US Q1′2008 GDP numbers – Not in a recession? Please.

Let’s Assume the GDP (Gross Domestic Product) metrics are an accurate assessment of the economy’s activity (it’s not, and neither was the now out of favor GNP numbers, but that’s a blog post for another time). The Reuters article, like many others today,  Growth surprises but consumers stressed – Yahoo! News: leads off with “A buildup in inventories kept the economy afloat in the first quarter…”  The fact that GDP grew at 0.6% in Q1 because of an inventory buildup is probably more troubling than if GDP shrank.  What is likely happening is the the economy is decelerating quicker than businesses are able to react.  Fortunately this article, in paragraph three states this possibility.

” Some economists said the report suggested the U.S. economy was on a bit firmer ground than had been thought, but others braced for worse times ahead as businesses ratchet back production further to try to sell off inventories”

While I’m not in favor of overly negative press accounts of economic conditions as there is some truth into “talking ourselves into a recession”, it is disingenuous to try and pass these numbers off as better than expected, which seems to be the trend of the day.

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Statistically Significant

If there is one thing that just burns me is when someone says with conviction that a number is statistically significant when none of the formal statistical evidence gathering has been done.  So… A primer on Statistical Significance (from someone whom isn’t that statistically bent), it’s importance, why being Statistically Significant isn’t always significant and why I nearly go into a blind rage when some one uses the term out of context.

I like wikipedia’s definition so I quote it here:

‘In statistics, a result is called significant if it is unlikely to have occurred by chance. “A statistically significant difference” simply means there is statistical evidence that there is a difference; it does not mean the difference is necessarily large, important or significant in the usual sense of the word.’

Or, in layman’s terms, something is statistically significant if what ever you did (or whatever external event might have happened) made a difference (this is where testing, usually A-B testing, comes into play) and it probably (I intentionally use the word “probably” as this is where the term “confidence interval” comes into play) wasn’t just blind luck. 

Why is knowing whether something is statistically significant is important?  Simply put, when you need to know if an event or a trend is the result of random variation or not.

Without going into the mathematics, three important factors contribute to a popular method of statistical significance testing (in this case the t-test) when comparing two independent data sets. These are the mean, or average, the number of data points (for some reason called degrees of freedom to Statisticians) and the range of these data points, or standard deviation.

For example let’s take the average live expectancy of two sets of rats.  One set gets a bowl of Chereos every day and the other doesn’t.  Even if the average of one set is noticeably (note, not significantly) larger than the other, a large standard deviation in each set may indicate that the difference in the average is not significant. [ probably should put some sample data in here]

What if there were a million rats in each sample and a bowl of Chereos every morning increased their life expentancy by 2.4 seconds.  While possibly statistically significant … it really doesn’t make a difference.  This is when statistical significance doesn’t really mean real world significance.

So why does this just frost me when someone says that something is statistically significant without doing the proof.  Because humans are wired to not deal with randomness very well.  We are wired to try to find patterns in randomness that don’t exist.  It seems 1/2 the world believes that magic patterns emerge from their Ipod song shuffle (“Dude… what are the chances of Dylan’s ‘A hard rain is gonna fall’ be followed by the Grateful Dead doing ‘Here Comes the Rain’ followed by CCR doing ‘Who’ll Stop the Rain’.  There is NO WAY that is random!  I’ve got 1000 songs on my Ipod…. blah.. blah.. blah..”) . Probably a survival trait we developed along our evolutionary path but this bias or tendency that, at best, doesn’t translate well into today’s reality and, at worst, makes for disastrous decision making.

OK… I’ve been writing this off and on for a week.  There is tons of stuff I didn’t touch on (hypothesis testing, Type 1 errors, Type 2 errors, p-values, etc) and I’m sure there are people much more familiar than me with these concepts.  If anyone ever read this blog, I’m sure I’d get some, hopefully, constructive feedback. Maybe I’ll follow this up with more details in the future.

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The Tests of a Leader (another collection of numbing HBR articles)

While I think for the most part the Harvard Business Review has become complete crap over the last couple of years (much like Forbes but I still keep renewing my subscriptions every year hoping things will improve) every once in a while a sidebar of an article will catch my eye. January’s edition is a special issue on The Tests of a Leader (immediate eye rolling and groaning of warmed over huggy and fuzzy stuff riffed with “Be a change agent!”).

One article is basically a self assessment entitled “What to Ask the Person in the mirror”. Fortunately in this article is a sidebar summarizing the 11 pages of mostly drivel containing a few reminders for anyone who is a manager. In the end a manager is solely judged upon the teams output as it relates to increasing shareholder value. Nothing more, nothing less (more on this in a future blog post). The 7 concepts mentioned are basically common sense but worth thinking about and reminding oneself about on a regular basis. I’ll try to boil down the HBR language into common english:

1. Vision and Priority: Basically the people that work for you should know what’s going on and what they should be working on. This is more than assigning action items. Assuming the people that work for you prefer a bit of independence, the vision provides the context for which they can make their own judgements. Without this you the manager becomes a task master. No fun for you, less fun for your employees.

