Magical Thinking

 
Remember that TV commercial where a wide-eyed guy's favorite football team scores every time he goes into his basement to get more beer, so he concludes he has "cracked the code," leaves his friends and goes down into the scary basement one more time "for the win"? That spot depicted a form of magical thinking, which according to psychologists Leonard Zusne and Warren Jones in Anomalistic Psychology: A Study of Magical Thinking involves believing "that one's thoughts, words, or actions can achieve specific physical effects in a manner not governed by the principles of ordinary transmission of energy or information."

Magical thinking is a normal dimension of thinking in young children, of course. Toddlers routinely make illogical and unsound decisions--they just don't have enough information about the world yet to form more reasonable conclusions (more on that topic here.) At around age seven or eight most children begin to think logically and are better able to grasp cause and effect relationships, so they move away from magical thinking.

Yet magical thinking lives on in many adults--sports fans, athletes, coaches, gamblers, sailors, politicians and even business executives. Think of all the people you know who regularly engage in superstitious rituals-- following lucky routines, wearing lucky items of clothing, carefully avoiding any behavior or circumstance that might curse or jinx an undertaking or outcome. While such rituals might be irrational, they are not generally harmful and some experts even consider them to be potentially beneficial. Perhaps that's why the tagline for the beer commercial described earlier offered viewers this subtle reassurance:

“It's Only Weird if it Doesn't Work”

O course there is a darker side of magical thinking that can be problematic, particularly in business. It has roots in narcissism and can involve delusional thinking fueled by an unrealistic or underdeveloped understanding of causes and effects. Unfortunately, since experts believe we're "more likely to find a narcissist in the C-Suite than on the street" it follows that we're also more likely to find magical thinking in the C-Suite.

Here's the problem: a business leader with even mild narcissistic tendencies can be a compelling and disruptive leadership force even when he or she hasn't the slightest knowledge or understanding of the dynamics, the causes and effects, that shape a particular situation. Such leaders come across as supremely certain, energetic, decisive, strategic, visionary--even charming and charismatic in the short term. But they have a big blind spot: when they are in unfamiliar territory, they are incapable of recognizing and acknowledging their own ignorance or lack of understanding. They are confident, but not competent. Sadly, when they don't have the requisite information (or understanding, or knowledge) to make logical and sound decisions, they fall back into magical thinking--just like toddlers do. So their decisions are informed and driven by biases, superstitions, fantasies and faulty logic rather than by facts and evidence-based thinking.

I worked with a CEO years ago who was, among other things, a rip-roaring magical thinker. One of his more peculiar blind spots involved strategy. He categorically refused to even discuss the topic (he called it the S-word) and he would behave even more scornfully and abusively than he normally did if someone dared to bring it up. He made his magic belief mindset clear--if people just did their jobs, the company would flourish, so it was foolish to waste time thinking or talking or worrying about something as unimportant as the S-word.

I was reminded of that CEO (let's call him S-word CEO) the other day while listening to an HBR Ideacast featuring Harvard Business School professor Frank Cespedes, author of Putting Sales at the Center of Strategy. He was describing how companies often have a vision, or a mission, but they don't have a coherent strategy--because they have failed to make "explicit choices" about markets, customers, value propositions and competitive differentiators. Why is that important? Professor Cespedes:

"...it’s obviously difficult, if not impossible, for people to execute a strategy that doesn’t exist or that they don’t understand."

Cespedes went on to say that once a coherent strategy has been developed, it's vital for company leadership to ensure that the tasks and behaviors (plans and activities) performed by different company segments (Cespedes talked about Sales, but I took his comments to apply equally to all segments of a company) are focused on delivering value and helping to implement the strategy effectively. In other words, strategy should define the critical tasks and behaviors, not vice versa. Nothing very magical about that.

Well, that S-word CEO struggled with his biases and his fuzzy logic. He made more than his share of dubious decisions, and he caused some degree of harm and collateral damage in the process, but he was tenacious and persistent and he completed a multi-year run as CEO. As he walked out the door on his last day, I'm sure he was pleased with himself, and proud of how well he had steered the company during his tenure. What about his struggles, his setbacks, his ill-advised decisions, and the collateral damage he had caused? Not his problem. He accepted no accountability for anything that didn't work out well, since in his mind someone else was always to blame.

I've worked with many magical thinkers, but S-word CEO probably provided as vivid a demonstration as any I've ever seen of the power, and the wonder, of magical thinking in business. Maybe the beer commercial was spot on--maybe magical thinking is only weird if it doesn't work--and while it may not have worked for others within S-word CEO's sphere of influence, it sure worked for him!

