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March 29, 2005

Way of Go MBA lesson 5 - Finance basics pt II

Just as the finance rule "a dollar today is worth more than a dollar tomorrow" has many axioms, the rule "a safe dollar is worth more than a risky dollar" is full of meaning. The idea generally is that the safer your dollars are, the more they are worth; the riskier your dollar, the less they're worth.

What is a risky dollar? Let's say you have two investments. One is in a t-bill and another is a share of stock in a company. The t-bill will get paid with a high degree of certainty. It is said to be risk-free (and barring civil war or alien attack, certainly seems secure).

The stock you hold in a company, however, is not risk-free. A company can go bankrupt, a company's value can go down. It is risky business being in business. So, a dollar in a t-bill is more certain to get paid than a dollar in a company.

But, why do people hold stock in companies? Why not be risk-free? Ignoring inflation for the moment, the potential that a t-bill will pay you more than it's supposed to is nil. While the investment is risk-free, it's also capped. An investment in a company, however, is not capped. While a company can go downhill, it can also appreciate considerably. The value of your share in a company can span from $0 to $1,000,000 (in some rare cases, no warranties, guarantees, etc.), although the probability of good things or bad things happening depends on a variety of factors.

How to WOG this rule into other realms? One easy example is to look at one's career this way.

A friend of mine has had a steady career, slowing moving up the corporate ladder by being relatively risk-free (at work mind you). His career progress is like a t-bill. It doesn't grow fast, but it grows steadily over time. As long as his employer continues to employ people, he's bound to inch his way up the corporate ladder one rung at a time.

Another friend has done quite the opposite. Taking chances, moving from one city to another, burning and building bridges with abandon, her career has been stellar, leaps above my corporate rung climber friend mentioned above, but, she's also been at the bottom of the ladder more than a few times.

There's all sorts of outcomes with either approach, but we'll cover than soon enough in Decision Sciences. Steady, risk averse progress is fine for some people. Others need more excitement, drama, or progress to fulfill their ambition. There's a balance between the two.

Some proverbs on the topic include:

"More risk, more reward"
"More risk, more risk"
"Loose lips sink ships"
"A ship is safe in a harbor, but that is not what ships are built for"
"Eagles may soar, but weasels don't get sucked into jet engines"

(if you're the owner of one of these, please let me know and I'll attribute your work)

Posted by wayofgo at 02:46 PM | Comments (0) | TrackBack

March 25, 2005

Way of Go MBA lesson 5 - Finance basics

Since we already picked on Finance, let's look at one of the first rules of Finance - "a dollar today is worth more than a dollar tomorrow."

This is true if a dollar buys less tomorrow than today, which has been the case for quite some time (although, it's not always true). One of the big measures in finance is the Big Mac (from McDonalds). If you can buy fewer Big Macs in the future with the same dollars you have today, then the rule is true. Looking at historical Big Mac prices can tell you a lot.

Now, let's Way of Go (WOG) this rule. Wog this rule over to Marketing and Operations and modify it slightly. Inventory that you can sell today is worth more than inventory you can sell tomorrow. Mind share that you can gain today is worth more than you can gain tomorrow. Generally true for both, except...

The other rule from WOG is "timing is everything." The question of importance is how much more is that dollar worth. If you have two dollars tomorrow, is that better than a dollar today? If that inventory is sitting because you're driving up demand (Enron! cough cough), isn't that better (not for society, but for profits) than inventory today? If that mind share waits for the product to be available, then isn't that better than mind share for vaporware?

To be continued...

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March 22, 2005

First steps to getting your Way of Go MBA

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Way of Go MBA lesson 3

Once you have your ultimate goal firmly in mind, you can start to employ the strategic thinking from the Way of Go to what you are doing (or any other strategic planning model for that matter). Note, your success is tantamount to knowing the goal and keeping it in mind.

The lessons from the Way of Go suggest that you explore the many different strategic avenues available to you via GO'S RULES. Looking at the spectrum of strategy from its various axes, you can get a better sense for the whole of what you need to do.

This is the part of the Way of Go where synchronic analysis is necessary. Before embarking, you sit down and look at the situation as-is. It's called synchronic, because it is with - syn - the time - chron - you're in right now.

Contrast this to diachronic thinking: dia- meaning through. Diachronic thinking is watching the past and the future and looking for the trend. It is going with the flow. It's striking while the iron is hot.

You do synchronic thinking when you're reevaluating what you should do. Before making the big investment, deciding what school to go to, who to marry, etc. you best do some reflection out of the emotional roller coaster - diachronic influence - that brought you to where you are.

Rock, then roll.

