I <3 you WIRED

This month’s WIRED is this perfect constellation of things I find really interesting:

• Finance + quants: “The Secret Formula That Destroyed Wall Street”
• Finance + accounting + collaboration + systems: “Road Map for Financial Recovery: Radical Transparency Now!”
• Design: “Design Under Constraint: How Limits Boost Creativity”
• Design + airline flight patterns: “Key to Eliminating US Flight Delays? Redesign the Sky Over New York City”

The right words for the business case

Spurred to post by my friend Steph who may be, along with another webby friend Yai, the only person to look at this dormant site in some time. We are thinking of setting up a co-blog.

So somewhere in the last six months I’ve become obsessed with supply chains and value chains – obsessed as in spending too much time thinking about them while on public transport kind of obsessed. Just been at American Electric Power’s offices in Columbus, Ohio, for a roundtable my colleague JP coordinated on managing sustainability in supply chains.

Lately I’ve been thinking how much modern supply chain management thinking and design thinking have in common with sustainability thinking – SCM because of its focus on total cost of ownership and collaboration, and design because of the emphasis it places on understanding needs and innovating to meet them. One of the reasons making the usual cashflow sort of business case for sustainability investments is a challenge is because valuation tools have trouble with what’s hard to quantify or to predict, especially in the longer term.* Framing sustainability in the languages of SCM or design might be a compelling way to make another kind of business case that doesn’t rely so much on numbers or linear predictability.

Came across a fabulous example of the language of business and the business case in a Goldman Sachs investor research piece thoughtfully passed on by a friend of a friend. The research, on “Long-term opportunities in a changing world,” turns that pesky tendency to favor the short-term on its head – by pointing out that it’s precisely because financial markets are better at understanding (and arbitraging out) short-term investment opportunities that investors thinking long-term have a better shot at higher returns. Or as they analyst-ishly say:

Reflecting a disproportionate focus on nearer term profitability, the equity market is typically relatively indiscriminate in differentiating between companies’ abilities to sustain above-average returns over the long term. … This relative lack of discrimination between long-term winners and losers is consistent with a greater focus of many analysts and investors on nearer term performance and creates an opportunity for investors able to identify those companies that can sustain above-average returns over the long term.

You go, Goldman. So that’s what these folks are up to.

*Another challenge: incentive structures. BusinessGreen discusses why managers aren’t necessarily interested in initiatives that result in cost savings – they’re trying to protect their future budgets. I think this is yet another example of why spend isn’t a good metric when you’re trying to get to results, but need to think about this a bit

The bell curve is a fraud, says NNT

Just finished Nassim Nicholas Taleb’s The Black Swan and found it surprisingly difficult to get through. But have been thinking about it a lot. Some takeaways:

• Reality is lumpy, not linear.
• Theories are too Platonic for their own good.
• Most successes and indeed most events can’t be said to be caused by anything, due to the survivor effect and the role of luck. Free markets work not because they reward hard work, but because they enable lots of tinkering (on a macro, societal level).
• The bell curve is a big fraud. So is any sort of forecasting. So are most post-Keynes economists and financial theorists, particularly those with Nobel prizes, with the exception of Friedrich Hayek and Daniel Kahneman, who’s actually a psychologist.
• What this all means for investing: Put a good majority chunk of your portfolio in the safest assets there are (T-bonds, though I wonder about those now). Take wild risks on the rest.