Stanford Business, Entry 7: New Study Groups, Philosophy, Desert Survial and Jack Welch

So, last week we officially ended our pre-term. This was an important milestone for us, as many of us in the Sloan program hadn't been to school for many years. Despite the fact that it wasn't officially graded, we learned a lot about how to work in Study Groups, about business school generally, and about Micro(MicroEcon, not MicroSoft, though the CEO of Microsoft did visit this week - will post more about that in my next post), Strategy, and Managerial Accounting specifically (see previous posts for specifics of what we learned in these classes).

I was personally excited about the end of the pre-term because it meant that we would shift to a more normal schedule: instead of starting class in the morning each day, some days would be off (well at least Wednesday would be our day off), and on most days class wouldn't start until 10 am! Yahooooo! (Wasn't that what customers of Wamu said in their commercials? Turns out Wamu went bankrupt this week - more on the financial crises and what our professors have to say about it later).
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Those of you following this blog will know that i like to follow "engineer's hours", which don't seem to work so well at a business school full of the best-and-brightest-early-risers. By "bright-and-early-risers" I mean those who don't follow engineer's hours - for me, I'm usually asleep at 8 am; Given that I probably didn't get to sleep until 2 am, that would mean i'm just finishing my sixth hour of sleep. For some business school students, 8am seems to be "mid-day", meaning they have been up for at least 3 hours.

Last Wednesday, on the last day of the pre-enrollment bootcamp, we had farewells from all of our three professors (actually one of them, our economics professor, is going to continue in the fall term - but as for the other two, that was it).



Someone in the class had the idea that we should give the profs a little gift as a token of our appreciation. This was a brilliant example of an idea starting at the grass roots level reaching fulfillment at a blistering pace. From an email that was sent out on Tuesday, by Wednesday someone in the class had bought three bottles of wine as appreciation for each of our professors: A Chilean wine, a French wine, and an Argentinian wine. Then we had our Chilean fellow, our French fellow, and our Argentinian fellow present the wines to each of the professors.

So what else has happened happened last week? Here are some highlights:

New Study Groups



As I mentioned before, our Study Group was just starting to hum by the third week of pre-enrollment. But then, suddenly, and without warning, just as classes ended on Wednesday, new Study Group assignments were sprung upon us!

At least that's how it felt - in actuality, we knew that this was coming. Despite our occasional hiccups, I realized that I was going to miss my initial study group. We'd gotten to know each other well. We had even become forgiving of each other's idiosyncrasies and learned (for the most part) how to channel these unique qualities into getting the best result for the group. (Err, except when we had to survive in the desert, which didn't go so well - see section on Half Moon Bay retreat below).

I figured that the new group might also be willing to work out some compromise so that we weren't meeting at the crack of dawn every single day. Anyways since we had a few days before class began (thursday was our retreat; friday was a free day, the weekend was free, and classes didn't start until monday). Well the weekend wasn't really free since as usual in Business School, we had both readings and problem sets for the first day of class.

As soon as the study group assignments were handed out, most of the students left to enjoy some sun and relaxation after what seemed like a very long pre-term. Just as I grabbed my bag to leave the room, I was informed that our study group was going to meet there and then!
Well, I figured, Business School is about efficiency, after all, so I put aside my toughts of r&r and went to the Study Group meeting, figuring that at least this meant we wouldn't have to meet on Monday. And at least one other member of my group, a Marine biologist with multiple degrees from Stanford already, had told me that she also was a night person, so the two of us might have some sway with the rest of the group members.

The group met for a while, but we accomplished only one cooncrete thing: Our first "official meeting" was going to be at 8:30 am on Monday morning before our first class. And we were all expected to have done our reading and homework before the meeting.

Sigh. My endless quest for a laid back study group goes on.

The old doubts started to creep back in; I looked out the little tiny window in our study group room, literally and metaphorically gazing "across the street", wondering if there wasn't a spot in an engineering class which began at 3 pm meeting only once a week with my name on it... Actually I had already decided to audit a computer science class (it would be a shame to spend this whole year and Stanford and not take advantage of the incredible engineering and comp sci departments). And it was scheduled to start at 4:15 pm on Tuesday ; not that I'm counting, but that would be more than seven hours later than our study group meetings. Ahh! Engineers hours.



Poets, Quants, and a Philosopher


In biz school (at least at Stanford), students are often grouped into poets (those with liberal arts education), and the quants (those with more financial, numerical, or engineering background). I should fit nicely into that second category, the quants, given my degree in computer science from MIT, but somehow I don't.

