Saturday, September 24, 2022

The map is not the territory

 The map is not the territory

What they don’t teach in business school

(Or maybe the students just don’t listen?)

Allen Laudenslager

Anyone who has tried to find where they are on a map knows that it is not always as easy as it sounds. In a city were there are cross streets and street signs it can be fairly simple. In the wilds, off road it can be very hard to be sure you know where you are. 

Once you do know where you are on the map and where your destination is, it’s still not all that easy to pick a good route. If you are using a regular road map in the wild all you will see is improved roads and maybe some important features like a lake or mountain.

The problem is that there may be hills that you’d really rather go around than climb,  streams or ravines that you’d avoid if you can.

What do maps have to do with business school? The arithmetic of business is a kind of map. It shows you where you are and can help you clearly state where you want to go. The problem is that while those numbers can present a clear picture it is first and foremost a snapshot and second, like that map, may not present all the information you need to pick your route.

A regular highway map will not show differences in elevation. For that you need a topographical map which has elevation lines. Topographical maps are wonderful in the backcountry but not much use in a city. The details of streets on top of the elevation lines will get extremely confusing very quickly so generally you only use the street map in the city and the topographic in the country.

Add on top of that the fact of naval charts are ideal for navigating on the water but just awful even a few feet onto land.

When you take a map reading class, a good one will teach you how to read all maps and how to decide which one is most useful in which circumstance. One of the important things that any navigator learns is that no single map contains all the information you need. In fact all the types of maps together may not have all the information that you might want.

Many times the information you want is too small in detail to be included or the mapmaker didn’t think anyone would need to have that particular point listed. The key here is not that the map is useless, but rather that it is not reality; it is only a rough representation of reality.

In exactly the same way that your mathematical model is only an approximation of what is happening with your business. If it’s sounds like I am claiming that the arithmetic is wrong, I’m not. 1 + 1 will always equal two. The key is that often need more than the math can truly deliver.

John Nash (1994 Nobel Memorial Prize in Economic Sciences) is generally credited with the mathematics that allowed stock market derivatives. The derivatives that most people credit with the financial disaster that is now call The Great Recession of 2008. 

Was Nash’s math wrong or was it misused? 

I believe that the people using Nash’s formulas didn’t understand the math’s strengths and weaknesses in the same way many people don’t understand that a map is only an approximation of the land and doesn’t cover all the important things you need to know and account for.

So, what is the cure? The old military adage “what is the most dangerous thing on a battlefield? A second lieutenant with a map!” The idea being that an inexperienced partially trained person with a map can often create more problems than he solves because they think they fully understand.

The cure is the filter of experience. Have made enough mistakes to recognize that the map is not the territory and that the map is incomplete. Knowing in even the most general way that there will be differences between the map and reality and using good (experienced) judgment to adjust to reality.

Just as John Nash’s math told the truth but not the whole truth, all your statistical models tell the truth but not the entire truth you need to make good decisions. Your experience and judgment should add those missing elements to your statistical model.

Your problem is that the person who is presenting that statistical model will be the first person to argue that “the number show …” forgetting that not everything that counts can be counted and not everything that can be counted counts.

It’s experience and judgment that recognizes the things that can be counted that don’t really matter and then fills in the things that matter but can’t be (easily) counted.

Friday, September 9, 2022

Why is a CEO worth that much?

Why is a CEO worth that much?

Allen Laudenslager

The common wisdom is that the amazingly high paid CEO has unique skills and talents that command that kind of pay. The combination of skill is so hard to find that in order to get that particular person to come to work for this company they have to be paid that huge amount of money.

Let's look at that logically for a minute.

According to the Social Security Administration 134 people earned more than $50,000,000 in 2014. If we accept that they are being paid for their unique combination of skills and talents, then no one else could do their job or was willing to work for less money.

According to Wikipedia, the world population was 7.5 billion people in April 2017. That means that only those select 134 people or 0.00000008% percent of the world’s population could run those companies!

The United States has a total population of 321.4 million people. Adjusting for years of experience and education I estimated that approximately 27% or a little more than 8 million people are potential candidates for those 134 jobs. Yes, a lot of those are not in the right business to count, and many just haven’t gained the experience yet but that still seems to leave a huge pool of potential candidates with the right experience and training.