2. Managing Time: Let’s face it. Most of us suck at managing our own time let alone the time of others. It is human nature to do what is easiest not necessarily what is most important first. Also, tasks with a short term nature are much easier to get started and finish than longer term tasks even though the latter could be more important. I’m always impressed with those that surmount these two tendencies and I find it to be one of the true tests of a great manager. Also, as much as it sounds like micromanagement it is imperitive that the manager is aware of what the employees are spending their time on. Delegation is important but, as a CEO I once work for says “Delegation without monitoring is abdication of responsibility”.

3. Feedback: Give it and seek it out. If someone is screwing up they need to know about it. If someone is doing a good job they need to know about it. It’s can be hard. It has to be done. It is the right thing to do. Always encourage people to give you honest feedback. As a manager it’s rarely going to happen but once in a while you get lucky to have a brash, opinionated employee or employees (sometimes they prowl in packs) that have no qualms telling you that you suck (and hey, when it comes down to it, we really do mostly suck). After channelling this person’s beligerency into reasonable feedback you might get an honest picture of where you can improve. It’s up to you to listen.

4. Succession planning: Well… Having twice been on the receiving end of getting shafted after I hired in or grew potential successors I’m not too sure about this one. I can see how “My” manager likes some bench strength in case I get hit by bus or go postal but this just smacks of executive brain washing to me. I’m all for growing employees (and is actually what I enjoy most about management) but why would you want someone to take your job? Nothing says great job at having a successor in line like getting layed off or pushed aside. The truth is, and let’s be honest, you want someone that can *almost* fill your shoes.

5. Evaluation and Alignment: Classic HBR speak for don’t get too comfortable. Some people by nature are paranoids and they do well in this area. Others should have a structured, systematic approach to revaluating everything (strategy, resource utilization, etc.). I happen to do this once a quarter as I evaluate how things went the previous quarter and plan for the next.

6. Leading under pressure: Nothing get’s a manager jazzed like having an opportunity to prove him or herself under fire. Unfortunately this usually turns into a manager pissing contest because there is more than one manager trying to prove themselves at the same time. Successful managers have perspective. Most of us aren’t managing a space shuttle with lives on the line. We’re managing some operation that if it doesn’t go well will piss off your boss and/or lose the company money. Both usually aren’t the end of the world. The successful manager either calmy navigates the crisis or calmy fails but always with the appropriate level of urgency and always learns from the event.

7. Staying true to yourself: To me, this is the most important. If you can’t look yourself in the mirror every morning without feeling proud of what you do every day you should be doing something different. There isn’t much you get to take with you in the end. I plan on taking my love for my friends and family, my dignity, and my self-respect (hopefully my ipod too but I’m not counting on that).

So…. Am I a better manager than I was yesterday? Are the people working for me working on the right things in the most efficient manner? Do the people that work for me *believe* they are working on the right things in the most efficient manner? Are the people that work for me more effective because I am their manager? Am I a better manager than I was yesterday?

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Psychology of New Product Introduction

As we continue to think of ways to innovate Flock I reminisce over an email I sent out after my first couple of weeks at the company concerning the Psychology of New Product Introduction.  One of the things we biffed in 0.7 was changing how bookmarks work resulting in an end user experience that was different than what other browser provided (specifically the folder concept was removed).

The economic theories this is based on is one of my favorite rumination subjects.  Kahneman, Tversky and Thaler blew the doors off conventional economics by not assuming irrational behavior and applying Psychological biases

Hi folks,

There is a reasonably relevant article in this month’s (July ‘06) Harvard Business
Review (I think there is a copy in the lounge area) on the psychology
of New Product Adoption. It basically touches on work done by two
psychologists, Kahneman and Tversky, around why individuals deviate
from rational economic behavior (in reality the price of product is
NEVER exactly where supply and demand intersect).

The article’s thesis is that it is not enough for a new product to
simply be better.  People will not necessarily make a rational decision
about a better product because of an irrational behavior concerning
gains and losses where losses greatly outweigh gains.  The common
example is that most people will not take the bet of 50% of winning a
$100 and 50% of losing $100.  This is  known as “Loss Aversion” (and in
today’s pop culture will probably eventually be called “Deal, or No
Deal”).

People have a tendency to look upon adoption of a new product in terms
of gains and losses.  Feature improvements are gains and new
shortcomings are losses.

This leads to a couple of biases:

-

Endowment effect.  The value of products already possessed
greatly outweigh the ones that aren’t.  Another psychologist, Thaler,
sums this up by saying “consumers value what they own, but may have to
give up, much more than they value what they don’t own but could
obtain”.  A similar experience is that once you own something, you
don’t want to give it up.  Some real world examples

       – ebay plays to this effect.  If you’re currently the winning
bid for an item that is still open your mind has already wired itself
thinking that it is the owner.  If someone bids higher it is hard to
resist not raising your own bid

       – “Try before you buy”.  This one is awesome.  I put some kid
through college because a rug salesman convinced me that I could lay
down some Persian rugs in my house for a week before I decide to buy
them.  I bought them.

- Status Quo Bias. People just have a tendency to stick with what they
have even when a better alternative exists.

In typical HBR fashion they boil down a framework into a 2×2 matrix.

low behavior change, low product change => Easy Sell (tweaking angle
of toothbrush).

high behavior change, low product change => Failure (Dvorak keyboard
for example).

high behavior change, high product change => Long Haul.  (Cell
Phone, probably satellite radio eventually)

low behavior change, high product change => Hit (google)

Anyways, these are things to keep in mind as we continue to innovate
the flock browser and find ways to market it. 

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