Poets had trouble with quantitative subjects and wanted to spend time talking about issues. That sort of fit me, as I definitely enjoyed the class discussions more than the actual material that was being covered . But I didn't have problem with quantitative subjects, other than being motivated to sit in class for hours on end. Quants could solve quantitative problems easily, but had problems with soft mushy wordy subjects. That kinda fit me too - except that I kind of enjoy soft, mushy, wordy subjects.

In fact, I don't have a problem with either kind of subject; I just have trouble getting motivated to get to class on time, day after day. I remember in elementary school one of the determinants of our grade was "attendance" - those who attended class automatically got a better grade than those who didn't. I didn't always find this fair, if we ended up learning the same things, but as an elementary student you're taught to respect the adults point of view. When I got to MIT, it was like having a straitjacket removed. I could go to class when I wanted; skip it when I wanted; as long as I passed the exams, I could pursue my extra-curricular activities with vim and vigor.

Believe it or not, Business School is a little bit like elementary school in this regard. In almost all of our classes, attendance is graded. If you don't attend, you're not participating - and you can lose up to 20% of your final grade on this.

Despite the lack of structure during my undergraduate days, when I'd first graduated with a bachelors, I had been a very motivated young man. I remember showing up for work at my very first startup, a company called DiVA (spun out of the MIT Media Lab), at 8:30 am wearing a suit hoping to make a good impression. No one was there. I couldn't even get into the office so I sat down outside the front door. In fact, around 10 am, people started to wander in, and were wondering why I was wearing a suit (was I a customer? was I interviewing for a job?).

In Business School, the exact opposite was happening. I would show up at 10 am, a few minutes late for class, wearing jeans and whatever shirt I could find as I scrambled from my dorm (which several of my b-school colleagues have pointed out is usually the same two shirts, again and again). In this case, everyone else had already been jogging, had discussed the homework, kissed their wives (or husbands) goodbye, dropped off the kids at school, eaten breakfast, and reviewed today's case study, all before I had even gotten out of bed!

Even harder (and more disturbing) than attending classes, I can't seem to stop my mind wandering to the philosophical underpinnings of what the heck we're really trying to accomplish in business school. Rather than try to figure out the marginal cost curve which yields maximum output for a given set of resources (a company, or even a country), I found myself questioning the assumption (made on the very first day of econ class) that a country is best off when they have made maximum utilization of their resources from an economic point of view. I have met many friends from other countries (who were not in business school) and it wasn't always clear to me that we were much better off. I remember talking to a woman from Cape Verde a few years ago, and she went on and on about how much happier people in her country were than we are here in the US. This is despite the fact that we have such a significantly higher "standard of living" than say Cape Verde.

In strategy class, rather than simply analyzing what made a company successful, I found myself wondering whether strategy can really be taught simply by talking about successful companies in the past (the case method, which was first pioneered by Harvard Business School and is now used pretty heavily by Stanford, though we also use textbooks heavily in our other classes). When we studied WIP (work in progress inventory accounts) in accounting, I couldn't help but start thinking about how the accounting system seems to have been built entirely for manufacturing firms, and how services firms, software firms, and Internet firms aren't really well represented by the current accounting system - shouldn't somebody be redesigning the system to reflect the new reality?


Another example: George Parker, a former Dean of the Sloan program at Stanford, and a well known finance dude, laid out for us the fundamental structure of the financial services sector, partly in response to the current financial crisis. As a result of his talk, it would be natural to start thinking about the mechanics of the interest rate, how banks and investment bank works and what interest rates should be charged. He divided the world into 1) people who save money (you, me, our friendly neighborhood corporations, and governments) and 2) people who need money (you, me, our friendly neighborhood corporations), and how this created the need for banks in the first place.

He pointed out that the average 3% margin of banks between what they paid for capital (what they pay us for depositing savings) and the inherent mismatch of needs between the providers of capital (we want to be able to pull out our money short term, with no risk) and the recipients of capital (who want to borrow money for as long as 30 years, and have inherent risk in the projects they invest in), he told us that some shakiness was inevitable.

Rather than thinking about the equity/debt ratios and what interest rates were sustainable to maximize profits, I found myself wondering about the stability of the whole financial services sector altogether, in the very long term. Was it really sustainable to have two parties with such different interests mediated by a bank who owes us our money back every time we ask for it, but never actually has all that money available? Was the financial system, based the idea of cost of capital (represented as i or r in our finance equations) really sustainable, in the long run, or were "runs on the bank" unavoidable, even inevitable? WaMu's recent crash (the biggest bank failure in history) underscores this.

