Wednesday, September 03, 2008

Sloan at Stanford, Entry 2: Models and Modeling

I’m going to have two types of blog entries during my year at Stanford’s GSB – the first type will tell you what it’s like to attend this top-ranked business school. Those posts will go over what happened during a given day, week, or month (like the first post). We’ve now had our first official day of classes – and I'll soon be writing that kind of post if you're curious to know what classes are like.

Other posts, like this one, are reflections on something that occurred during the program which gave me pause and made me think about larger issues relating to the business school, the business world, and life in general.

Two things happened during our first week here that took me down some unexpected philosophical train tracks: Interestingly, they both involved modeling, though of completely different sorts – one was about the limits of financial modeling, while the other was about modeling for photographs.

Food For Thought: Are we all Models?

During orientation, a photographer came in and took individual pictures of all the Sloan Fellows. Nothing special, just a routine thing, but it was funny in its own way. The cameraman positioned us just so, telling us to turn diagonally away from the camera, facing sort-of forward. “Now, Smile.” “Now turn to the left.” “Now give us a more natural smile.” “Now turn away from the camera.” For a (very) brief instant, before they said “next”, I felt kind of like a fashion model and expected him to say "work it!".

These pictures, referred to as “face photos”, will end up hanging on the wall near Sally Pierce’s office on the fourth floor of the Stanford GSB building, forever capturing the Class of 2009 as we were (are). If you look at the Sloan wall today, there are pictures from classes starting in 1958, coming up to the present day class of 2008 which just graduated (Yes, the Stanford Sloan program just celebrated it’s 50th year).

What jolted me a bit more than it should have, perhaps, was that the men in the class were required to wear a suit jacket and tie for these pictures. I guess I shouldn't have been surprised: After all, the previous students on the Sloan wall all seemed to be wearing a suite and tie. For another, I am attending business school, and that is the formal dress of business for men, so what’s the big deal?

For one thing, the last time I remember wearing a suit and tie was in 2005 at my brother’s wedding. For another thing, I almost didn't bring any suits or ties with me to school. As I left Boston, something told me to dig out an old suit (it still fit, thank god!), just in case. Now I’m glad I did.

One of my classmates found this surprising since I’m a high tech entrepreneur and have run several companies. “Haven’t you had to raise venture capital or other investment for your companies or visit clients? Don’t you have to wear suits when you do that?”

Yes, but the dress in Silicon Valley is pretty much sports-jacket, khakis, and dress shirt for men. If you’re a technical guy, you can even get away with wearing sneakers and jeans (Yes, believe it or not I wore black Nike sneakers to my most recent VC meetings). That’s it – no ties, no suits, no cufflinks, even the sportsjacket is optional on a hot day.

This got me wondering – have I really been in the “real” business world all these years? Or have I been isolated from the reality of business, hiding in a virtual bubble all these years? A bubble called Silicon Valley (in the broadest sense of this term since I haven’t physically been in California but rather in Boston for most of my career).

Maybe, but hasn’t the business world changed in a lot of ways where cosmetics aren’t as important today as they once were?

Recently, I spoke with a fellow entrepreneur from New York City who was raising money for his company, which makes software that will be sold to lawyers. He’s a former lawyer himself.

“Do they still wear suits in New York?” I asked, honestly surprised to see him in a suit.

“Oh yeah, all the time.” He answered, looking at me as if I was from another planet. Maybe I was – I had just flown out from California.

“Didn’t they stop doing that in, like, 1998?” I asked. “I remember reading that even conservative bankers like JP Morgan stopped wearing business suits and went to business casual dress.”

“Nope,” He continued, “After the dot com crash of 2000 and 2001, suits were back with a vengeance. They still are.”

This might sound like an obvious thing to some of my classmates and some readers of this blog, but I was genuinely shocked by his answer.

It’s kind of like when you’re in 70 or 80 degree weather on the west coast, and you go back to visit New York or Boston or Chicago in the winter to find the city in the middle of a snowstorm.

Sitting here in the blazing warm sunshine of Palo Alto, California, I honestly cannot remember what it felt like to be in a snowstorm. I remember it intellectually, I can look at pictures, but I just can’t seem to recall the exact feeling. Similarly, I honestly cannot remember what it was like when I had to wear a suit to work everyday – I know I did it, I can see pictures, but I had assumed we’d put that era of business behind us.

I began to wonder if some of my other assumptions about the business world were wrong too. Maybe I should’ve gone “Across the Street” (which is the Stanford GSB’s terminology for other parts of Stanford, such as the main campus, engineering school, med school, etc.), to be with my “own” kind – engineers and software guys?

But appearances can be deceiving. If you do wander by the Sloan wall in the GSB fourth floor, and see our pictures staring at you in some future year, what you will not know is that it was a very hot day, and most of us were wearing jeans, some of us shorts and some even wearing flip-flops on our feet. They are after all just head shots.

At least the men were. What about the female Sloan fellows?

There was no formal dress code specified for the women. I was surprised to hear this. When I asked Nikki, a classmate from Scotland, about this, she answered pithily, with a smile: “the only requirement is that we wear clothes”.

Is this simply a legacy that most Sloan fellows have been men until a few years ago? Could it be that today, when women are running for President and running large Fortune 500 companies that there are no formal guidelines for what is considered business-like for women?

