of our knowledge, this article is the first to demonstrate unequivocal, systematic behavioural goal gradients in the context of the human psychology of rewards.

Fascinating.

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If we’re to take the idea seriously, the Goal Gradient Hypothesis has some interesting implications for leaders and decision-makers.

The first and most important is probably that incentive structures should take the idea into account. This is a fairly intuitive (but often unrecognized) idea: Far-away rewards are much less motivating than near term ones. Given the chance to earn $1,000 at the end of this month, and each thereafter, or $12,000 at the end of the year, which would you be more likely to work hard for?

What if I pushed it back even more but gave you some “interest” to compensate: Would you work harder for the potential to earn $90,000 five years from now or to earn $1,000 this month, followed by $1,000 the following month, and so on, every single month during five year period?

Companies like Nucor take the idea seriously: They pay bonuses to lower-level employees based on monthly production, not letting it wait until the end of the year. Essentially, the end of the maze happens every 30 days rather than once per year. The time between doing the work and the reward is shortened.

The other takeaway comes to consumer behaviour, as referenced in the marketing paper. If you’re offering rewards for a specific action from your customer, do you reward them sooner, or later?

The answer is almost always going to be “sooner”. In fact, the effect may be strong enough that you can get away with less total rewards by increasing their velocity.

Lastly, we might be able to harness the Hypothesis in our personal lives.

Let’s say we want to start reading more. Do we set a goal to read 52 books this year and hold ourselves accountable, or to read 1 book a week? What about 25 pages per day?

Not only does moving the goalposts forward tend to increase our motivation, but we repeatedly prove to ourselves that we’re capable of accomplishing them. This is classic behavioural psychology: Instant rewards rather than delayed. (Even if they’re psychological.) Not only that, but it forces us to avoid procrastination — leaving 35 books to be read in the last two months of the year, for example.

Those three seem like useful lessons, but here’s a challenge: Try synthesizing a new rule or idea of your own, combining the Goal Gradient Effect with at least one other psychological principle, and start testing it out in your personal life or in your organization. Don’t let useful nuggets sit around; instead, start eating the broccoli.

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.

Creating Effective Incentive Systems: Ken Iverson on the Principles that Unleash Human Potential

The issue of setting compensation seems to be struggled with in every organization. Most are pretty lazy about it — hiring someone else to take care of it and failing to think through the incentives they're creating.

Some companies are different. Nucor, a steel company, under the leadership of Ken Iverson is one of them. Iverson details his thoughts in the masterful Plain Talk. (This isn't the first time we've covered Iverson's wisdom on running a company. His genius was exploiting unrecognized simplicities.)

Ken Iverson

Under Iverson, compensation at Nucor had two components: A small but meaningful base pay and a very simple weekly bonus based on production. Outside of benefits and a little profit sharing, that was it. Simple, straightforward, and powerful. No subjective criteria.

The real beauty of Nucor's compensation system, in my opinion, is that there is nothing to discuss. Daily output and corresponding bonus earnings are posted, so employees know exactly what their bonus will be before they tear open their pay envelopes. No judgment. No negotiation. No surprises.

There are three beautiful aspects to the design of this program.

The first is that it's eminently clear what you will be paid for: making more steel. It's so simple. Your compensation is never at the hands of someone who may or may not like you. You have no reason to say it's unfair: You signed up for it when you signed on. If you worked at Nucor under Iverson, the first thought you had every morning was how to make more steel.

Secondly, it offers immediate feedback. Human nature, and the nature of many other higher-thinking animals, is such that immediate rewards work better than delayed rewards. B.F. Skinner knew this, but some corporations haven't figured it out yet. A year-end bonus isn't nearly as effective as a weekly bonus. A year-end review isn't nearly as useful as immediate feedback. It's simple.

And lastly, this program gave Nucor's employees tremendous skin in the game. Everyone was working towards the same goal. Rowing in the same direction. And that makes a tremendous difference.

Nucor's great success in harnessing incentives reminds me of Charlie Munger's discussion on Federal Express:

From all business, my favorite case on incentives is Federal Express. The heart and soul of their system—which creates the integrity of the product—is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can’t deliver a product full of integrity to Federal Express customers.

And it was always screwed up. They could never get it done on time. They tried everything—moral suasion, threats, you name it. And nothing worked.

Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift—and when it’s all done, they can all go home. Well, their problems cleared up overnight.

So getting the incentives right is a very, very important lesson. It was not obvious to Federal Express what the solution was. But maybe now, it will hereafter more often be obvious to you.

Does this mean every company should model their compensation program after a steel company? Hell no. But you want to think about it. It's easy to come up with a suboptimal incentive system — just look around corporate America. The difference between a suboptimal compensation system and an optimal one is huge.

The principles for an effective compensation system work at all companies. Let's invert — think about the common reasons that compensation systems likely fail. First, most of them are hard to explain. They are overly complicated and wordy. (At Nucor everyone from the CEO to the newest employee could explain it.) Second, the rewards are small and untimely. Yearly bonuses anyone? Third, the program has to be designed in a way that the people in it (and the people running it) can't game it. Finally, everyone is subject to the same plan.

Done poorly, compensation systems foster a culture of individualism and gaming. Done properly, however, they unleash the potential of all employees.