Category: work

Partners and Associates

Last week I’d written this post about managing studs, and while discussing that with some colleagues the other day, I realized that I could reformulate it without touching upon the studs and fighters theory. So let us consider a consulting firm. There is a partner, whose sole job is to solicit business for the firm, and to get the lion’s share of the benefits. And there are associates, trying hard to get noticed and promoted, and working for this partner. It’s the associates who do most of the work. Let’s assume that the firm is in “steady state”, where as long as they don’t mess up, there is a steady stream of business assured.

Under this assumption, all that the partner needs to do is to ensure he and his team don’t “mess up”. He knows that he has the relationships to keep the work flowing, and given that he doesn’t really do any work himself, he doesn’t care about the nature of work, or whether his associates find the work challenging, or interesting, and stuff. As long as the tap is open, and he makes his “partner’s cut”, he’s happy.

Given this, his incentives are towards work that is hard to go wrong. “Steady” work, where expectations are likely to be high, but the downside risk is quite low suits him absolutely fine, and he seeks to find more and more of that kind of stuff. There is little chance that his relationships with his steady clients can go wrong in this kind of a situation, right? So he goes about trying to find work with a “short deep-out-of-money option” payoff.

What about the associates? There will be some of them that are already established, and known to these steady clients. They know that it’s only a matter of time before they get promoted and hit the partnership pot of gold. They’ve made their mark, at a time when they had the opportunity to do so, and now they only need to hold fort till the end of the rainbow. And they hold on, perfectly happy to do work in which things can’t go wrong.

As for the other associates, who are still looking to establish themselves? What they’d ideally like would be the opportunity for “big wins”, which will make them be seen, and noticed, and enable them to make the move up the ladder when the time is right. Given their current standing, they don’t mind taking the risk – they have little to lose in terms of lost reputation. On the other hand they have everything to gain from pulling off improbable big wins. Basically they ideally like the “long deep-out-of-money option” payoff.  But the stream of projects the partners and other associates prefer doesn’t give them the opportunity to go for this kind of payoff! So they are stuck.

So, if you are working in a consulting firm, which is in reasonably steady state, where the partners don’t take part in day-to-day work, and where you are not yet established, you need to think if you’re in the right place.

Fractal life

Recently I finished reading Mandelbrot’s The (mis)Behaviour of Markets for the second time. Fantastic book. I think it is a must read for people who are interested in financial markets, and especially for those who work in capital markets. While it stays away from equations and “math”, and prefers to use pictures (or cartoons) to illustrate and show concepts (a method I definitely prefer to obscure math), it does raise a lot of very interesting fundaas.

So last week I was feeling stressed out. I realized that I had worked too hard on Wednesday and Thursday hence I got stressed out on Friday. A couple of months back, I took a couple of days of medical leave because I was stressed out. I reasoned that was because I’d pushed myself too hard the earlier two weeks. And thinking about all this today, I thought the incidence of stress has gone up over the last couple of months. This, I reasoned to pushing myself excessively for over a year now. And if I were to analyze my today’s work, I could probably say that I pushed myself too hard in the afternoon and hence got stressed out in the evening.

Same pattern, you see. At different scales.You get the drift, I guess. And stress is just an example I took. If I think about how my louvvu for my wife has evolved, again same pattern. There is a “global pattern”, and that same “global pattern” repeats itself over shorter intervals over the last two years. Irrespective of the quantum of time I look at, I see that same “global pattern” stretched or compressed to the appropriate time scale. In other words, love is also a fractal.

You can see fractals all around you. You can see self-similarity everywhere. And yet, even when you have small samples. you instinctively try to model it as a normal distribution. Without realizing that the “normal” distribution in life is the Power law.

Managing stud work

I begin this post with an apology. About two years back I’d promised that I won’t write any more on Studs and Fighters on this blog, and I’ll save all that for my forthcoming book. Unfortunately, since then I’ve managed not more than one page of my book, and that too has been in the last couple of weeks. I realize that by not writing about studs and fighters here, I’m losing that perspective of thought entirely, because of which I’ve not been able to write my book.

So, Chom (a friend) raised an important point during a discussion earlier today. He said that people who are studs, after they become “managers” (in which case their job is solely to manage other people. Think of someone like a partner in a consulting firm), start angling for more fighter work for their team.  That they seem to forget all their studness, and assume that all the people they manage are fighters.

I had argued earlier that once the partner of a consulting firm stops doing day-to-day work, the quality of work at the firm suffers. This post is an extension of that. So what Chom says inherently makes sense. Here’s why.

Stud work is risky. There is a good probability that it may not be completed. So when your target changes from the “total impact of work done” to “number of pieces of work successfully completed” the whole equation changes. You are not looking for those “big wins” from your team, any more. What you need from your team is a high rate of delivery, and a large number of projects that are completed. If you get big wins, that is just a bonus. But all you care for now is the number of wins.

So you start taking on more fighter work, and letting go of stud work. After all, it is now rational for you to do that. Your own working style can sit aside.