Dean K. Harring, CPCU, CIC is a retired insurance executive who now spends his time as an advisor, board member, educator and watercolor artist.  He can be reached at dean.harring@gmail.com or through LinkedIn or Twitter or Harring Watercolors.

The Trivialization of LinkedIn

 
LinkedIn seemed like a good idea when it was introduced in 2003, at about the same time Friendster and MySpace were emerging as pioneering social networking sites. LinkedIn's promise was simple:

LinkedIn makes your professional network faster and more powerful.

Designed to serve as a networking resource for business people who wanted to connect with other professionals, it is still described today as Facebook for business professionals, even though Facebook didn't launch to the public until several years later in 2006. I was an early LinkedIn adopter (2005) and a regular user, delighted to put aside my Rolodex and replace it with a real time, automated network management tool. As a believer in the power of networking, I kept my profile up to date, joined interest groups, methodically established new connections and reconnected with former colleagues, classmates and business partners. Over the years my LinkedIn network expanded steadily, and it has proven to be a useful and helpful resource for me. I have also enjoyed tapping into my network to help folks find or fill jobs, to get information, and to introduce people who have similar business interests.

LinkedIn now has over 300 million users around the world and it has developed a certain gravitas, characterized in Fortune by Jessi Hempel this way: .

Facebook is for fun. Tweets have a short shelf life. If you're serious about managing your career, the only social site that really matters is LinkedIn. In today's job market an invitation to "join my professional network" has become more obligatory -- and more useful -- than swapping business cards and churning out résumés.

LinkedIn founder Reid Hoffman blogged about the company's mission on its 10th anniversary in 2013:

Ten years ago, I co-founded LinkedIn in my living room with the mission of connecting the world’s professionals to make them more productive and successful. Inspired by the invaluable role relationships played in our own careers, we launched LinkedIn with the tagline “Relationships matter.”

Google the question "What is LinkedIn?" and you'll get 928 million results, but right at the top is this one:

Unfortunately, I suspect it's the "Learn and share" capability on the right, which invited users to share news, inspirations and insight, that inadvertently instigated the trivialization of LinkedIn by enabling users who didn't appreciate the differences between Facebook and Twitter and LinkedIn to flood LinkedIn with annoying and inappropriate updates.

What is an annoying and inappropriate update? In the LinkedIn user agreement, users promise to use LinkedIn in a "professional manner" and agree not to act dishonestly, or unprofessionally, or to post "inappropriate, inaccurate, or objectionable content." The terms aren't defined in the agreement so the definitions seem to be a matter of personal taste. While I happen to feel that math problems (99% of people fail to solve this...), holiday greetings, family vacation photos, silly slogans, word puzzles, recipes and goofy pictures all qualify as unprofessional and inappropriate, others obviously don't think so. For example, consider the individuals who posted the "insights" shown below and the hundreds of LinkedIn members who liked and commented favorably about them.

Of course LinkedIn contributes to the triviality by flogging inane and poorly written Pulse articles, incessantly soliciting skill endorsements, and doing insensitive things like blasting out an announcement encouraging users to congratulate so-and-so on their new position each time a new position is added to his/her profile, even if that new "position" happens to read something like this: Laid off and in transition--looking for new opportunities. That's sad, but what's even sadder is how often so-and-so's connections dutifully pile on, offering their hearty congratulations on the new position. See Donna Sapolin's entertaining description of her experience with this LinkedIn feature here, and Stacy Zapar's energetic take on how users are ruining the LinkedIn news feed here.

What can you do to shield yourself from the trivialization of LinkedIn? Well, you could close your account, of course, or access it less frequently, or perhaps just ignore anything you find annoying. Right now I still believe LinkedIn's positives outweigh its negatives, so I do whatever I can to minimize my exposure to the negatives. Every time I see a post that strikes me as inappropriate or unprofessional, for example, I use LinkedIn's hide capability to block all further posts from that user, and that has helped to decrease the number of what I consider to be inappropriate and unprofessional posts on my home page. Getting rid of the annoying Pulse feature was trickier, since LinkedIn does not provide users with the option to remove the Pulse banner from their home page even though it appears many LinkedIn users would appreciate having that option. The good news is that it is easy to use extensions like AdBlock or Stylish to quickly remove Pulse from your homepage.