Out of that 8,000,000 people lets say that only 25% are in the right business, that’s still a total of 2,000,000 candidates to choose from. Some percentage of those haven’t been working long enough to gain the experience to lead a big corporation so let's cut that pool down by 2/3. That still leaves 660,000 potential candidates.

Not everyone want’s to be the CEO so let's say only 10% even want the job, that’s still 66,000 people who should be considered. After you interview those candidates, you think only 1 in 50 are real candidates that still leaves 98 people (13,200/134) who of whom could do EACH those 134 jobs. Does anybody still believe that all of those 98 people wouldn’t do the job for significantly less than $50 million a year? 

Does anyone still believe that market forces (supply and demand) really set those enormous salaries?

Tuesday, September 6, 2022



by Allen Laudenslager

The military rank of naval Captain carries heavy responsibilities since they are the highest  authority aboard a major warship. A lot of the view of a naval Captain’s authority is a legacy from the days of sail when the ship that Captain commanded was the fastest means of communications in the world.

This meant that the Captain was often dealing with foreign governments without the ability to ask his own government for instructions. He had to be trusted to make decisions on his own. This in the days when his poor judgment could catapult his nation into war!

Communications haves changed so that a Captain is in almost instantaneous contact with his higher command and can check for instructions in real-time. The problem arises when the higher command, relying on a summary, isn’t looking at all the key factors that might be obvious to that Captain on the spot.Scott Adams nailed it in the Dilbert panel.

Have we reached a time when communications is so quick that too many of us are not doing the fundamental research and background reading that good decision making demands? Because we can quickly and easily contact subordinates have we pulled back their scope of decision-making thus restricted their ability to innovate and respond to changing conditions?

I remember doing a briefing for a senior manager shortly after I had been promoted from operations to my first “staff” job at the corporate headquarters. The person I was briefing didn’t seem to get my point so I used a white board to illustrate the fact that we were taking a serious amount of time and effort to maintain one piece of first generation equipment and 2 pieces of generation two equipment. All the other equipment had either been upgraded or replace with generation 3.

Since the equipment was customer owned, he ask how that had happened and the answer was quite simply that some equipment had been missed during the upgrades but the contract demanded that we maintain the equipment in its existing generation.

As the conversation progressed, he asked, “why didn’t I know this” and I referred him to the memos I had been filing with my reports asking for guidance on the problem. His reply is illuminating – “I didn’t understand the impact of what you were saying”. He didn’t understand because he was too far from the action. In effect, he could only see the forest and he needed to look at the individual trees. Oh, Yes — he only read the cost breakdown and never looked at the rest of the memos.

He was reading the executive summery and not diving into the supporting details because he thought it was “too much information”. His attitude was summed up by a comment he made earlier in the briefing; “I asked you what time it is and you tell me how to make a watch”. 

He did need those details (the how to make a watch) to make an informed decision but his impatience with that level of detail lead him to ignore the supporting information. He also decided that he didn’t need to take the advice of the person on the spot to invest in upgrading the few pieces of equipment to save even more money on the cost of maintenance.

Using the naval Captain again, the person closest to the action (in this case me) had the best knowledge of the situation and the best solution.

Senior management’s job is to balance the immediate need against the long-term-need but, and that is a critical but, without meeting the immediate need you may not survive to get to that long term. If higher command is only focused on one aspect of the business (short term share price?) they are likely to avoid spending money on long-term elements that the person on the spot will recognize as important to next month and next year.

As we move away from promoting operations people to senior management and rely more and more on hiring managers with deeper academic training and less industry or company experience the necessary details can get lost.

Can those non-operations people be effective mangers? Of course, but just as the boss in the Dilbert cartoon doesn’t have the knowledge to judge what he needs to know the key is to trust your subject matter expert. 

When I was promoted to management I learned that I no longer had the time to be an expert in all areas of a project and I develop the following axiom “I trust my subject matter expert or I get a new one!” 

Monday, January 24, 2022



Allen Laudenslager

No man is an island,

Entire of itself,

Every man is a piece of the continent,

A part of the main.

If a clod be washed away by the sea,

Europe is the less.

