Will Bell curves eat orgs or orgs eat bell curves

We go through this exercise year after year, especially in large organizations. That is placing all the employees in a bell curve or a normal curve during yearly ratings. Different orgs follow different procedures but more or less the final outcome remains the same.

I am convinced that in the knowledge industry powered by the digital revolution, something is got to give in a few years. Either the bell curve will bring down large organizations OR organizations will learn from what’s happening in the broader economy and take out bell curve driven rating systems. A few companies have already taken the lead.

This is an entrenched system. Organizations have been following this method for decades. If we look at the current digital economy riding high on technology advancements, it provides an unbridled platform for individuals to fully express themselves. The result is that we have incomes (if we take that as a substitute for how much value an individual can add) exhibiting a power law distribution with fat tails. A small percent - the superstars - are able to pull apart from the rest. 

Now conceptually think that the four walls of an organization hold a random sample of individuals from this very society. The core attributes of these individuals (creativity, learning capability, risk taking behaviour, etc, etc) - if given the perfect platform - will doubtless exhibit a power law. But then organizations end up “force-fitting” this set of individuals to a normal curve.

What is the fundamental difference between a normal curve and a power law curve? If you can actually do a small simulation of repeatedly drawing 500 random observations from a normal distribution and a power law distribution, you will understand. The big difference is normal distribution blocks out large outliers (remember stats 101? Less than 1% lie 3 sigma away from the mean). With power law distributions, you will see it is quite common to see wild outliers - several thousand times the mean. And because of outliers the mean also is several orders above the median. The concept of a ‘typical’ or ‘average’ employee is not there in a power law distribution.

My hypothesis is simple. Since normal curves are unable to accommodate these large outliers and force everyone to group around the ‘average’, the ‘superstars’ - who we actually want to retain - get crowded out. But good for the overall economy as more Jan Koums get out there and do their stuff to move us forward. I do not know which one will happen first – will the economics of large organizations crumble over time on the face of the disruptive digital economy OR they would learn to replicate the real economics unfolding outside their four walls. Have to wait and watch and be ready....

"The Second Machine Age"

Just finished reading the Second Machine Age by Erik Brynjolfsonn and Andrew Mcafee last week. I am quite passionate on the general subject covered in the book. The authors pose a lot of good questions on how will the world, and most importantly the human race, cope in this age of profound technological advancements.

Today if we were to predict which set of tasks will never be taken away by machines - at least for the next few decades, we can hardly be confident. Just to drive home the point, a couple of tasks from Levy and Murnane's New Division of Labor (2004) are cited which those authors classified as "unconquerable" by machines - driving cars and complex communications like a question and answer. And within 10 years what do we have? Google's Chauffeur project demonstrated flawless driving by autonomous cars in busy highways and IBM Watson’s victory over humans in Jeopardy! Now add to that the tremendous innovation going in perfecting humanoid robots that are already getting deployed in factories, warehouses, offices, battle zones and so on.

The main argument in the book on why the current environment is so right to spawn the technology advancements rests on 3 pillars –

i) continued exponential improvements in computing: Every critical component in computing like microchip density, storage, speed of internet and so on is improving exponentially since last several decades.

ii) ability to digitize real world things: With explosion in sensors and transmitters technologies, real world things are now easily ‘encoded’ in bits which can be read and processed by computers. The two properties of digital information namely non-rival (can be consumed millions of times without decay) and trivial marginal cost of production make it extremely extensible for re-purposing for a wide variety of applications.

iii) combinatorial nature of current innovations: In the current world, combining existing blocks and coming out with new products is becoming easier. Today economic growth is no more constrained by the number of new ideas coming up. On the contrary, it is more limited by the ability to process the millions of new ideas that are generated. And today’s digital environment (internet) provides the platform to test out most of the new ideas with billions of people.

The traditional GDP measure is hardly relevant in the new economy with zero price digital goods in abundance and the population ‘working’ millions of hours on them completely uncompensated. These activities/transactions do not make into the GDP. We need new measures in this digital age. The most worrisome trend in this new economy is the skill-biased nature of the jobs demanded by the economy. That creates a big inequality. The average income is pulling apart from the median income in the economy and the top 5% - 10% capture most of the wealth.