For a folksy yet comprehensive view into the history of LinkedIn, take a look here. If you are trying to grow your network on LinkedIn,by all means glance at my profile and consider pinging me if you would like to connect. I am happy to collaborate and help you network, and I promise you won't get a response anything like this!

Dean K. Harring, CPCU, CIC is a retired insurance executive who now spends his time as an advisor, educator and watercolor artist.  He can be reached at dean.harring@gmail.com or through LinkedIn or Twitter or Harring Watercolors.

Vacation Risk Management

I grew up in Massachusetts, but I haven't been to Cape Cod for ages, so I thought it might be fun to rent a vacation home on the Cape for a week or two this summer.  Using Vacation Rental by Owner  (VRBO), I found a place that seemed to fit the bill.  I reached out to the owner (let's call him Duke) to reserve the property, and Duke advised me all I needed to do was sign and return his rental contract along with a 50% deposit and he would mark it as rented. Simple enough, until I saw his rental contract.

Full disclosure here--I am one of those people who reads most contracts before I sign them. I have a healthy respect for contracts, developed initially during my claims training at Liberty Mutual and steadily strengthened throughout the forty years I spent in the insurance business.  Maybe my life would be simpler if I could just learn to smile and sign on the dotted line once I've been presented with a "standard" contract, but I am not comfortable doing that.  So I read most contracts.

Duke's Vacation Lease Agreement did look pretty standard, at first, until I got to section 11, which opened with this declaration:

Tenant waives any right to allege deficiency in the premises or to otherwise claim that Owner or Owner's Representative has misrepresented the property.

Since I wouldn't be seeing the property in person until July when I arrived for vacation, it seemed a bit unreasonable for Duke to be asking me to waive my rights to allege deficiency and/or misrepresentation now, but I kept reading until I hit the showstopper two sentences later:

Tenant will indemnify Owner's Representatives and the Owner for any injuries, accident(al) or otherwise, that may be incurred or suffered upon the premises by tenant and guests or anyone associated with tenant for any cause whatsoever during the term of this contract even if caused by gross negligence on the part of the owner.

The emphasis in the last line above is mine. Requiring a tenant to agree to reimburse the owner for any loss associated with any injuries that might occur on the premises, even if those injuries were caused by the owner's gross negligence, seemed to border on the outrageous.  Imagine Duke had been warned that his electrical system was so old and poorly maintained that it represented an imminent fire hazard, or that his house was at serious risk of collapse because of severe structural termite damage, yet he failed to do the necessary repairs and continued to rent it. Then imagine the house collapsed and/or burned and injured the tenants and others in the house, who had no knowledge of the potential danger.  According to Duke's Vacation Lease Agreement, the tenant would be required to reimburse him for any sums Duke was required to pay to the injured people.  Somehow that didn't seem fair, to say nothing of the probability that it's against public policy, and might be void and unenforceable, even in Massachusetts. Remember, gross negligence is distinctive, since it embodies a materially greater lack of care than ordinary negligence.  The law.com definition: 

...carelessness which is in reckless disregard for the safety or lives of others, and is so great it appears to be a conscious violation of other people's rights to safety.

So I wrote back to Duke and told him I wouldn't be able to sign the Vacation Lease Agreement unless he was willing to tone down the indemnification language. Duke responded immediately, saying he needed to keep the language intact in order to:

...add some shared responsibility onto otherwise unconcerned and unattached weekly renters who we are entrusting with our very expensive property. 

Shared responsibility? He also told me his rental contract was "very standard, very boilerplate" and that no one had ever raised the issue I was raising in the seven years he had been renting the property. That intrigued me, so I took a look at the standard, boilerplate rental contracts available for owners who list their properties on VRBO to use, but I couldn't find an indemnification clause as broad and deep as Duke's.

Thinking that perhaps Duke wasn't familiar with the concepts of indemnification, gross negligence and public policy, I wrote back to him and outlined my concerns more fully.  He responded that the risk/reward ratio in life isn't always equal, explaining:

As it pertains to our house, 99% of our guests think that the reward of spending time with family and friends in a great house, outweigh the lack of recourse they may give up in a rental agreement that they sign.

 

Why didn't 100% of his guests think that way, I wondered, particularly since they couldn't become guests unless they signed his contract?  What about the other 1%? Did they disagree with the balance of risk and reward but still sign the Vacation Lease Agreement?  We'll never know, since I decided to end my correspondence with Duke and make different vacation plans.

