Tag: downside

Missing the Obvious

It was a year and a half back that I bought this desktop that I’m writing this post on. Given that the desktop was to be placed in my study, and the modem is in the drawing room, the most intuitive thing for me to connect up this desktop was to buy a USB wi-fi adapter, which cost me in excess of a thousand rupees. While it worked well in general, it gave problems once in a while, requiring reinstallation of the software and setting some random settings.

Last week, when I got some data from a client, I realized that my computer was wholly unsuited for big data operations, and I needed to upgrade, big time. I’ve now got myself a badass Intel I7 processor, with 8GB RAM and a 64 bit OS which will hopefully enable me to run my business successfully. The downside of this is that my old USB Adapter doesn’t work on a 64bit processor (it can be made to work, but the process is long and tedious). After getting my wife to dirty her hands on this (she is the in-house hands-on engineer), I realized that it wasn’t possible to get the USB Adapter to work, and thought of complicated options such as using this computer purely for analysis and using my laptop and a Pen Drive for the networking. Half a day of working thus told me it was way too inefficient. Then I thought of shifting the entire modem to the room, drawing a line from the telephone jack in the drawing room all around the house,  a process that is not painless.

Finally, for two hundred and sixty rupees (less than a fourth of what I had paid for the USB Adapter) I got myself a 20 meter long LAN cable, and have simply connected my computer with that. Beautiful, intuitive, simple. The question, though, is about why I had never thought of this beautiful, simple, intuitive solution for so long! It turns out that I had never really taken this option into consideration at all, for had I done it there would have been no grounds to reject it at any point in time.

I have recently embarked on a career in consulting, and I believe that a significant proportion of my insights are going to be beautiful, intuitive, simple solutions which for whatever reason the client hadn’t particularly thought of. Why do such low hanging fruit exist at all?

What is it about our thinking that we get so tied up in complications and completely miss out the obvious? Is it a fallout of our spending large amounts of time trying to solve complicated (and in the larger context inconsequential) problems? Or is it that these simple obvious solutions have to “hit us” sometime (in the form of an insight) and when we sometimes approach the problem in too structured a manner we tend to miss out on these insights? What do you think?

While I’m happy that I’m connected again, and in such simple a manner, I’m cross with myself that a simple soluti0n as this didn’t strike for such an extended period of time.

More on consulting partners

I’d written in an earlier post that consulting firms remain young nd dynamic by periodically promoting new people to partnership, and they in their quest to develop new markets and establish themselves, take on risks which can prove useful to underlings who now have a better chance to make a mark and establish themselves.

However, as I’d once experienced a long time back, there can be a major downside to this. The new partners, in their quest to establish themselves, can sometimes be too eager in the commitments they make to the clients. They are prone to promising way more than their team can logically deliver, and that contributes to putting additional and unnecessary pressure on the people working for them.

Nothing earthshattering, but thought I should mention this here for the sake of completeness, so that I don’t mislead you with my conclusions.

Twisted Shout

Apart from being the second birthday of this blog, today also happens to be the sixth anniversary of a sinister incident. The downside of the incident was that my spectacles were smashed, and pieces of it were found all over my eye. Even now, it hurts when I get tears ,in my left eye and I was really sceptical because of this when I was getting my contact lenses.

Amit Gandhi and I were playing badminton against Ezzy and Gotur (who had been the Bangalore University Badminton champions). Ezzy floated the shuttle high. Gandhi and I both went for it, me a couple of paces behind him. As he drew his racket back, it struck me flush in the face and my spectacles got shattered into my eye.

The upside of the incident is that it gave rise to Twisted Shout, the IIMB newsletter (yeah I think we are entitled to call it that; it was indeed a newsletter). Sadly, most of the material that went up on it was unpublished outside of the IIMB notice boards. The first ever edition, however, which was based on the incident I’ve described above is luckily online. Go read it. Having just produced that horrible novel called “I’ve read that somewhere” Kodhi was desperate to make amends and produced this masterpiece.

