Software Engineering, Project Management, and Effectiveness
I read an interesting article on behavioral economics by Harry Quarls, Thomas Pernsteine, and Kasturi Rangan, in "strategy+business" magazine. According to the authors, behavioral finance supports a counter-intuitive strategy of loving your market "dogs" (underperformers) over your stars. They pose a few questions up front:
Conventional Approach is Stars Over Dogs Quarls, Pernsteine, and Rangan write:
"In the course of maximizing shareholder value, senior executives routinely face decisions about which of their companies' businesses should be nurtured, which should be starved, and which should be sold. The typical strategy is to invest more heavily in the 'stars' that are earning superior returns on capital, while starting or selling the underperforming 'dogs' This is the conventional approach in corporate finance and has become so ingrained in corporate finance and has become so ingrained in management practice that it is almost impossible to question it."
Way to Thrive is Love Your Dogs Quarls, Pernsteine, and Rangan write:
"There is, in fact, reason to believe that the conventional wisdom is wrong. Corporate managers often rely on accounting metrics to make business decisions. However, these metrics are based on past performance; the market is interested only in the future. And past performance is generally a poor predictor of the future. Thus, when performance is assessed over time, greater shareholder value can be created by improving the operations of the company's worst-performing business. The way to thrive is to love your dogs.
Just as some fund managers earn superior returns by identifying and buying undervalued 'market dogs' - better known as value stocks - corporate leadership can learn to identify 'value assets,' hold and nurture them, and produce superior performance. This in turn will ultimately lead to an increase in shareholder value."
3 Messages for Corporate Leaders Quarls, Pernsteine, and Rangan have three messages for corporate leaders:
Key Take AwaysI think there's several interesting points.
Personal DevelopmentTo sanity check ideas, I like to test them against personal development concepts. It can help quickly put things in perspective. For example, should you invest more in your star skills or improve your dogs? Conventional wisdom to go from good to great is work on your star skills. However, a liability can hold you back (think in terms of Kano -- a dissatisfier can really undermine all your satisfiers.) But, what if you have a few skills that are diamonds in the rough, or what if there's a good chance of downstream market demand?
Project ManagementI manage a portfolio of results, so I also like to test ideas against project management practices. For me, I tend to use a few key factors around deciding where to spend energy and time:
From a dog and star standpoint, I like to count on my stars, but I experiment with a lot of dogs, since the rate of failure is pretty high, but it's the future of the dogs that help me stay adaptable over getting overly adapted. Put it another way, what got me here today, won't get me there tomorrow.
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