I did briefly wonder whether Duke's tenants had actually read his Vacation Lease Agreement and fully grasped the nature of the liability exposure they were assuming. Probably not. Most people don't read contracts, and of course the penalty for not reading and comprehending potentially adverse contract clauses is zilch, unless and until something bad happens and triggers those clauses.

Does it make sense to do a risk evaluation on something as mundane as a vacation home rental?  As a potential short term vacation home tenant, do you really need to analyze the rental contract, identify exposures, try to secure more favorable terms and conditions, and make sure you have insurance coverage or other risk transfer mechanisms in place that will protect you if things go wrong? 

Since risk management is often described as a process of identifying, assessing, and reducing risk to an acceptable level, the answer depends upon the mindset you bring to the transaction, your risk tolerance, whether you believe things might go wrong, and your ability to deal with the financial consequences if they do go wrong. I decided to pass on Duke's house because I didn't like his attitude or his contract, so for me the potential risk associated with signing the contract was greater than the reward.  But Florencia Marotta-Wurgler, a professor of law at New York University, says people usually don't change their behavior simply because of what's in a contract.  In Alina Tugend's article Those Wordy Contracts We All So Quickly Accept, Marotta-Wurgler explains why:

For the most part it [what's in the contract] doesn’t matter. Things don’t usually go wrong — except when they do. And then it matters.

I know one thing for certain, however.  Once a contract matters, it really matters, and suddenly everybody wants to read it.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on property casualty insurance claims and operations.  He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.

Tick Tock: 30 Seconds to Connect

Somehow it feels thrilling and frightening at the same time, like when you stand too close to the edge of a cliff.  Your heart starts thumping, the air passages to your lungs expand, your blood pressure increases, the pupils in your eyes enlarge, and your blood glucose levels fluctuate, all because the stress-triggered hormone adrenaline is flooding your bloodstream.  Your body is preparing to deal with a nerve-racking, physically demanding situation, all because inside the packed convention center ballroom you have just been introduced as the next speaker. You stride purposefully to the podium; the applause dies down and the room goes silent with anticipation. You take a deep breath and look out at the audience.  They look back at you--curious, and expectant.  You are on the verge of doing something that most humans fear more than death: public speaking. 

Not long after I graduated from college and started working, I enrolled in the Dale Carnegie Course in Effective Speaking and Human Relations. I had heard tremendous things about the program and I really wanted to become one of those people who was always ready, willing and able to stand up and speak when necessary, no matter what the situation. At the first Dale Carnegie session, there were people in the class who were so terrified of speaking in front of an audience that they could not even stand alone at the front of the room.  At the end of the course three months later, the instructor could barely get those same people to stop speaking and sit back down! I learned a lot in that course by delivering two or three talks a week (often on topics assigned just minutes before), getting feedback, and giving feedback. In the years since I've spent a large part of my working life delivering, listening to and critiquing presentations.  So when I work with students now to help them become more effective presenters, I always share this Dale Carnegie quote with them:

A talk is a voyage with purpose, and it must be charted. The man who starts out going nowhere generally gets there.

Almost anyone can conquer their fear of public speaking with appropriate coaching and practice, but conquering the fear doesn't necessarily make you a good speaker--it just makes you a more comfortable speaker. If you haven't framed your message, polished your content, and planned your delivery carefully you might be able to blather long enough to fill your time slot, but you'll end up nowhere, as in no audience connection and no message delivered.

Years ago, folks weren't too concerned about messaging during the opening of a talk.  The prevailing wisdom was that audiences didn't really hear anything a speaker said at the beginning because they were too busy processing the speaker's non-verbal signals: facial expressions, gaze and eye contact, clothing, haircut, shoes, posture, gestures, etc.  So since the audience wasn't listening anyway, speakers were encouraged to use that time to get comfortable at the podium, smile, relax, maybe chatter a bit. You know--thank the person who did the introduction, thank the meeting sponsor for the invitation, describe how wonderful it is to be there, tell a joke, make witty comments about the weather, or the travel challenges encountered on the way to the venue, or the local sports team. Then, dive in to the speech.

That chatty style of opening is still being used (I saw two speakers use it last week, with predictable results) but I think it is fair to say that it probably worked better 20 years ago than it does now.  Back then, audiences were usually captive, they seemed to have longer attention spans, and they certainly didn't have what Dr. Carmen Taran of Rexi Media calls "digital pacifiers" in their pockets (or on their wrists) capable of providing them with a dizzying array of distracting alternatives to listening to the speaker.