Politicians of Sec C cut across the party lines and outdid themselves in condemning the incident. From Dalal Street, Kapil wept, “They have taken out my right hand man. The people from Sec A (or was it B) should maintain some amount of decorum while trying to become DML1.” People nodded in agreement. The author decided to investigate the veracity of the first statement and found that it was indeed true. SK was the right hand man of Kapil .At least he sat to his right. The other leading luminary Push-Kar was more vocal in his protests. He decided to use Michael Moore’s quote and said, ” Aren’t you, at least feeling ashamed? Does your face ever turn red?” hard hitting words these.

Thursday, 22nd July 2004. The morning had also been eventful thanks to microeconomics class. Feeling too lazy to explain a certain concept, the prof asked someone in the class who knew the concept (I’ve forgotten what the concept is) to explain. Don, who had a bachelors in economics stepped up and made an attempt to explain it. He muttered a sentence as if he were chanting a mantra. It passed over most of our heads. Someone asked for a clarification. Don just repeated the sentence. Yet another question. Don repeats the sentence with different emphasis this time. Maybe a mantra in a different raaga. It had no effect. No one knew its meaning (apart from a handful of other Economics bachelors who had learnt the same mantra).

I grew impatient. When the prof didn’t notice my raised hand, I shouted “saar I can explain this in English”. Having no choice, he beckoned me to the blackboard. I remember the shirt I was wearing that day (it was grey), since I clearly remember placing the amplifier of the collar mike in my right breast pocket, and I have only two shirts which have two breast pockets.

I don’t remember much of what I explained also. All I remember is drawing some curves and some tangents and marking points as A, A’ and A” (I remember saying “prime” rather than “dash” for that extra pseudness). All I remember is making some sort of hand-wavng argument (yeah I did wave my hands). All I remember is loud thumping of desks as the mostly engineer class had understood my proof. All I remember is one of the other economics bachelors (not Don) cribbing later that what I said was crap and only the mantra made sense.

Kodhi says that the bad Karma I accrued by way of acting arrogant that morning led to instant punishment that afternoon, when I injured my eye.

Arranged Scissors 12 – Rejection Sharing Agreements

This is similar to the Klose-Podolski corollary to the Goalkeeper Theory. To refresh your memory, or to fresh it in case I haven’t mentioned this earlier, the Klose-Podolski corollary refers to a case of two close friends who decide to hit on the same person. The implicit understanding is that they don’t regard each other as rivals but blade together, and first get rid of all the other suitors before they engage in one last showdown so that the bladee picks one of them.

We came up with this corollary to the Goalkeeper Theory shortly after the 2006 Football World Cup, during which Klose and Podolki formed a cracking strike partnership for Germany. Later on, they were to play together for Bayerrn Munchen, but like most Klose-Podolski arrangements, they too ended up in bitterness with Poodolski (who scored the lesser number of goals among the two) publicly voicing his bitterness and finally transferring to his “native” Koln.

Now that the crazy digression is out of the way, let me get to the point. Today is the first day of Navaratri, and with the inauspicious “Mahalaya Paksha” having gotten out of the way, arranged scissors is back in full earnest. This also means that I re-enter the market, though I’m still yet to list myself (don’t plan to for a while at least. OTC is said to give superior valuations). And some casual conversation and some not-so-casual phone calls this morning, I have been thinking of the arranged marriage equivalent of the Klose-Podolski arrangement.

So basically, as part of this arrangements, two parties who are looking to hit the same side of the deal strike a deal to share “rejection information” with each other. “Rejection information” can be of the following two types:

  • Today I found out about this girl. She seems to be really good in most respects – good looking, rich, good family background, virgin and all that. But for some (usually random) reason, my son doesn’t want to marry her. Why don’t you try her for your son?
  • Today I found out about this girl. Talked to her, her parents, etc. Doesn’t seem like a good prospect at all. She is either ugly or too “forward” or her family background is bad. I think the chances of her getting along with your son is quite low. Don’t waste your time with her.

