Tag Archives: economics

What Do We Do About “Peak Intelligence?”

CI colleague and friend Eric Garland wrote a very provocative editorial in the April 2012 edition of The Atlantic entitled “Peak Intel: How So-Called Strategic Intelligence Actually Makes Us Dumber.” This is effectively Eric’s resignation from the field of intelligence along with some very important questions about the value of the intelligence practice in business today. The article is worth a read, and I definitely felt it was worth some commentary. Whether you agree or disagree, it’s worth considering the value competitive and strategic intelligence are delivering in our current environment.

Eric begins his article by telling us that he has observed an “endemic corruption of how decisions are made in our most critical institutions.” He goes on to describe how business decision-makers have become focused on feel-good information that doesn’t challenge their underlying assumptions. Eric says that this preference– nay insistence– on feel-good news has increased since the financial crisis of 2008. An industry has sprung up that feeds in to the executive desire to feel good about the future, executive mastery of their industry and general CYA. These charlatans actually making it harder for those of us who are trying to deliver the real, often uncomfortable intelligence. “Strategic intelligence” firms and many consultancies have become the enablers of senior executives’ addiction to graphs that always move up and to the right.

A tripartite cause for the war on strategic intelligence and emperical insight come in for criticism:

  1. Industry consolidation enabled by cheap capital. It’s intuitive that most mature industries are more concentrated today than they have been in the past. I argue that most industries have a diverse second and third-tier of competitors, there is a tendency towards “too big to fail” market leaders that are given special treatment by central banks, regulators and politicians to maintain their incumbency against market dynamics, disruptive innovation and poor management.
  2. Consolidation has created huge bureaucracies out of once-thriving businesses. The problems of agency in business are well-known, where managers’ and owners’ interests diverge. Firms that have reached this stage do things very differently from smaller, entrepreneurial firms. In these institutions it is better to fail conventionally than to innovate and face risk. Internal politics become the criteria for how decisions are made.
  3. Today’s global economy is driven by policy decision-makers and not by competitive markets. In the wake of 2008 the nation-state has its hands in the economy more than at any time since World War II. I attended a recent session of senior competitive intelligence and strategy executives from diverse industries, and the unanimous top priority for all of the firms represented in that room was regulation. Literally every industry has a set of regulatory and policy priorities that will almost by themselves determine success or failure, or at the very least define the shape of success or failure. The state  of our economy is being decided in Washington, Brussels and Beijing rather than in a competitive market.

Eric finished the editorial with several examples of former clients became frustrated or even enraged when presented with the most basic strategic facts, such as the aging global population or how long it could take for housing prices to regain 2007 levels (if ever). I’ve been here as well, tasked with defending the blatantly obvious against a corporate orthodoxy, only to have decisions put off because “the verdict isn’t in yet” on clearly settled matters of technological disruption or demographic shift.

While I agree with almost everything Eric has to say in his article, he and I diverge  on our personal conclusions about what to do about it:

  • In the last year I’ve moved to a firm where strategic realities are given their day in court. Not all big firms are closed to the value or import of good strategic intelligence. Sometimes you do need to pick your battles.
  • There are smaller firms competing in truly dynamic markets that demand real insight instead of CYA feints at strategic analysis. I’m always happy when I see smaller firms advertising to fill CI positions.
  • Eventually we will see a dramatic scaling back of state intervention into the economy, either at the bond auction or the ballot box. This changeover won’t happen everywhere at the same time, and the transition will be extremely painful to the leading firms in industries that have come to depend on central bank largesse and government intervention, but it will open up a world of opportunity for those small and medium firms to make their marks on their respective industries.

So, what’s your take on “Peak Intelligence?” Do you disagree with the concept entirely? If you agree, where in your career do you see the bright spots? What companies or firms are doing strategic insight the right way to support quality decision making?

As a fun addendum, here is Eric being interviewed about his article on Russia Today. Stick around for the last few seconds because the look on Eric’s face when the anchor has clearly missed the premise of what Eric is trying to convey is really priceless.

America 2.0: A New Year’s Resolution?

In the final days of 2008 as we take stock of where we’ve been and chart the course to where we want to go next, I read Tom Friedman’s latest Op-Ed from the New York Times with much interest.  Despite the lack of specifics (or maybe because of it) I agree with the general concept.