If you believe, as I do, that audiences today are ruthlessly inattentive victims of information overload, then as a speaker with a message to communicate, you must do something to capture their attention quickly, within 30 seconds according to the experts (check out Better Beginnings by Carmen Taran and The Best Way to Start a Presentation by Nick Morgan.) Sounds difficult, but it really isn't--good speakers do it all the time. Television commercial producers routinely do it to sell products and services. Writers do it by inserting intriguing first lines in novels and articles to get you to keep reading. 

Let's break it down. If you think of a talk as having three phases--opening, body, and conclusion--in a 20 minute talk the opening might be 3 minutes, the body 15 minutes, and the closing 2 minutes.  So in the first three minutes, a speaker needs to accomplish three things:

1. Hook the audience within 30 seconds. Grab their attention, engage and enroll them in what you are about to do.
2. Lay out your approach and establish your credentials. What do you want the audience to know, do and feel at the end of your talk? How and why are you qualified to talk on this topic?
3. Provide a compelling answer to the audience's unspoken question: Why should I listen to you, and if I do, what is in it for me?

Next time you prepare to give a talk, focus on energizing the first 30 seconds of your opening. The best way to do that is to supercharge the communication environment by pushing or luring listeners out of their comfort zone and into their learning zone.  Surprise the audience somehow, throw them off balance, interrupt their inertia. Replace the expected with the unexpected. Create suspense and drama. Open with a provocative question or quote. Make an outrageous statement. Tell a powerful personal story. Share your view on a controversial aspect of your topic and ask for a show of hands of those who agree, or disagree. Do a show and tell with a compelling object, photo, news story or statistic. Challenge a widely held belief, or a sacred cow. Make a bold prediction and tell the audience to write it down.  Or even offer the audience something helpful and irresistible, as Amy Cuddy did in the opening line of her extremely popular (22 million views) TED Talk on body language.

For other potentially useful details and examples, check out these resources:

• ·         How to Start a Speech--12 Foolproof Ways to Grab Your Audience! by Dr. Gary Genard
• ·         12 Ways to Hook an Audience in 30 Seconds by Bruna Martinuzzi
• ·         Start Your Presentation with PUNCH by Garr Reynolds
• ·         6 Ways to Hook Your Audience by Alex Rister
• ·         The 30-Second Rule: How to Create Unforgettable Presentations by Peter Economy

Finally, since capturing an audience's attention is one challenge, and holding it is another, you might also enjoy speech and presentation coach Sims Wyeth's brief overview of techniques to help you keep the connection going. And never, ever forget this practical speakers' maxim:

Each of us here has a job to do. My job is to talk and yours is to listen. The challenge is for me to finish my job before you have finished yours.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on property casualty insurance claims and operations.  He can be reached at dean.harring@theclm.org or through LinkedIn or Twitter.

Confident Idiots

Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?

Every time comedian George Carlin posed that question in a performance, the audience roared because they knew they were all absolutely guilty of being at least that judgmental when comparing the driving skills of others to their own. Studies have shown that most drivers believe they are more skillful and more careful than the average driver on the road, but what's really fascinating is how that self-serving bias and illusion of superiority extends to many other areas. In his article We Are All Confident Idiots, Psychology professor David Dunning describes it this way:

A whole battery of studies conducted by myself and others have confirmed that people who don't know much about a given set of cognitive, technical or social skills tend to grossly overestimate their prowess and performance, whether it's grammar, emotional intelligence, logical reasoning, firearm care and safety, debating, or financial knowledge.

Surprising? Hardly. You and I have known and worked with a formidable collection of confident idiots, and we've probably played the role ourselves on more than one occasion. We just didn't realize we were doing it.

Professor Dunning is an expert in metacognition, the processes by which humans evaluate and regulate their knowledge, reasoning, and learning. He and his colleague Justin Kruger first described what is now known as the Dunning-Kruger effect in a 1999 paper entitled Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments. From the paper's introduction:

People tend to hold overly favorable views of their abilities in many social and intellectual domains. The authors suggest that this overestimation occurs, in part, because people who are unskilled in these domains suffer a dual burden: Not only do these people reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the metacognitive ability to realize it.

Dunning calls this "unrecognized ignorance". As he explains in the We Are All Confident Idiots article:

For poor performers to recognize their ineptitude would require them to possess the very expertise they lack. To know how skilled or unskilled you are at using the rules of grammar, for instance, you must have a good working knowledge of those rules, an impossibility among the incompetent. Poor performers—and we are all poor performers at some things—fail to see the flaws in their thinking or the answers they lack.