To understand why incomes are getting more lopsided, we need to appreciate the property of the digital technologies that allows anyone to replicate and sell their work across the globe easily. Think of books, audio, business services and so on. The spread and reach of someone's market have increased manifold today. This allows a small relative advantage in skills to turbo-charge income differences. Second-best performers stand little chance to create local markets as the top performer/provider is able to spread in all markets. This creates winner-takes-all societies as superstars can capture most of the value.

Increasingly income distributions start following power curves where a very small percent – the superstars - earns a lot of money and a significant portion of the population is below average. This is so unlike normal curves that we are used to and have hundreds of models where the distribution is loaded in the middle and describes the typical middle class. The book has a few useful suggestions on how education and policies need to change to keep up. But admittedly it takes decades to mainstream some of the ideas proposed.

We need to be careful as we raise and train our kids to face the world in the next few decades. Horses and oxen were permanently put out of employment with the technological advancements in farm and war fields. We cannot afford to have the coming generations face such consequences – we need to devise ways to exist beside the fantastic machines getting developed.

Checking the DIY attitude - learn to build on what exists

I am sure many of us have confronted with the classic DIY (do-it-yourself) members in our teams. They do not ask for help. They love to brute force 'invent' everything from first principles. And hence they introduce delays and frustrations all around with this behaviour.

I am sure I have at times exhibited this behaviour myself. I often wonder whether this is a result of our education system. I cannot remember were we encouraged enough to build on things that already existed. On the contrary, we were - may I say inefficiently - made to prove theorems that were already proven since centuries. Made to solve math problems manually when calculators were around. And more such examples.

I think as we were made to 'work hard' to grasp the inner theory of everything, deep inside we formed a belief that it is 'wrong' to get answers easily by looking up somewhere. We felt we must 'spend effort' to understand (and possibly ourselves work out) all the steps that lead to the answer.

We must admit that the body of human knowledge has become vast and growing each day. Machines have grown faster and supposedly more intelligent. Today searching through the web and getting information out is cheap and fast. The DIY's need to be coached to not feel 'guilty' when they get their answers cheaply and did not have to work hard.

Progress can only happen by combining and building on things that exist - not by (proverbial) reinventing the wheel and feeling good about the effort spent.....

Don't wait for Mr 'Someone' to solve all problems

During interactions with my team I often hear a frustrated member would declare how 'someone' must have done this or that to avoid a certain mess. Someone should have written this mail, someone should have told the vendor and the list goes on....

It is interesting how we routinely underestimate our own ability to influence the world around us. I observe how my toddler son constantly tests the boundaries around him to assess how far he can go without being stopped. Sadly, as we grow, we keep losing this ability. Admittedly the world around us also becomes more complex. It appears that there is very little we can do to change anything.

I use a simple theory. Divide things around you in two groups:

If you feel strongly about any particular thing (in work, personal life, society whatever), you must never wait for 'someone' to come in and take actions. If you believe that a certain course of action must be taken in a situation, be bold and put your ideas out there for all around you. Assume forced leadership. 'Test' your power. You would be surprised how often your ideas and proposals get accepted and you are allowed to make a difference. There are examples all around

And if you are not passionate about something, allow yourself to "knowingly" be aloof and let things drift. In such situations, you should have zero frustration because you are self aware that you yourself have chosen to not care about the situation.

There is no point getting caught in the middle....

Keep your team informed and engaged for maximum productivity

At workplace or personal situations, now and then we all tread into what I say as the zone of dissonance. We have to "DO" things that are opposite to what we "THINK" is the right thing. And what is right or wrong is of course based on individual core beliefs which differs from person to person.

Since we are all tuned to reduce internal dissonance to manage stress, we consciously or unconsciously take either of following two paths depending on which one takes less effort:

Path 1: We collect more supporting information about what we are DOING and update our core beliefs. Even if that means creating illusions. That brings the "THINK" part in harmony with the "DO" part
OR
Path 2: We choose to stick to our core beliefs and refuse the assignment at hand. This will also bring the "THINK" and "DO" parts in harmony.

And of course the third path is that the two are not brought in harmony over long periods of time. You continue to remain disengaged with low productivity. An attitude of "I do not care - just doing because I have been told to do so".

When leading global teams, I have found one of the superior ways to direct the team towards Path 1 is to explain clearly the rationale behind my decisions / actions (in all honesty) instead of handing down orders. Allow people to "see the reason" and update their beliefs. Disengagement is a far more serious problem to deal with.