Category Archives: Decision Making

Stringency vs. Pareto

Stringency

Analysis. Latin analysis, Greek análysis: to pull apart, dissolve into parts; to study something by taking it apart and considering its individual components; investigation into the particulars of a whole.

Analytical thinking is in those professions critical where a system is understood via its parts. A psychoanalyst pulls apart the patient’s past experiences. The financial analyst considers the entire spectrum of transactions in order to get into the details of specific market movements. Police investigative work, all approaches in medicine, every type of research and development must employ sophisticated methods of analysis.

Stringent. Latin stringens: strict; convincing based on logical arguments; logical, clear, without internal contradiction.

Stringent analytical methods are particularly important in the academic fields, whether the natural sciences, engineering sciences, economics or the humanities. Master’s or Ph.D. theses in Germany are not accepted without meeting high standards of analytical stringency. All professions based on deep analysis depend on stringent methods.

Penetranz. Penetration: Latin penetrare: to place into; to enter into, get into, to move in a certain direction.

To be penetrating has a negative connotation in Germany: overly direct, bearing in on a point, intense. A certain perfume can be too penetrant. A person who dominates a conversation, making long speeches and moralizing is penetrant.

In the positive sense penetrant means dogged, focused, determined, working to understand something at as deep a level as possible. Like an archeologist who digs deeper, forever searching for evidence, for insight into the lives of our human ancestors. The same goes for analysts of any kind, for the medical profession, for linguists, historians and research in all of its forms.

Heinrich Schliemann (1822-1890) comes to mind, the German archeologist who discovered the ancient cities of Troja and Mykenes. Many years of painstaking research led to archeological and historical proof that these two cities had in fact existed.

Pareto

The Pareto principle: Also known as the 80-20 rule, stating that in many situations approximately 80% of the effects come from 20% of the causes.

Vilfredo Pareto, an Italian economist, documented in the early 1900s that 80% of the land in Italy was owned by 20% of the population. Pareto went on to observe that 20% of the pea pods in his garden contained 80% of the peas. It has become a common rule of thumb in business that 80% of sales come from 20% of clients.

The 80-20 rule could be a metaphor about the American approach to many things, or at least about an element or aspect of the Americans approach. Americans tend not to be perfectionists. Not because they do not recognize and honor striving for the best. But because in many cases attaining, reaching, accomplishing that extra 5% is in many cases “simply not worth it”.

Worth. Value. Does the customer want that extra degree of engineering excellence? Is it necessary to calculate that many digits behind the decimal point? Is that depth of analysis necessary in order to make a decision?

80% is often enough. For Americans, depending on the situation, 60% is enough. Depending on the risk-benefit relationship, even less is enough.

“Get rigorous” … “Be pragmatic”

German Approach
Germans regard an individual step in the decision making process as completed only when significant amounts of information have been gathered and analyzed with rigorous analytical tools.

American Approach
Americans prefer gathering limited, but highly relevant, information, and fast. Comprehensiveness must be justified by its value. Analysis is pragmatic. Americans trust their intuition.

Germans Perception
Americans are viewed by their German colleagues to be too pragmatic, too inexact, too tolerant of insufficient analysis.

American Perception
For many Americans, German analysis is overly complex, cautious, scientific, tool-oriented.

Advice to Germans
Reduce the overall scope of your information gathering and analysis. Focus on the most relevant questions. Americans have less of a need than Germans for depth and breadth, as long as the key factors have been addressed.

Advice to Americans
For Germans, comprehensiveness and completeness are a virtue. If you opt for less depth and breadth in your information gathering, be prepared to provide the reasons. If possible, place a monetary cost on the extra work involved. Demonstrate how there is limited value added to the decision making process (resource conservation).

When it comes to your approach to analysis, your German colleagues will expect you to describe the process, methods and tools you employed or plan to employ. Germans seek scientific objectivity and avoid “gut-based” approaches to analysis. From their point of view, your results will only be as good, as reliable, as convincing, as the process/method/tools you used to arrive at them.

“It takes all kinds of people”

What role does time play? Do Germans and Americans have the same understanding of long- , mid- and short-term? A rhetorical question. No need to think long about it. The differences are obvious in so many areas.

Wasn’t it Herr Wiedking the Vorstandsvorsitzender (not CEO) of Porsche a few years back who shocked the financial world by stating that Porsche would supply their numbers just twice a year, making a clear statement about short-termed thinking?

Aren’t the two cultures of different ages in general? Back when the so-called Indians (the indigenous peoples of North America) were saving the first generations of European settlers to the “New World” from starvation the Germans had a centuries-old history.

The speed in the U.S. is faster

In a previous story we discuss the older, deeper-seated German historical consiousness. The Germans think in longer time stretches than Americans, which can be both a strength and a weakness. The terms Permanenz and permanence have different meanings. Think about how often Americans pick up and move within the U.S., buy and sell houses. How often they identify, evaluate and engage business partners such as suppliers, only to disengage them just as quickly.

The speed at which Americans make acquaintenances and friends (meet, get to know, befriend) is much faster than in Germany. Or think of the financial world again. To make an investment, then hold (halten) or sell (drehen) is not the same as in the U.S. The clocks aren’t the same. Long-term in the U.S. is mid-term in Germany. Mid- is short-term. American short-term doesn’t even exist in Germany.

In the American business culture it is almost always better to make a suboptimal decision quickly than to make an optimal decision late or too late. Suboptimal, but timely, decisions can be corrected or improved upon in time. Usually.

