Category: Leading/Managing

Appreciation for Practical Skills and Keeping Your Word

August 25, 2024 / / 0 Comments

My parents gave me a sport coat earlier this year. The sleeves were too long, so I looked for an experienced tailor near my home. Multiple calls later, I found a helping hand at the local Men’s Wearhouse, where the staff didn’t require me to have bought the coat in their store. I immediately drove over, where they took measurements and pinned the sleeves. A week later, I picked up my coat, tailored to fit at a reasonable cost and with professional service. I was a happy customer.

It feels as if we only, truly appreciate the plumber, tailor, electrician, teacher, nurse, or mechanic when we really, really need the plumber, tailor, electrician, teacher, nurse or mechanic. The news is full of stories on AI and cryptocurrency and the barbarians at the gate, and yet our daily lives depend on practical skills and human relationships with those in our own towns. 

My wife and I know and work with Michael Faust, an experienced handyman (if that’s the right word for someone who knows how to do just about everything). Michael runs a successful contracting business with his wife. Among other projects, they helped renovate our new office at Forisk in late 2023, and, like he told me, “I try to stay on schedule.” We work with Michael because he’s responsive, talented, and delivers quality work on time. He listens and takes ownership for the performance of his team. He is highly skilled. He’s a professional and he’s a friend.

I get tired of people saying one thing and doing another, even if it’s accidental or unintentional. The road to hell is paved with good intentions. I don’t get as frustrated as I used to, but I do move on and then do my best to work with and take care of those who do what they say they are going to do when they say they are going to do it.

My Dad is one of the most honorable people I know. He’s the kind of guy you may sit next to on an airplane and talk about a book and he’ll say, “hey, I’ll mail you a copy.” Then, if you give him your business card, he will.

I am highly appreciative of the people in my life who can “do things,” whether growing food, mending fences, raising goats, speaking Spanish, or hanging drywall. I admire the person with the experience and intuition to look at a situation and figure out a workable approach, regardless the field. And I am thankful for the people in my life who consistently keep their word and live by example. 

Options and the Risk of Missing Out

March 23, 2024 /

In graduate school, I conducted research on managing risk in the forest industry. My working assumption was and remains that vigorous management of organizations requires the deliberate identification, assessment, and management of risks. In forestry, these include, for example, those in operations (e.g., equipment breakdowns), distributions (e.g., transportation delays), and human resources (e.g., hiring and retaining personnel). 

My research, however, focused on financial risks, which comprise those risks that a firm is not typically in the business of bearing. For a forestry firm or timberland investor, these may include the impacts of exchange rates, energy prices, and interest rates. Within this area, I studied the potential for timberland investors and forest owners to use financial contracts, operational hedges, and “options.” 

Options Have Value

Options? Yes, some view forest management as a series of real options. For capital budgeting and strategic planning, real option theory addresses limitations with net present value (NPV), which does not account for flexibility, volatility, and contingency with potential investments, whether in forestry or any other industry.

Flexibility. Volatility. Contingency. In the context of forestry, flexibility refers to the manager’s ability to defer, abandon, expand or reduce a silviculture investment or harvest schedule due to new information or investment opportunities. Volatility references changing market conditions – particularly changing timber prices – or new technologies that affect our view of potential investments. Contingency refers to situations where future investments depend on investments made today. Presumably, these options provide value and should be accounted for, or at least considered. 

Options, Flexibility, and the Risk of Missing Out

In practice, not all investors have the same levels of flexibility, exposure to volatility, or concerns about contingency. In many cases, traditional analytic approaches like NPV, which views decisions as fixed, is sufficient for making decisions. This makes real options analysis a whiteboard discussion for comparing and discussing a dynamic view of future choices for strategic planning, and less about risk mitigation.

For a firm focused on downside risk, risk management and hedging programs transform undesirable risks into acceptable and manageable forms by increasing certainty and decreasing volatility. The management of risk helps firms achieve their optimal risk profile by balancing the costs of hedging with the protection offered. 

While some view risk management defensively, others may incorporate risk management into a process of appraising investment opportunities, as risk features both potential upsides and downsides. The view of managing risk to protect the firm from catastrophes or losses ignores the risk of missing out on profitable or strategic opportunities with upside potential.  

In short, the risk of missing or underinvesting in promising projects represents a risk unto itself. Risk management can play a role in protecting and increasing the bundle of cash flows that make up the corporation, and the associated opportunities for future investments that require these cash flows. Rather than husbanding resources exclusively for precautionary safety nets or insurance-like reserves, risk management can include the allocation of capital among competing investment alternatives.

Conclusion

At a certain level, executives and investors manage risk instinctively. In forestry, this occurs through the normal calculus of assessing the risks and rewards associated with silvicultural treatments and timber sales. Executive professionals identify, assess, and manage the risk and uncertainty encountered by their operational activities in business environments subject to financial risks emanating from outside of their sectors, and in doing so preserve the ability, the option, to make opportunistic investments.

Framing Disruptions

February 18, 2024 /

Simple approaches can focus the mind. When thinking through the means and mechanisms by which disruptions could affect my business, my community, or the economy, I often ask two simple questions rooted in economic fundamentals[1]:

  • Big or small? In other words, how impactful, whether positive or negative, would we expect this disruption or change to be on local infrastructure, needed supplies, or aggregate demand? 
  • Long or short? What is the likely duration, whether positive or negative, of this disruption or change on supplies or demand in the community, market, or industry?