Note that both of this is extremely useful information, especially in an illiquid market. What is important here is the nature of people with whom you strike such agreements. The basic thing is that your correlation with them should neither be too low nor too high. Ideally, they should belong to the same/similar caste, should have a fairly similar family background, etc. but the boys shouldn’t be too similar. Yeah, I think that is a fair criterion – they should be as similar as possible in terms of “arranged criteria” but as different as possible in terms of “louvvu criteria”.

Basically if the correlation is too low, then you can’t really trust their judgment on counterparties. On the other hand, if the correlation is too high, then it is extremely likely that they turn out to be “rivals” and that if one party rejects a girl, it’s unlikely that the other party will like the girl. I supppose you get what I’m talking about.

One downside to such agreements that I can think of – it might cause bitterness later on in life, long after the goal has been scored. The feeling that “this guy married a girl that I rejected” or the other way round might come back to haunt you later on in life.

The Eighty-Twenty Rule

I first got this idea during some assignment submission at IIT. One guy in our class, known to be a perfectionist is supposed to have put in 250 hours of effort into a certain course project. He is known to have got 20 out of 20 in this project. I put in about 25 hours of effort into the same project and got 17. Reasonable value for effort, I thought. And that was when I realized the law of diminishing returns to effort. And that was the philosophy I carried along for the rest of my academic life (the following four years).

The problem with working life as opposed to academic life is that the eighty-twenty formula doesn’t work. The biggest problem here is that you are working for someone else, while you were essentially working for yourself while you wree a student. Eighty was acceptable back then, it is not acceptable now. Even if you are working for yourself, the problem is that the completion-rewards curve is completely diffferent now.

Imagine a curve with the percentage of work done the X axis and the “reward” on the Y axis. In an academic setting, it is usually linear. Doing 80% of the work means that you are likely to get 80%. Fantastic. The problem wiht work is that the straight line gets replaced by a convex curve. So even to get an 80% reward, you will need to maybe do 99% of the work. The curve moves up sharply towards the end so as to give 100% reward for 100% work (note that I’m talking about work done here, not effort. Effort is irrelevant)

Now, why did I cap reward at 100% in the previous paragraph? Why did I assume that there is a “maximum” amount of wokr that can be done? Note that if there is a ceiling to the amount of work to be done, and to the reward, then you are looking at a payoff like a bond – the upside is limited – 100% but the downside is unlimited (yeah I know it’s limited at 0, but it is so far away from 100% that it can be assumed to be infinitely far away). Trying hard, doing your best each time, the best you do is 100%. But slip up a bit, and you will get big deficits. It is like the issuer of the bond defaulting.

Almost thirty years back, Michael Milken noticed this skewed payoff structure for bonds, and this led him to invent “junk bonds”, which are now more politely known as “high yield debt”. Now, these bonds were structured (basically high leverage) such that a reasonably high rate of default was built in. In an ordinary bond the “default expectation” is that the bond won’t default at all. For a high-yield bond, the “default expectation of default” is much higher than 0 – so there is a definite upside if the bond doesn’t default. So that balances the payoffs.

So how does that translate to work situations? You need to basically get yourself a job where there is significant scope for doing “something extra”. So that if you take into account the “something extra”, the “expectation” will be say something like 90% of the work. So by doing only a bit more than your old 80-20 rule from college, you can fulfil expectations. And occasionally even beat them, resulting in a major positive payoff (either in terms of money or reputation or power etc.).

The deal is that when the expectation is lower than 100%, the reward-work curve changes. It remains heavily convex for the duration within the expectation (so if expectation is 90% of work for 80% of profit, the curve will be highly convex in the {(0,90),(0,80)} area). And beyond this, it gets less convex and closer to linearity, and so gives you a bit more freedom.

I’m too lazy to draw the curves so you’ll have to imagine them in your heads. And you can find some info on convex curves here: http://en.wikipedia.org/wiki/Convex_function