Combine inherent strengths

Not long ago I was executing a seminar at a location in Germany for a German client. It was in the Lichthof (atrium) of a beautiful building erected at the turn of the 18th to the 19th century. Big, open space. Very high ceiling made of glass. Sunlight shining in. Inspiring. During the session on decision making a German manager was walking by, one who had done a long-term (three years) in the U.S.

He stopped, listened, saw the skeptical expressions on faces of his German colleagues and walked over and stood next to me (we had worked together on a few projects), then said to the group: “It’s really not that complicated. The Americans make decisions quickly, often too quickly. So what? The bad decisions they revise just as quickly. That doesn’t bother anyone in the least. It‘s nothing to be embarrassed about. We should be able to do that, too.” Some nodded in agreement. Others just shook their heads in dismay.

My goal is not to make Americans out of Germans or the other way around. It wouldn‘t work anyway. And it would be rather dumb. The world needs Germans, their way of thinking, their character traits. The world also needs Americans, their ways of thinking and their character traits. Our goal is to understand the inherent strengths of the two peoples, in order to combine them.

The first step is, however, to identify and understand them, in each of their respective national cultural contexts. Perhaps there is a step even prior to that: to accept the fact that there are such things as national cultural characteristics (yes, traits). German, American, French, Mexican, Chinese, Brazilian and so on and so forth. Just as there are in Bavarians, Franks, Rhinelanders, as well as Hamburgers, Brandenburgers, Saxons and Anhaltiner. And let‘s not forget the Berliners with their Berliner Schnautze. As my mother would say: “It takes all kinds of people to make the world go around.”

Fail fast. Fail often.

Business failure is Personal Failure

The Handelsblatt Global Edition from April 23, 2015 reported: Philipp Gloeckler’s business idea was a failure, and he doesn’t mind admitting it. He had what he thought was the perfect concept, an impeccable business plan and great press coverage. Yet, his app, Whyownit, was a disaster.

This is how he found himself at the F***UpNight event in Berlin, a get-together where failed start-up entrepreneurs pick through the bones of their mistakes in the hope that they can do better next time.

“Business failure is often equated to personal failure in this country,” said Rolf Sternberg, a researcher at Leibniz University in Hanover, who recently co-authored a study on young entrepreneurs. “We would win a lot if we would accept failure as a new chance,” he added.

Other than SAP, the software giant founded in 1972, no German tech company has made it onto the global stage. Instead German entrepreneurs are better known for their pursuit of perfection, and finding success within established structures, such as the car industry.

“I am convinced we need to talk about mistakes,” said Béa Beste, whose toy app, which allowed users to subscribe to a toy delivery service for kids, collapsed with the loss of all her investor’s capital as well as her own €300,000 ($322,000). “The worst mistake is being afraid of mistakes,” Ms. Beste said.

Venture capital is scarce in Germany’s risk-averse, conservative economy, so entrepreneurs usually turn to bank loans for funding. But if their business fails and debts are called in, they must go through a lengthy insolvency process which can demand up to six years of “good conduct” before the slate is wiped clean.

Fail Fast. Fail Often. Fail Everywhere

“Discussions about failure may come more easily in America in part because our businesspeople are so good at it. The failure rate for startups, using a yardstick in which investors lose everything (i.e., all of the company’s assets are liquidated), is between thirty and forty per cent, according to Shikhar Ghosh, a senior lecturer at Harvard Business School.

The rate is seventy to eighty per cent if failure is defined as not meeting the projected return on investment, and ninety to ninety-five per cent if it is measured by failing to beat a declared projection.

Despite these statistics, Americans remain remarkably optimistic about the process. Last year, venture-capital companies staked forty-eight billion dollars in pursuit of big returns. And the fact that these investments are concentrated in a relatively small number of companies has not seemed to inspire much fear in prospective entrepreneurs.

According to a study done by the Global Entrepreneurship Monitor, a project run by Babson College and the London Business School, in 2014 among respondents between the ages of eighteen and sixty-four who were not already running their own businesses, just thirty per cent reported that fear of failure would stop them from starting one.

And more than half of those Americans surveyed believed that there are good opportunities to strike out on one’s own.

Source: “Fail Fast, Fail Often, Fail Everywhere”. By John Donohue. The New Yorker. May 31, 2015.

“Be careful” … “Take the leap”

German Approach
Germans believe that an intelligent and correct decision, in line with the essence of the situation, both farsighted and aimed towards the future, is a decision which provides continuity, ensures quality and minimizes risk.

American Approach
Because no analysis can be 100% exact, Americans are willing to take risks, as long as corrective measures are possible.

German View
Because their American colleagues are willing to take unwarranted risk, Germans feel the responsibility to apply stringency and methodology.

American View
Americans find the Germans to be overly risk-averse. Decisions are made too late, too carefully, via an overly complicated process. Forward momentum is lost. Opportunities are missed.

Advice to Germans
Your ability to analyze is strong. You strive for objectivity. But what about your Bauchgefühl, your gut feeling, your intuition? Trust it or at least take it into consideration along with your objective analysis. Be willing to take a little more risk. There is no such thing as a perfect decision. Every decision, if made in a timely manner, can be revised.

Advice to Americans
You know that your German colleagues anticipate, calculate and react to risk in ways different than you do. It is imperative that you engage in a discussion with them about the positive and negative impact of a given decision. Quantify (measurables) and qualify (non-measurables) the down-sides as well as the up-sides. Anticipate your assessments being askew: German focus more on what can go wrong; American focus on what can go right. Prepare convincing and detailed arguments for why your assessment is realistic, fact-based. It is fine to rely to some degree on intuition, but be sure that you can explain the concrete experience behind that „gut feeling.“