As well as if a promontory were.

As well as if a manor of thy friend's

Or of thine own were:

Any man's death diminishes me,

Because I am involved in mankind,

And therefore never send to know for whom the bell tolls; 

It tolls for thee.

                        ~ John Donne

The concept of what corporations are has been expanding over many years.  The courts have now accepted the idea that corporations have many of the same rights that individual persons have. One much debated right is the right to support candidates for elected office with donations to their political campaigns.

With this ability, corporate power has grown and expanded since a business can now support a candidate who favors legislation that makes their particular business more profitable or less regulated.

One element that we in the United States traditionally expect is that with individual rights come individual responsibilities.  If we accept  that view of personhood, what responsibilities do “corporate persons” have to the society they exist within? 

The intent of this poem by John Donne cited above is clear to even the most casual reader. Human beings are interconnected and interdependent. We exist in a social web and while we have to care for ourselves, we have obligations to others around us.  

Ethics are one expression of how we define those connections. In western cultures we accept the concept that we should treat others as we would like to be treated. We also generally accept that our freedom to swing our fist ends at someone else’s nose.

If we extend the rights of personhood to a corporation then shouldn’t we extend the obligations as well? Would we expect a corporation to think of how its decisions would affect not only the Corporation’s own interests (including profit or loss) but how its decision will impact the workers and community dependent on its operation?

Since a corporation relies on the community it operates in for work force training in the form of public education, for infrastructure in the form of the electric power grid; the transportation network; and physical security in the police force we have a reasonable expectation that the corporation will take the communities health and well being into account when making their decisions.

Those decisions about cutting work force or outsourcing jobs will include how those decisions will impact the local community should factor in what the loss to that community will mean. We should be able to expect that “corporate persons” might make a decision to take less profit to support the community job base in exactly the same way an individual might vote for higher property taxes on their own property to support the entire community’s services.

America is a nation founded on ideals. However well or poorly we live up to those ideals, they have always been our guiding principals. One is the concept of “no man left behind.”

As early as the French and Indian War that began in 1756, 20 years before the United States declared independence from the British, the American military has held the concept of “No Man Left Behind”.

Rogers' Rangers fought for the British against the French, using a combination of pioneer techniques and native-American tactics to outsmart enemy soldiers in wooded terrain where the traditional military struggled. They were also known for holding a certain standard, according to Paul Springer, an associate professor of comparative military studies at the Air Command and Staff College, which was to leave no fellow soldier behind.

This concept spread into our culture and is displayed in the lost hiker search and rescue events carried out almost every hiking season. A hiker is lost and not only the professional search teams turn out to look for the missing person, but many volunteers add their efforts until that missing person is found.

Once again the idea is that we are all connected and that while the searchers may not know that individual personally, they search with the same vigor as if it was the searcher’s own loved one.

Once again if we extend the concept of personhood to a corporate entity we expect that corporation to take the effects of their actions on any single individual with the same interests at they would if it was their own family.

One of the major reasons corporations don’t take this view of their relationship with the community is training. The people who become managers of corporations are trained to think narrowly about what are a corporation’s responsibilities. We decided that a corporation’s responsibilities are limited to the shareholders, and even more restrictively to increasing shareholder value.

This is not a natural law, it’s a decision that we as a society have accepted and the processes we have developed to satisfy that view are simply practices we created based on that limited viewpoint. 

You may hear some mangers claim that “the courts have held that mangers fiduciary responsibilities are to the shareholders”, and that’s true as far as it goes. Those court cases were brought by large corporate investors who have a limited set of goals; that is, the increase of their stock value. And in that limited sense the courts agreed.

We have Good Samaritan laws that require motorist to stop at an accident and render aid. If all they can do is notify authorities so that emergency personnel are dispatched, many states require at least that effort.

Wether it be the example of of poem cited above by John Donne, the concept of “no man left behind”, or the Good Samaritan laws in most states, we are all interconnected in some way and “corporate persons” have to start behaving like the rest of us!  They can’t continue to behave in selfish ways and not be held accountable for their actions.  Sooner than later, people will wake up and demand that “corporate persons” start behaving honestly, ethically, and morally right so that the good of society takes precedence over the the profits to the shareholders.


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