While the notion that "we don't know what we don't know" seems reasonable and familiar, the scary part is that even though we might be incompetent to deal with a particular situation, we're not troubled because we are blissfully unaware of our incompetence. Even scarier, we usually feel pretty confident about our chances for dealing with the situation effectively. Dunning again:

What’s curious is that, in many cases, incompetence does not leave people disoriented, perplexed, or cautious. Instead, the incompetent are often blessed with an inappropriate confidence, buoyed by something that feels to them like knowledge.

Blessed with inappropriate confidence? As much as we admire and react favorably to confidence and self-assurance, most of us wouldn't rely upon someone to do something important for us if we knew the person was confident, but not competent. Or would we?

Overconfidence is very common. According to a TED Talk by University College (London) professor Tomas Chamorro-Premuzic, who has studied the relationship between confidence and competence for over 10 years in 40 different countries, the distribution looks like this:



To make matters worse, in most parts of the world people equate confidence with competence, so they assume people who are confident are also competent, allowing confidence to mask incompetence. In the HBR Ideacast The Dangers of Confidence , Dr. Chamorro-Premuzic drew the distinction:

In reality however, there is a very big difference between confidence and competence. Competent people are generally confident, but confident people are generally not competent. They are just good at hiding their incompetence and their insecurities...

Yet success "correlates just as closely with confidence as it does with competence" according to The Confidence Gap by Katty Kay and Claire Shipman. And men tend to be more confident than women. A few bullet point takeaways from the article:

• Having talent isn’t merely about being competent; confidence is a part of that talent. You have to have it to excel.
• Confidence is... the factor that turns thoughts into judgments about what we are capable of, and that then transforms those judgments into action.
• In studies, men overestimate their abilities and performance, and women underestimate both.
• ... there is a particular crisis for women—a vast confidence gap that separates the sexes.

So if talent (the ability to do something well) requires both confidence and competence, what do you call confidence without competence? Dr. Shahid Qureshi calls it arrogance. Professor Chamorro-Premuzic is in the same camp. In Why Confidence Is Overrated he describes the consequence of appointing leaders on the basis of confidence rather than competence:

...if we keep rewarding those who think highly of themselves, simply because they think highly of themselves, then we will always end up with incompetent charlatans in positions of power and influence.

So why is it that we keep bumping into incompetent charlatans and confident idiots in leadership positions? It's our fault! We like and admire people who are self-assured and confident, and we're not that troubled if they happen to be incompetent. Professor Chamorro-Premuzic in the HBR Ideacast, on why we find confident people so compelling:

I think there are two main reasons. So the first one is that confident people tend to be more charismatic, extroverted, and socially skilled– which in most cultures are highly desirable features. The second one is that in virtually every culture, and especially the Western world, we tend to equate confidence with competence. So we automatically assume that confident people are also more able-skilled or talented.

What can we do about it? Chamorro-Premuzic in Why Confidence is Overrated:

When we hear people making claims about their talents, let's not assume that they are true, even if they are being honest (as a consequence of being self-deceived). Most talented people don't brag about themselves, and most of the self-promoters in the world are simply impostors.

You might be wondering whether talent plays any role in all this. I like to think that while your confidence may help you land a big job, sooner or later you need to perform and deliver in order to keep that job, so it's your talent (ability and results) that will ultimately determine your success. That may be the way it works on American Idol, but of course it doesn't always work out that way in business. Just think of all of the incompetent and feckless executives you've known who succeeded in holding on to key positions for far too long simply because they had a talent for dodging accountability--creating diversions, making excuses, and shifting blame and responsibility to others.

Confident idiots.  I can just imagine Mark Twain scratching his head and marveling at their success as he scrawled this line: "To succeed in life, you need two things: ignorance and confidence."

Dean K. Harring, CPCU is a retired Chief Claims Officer who advises on property-casualty insurance claims and operations.  He can be reached at dean.harring@suite200solutions.com or through LinkedIn 

Uncertainty

I remember being taught, a long time ago, that if you can't describe something, you can't measure it, and if you can't measure it, you can't manage it. I have been fascinated by management metrics since then, and I still believe that if performance metrics are designed correctly and aligned with an organization's strategic objectives they will naturally encourage employees to behave such that those objectives are achieved (for more on this, see my 2005 article Keeping Score .)