There are other financial systems that don't rely on interest as the key motivator (the Islamic financial system, for example, does not allow charge for money). Is it possible to have an economic or financial system where interest (the cost of capital) is not the sole, end all, be all. But it's not clear to me that the Islamics system is inherently any more stable either - since they just change the word profit for "interest" and charge about the same as the "prevailing current interest" rate, just calling it something else.

But business school students aren't supposed to be philosophers! We're supposed to be here to get skills and perspective that helps us to get ahead in our careers, and make more money, not question the fundamental nature of the subjects we're studying. So on to career advancement and skills training!


Incompetent Jerks and Lovable Fools in the Desert


On Thursday we had a field trip to Half Moon Bay for a "team-building" retreat. The bus was going to leave from Littlefield arch at 8:30 am. Sharp. By the time I got there, I learned that some of my classmates (who'd gotten to know me well) were already taking bets to see how late I'd be and if I'd miss the bus and have to drive to Half Moon Bay on my own. Oops! Sorry to disappoint, guys, but on that day, I made it on time (there were even a few students who showed up after me).

So what does one do on a "team-building" retreat from arguably the top business school in the country?

The presenter started out by talking about interpersonal skills and how important they were. She brought up the classic consultant (and MBA) tool, the two by two matrix - divided into quadrants. Along the horizontal axis was "interpersonal skills" and along the vertical axis was interpersonal skills. The people in the top right quadrant (Lovable, Competent Heros, or some moniker like that) were people everyone wanted to work with. The bottom left quadrant (Incompetent Jerks), were people that no one wanted to work with because they didn't know what they were doing and they were hard to work with.

The two tricky quadrants were the upper left - "Competent Jerk" is someone who is very good at what they do, but has bad interpersonal skills, and "Lovable Fools", those people who have good interpersonal skills and get along with everyone, but aren't very good at what they do. She asked us how many of us would like to work for one or the other. Quite a few raised their hands under working for "Competent Jerks", with some people giving an explanation that at least that way they'd learn something, even if thier boss was a jerk. In fact, she continued, when people are asked this question in a survey, a large percentage answer "Competent Jerks". But when people are observed actually choosing people to work for, they almost always favor working for "Lovable Fools" rather than "Competent Jerks". This was interesting.

We spent the morning talking about interpersonal skills and qualities that different people in the class had. This consisted of an exercise where we each had a number of cards - each colored differently and each with a "personal quality" on them - for example "does well under pressure", "is a diligent worker", "speaks his mind", "gets things done methodically", "is a visionary", etc., and we had to hand out the cards to people in our class if we thought the card didn't describe us, but described someone else. I won't get into specifics but I think we were all surprised how well (or not so well) our classmates knew us.

Half-moon bay is a nice little beach on the other side of the hills that define the western edge of Silicon Valley. During lunch a few of us went on a walk along the beach while our Marine biologist gave us a tour of the little aquatic life that lives near the seashore. "I may not know much about balance sheets," she quipped after pointing out the different kinds of snails and barnacles that lived there, "but I do know alot about fish!". Somehow I don't think that's going to help her through businesss school, but it sure was a lot of fun! (except for the time when I tired to touch a sea enenemy, something I didn't even know existed 24 hours earlier, and it squirted me; hopefully it was just water it sprayed on me!).

In the afternoon, we divided into our old study groups and had to face the highlight of our trip to Half Moon Bay, a group test: The Desert Survival scenario. We were all on a plane (let's suppose). Let's also suppose that we crash-landed int he Sonoran desert (that's south of Arizona near the Mexico border). Let's further suppose that the pilot and copilot were killed in the crash, but miraculously, we are all OK. Let's one-more-time suppose that we have a series of items - including a parachute, a swiss knife, a topcoast, a mirror, a quart of water each, salt tablets, and on and on - and it is the goal of the group to come up with rankings of items by importance. I found myself thinking that this scenario was written well before the iphone was out; I would just do a GPS lookup of where we were and call someone to pick us up.

iPhone-less, the sole determinant of our survival would be our rankings of the importance of each item. We were revealed at the end to the the rankings of a "survival expert", our team would either survive or die in the desert, depending on how close our rankings were to his rankings.

Needless to say, most teams died on the desert! Ours was particularly bad, and my own score was more than particularly bad (though there might have been one person in our whole class who scored worse than I did!).

The trick happened to be the two most important items - I somehow ended up ranking them both last. Our group mostly agreed on our rankings, though we had a few disagreemetns. One member of our group insisted that the most important item (i won't tell you which one it is, since you might want to go thru this exercise yourself) was among the most important, we (myself included) didn't listen to him! Oops!