Comparative advantage and competitive advantage

So there are two reasons why you could be employed. Comparative advantage and competitive advantage. Let me explain.

In international trade, there is a concept called “law of comparative advantage“. Let me explain with the classical (and simple) example. Robinson Crusoe is marooned on an island with Friday. Now, let us assume there are two productive activities on the island – catching fish and cutting wood. Now, Crusoe can catch 10 fish an hour, while Friday can catch 5. On the other hand, Crusoe can cut 3 trees an hour, while Friday can cut 2. Clearly Crusoe “dominates” Friday, and the latter is much more inefficient. So does that mean that Crusoe can just have Friday for dinner one day?

While the intuitive answer might be a “yes”, the law of comparative advantage shows otherwise. While Friday might be inferior to Crusoe in both activities, he is “less worse off” at chopping trees than he is at catching fish. For example, let us say that if left to himself, Crusoe would spend 3 hours fishing and 2 hours chopping wood every day. That would produce 30 fish and 6 trees of wood.

Now, if Crusoe were to spend all his 5 work hours exclusively catching fish, he will have 50 fish and no wood. He can trade the extra 20 fish for 8 logs of wood from Friday (Friday demands 5 fish for every 2 logs of wood, since that’s his opportunity cost). So net-net Crusoe is better off by 2 logs of wood. The trade similarly leaves Friday also better off (compared to the situation if he were alone on the island). Now you see why Friday keeps his job.

So in a “comparative advantage” job, you keep the job only because you make it easier for one or more colleagues to do more. You are clearly inferior to these colleagues in all the “components” of your job, but you don’t get fired only because you increase their productivity. You become the Friday to their Crusoe.

On the other hand, you can keep a job for “competitive advantage“. You are paid because there are one or more skills that the job demands in which you are better than your colleagues. You have a “competitive advantage” in those skills, and that is what you are paid for. Here you can expect to be treated better than your comparative advantage colleague would. You can even expect for some of your “comparative advantage” colleagues to be assigned to you to take your load off on those tasks you don’t enjoy a competitive advantage in. And again I’m not saying you need to “dominate” your colleagues.  All you need is one “axis” along which you are clearly superior. And you’ll get the “competitive” treatment.

Pause for a moment and ask yourself why your job exists. Check if you work because you have a competitive advantage, or if it is merely because of the “comparative advantage” – that your presence frees up time for the more efficient people. If your job belongs to the latter category, I think you have reason to be more worried.

Big Management and Big Picture

One common shortcoming that top management in a lot of companies is accused of is that they give too much attention to details (i.e. sometimes they micromanage), and they are unable to see the big picture.

For example, if you think about the financial crisis of 2007-08, people kept making stupid bets about the mortgage market because they didn’t look at mortgages in the overall context of economy. They looked at their models, made sure they “converged” to a zillion digits, the math was perfect, etc. And priced. And conveniently forgot some of the “big assumptions”.

I think this has to do with the typical promotion procedures in corporations, and an assumption that people who are good at one kind of stuff will continue to be good at other kinds of stuff.

For example, in the early part of your career, in order to move up the “corporate ladder”, it’s important to show your skills at being able to give attention to detail, to be able to see the “little picture”, be careful and precise, and so on. For these are the kind of skills that makes one successful in the lower-level jobs.

Now, my hypothesis is that being good at details and being good at seeing the big picture are at best orthogonal, and at worst negatively correlated. I base this hypothesis on some initial reading on stuff like Attention Deficit & Hyperactivity Disorder and related topics.

So, when you promote people based on their ability to be good at details (which is required at lower levels of the job), you will end up with a top and middle management full of people who are excellent at details, and whose ability in seeing the big picture is at best questionable. Explains well, right?

I don’t know what can be done to rectify this. Promotion is too important to take away as an incentive for good performance at junior levels. Some organizations do institute procedures where for higher promotions you also need to show skills that show your big picture skills. But these are only for people who have already reached middle management, which is people who are good at details, which means that a large part of those who started at the bottom, and who are “big picture people” would have already fallen at the wayside by then.

Does my hypothesis make sense? If it does, what do you think needs to be done to get big picture thinkers at the top?

 

 

Working Hours at Work

There are some people in my office (and in every other office that exists) who believe in “face-time”. That they need to be present for a certain number of hours every day at work irrespective of whether there is work to do or not. I find this wasteful, and distasteful. I don’t see why I need to spend time in office if I don’t have any work to do, and I consider time spent in office when I’m not working to be a positive waste of time.

Yes, there are times when I do get sucked in to this face-time crap, and just sit on in office when I don’t have anything to do (either there’s nothing to do, or I’m in such a bad state of mind that I’m unproductive). Sometimes, it does make sense simply for the option value – when you’re sitting there, there’s a chance something might strike you and take you past the mental jam you’re currently caught in. But most of the time, this option is worthless.