Posted by wayofgo at 06:10 PM | Comments (0) | TrackBack

Way of Go MBA lesson 2 - The Five Whys

Determining what it is you want is no simple matter. One nice technique is to ask "The Five Whys." Let's take an example: "I want to be rich."

Why 1: Why do you want to be rich?
Answer 1: I want to be rich so that I don't have to work anymore
Why 2: Why don't you want to work anymore?
Answer 2: Because I hate my job and I prefer to play
Why 3: Why do you prefer to play (one of two paths to explore)?
Answer 3: My work isn't fun. My play is fun.
Why 4: Why can't you have fun while working?
Answer 4: This job wont let me
Why 5: Why don't you leave this job and find one that is more fun?
Answer 5: Hmmm. I suppose that'd be easier since I can't retire right now

That's a quickie version. Whenever you get stuck wondering what your goal is, this technique is always good; although, sometimes you don't need to make it past the third why.

Posted by wayofgo at 06:01 PM | Comments (0) | TrackBack

Way of Go MBA lesson 1

Business school tells you all the time to maximize for profit. Gain the highest NPV possible. Or, if you're a Real Options fan, create the greatest option value. Of course, this is not how business really works.

People are more interested in their own ego, who they're up against, becoming famous, their own security finanacially, or etc. Game theory offers some measuring of this, but for the most part, game theory seems to be a theoretical exercise that doesn't gain you much, save for some cool exceptions (e.g., auctions).

What people really measure their success against is particular to them. Some people really do just want money and more of it and have a risk neutral attitude toward it. Some people are altruistic. Some are bastards.

So, one place where business school really needs some help is determining the function that maximizes one's return. The Way of Go would suggest that the key is to know what you are trying to solve. If you're trying to just win a game, then increase your odds or cheat. If you want to get better at the game, whatever it is, then obviously this route of trying to win one particular game isn't going to work.

You can't have strategy without a goal. You can have tactics. You can do cool things. You can be oblivious. But, you cannot make good use of the Way of Go or any of the other stuff from business school until you determine what it is that you want to do; what it is that floats your boat.

Posted by wayofgo at 05:50 PM | Comments (1) | TrackBack

Way of Go MBA Intro

I thought this book was once going to be a perspective on my MBA from Kellogg from the standpoint of Go. Ainh! Nonetheless, a blog is a fine way to explore the topic.

First, the rules one learns in business school, for the most part -- the rules *you remember* once you graduated from business school and are out there for a few years -- are the same ones that apply in Go. No, you don't learn how to do financial statements in Go. No, you don't learn about how to lead a team in Go. But, you do learn strategies for analyzing financial statements and leading that are similar in nature to strategies one learns in Go.

Yes, you need a good deal of abstraction to do this. Yes, it's not always clear to get out of the surface details of something to get at the root elements in common, but I can assure you they're there. Leigh Thompson from Kellogg did a lot of work on the difference between case learning and "analogical learning" - that is, learning from the similarities in strategies between cases. Analogical learning won out.

This and other reasons seems to me are the reasons one should read the Way of Go, aside from all the other stuff in the book. Chock full of...

Posted by wayofgo at 05:39 PM | Comments (0) | TrackBack

March 17, 2005

Elevator Speech v.3

This third version of the elevator speech is getting away from the brevity of the first two version (the three line and the six line).

The Way of Go shows how universal rules of strategy manifest themselves in the game of Go. Not requiring the reader to know anything of Go, The Way of Go introduces the universal rules, their structure (with the acronym GO'S RULES) and shows the power of applying these rules to life (Go, business, war, etc.).

Taking examples from business, sports, politics, and other fields, the Way of Go shows how rules relate across domains and how at their root nature, the "rules" (heurisitics, rules of thumb, axioms, proverbs, etc.) don't differ, that their underlying natures don't change.

While the book could stop there, the title is not GO'S RULES, but the Way of Go. The Way of Go suggests that there is more to life, or this book, than just applying proverbs to situations. Looking deeper at the subject, having the right spirit, and rethinking subjects you already know, the reader is forced to reconsider oftentimes fundamental elements guiding the reader's decision-making routes.

The Way of Go is meant to be read a number of ways. First, you can open it up randomly and find that each paragraph is loaded with meaning(s) and with a little reading, there's more there than meets the eye. Second, you can read it all the way through to understand the structure of these universal rules and see how chapters intertwine. Third, The Way of Go is chock full of double entendres, hidden gems, plays on words, and other things for those who like to read deeply. As one reader said, "A Finnegan's Wake on Strategy"

Posted by wayofgo at 05:22 PM | Comments (0) | TrackBack