We need a reboot. We need a build out. We need a buildup. We need a national makeover. That is why the next few months are among the most important in U.S. history. Because of the financial crisis, Barack Obama has the bipartisan support to spend $1 trillion in stimulus. But we must make certain that every bailout dollar, which we’re borrowing from our kids’ future, is spent wisely.

It has to go into training teachers, educating scientists and engineers, paying for research and building the most productivity-enhancing infrastructure — without building white elephants. Generally, I’d like to see fewer government dollars shoveled out and more creative tax incentives to stimulate the private sector to catalyze new industries and new markets. If we allow this money to be spent on pork, it will be the end of us.

The stimulus package that’s soon to be hashed out should take a portfolio approach to economic recovery.  Some of the programs will obviously need to be structured to have an immediate impact on economic activity.  This will include things like tax reductions, tax rebates, block grants to state and local governments and extension of unemployment benefits.

Longer-term projects with anticipated ROI greater than their initial investment will also need to be included in the portfolio.  I really dislike the idea that my tax dollars are being spent with no regard for any return I or the nation will see if we spend those funds– hence my disagreement with a bailout of the auto industry.  This is our opportunity to cut through political opposition and get moving on a number of infrastructure projects such as build-out of public transport (metro to Dulles International Airport, please) and upgrade and repair of bridges, levees and water distribution.  I’ve read some mentions of spending on an electric grid to facilitate the movement of electrons from places where it is easily generated to places electricity is in highest demand to improve efficiency.  A smart grid would make us safer by reducing the likelihood of massive blackouts caused by cascading failures in regional grids.

Grants to universities and other research institutions for hard science research is also money well spent.  Obviously we are in need in considerable research in battery and materials technologies.  Spending on these technologies can help our reformed auto industry (both domestic and foreign) build newer vehicles that are substantially more energy efficient and safer than the cars we drive today.

Any long-term stimulus package also must address the health care industry.  I really have no idea what the initial cause (or set of causes) is for our current health care situation.  It’s not going to get better with an entitlement time bomb, inconsistent or no coverage and what seems to be a complete  mis-alignment of where most of our dollars are spent with where we see the real benefits in improvement in overall quality of life (can somebody PLEASE explain to me why my gym membership is not paid for by my insurance and why I would need to pay for a nutritionist completely out of my own pocket?  Yeah, maybe these things are “elective” and it’s not like I’m getting Botox here!)  In the end I suspect it’s the fact that our current system creates a complete disconnect among the customer/patient, the provider/doctor and the payer/insurance company and creates incentives for parties to maximize their own returns at the expense of all other players.  I have no easy answer, and I don’t believe there is an easy answer.

The stimulus package must jump start the economy and deliver ROI to the taxpayers without putting the government in place of choosing the winners and losers in technology or in the marketplace.  Legislators and bureaucrats are ill-prepared to make objective decisions about which technology or approach is the best approach to deploy high-speed broadband or automobile technologies or any of the other topics that are being considered in the context of an approach to stimulus.  The stimulus package that works best is one that recognizes that in the early days of new approaches to our issues we serve ourselves well to have patience for divergence and pursuit of a broad array of solutions to each of the problems we’re trying to solve.  Let a hundred flowers bloom…

It would be nice to see America’s political leaders move away from old frameworks to consider new options.  Examples include a true re-evaluation of Social Security– and not taking options like private investment of pension funds off the table before the debate begins.  Likewise we can open our political process to explore possibilities such as replacing income tax with a national sales tax.  Putting options on the table for consideration in a broader negotiation of a beneficial way forward is not abandonment of one’s constituents or ideals.  Let’s really move beyond our traditional modes of thinking to be creative.

Rather than continue on with a laundry list of ideas, I want to conclude this long, ill-conceived (and naive?) blog entry with a sense of optimism.  We are coming up on a new year, a new Congress and a new Presidential administration.  We are in a dire situation.  We need to be aware that this is also a moment of great opportunity.  It’s an opportunity for us as a country and even a global community to make the tough choices.  Let’s not lose this moment to lobbying from incumbent moneyed interests.  This is the opportunity for all of us to do what we need to do for the collective “us.”  We will not have many of these chances in the future.  If we don’t take advantage of this opportunity it may not come around again.

Merry Christmas and Happy Holidays!