This situation, one person who is in a minority, disagreeing passionately with the group, who is too far gone to listen, seems to come up again and again.


I thought we'd learned our lesson about this. But this week, in our first OB (organizational behavior) class, it happened again, in our new Study Groups. All the members of my study group agreed on one position, except one of us - in this case it was me -- passionately disagreed with the group.

In both situations, the desert scenario (where I was with the group) and the OB scenario (I'll describe the actual scenario in my next blog entry), where I was the dissenter, it turned out that the dissenter ended up being the person who was "most right" and the group ended up being "most wrong". This was an interesting result- in both cases, neither of us had the data or votes to back it up, we were operating on what is one of my favorite topics, intuition.

One of our team members, John, said that in his real life job (in the construction industry), when one of his team members disagrees very passionately about something, he usually takes the time to really hear that person out and understand why they feel so strongly. But neither he nor I nor the rest of our group did that in the desert scenario, beacuse we thought we were pressed for time and had agreement from the other group members. Maybe the wisdom of crowds isn't as great as it's cracked up to be!



Jack

In the movie industry, whenever someone says "Jack" in a knowing way, they all know who's being talked about: Jack Nicholson, the famouse movie star who has won multiple best actor Oscars, and who has a personality that is recognizable wherever he goes.

In businesss school, when someone says "Jack" in a knowing way, they are also talking about an easily recognizable celebrity - in this case, Jack Welch, who was CEO of General Electric for many years, and considered by some to be among the greatest of American CEO's. Though John Q. Citizen might not recognize Welch, John Q. BusinessSchoolStudent certinaly does. Even though Welch retired a few years ago from the CEO slot at GE, he is a recognizable figure in the business section of the bookstore and on financial news programs on TV.

We studied a case in Strategy class on General Electric, and reviewd what happend during multiple CEO's ending up on Jack Welch, who many consider one of the most visionary CEO's of his time. One of the elements of his vision for GE was that they be #1 or #2 in every industry they were in - and that sometimes meant selling businesses which were profitable but couldn't get there, or buying into other businesses which were already there. This vision also originally led to a process of "de-staffing" early on during GE's days.

The class seemed very energized by this discussion about GE and about Welch in particular. After the discussion, the professor showed us a clip of Jack speaking at some conference. The professor said it was the most "geniuine" clip he'd seen, even though it's fairly old. Jack talked very passionately about how many people in corporations have trouble coming to grips with a six letter word: Reality. He spoke exuberantly about how corporate staffs (in big companies) don't make anything, don't sell anything,a nd they should be there primarily to support the field and how often they don't, and how companies need to be restructured for that.

Like the rest of the class, I found this talk inspiring, up to a point. Then later, as I was wandering around campus, the philosopher in me came out,and I began to wonder what I really thought about Jack Welch, his philosophy, and the culture of adoration that's gone up around him. Something was nagging at me and I couldn't quite articulate it until later.

Note: if you read on, you might be exposed to heretical views on being acorporate CEO and might, like I am in danger of, be excommunicated from the religion of American Business School Students.

So let me start by saying that I agree that Welch was a wildly successful CEO who brought in profits. And even an effective leader. But I guess i get a little unsettled when they talk about Welch being a visionary for American business.

It strikes me that "Being #1 or #2 in every industry you're in" isn't much of a vision. It's more of a performance measure. It's kind of like going to college and saying my vision of college is to get an A or B in every class I take. And if I can't get an A or B, then I'm going to drop the class. And I'm only going to take classes where I can get an A or a B. Sorry guys, but that's not a vision - that's a grade point average.

It also struck me that Jack was a great operator but not much of a visionary about the business units themselves, which seemd to have no rhyme or reason why they were part of GE except Welch's three circles (which didn't strike me as showing any kind of real understanding of the new or old technology or markets that GE was in), just how each was performing.

OK, granted I'm operating on limited information, of course. And no doubt, Jack is a "great" guy who knows how to squeeze every penny of performance out of the people that work for him; I just disagree that he's much of a visionary [of course when the Business Inquisition gets to me, I may change my mind on all these philosophical topics, and get back to making profits, yeah!].

Speaking of a vision of a grade point average, I have a vision too: that i'm not going to get A's or B's in my classes unless I stop spending all my time writing and get back to studying!

Stay tuned for more on the first week of the official term, the arrival of the MBA's and the undergrads onto the Stanford campus, and the house that Software Built. Coming Soon to a blog near you!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School 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.