By my count, there are only 11 women in our class of 57 future "business leaders". I guess that’s surprising too – I thought we’d left the era when there were only men in suits in the boardroom behind us as well. We had a higher percentage than this in engineering school. I wonder if the demographics in the two year MBA program are different?

But it’s not just a matter of gender – this whole suit thing got me thinking about “maintaining appearances in the business world” and what we do to "fit in"

One of my classmates told me that she naturally has a bubbly, enthusiastic personality. She was told by people in her company (a very large, well known corporation, I won’t say which one) that being this way wouldn’t help her move up into management. She should come across as a bit less bubbly a bit less enthusiastic, and much more serious, and this would help her case. In other words, don't be yourself. So, she played the part, suppressing some of her natural personality, in order to advance and was promoted in due time.

The bigger question is: How much of business in the “real world” is “putting on an appearance”?

In other words, how much of being in the business world is about acting like a fashion model that puts on the designer outfit, and struts her stuff on the catwalk, with just the right amount of swagger and hip movement. Why? Because she knows that’s what the audience wants to see. That's why we go to fashion shows. But is the business world one big fashion show?

I think we’re all guilty of this to some extent. Certainly I play up the “founder of an internet company” role when I go on the road, sometimes intentionally wearing sneakers and jeans to emphasize the role I’m playing.

The other day, I took a quick look at our class to see if I was the only one with a beard. At the time I counted only one other guy in our class with facial hair, Aaron, and it turns out he was a software guy, just like me (I’ve since counted at least one more, so we're up to three). I remember reading that Ross Perot at EDS would fire you back in the eighties if you had facial hair, or long hair for that matter... but that changed a long time ago, didn't it?

Another of my classmates who works at the financial industry showed me that she had a little tattoo on her wrist. It was a rather unobtrusive little tattoo. “Oh of course I cover it up with a watch when I’m at work,” she said. “Tattoos don’t work so well in the boardroom, you know.”

My question is, why don’t they? Is it OK to show our individuality in business school and then cover it back up when we get back into the business world? The bigger question is: Do we have to become someone else to be successful in corporate America, hiding our normal personality, creativity and individual need for self expression?

I guess a lot of my assumptions about how “business” has changed over the years may not be so true after all.

Food for Thought #2: What Can Modeling Really Do For You and Me

The other thing that really made an impression on me during the first week was a completely different kind of modeling, using Excel to model a business scenario. The model would then be used to come up with some quantitative predictions to help a business manager make decision, ranging from how many units to produce of a product, to how often to run recycling plants, to how many employees to hire or fire.

Professor Moore, who taught the class, explained during the Excel workshop (we’ll have a whole class dedicated to this in the fall term, so I’ll be writing a lot more about models I think) that models were only as good as the constraints we imposed on them.

In other words, if we ask a financial model to tell us, as one of our cases did (“Peninsula Recycling Services”) how many days we should run a set of recycling plants (one was located San Jose and one in Redwood City) to keep the costs at a minimum, what will it tell us?

The model, without being fully formed, will return an answer of zero days. In other words, to keep costs low, Peninsula Recycling Services should simply shut down all of its recycling plants. This obviously isn’t an acceptable solution to the case, since we were expected to produce a certain amount of recycling output. Without the proper constraints in place, our financial models aren’t very good models of reality. If the citizens of Redwood City suddenly find their recycling shut down, maybe you can blame it on a financial model!

But this raises an even larger question – since much of business world, and much of business school, rests on developing models and frameworks, how effective can these models really be in helping us to make decisions in the “real” world? There is, after all, no way to put all of the constraints of the real world into a financial model.

Even Professor Moore, who is a co-author of our textbook, “Decision Modeling with Microsoft Excel”, showed us a diagram where financial models are only part of the process – the other half consists of the manager using his/her intuition after seeing the results of the model to make a final decision.

But this raises the question, how much emphasis should managers put onto their own intuition (based on their experience) and how much should they put on their spreadsheet models? 30%? 50%? 75%? 25%?

One of our classmates in this workshop asked, during one of our cases, “So, what is the conclusion? What should this company do?"

Professor Moore, who has obviously dealt with this issue before, answered something to the effect of: “I don’t know what the company should do. I don’t even know what the right answer is for this particular business. I can only tell you what the financial model says. If the models always gave the right answer – then we could remove human decision-makers from the process. But you can’t. You, the manager, have to see if the answer makes common sense. You have to use your intuition – that’s why they pay you the big bucks, after all.”

Amen. I think too often companies rely too much on one side of this equation – either the analytical models (for larger organizations), or intuition (for smaller startups like the ones I’ve been a part of), and rarely are organizations able to include a “proper” mix of both. Nor is there even a definition of what is the “proper mix”.

So, if you’re thinking of shelling out the big bucks to go to business school, remember this. B-school is not going to give you some formula or algorithm for decision making that you can blindly follow in management scenarios to come up with the “right answer” – in fact there often is no single right answer.

I’ll be writing a lot more about modeling as we get into the school year. In the past, I’ve written a lot about intuition, but finding the balance between intuition and rational thinking is I think a much more philosophical question - one that 10 months in business school may not be able to answer. But I’ll let you know if I get any closer during the year!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

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