Post-Hiatus Brain Dump

It’s been a long time since I’ve posted an entry.  Part of the reason it’s been so long has to do with a significant amount of activity around end-of-year projects at work.  The need to have several contracts done, dusted and in place by the end of the year has been driving my activity for the last month or so, and is likely to occupy much of my time in the weeks that remain in 2008.

 

I’ve also diversified my content creation pretty far and wide.  I’ve been posting some entries to my internal blog within Verizon, which of course only those inside the company can see.  I’ve also been posting a lot of short thoughts to my Twitter feed that also are posted on Facebook.  Finally, more of my content is finding its way onto social networks as opposed to a stand-alone blog.  I like the interaction, and it’s easier for people to read and comment on a site that gives them so many reasons to visit.

 

So much has been going on in the past few months, that several times I felt like I wanted to blog but couldn’t find the bandwidth to spend some time putting together my thoughts to say anything substantive.  The turn of events in the financial markets actually kept me up several nights in September and October.  The $700 Billion TARP plan seemed to me poorly considered and since inception poorly executed.  The decision to use the funds to shore up banks as opposed to purchasing assets seems treating a symptom rather than trying to address the cause.  It could also be said that we would have been better off letting the market adjust itself.  I tend to agree with this sentiment, and our current approach encourages the very moral hazard that got us into this problem in the first place.

 

There is a great discussion happening on the Competitive Intelligence social network on the Ning social network platform.  For my professional field of interest this has raised a question about whether or not the financial collapse is a failure of commercial intelligence.  I tend to regard the situation as an inability to clearly evaluate the risk of new financial products and a faith in a fundamental assumption that “the price of real estate always goes up.”  This unquestioned assumption led borrowers to buy more house than they could really afford (with little or no money down or even negative equity), lenders to disregard a borrower’s ability to pay and purchasers of asset-backed securities to vastly underestimate the likelihood of defaults and the magnitude of the damage from that possibility.  I’m also convinced that greed and cognitive dissonance make it more difficult for groups of leaders to hear contrarian views and convince themselves that they’ll get out of a bubble market before it bursts– even after they recognize the bubble.  People become like sinners convinced that they’ll repent on their deathbed, never considering that they might get hit by a bus.

 

Questions of risk and challenges to unquestioned assumptions are core to competitive intelligence.  The real challenge is in communications and persuasion.  Telling decision-makers what their options are or what they should do is often considered blasphemy by intelligence professionals.  Recent national security and commercial intelligence failures are clear evidence that quality intelligence needs to have a perspective and needs to have teeth.  An important question about this is whether or not intelligence professionals in government or commercial organizations can strike the right balance here and not truly over-step their bounds.

 

I’ve gone so far in conversations with fellow intelligence professionals to question whether or not the current financial crisis doesn’t show us that we are ready to turn a page on our economic model.  I don’t mean to suggest the “End of Capitalism” that so many have suggested.  Mainly I mean to hypothesize that we’ve seen the limits of how big companies are able to become under current management practices and technology.  Certainly we’ve seen that there is a limit to the level of complexity we are able to grasp in our financial products and understand the inherent risk behind them.  Subsequently we’ve seen a boundary to our current ability to calculate the real value of these financial vehicles as well as the ability to regulate their structure and trade.

 

Barack Obama’s election is another big news event from my blogging hiatus.  The historical significance of the election is obvious.  I hope that the election of such a thinker will re-establish the notions of debate and evidence in American culture.  After the past few years Americans have become numb to “truthiness” pandered by “scientific” think tanks on the religious right.  While I’m not so naive to think that political survival will trump rational policy decisions, I do believe Obama and his leadership team named so far represent a considerable improvement over the current cast of characters in the White House.  A critical challenge for President Obama is going to be controlling some of the more extreme elements of the Democratic leadership, and we must all remain diligent that a Democratic majority doesn’t behave as the Republican majority did from 2001 – 2006.

 

Don’t even get me started on the bailout of the big three auto makers.  That’s so much a non-starter.  The best we should offer these companies is government-backed debtor financing under a major Chapter 11 restructuring.  According to the Economist the auto industry is set for substantial growth in the next four plus years as the new middle class in China and India purchase more and more cars, including those produced by Ford and GM’s overseas units.  That may very well be the case.  A major restructuring now under Chapter 11 will help these companies get their operations and organizations in shape to reap the rewards of this potential market.  All that said, the assumption that the new middle class in China and India will continue to grow and see income growth that affords them automobiles in large numbers is an assumption that needs to be questioned.