Can Data Tame Risk?

'In God we trust. All others bring data.'

That bon mot, now widely quoted, originated with W. Edwards Deming, who was arguably America's greatest statistician.

The irony is that Deming was a prophet without honor in his own country. His penchant for precision and prickly insistence on facts made many executives of his day uncomfortable. Most preferred camaraderie and the judgment with which they believed their experience had blessed them. 'You can never get fired for buying IBM,' was another expression of this mindset.

So Deming went where he was wanted - and needed. In the late 50s and early 60s, that was Japan. A decade or so later, that country's manufacturers began their determined and largely successful assault on the global economy.

Since that time data has enjoyed an honored place in the pantheon of business decision making. Today, the notion of Big Data dominates discussion of the future for those managing the tech/business interface. And that is, by and large, a good thing.

There is just one issue; successful application of the wisdom embedded in data requires judgment. So the interpretation of data depends upon careful analysis, a keen eye for anomalies and a skeptical attitude about anything smacking of certainty or the notion that 'forever' is a logical concept.

As development of tech products becomes faster, cheaper and more powerful, this approach puts ever greater pressure on those charged with making larger decisions with greater financial implications in less time. This is the story of one such set decision-making criteria. It's ultimate veracity has yet to be determined, but its application can be evaluated in context now. JL

Brian Christian reports in Wired:

Over the past decade, the power of A/B testing has become an open secret of high-stakes web development. It’s now the standard (but seldom advertised) means through which Silicon Valley improves its online products. Using A/B, new ideas can be essentially focus-group tested in real time: Without being told, a fraction of users are diverted to a slightly different version of a given web page and their behavior compared against the mass of users on the standard site. If the new version proves superior—gaining more clicks, longer visits, more purchases—it will displace the original; if the new version is inferior, it’s quietly phased out without most users ever seeing it.

A/B allows seemingly subjective questions of design—color, layout, image selection, text—to become incontrovertible matters of data-driven social science.

Inside Job: More Firms Recruiting and Hiring from Within

Our most valuable assets walk out the door every night.

As if.

For over a decade CEOs have sonorously paid lip service to this business cliche while betraying their utter lack of conviction in it by engaging in epic layoffs and routinely looking anywhere but inside the company for promotions to open slots.

That may, finally, be changing. 'Internal candidate' used to be a signal that a person so designated was looking to move on outside the company since their prospects for actually winning advancement were generally considered so slim.

But a confluence of forces has changed managements' minds about the economic and operational benefits of internal versus external candidates. Firstly, research is showing that the failure rate for external hires is sufficiently high as to be strategically insupportable.

Companies routinely underestimate the difficulty of integrating new people - particularly in positions of authority - into existing organizations. As well, the loss of knowledge about how to get things done inside an organization dramatically impacts productivity. So, the external hire approach brought in candidates who need far more time to acclimate themselves - and for the unit to acclimate to - while simultaneously rather too casually dismissing the exit of those who could actually figure out how to get things done.

The loss of such 'tacit knowledge,' eg, the understanding of how a place functions and how to navigate its bureaucratic and cultural shoals arguably has a greater cost than the alleged (and almost universally umproven) benefits of 'new blood' and a 'innovative perspective.'

The data on the cost of recruiting and hiring external candidates, when combined with the lost operational efficiency while the organization waits for the new person to arrive, learn and adjust, is substantial. As the global economy becomes more competitive, businesses can no longer afford that kind of slack. The pressure to perform while justifying executive compensation that is rarely adjusted downward to reflect market conditions means that efficiencies have to be found elsewhere. Starting with people who know the company - and who the company knows - is just common sense. Thankfully, that is becoming more apparent. JL

Rachel Silverman and Lauren Weber report in the Wall Street Journal:

Here's a recruiting riddle: What costs more but often works worse? Outside hires.

Fueled by a conviction that there's plenty of talent in their ranks and backed by research showing that hiring outsiders can lead to costly missteps, firms are ramping up internal hiring efforts and investing in new career sites to boost intra-office movement. So far, those efforts are helping firms cut recruiting costs and retain high performers, companies say.

Power and Profit: The Amazon Effect

Size matters.

Amazon is the Typhoid Mary of ecommerce. Everyone it touches withers and dies. Not just competitors, but business partners and suppliers as well. The only ones who seem to be thriving are customers - though given the company's record, maybe they should be concerned as well...

The issue is that in its rise to dominance of the ecommerce market, Amazon has eventually eliminated any other business that cuts into its margins, even if they are doing so on its behalf. The problem this presents, as we have seen with Walmart, is that if you destroy your market's ability to make a living in order to supply them with incrementally cheaper products or services, eventually you eliminate their ability to buy from you.