So recently I was trying to do an analysis of how I spend time at work, and if I get rid of the unproductive stuff (like random chats with colleagues, random reading, etc.) I can divide my time at work into two important components – times when I’m actually doing work, and times when I’m simply waiting to talk to someone, for their inputs, or comments, or whatever else. And when I did further analysis, I realize that the latter took up more time than the former.

Teamwork, integrated teams, helping each other, regular feedback, all these are important. But at the cost of spending several hours in office without actually doing any work? When you could’ve spent that time at home, doing what you really like to do. Especially when you have been given a Blackberry and so can read the inputs at any point of time? And when you have a mobile phone, and have the luxury of being able to log in to work from home..

Of course, the other side of this is that if you bring your work home, the fine line between work and home disappears. You are now always on call, have to be constantly checking your Blackberry. You think twice about leaving home, and the blackberry and the mobile phone, and going off somewhere. It doesn’t make you feel all that good..

Wondering how I can balance this all out. And spend as little time as I need to in office, while still doing the amount of work that I’m expected to do. I guess I simply need to get practical about this and stop bothering about what other people think about my hours, and all such. As long as I do the work.

Last Thursday, working in one long burst, I finished the work I’d set myself for the day and dashed off an email by 4pm. And then realized that it would be at least another 2-3 hours before I could get a response. And so packed off home, since I had some work there (true to expectations, the replies came in after 7pm). I felt good about leaving office when I knew I wasn’t going to be productive. But then there was this strange guilt that the system puts on you for doing like you please, without regard to the system.

Anyways, I need to be more practical about all this, and screw signaling. And to turn around an old Hutch ad, which says “Blackberry from Hutch, to keep daddy away from office”. I say “Blackberry from Hutch, to keep daddy at work even when he’s away from office”.

Career Development

I realize that in my close-to-five-years professional career, across four companies, the only time I’ve been really happy with my job has been when I’ve abandoned thoughts of “learning”, “career”, “career development” and stuff, and simply worked for the money.

Given that I don’t expect to ever retire completely (though I do plan to “half-retire” sooner rather than later) I think it’s important to focus on stuff like career development. But given that sometimes I believe I only want to build up a big enough base that after that I can take chances, short-term cash flow is important, too.

Oh, and in other news, I recently discovered that I’ve spent more time in my current job than in any of my earlier jobs.

On working in a consulting firm

Ok so my hypothesis is that a consulting firm is a good place to work at if and only if the partners are involved in day-t0-day business.

Once the partners move on from doing day-to-day work into purely managerial roles – where they only manage their teams and interact with clients, they are no longer concerned about the quality of work, or the career development of their employees. All they are concerned about is the billing, and as long as they can sell their team to the client, and keep the client happy, that is all they care for.

Sooner or later, I hope to start a consulting firm. The basic idea has taken seed in my head, and once it’s firmed up enough I’ll let people know. However, at this point in time, I want to assure whoever will be my future employees that I don’t intend to grow the firm too large. I don’t have that much of a passion for managing people, so the thrill for me will be in doing the work that I want my consulting firm to do. And that way, the proud and arrogant man that I am, I’ll ensure that the quality of work at my firm doesn’t dip.

 

Priors and posteriors

There is a fundamental difference between version 1.0 of any thing and any subsequent version. In the version 1.0, you usually don’t need to give any reasons for your choices. The focus in that case would be in getting the version ready, and you can get away with whatever assumptions you want to feel like. Nobody will question you because first of all they want to see your product out, and not delay it with “class participation”. The prior thus gets established.

Now, for any subsequent version, if you suggest a change, it will be evaluated against what is already there. You need to do a detailed scientific analysis into the switching costs and switching benefits, and make a compelling enough case that the change should be made. Even when it is a trivial change, you can expect it to come under a lot of scrutiny, since now there is a “prior”, a “default” which people can fall back on if they don’t like what you suggest.

People and products are resistant to change. Inertia exists. So if you want to make a mark, make sure you’re there at version 1.0. Else you’ll get caught in infintely painful bureaucratic hassles. And given the role of version 1.0 into how a product pans out (in the sense that most of the assumptions made there never really get challenged) I think the successful products are those that got something right initially, which made better assumptions than the others.

Addition to the Model Makers Oath

Paul Wilmott and Emanuel Derman, in an article in Business Week a couple of years back (at the height of the financial crisis) came up with a model-makers oath. It goes:

• I will remember that I didn’t make the world and that it doesn’t satisfy my equations.

• Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.

• I will never sacrifice reality for elegance without explaining why I have done so. Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.

• I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.

While I like this, and try to abide by it, I want to add another point to the oath:

As a quant, it is part of my responsibility that my fellow-quants don’t misuse quantitative models in finance and bring disrepute to my profession. It is my responsibility that I’ll put in my best efforts to be on the lookout for deviant behavour on the part of other quants, and try my best to ensure that they too adhere to these principles.

Go read the full article in the link above (by Wilmott and Derman). It’s a great read. And coming back to the additional point I’ve suggested here, I’m not sure I’ve drafted it concisely enough. Help in editing and making it more concise and precise is welcome.