So when I came across the book Managing Uncertainty by Michel Syrett and Marion Devine, I had to look twice because the title troubled me. Uncertainty, of course, is the opposite of certainty--so being able to describe it well enough to measure it would seem to present an enormous challenge. According to the authors, while there is no precise, widely accepted definition of uncertainty, there are definite degrees of uncertainty. The book opens with a 2002 quote from Donald Rumsfeld:

There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are things we do not know. But there are also unknown unknowns--the ones we don't know we don't know.

Clear? One problem with planning (projects, strategy, risk or change management, financial, estate, etc.) is that we often use planning models that assume we can collect enough information about strengths, weaknesses, threats and opportunities to predict with acceptable certainty what challenges we will face during the plan period. Once the challenges are identified, we simply develop action items to address them, craft metrics to track performance against those items, assign accountability and put the plan in motion. But early in Managing Uncertainty the authors credit Arnoud De Meyer, President of Singapore Management University, with identifying four types of uncertainty:

• Variation--where small influences cannot be easily anticipated individually, but the resulting total impact can be identified and managed
• Foreseen--where identifiable and understood variances may or may not occur
• Unforeseen-- where an event's possibility is not recognized or its likelihood/probability is sharply discounted (unk unks)
• Chaos--where unforeseen events invalidate the strategy

In their paper On Uncertainty, Ambiguity, and Complexity in Project Management , Professor De Meyer and colleagues Michael T. Pich and Christoph H. Loch suggest that projects (and other plans) can be expressed as equations or "payoff functions" that are dependent on two things:

• The state of the world
• The choice of a sequence of actions

In other words, success in planning requires knowledge of the challenges presented by an operating environment, and the perspective to come up with appropriate action steps to deal with those challenges--although "adequacy of the available information" is critical to that success.  In their words: “Inadequacy of information is caused either by events or causality being unknown (ambiguity), or by an inability to evaluate the effects of actions because too many variables interact (complexity).” The more inadequate the information, the more difficult it is to plan successfully. But since information inadequacy arises from a lack of awareness or a lack of understanding, there are techniques (centered around learning and selectionism) that can be used to improve planning in unforeseen uncertainty situations. For a few practical examples, take a look at Three Tools to Manage Uncertainty by Kim Girard.

All of this struck me as interesting and relevant because I could see an obvious parallel within the insurance industry, particularly with the processes and procedures insurance claims managers use to set loss cost reserves. Anyone responsible for setting loss cost reserves on claims deals with De Meyer's four types of uncertainty, and they have no choice but to grapple with the adequacy of information available to them.

For example, when setting loss reserves on complex litigated claims that we believed were going to be tried to a verdict, we used to consider the likely verdict value (tied to damages, liability, venue, etc.) and modify it using a multiplier we called the "percentage chance of losing." So if the case had a verdict value of $500,000 and we had a 60% chance of losing, the reserve would be $300.000.

Ambiguity and complexity routinely invalidated that approach, however, because even if we were confident in our predicted verdict value and the % chance of losing, the actual verdict would rarely match our loss reserve. But when we did things to reduce ambiguity and complexity, when we developed better information about the likely trial environment (the state of the world--jury research, verdict history, attorney qualifications, etc.) and when our resolution plans included the most appropriate and impactful sequence of actions prior to and during trial, we usually got better outcomes.

I smiled when, in the course of thinking about this topic, I remembered situations during my career when I encountered individuals who were trying to manage uncertainty involving case or portfolio loss reserve adequacy in rather unorthodox ways. One claims officer "managed" reserve development by insisting on personally approving all reserve increases over $10,000, and he then moved very slowly on those requests. Another refused to improve any proposed reserve increase unless a corresponding and counterbalancing reserve decrease on another file was also submitted. A third incented his employees to minimize claim payouts each month, knowing that reserve adequacy for his environmental claim portfolio was determined based upon burn rate (number of years the reserve would last at current payment rates). A business unit leader, who was new to long tail lines and uncomfortable with the concept of prior year reserve development, insisted on sending teams of consultants out into the field offices to "fix" long tail line reserves. In the process he spooked the claims managers, artificially inflated case reserves and destroyed the reserve consistency that the actuaries relied upon to calculate ultimate loss exposures.

But my most enduring memory involved the business unit leader who told his assembled claims management group in September one year that he was tired of prior year reserve development, and that he didn't want to see any more of it after the first of the year. I don't need to tell you what happened with loss reserves in the fourth quarter that year.

All of which goes to show, I suppose, that some efforts to manage uncertainty end up creating even more uncertainty.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on property casualty insurance claims and operations.  He can be reached at dean.harring@theclm.org or through  LinkedIn or Twitter.