From a public policy standpoint, this leads to questions about whether Amazon has acquired too much power. So much, that it comes to the attention of those concerned with anti-trust matters. As Microsoft and Google have learned to their surprise and distress, when the Federal government (and its counterpart in Europe) decides that you pose a threat to the economic health of the nations in question, they are adept at proving their point.

Amazon will claim the market is fragmented and they are merely providing a service customers want. Which is just what its high tech predecessors did when faced with the same arguments. And a lot of good it did them. Not.

The company has already retreated from its tax-advantaged status in many large states and will probably concede the point in all of them eventually. But despite the efficiency of its offerings, the record of smaller businesses and jobs destroyed will become too much for regulators to ignore. And that will have an effect of its own. JL

Steve Wasserman reports in The Nation:

From the start, Jeff Bezos wanted to “get big fast.” He was never a “small is beautiful” kind of guy. The Brobdingnagian numbers tell much of the story. In 1994, four years after the first Internet browser was created, Bezos stumbled upon a startling statistic: the Internet had been growing at the rate of 2,300 percent annually. In 1995, the year Bezos, then 31, started Amazon, just 16 million people used the Internet. A year later, the number was 36 million, a figure that would multiply at a furious rate. Today, more than 1.7 billion people, or almost one out of every four humans on the planet, are online.

Bezos understood two things. One was the way the Internet made it possible to banish geography, enabling anyone with an Internet connection and a computer to browse a seemingly limitless universe of goods with a precision never previously known and then buy them directly from the comfort of their homes. The second was how the Internet allowed merchants to gather vast amounts of personal information on individual customers

Profit-Driven Surveillance: 'Freedom's Just Another Word...'

Is the tail wagging the dog?

Society has accepted the convenience/privacy trade-off. The benefits of finding friends on Friday night or the directions to a new restaurant or buying tickets without waiting on line versus giving up an intangible whose existence has become, for many, more of a cliche than a reality.

Surveillance has become more pervasive in most societies. Security is the usual reason given and since 9/11, that explanation often suffices, unless one is unfortunate enough to run afoul of the authorities for some reason. But what if the growth in monitoring of movement, purchases or the cataloging personal preferences is driven more by the corporations selling those services than by any obvious need? How do we feel about surrendering rights and liberties to those who argue that, in a time of resource constraints, economic arguments, however spurious, should drive public decision-making.

From requiring identification tags for students, employees and everyone else inside or outside the building to installing cameras on street corners to having one's Netflix preference list given the occasional once-over, we are witnessing the exponential growth of an industry designed to monitor and profit from our every move.

The data on whether or not we are safer is not clear - nor, for that matter - are the threats from which we are safer clearly defined. But if you want business start-ups and job creation, welcome to the security industry. The problem, as posed by the opening question, is who is serving who? The cameras that record the running of red lights, a seemingly innocuous 'safety' feature, turn out to be timed to change the lights faster in order to catch more people so that the contract terms guaranteeing revenue to the provider by the municipality are certain to be honored.

Interestingly, beyond federal, state and local governments, the markets which the security industry sees offering the greatest potential growth are finance and medical services. Does society really want the security industry driving mortgage payment policy or access to health care? Given the security industry's success to date, we sense that society is about to find out. JL

Matt Stoller comments in Naked Capitalism:

The question of civil liberties versus privacy carries with it an entire set of tired arguments and predictable political posturing. The debate, however, is changing radically, because the capabilities to invade and control privacy have become extremely granular, and the profit motive has now changed the traditional actor in surveillance from the state to the private corporation.

Last year, the Wall Street Journal reported on new facial recognition technology to be used by police, in which a cop can use an iPhone to snap a photo of someone and cross-check that against a criminal database. Developed to deal with insurgents in foreign wars, this technology applied domestic is predictably making civil liberties groups queasy. But there’s a new wrinkle – the company that makes this technology says that “it will be sold only to law-enforcement agencies, although it is considering building applications for the health-care and financial industries.”
Health care and financial industries. That is interesting.

Why Technology is Good for Religion

Did the telephone incite this much controversy?

Or electricity, or the automobile, or television?

What is it about the internet and the technology that causes so much discord?

Technology just is. It is a vehicle or a vessel. The user can put into it - and take from it - whatever he or she wishes. It 'does' nothing without human interaction.

The dark, unspoken fear, at least outside of informed company, is that technology spreads ideas and knowledge not necessarily available through religious authorities. Or more to the point, not approved by them. It can open people's eyes and minds to alternative points of view. And that could give people reason to question religious precepts and those who interpret them for the laity.

But we would argue that it is precisely such fear of the new that causes people to question their faith. Those religions that embrace technology with intelligence and self-confidence inspire, and perhaps enhance, the beliefs of the faithful. Because they are reinforcing a bedrock principle of any faith, which is that religion should become a core element guiding one's daily personal conduct. Given the ubiquity of computers, mobile phones and internet access, this should simply be just another channel through which religion interacts with its followers and reminds them of its significance to their personal conduct.

To set oneself apart from the reality of the world around you is to cause followers who embrace tech in every other element of their lives to question the judgment of those who challenge its utility. Some have argued that the long decline of the Catholic Church's power began when it denied Galileo's scientific research. As knowledge increased in support of and in addition to commerce, this rearguard ideological battle weakened the Church's authority with those who saw that science could make lives easier - and wealthier.

There is a divide in contemporary society between those who reject technology and those who embrace it. The evidence suggests that those who adopt, adapt and extend its reach will prevail. JL

Lisa Miller comments in the Washington Post:

Sikhs don’t make much religion news. They don’t go on TV announcing their intention to burn Korans; they don’t loudly forecast apocalypse; and they have not had to defend their faith as one of them races to be president of the United States. But the Sikh community caught my attention recently with the announcement of its FlyRight app, which, when installed on a smartphone, allows Sikhs to advise one another about airport security staff members who may be predisposed to harass or detain fellow Sikhs. FlyRight advertises itself as a “personal empowerment app.”

Information technology means the end of organized religion — or, at least, that’s what the opinion-makers say.

The Fairness Trap: When Perceptions of What's Right Cloud Judgments of What's Possible

We are so consumed with what is 'fair' and 'right' that we forget one person's payout is another person's debt. Most of the major economic battles consuming Europe and the US are centered on notions of fairness. Who should or should not do what for whom.

Germans resent supporting profligate Greeks. Greeks resent supporting greedy Germans. Chinese bureaucrats grab what they can to get ahead, thinking their hard work means they deserve the spoils. Those who bought into the notion of a flat society feel advantage is being taken. In the US, banks resent mortgage settlements that might cost them some profit, but revive the economy and thereby promising them more. Mortgage defaulters resent supporting banks who do not acknowledge the unrealistically bad deal they were sold on to begin with. And so on.

There are two problems with this unwillingness to compromise. Firstly, lack of perspective clouds our judgment. Researchers call it 'self-serving bias.' Or where you sit determines where you stand. We choose not to see the other sides' point of view because it might render our own insupportable. The second problem is that the lack of objectivity causes us to focus more on the other person's potential gain and less on our own resultant loss than on what a rational compromise might deliver for both.

This is part of a larger societal problem. These arguments tend to happen at times of resource deprivation. There is less to go around. Previously held assumptions about what the future would hold have been shattered. Everyone feels threatened. There is no mood of compromise. And we have acquiesced to a 'winner-take-all' social arrangement. We may be forced by the strength of these resentments, hurts and lost hopes, to endure more suffering than necessary. But that may be the only 'fair' way to get the point across that splitting the difference is, for the majority, the logical outcome. JL

James Surowiecki comments in The New Yorker:

The basic problem is that we care so much about fairness that we are often willing to sacrifice economic well-being to enforce it. Behavioral economists have shown that a sizable percentage of people are willing to pay real money to punish people who are taking from a common pot but not contributing to it. Just to insure that shirkers get what they deserve, we are prepared to make ourselves poorer.

How the Chicken Conquered the World

The universal answer to every question about an unfamiliar taste is: like chicken.

How our global civilization became so reliant, even dependent on this bird is a tale of economics, science and communications.

There is simply no significant culinary culture on earth today in which the chicken does not have a major role. Europe, North America, Asia, India, South America, Africa. Its very adaptability to taste enhancement or suppression contributes to its ubiquity.

The chicken has at various times been worshipped, ogled and feared. But the dominance of this one species may be due to its ruthless efficiency as a vessel for converting inexpensive raw materials into relatively valuable protein. Far more profitable than beef - and healthier in the bargain. The story of its rise to universal mastery is a template for the unappreciated in all societies. JL

Jerry Adler and Andrew Lawler report in Smithsonian:

The chickens that saved Western civilization were discovered, according to legend, by the side of a road in Greece in the first decade of the fifth century B.C. The Athenian general Themistocles, on his way to confront the invading Persian forces, stopped to watch two cocks fighting and summoned his troops, saying: “Behold, these do not fight for their household gods, for the monuments of their ancestors, for glory, for liberty or the safety of their children, but only because one will not give way to the other.”

The tale does not describe what happened to the loser, nor explain why the soldiers found this display of instinctive aggression inspirational rather than pointless and depressing. But history records that the Greeks, thus heartened, went on to repel the invaders, preserving the civilization that today honors those same creatures by breading, frying and dipping them into one’s choice of sauce.