Bristling with Adaptive Capacity

 

One of my favorite leadership books is Geeks and Geezers, by Warren G. Bennis and Robert J. Thomas, in part because the book introduced the notion of "adaptive capacity" in leaders:

... adaptive capacity is applied creativity. It is the ability to look at a problem or crisis and see an array of unconventional solutions.

According to Bennis and Thomas, adaptive capacity permits individuals to:

...confront unfamiliar situations with confidence and optimism. Those with well developed adaptive capacity are not paralyzed by fear or undermined by anxiety in difficult situations. They believe that if they leap, a net will appear--or, if it doesn't, they will be able to find or fashion one in time. Where others see only chaos and confusion, they see opportunity.

If you are in the insurance business, you know that good claims leaders absolutely bristle with adaptive capacity. Flexibility and resiliency are requisites for managing claims, and successful claims leaders find meaning and strength by grappling with the adversity and uncertainty they face every day. The best claims leaders also have the confidence and the will to get personally involved in contentious and difficult situations and creatively move them toward successful resolution. They embrace challenges, overcome obstacles, and learn and grow and become more confident as they go. In other words, they act a lot like Teddy Roosevelt!

I was watching the Ken Burns documentary The Roosevelts: An Intimate History last week and I was reminded of a story I once read about the 1912 presidential campaign. Teddy Roosevelt had served two terms as president and had decided not to run again in 1908, so his Secretary of War and hand-picked successor William Howard Taft won the presidency. Teddy wasn't happy with Taft's term, however. He also missed the action and excitement of national politics, so he decided to challenge Taft and seek the Republican nomination for president in the 1912 election. He didn't secure the nomination, so he decided to run as a third-party candidate representing the new Progressive (also known as Bull Moose) party.

It was an arduous campaign, raucous and hard fought. So intense and relentless that at one point Roosevelt was shot in the chest during a campaign appearance in Milwaukee, but went on to deliver a 90 minute speech before agreeing to go to the hospital. He was fighting an uphill battle with voters, and his campaign was running short of time and money, but his staff decided to push forward and print an elegant pamphlet with Teddy's photo on the cover for distribution to voters during the final round of whistle-stop tours.

They had three million copies printed, but as they were readying the pamphlets for distribution someone noticed that Moffett Studios in Chicago held a copyright on the cover photo of Teddy. Unfortunately, no one had bothered to obtain permission from Moffett Studios to use the photo. The potential penalty for unauthorized use was staggering-- $1 per pamphlet, or $3 million. The campaign didn't have the time or funds necessary to reprint the pamphlets using another photo, and simply moving forward and incurring the penalty and bad publicity associated with using the photo without permission was not an option. Staff members knew they had no choice but to strike a deal with the photographer, but they hesitated because they believed their bargaining position was weak.

Enter George Perkins, executive secretary of the Progressive Party and Roosevelt's campaign manager, who after being briefed on the situation took immediate action, sending this cable to Moffett:

We are planning to distribute millions of pamphlets with Teddy's photo on the cover. This will be great publicity for the studio who took the photo. How much will you pay us to use yours? Reply immediately.

Moffett replied immediately:

We've never done this before, but under the circumstances we'll offer you $250.

Problem solved!

I have always enjoyed that story, and I've told it many times to illustrate what adaptive capacity looks like. While you might not agree with his approach to Moffett, Perkins was a successful businessman, a heavy hitter, well connected to financier J. P. Morgan, and he knew how to get things done. He had the ability to look at a problem and quickly come up with an unconventional yet brilliant solution, and in this situation he converted a $3 million exposure into a $250 revenue item rather handily. Adaptive capacity, personified! Of course Theodore Roosevelt himself could have served as an adaptive capacity poster boy--a charismatic leader who also happened to be a tireless and prolific writer, an innovator, a problem solver, an obstacle surmounter and an odds-defying achiever and adventurer. Take a look at what he accomplished during his remarkable life here.

Well, the pamphlet got distributed as planned, but as we all know Woodrow Wilson went on to win the 1912 election with 42% of the votes, followed by Roosevelt at 27% and Taft at 23%. The Progressive party nominated Teddy as its presidential candidate again in 1916, but he refused the nomination and never got directly involved in politics again. Two and a half years later he died in his sleep at Sagamore Hill, his family home at Oyster Bay, NY.

Dean K. Harring, CPCU, CIC is a retired Chief Claims Officer and an expert and advisor on property casualty insurance claims and operations.  He can be reached at dean.harring@theclm.org or through  LinkedIn or Twitter.