As an example from my work in the forest industry, consider the impacts of natural disasters on timber markets. In August 2005, Hurricane Katrina, a Category 5 event, struck the Gulf States, brutally affecting homes, forests, and infrastructure. As a disruption, how would we provide context to its impact on timberland owners? Consider these two questions to organize our thinking:

  • Big or small? Big event locally; devastating to some forests and damaging to many. 
  • Long or short? Short-term increase in supplies; negative impact on timberland value.

Using Frameworks to Make Decisions

Simple frameworks add value to the extent that they prove useful. This analytic exercise supports decision analysis. Using experience, knowledge, and available data, it screens and ranks the relative importance of potential disruptions on lives, businesses, and markets. We can then probe assumptions and, while there may be no “right” answer, develop operable approaches to establish priorities.

With family or colleagues or neighbors, the resulting discussions can clarify how much control we have. Some disruptions, like a zombie apocalypse, get thrust upon us from the outside, while others, like new internet providers or car technologies, offer choices. And a big impact or opportunity for an individual, family, or single forest owner can be small for the overall market and community. 

With respect to applying this approach with executives and other decision-makers, I think in terms of “tactics” (operations) versus “strategies” (capital allocation). Disruptions that get handled on the ground via operations tend to qualify as shorter or smaller in this framework, while anything that requires a board meeting or act of Congress reflects longer-term disruptions affecting investments and strategic advantage. Given this approach, how do we develop strategies and assess exposures across multiple disruptions for these situations locally?

Time as a strategic idea remains malleable. Discussions about potential disruptions reinforce the arbitrary nature of the “short” and “long” term. The space and time required for impacts to realize themselves can extend beyond today, tomorrow, or next year. 

Conclusion

Regardless, we succeed by prioritizing in the name of preparation. My working assumption is that a person or firm that is ready for everything is ready for nothing. We avoid personal and organizational paralysis through taking positions on what matters, on where we have control, on eliminating the gnats and knots to go after the disruptions that threaten survival or offer outsized opportunities. 

In March 2020, I posted “Thinking Through Risk and Uncertainty: Contemplating the Coronavirus” and am returning to these themes as ideas and questions related to risk, disruption, and stability have become more frequent in my conversations. For those interested in a further discussion of strategic thinking (and how the coronavirus affects the forest industry), click here to read a five-page white paper.

[1] These questions are a variation on the frequency-severity framework used for insurance and risk management applications. In forestry, I have found it useful to think through duration – how long something lasts – rather than, or in addition to, the gap in time between occurrences. 

Developing and Hiring Managers: Values Come First

January 20, 2024 /

A new manager, whether promoted from within or hired from abroad, must learn to communicate and model the values and expectations of the organization. For the internal hire, that person has the advantage of in-house experience and a demonstrated potential to manage. (That’s why you promoted them.) 

For the hired manager, it’s unreasonable to plug them in and expect that they will seamlessly adhere, model, and reinforce the “core values” of your firm. Sometimes, yes, you simply need to get that newly hired manager onboard and rolling because everyone is working overtime, the wheels are falling off the bus, and the barbarians are at the gate. Regardless, close support and explicit nurturing improve the chances for success for the manager and the team.  

In an earlier post – Train or Hire? Both – I wrote about the importance of continually looking to upgrade the skills of a team through developing younger talent for future roles within the organization. In this post, I focus on a few priorities and approaches for helping newly hired and promoted managers succeed.

Values Come First

Your new manager must, first and foremost, share the values of the team and then also have the aptitude and interest in building the skills needed for the role. In my experience with human beings, it simply does not work the other way around. Values come first.

When someone becomes a manager or executive, the allocation and use of his or her time changes. Making this transition is hard; I struggle with it to this day. You spend more time managing and coaching and less time doing and analyzing.  In football, the head coach cannot run out onto the field and catch the ball, but in a business a manager can easily inject themselves into the process, so this is one of the hardest things to avoid and manage and develop. Know when to step in and when to step back, and this becomes easier when the person aligns with the values of the team.

Use Milestones and Timelines

The successful onboarding and (initial) performance of the manager is on you or me or whoever hired this person. Provide structure to this by working off of a clearly communicated plan with systematic support. Put your mentoring on a timeline, and let it work for both of you, as a source of reinforcement, and as a path for the new manager to reach back for feedback and ideas.  

In the early days, you guide and reinforce and advise; in the latter days, the manager updates and communicates with you. In addition to technical and business-specific skills, areas you may explicitly cover during the onboarding phase may include values and business priorities, business metrics and scorecards, and approaches to coaching and mentoring. Throughout, your best path is to role model the behaviors expected from the other managers, and then follow-up to ask questions and confirm understanding.

This “short” term investment explicitly reduces risk and increases the probability of a strong hiring ROI and well-functioning team. 

Conclusion

It is tempting, as the experienced veteran or senior executive or company founder, to show everyone how their jobs should be done and to push them to keep up with you. However, at some point, you must decide whether you want to “serve” the team, or glorify yourself as the leader and alpha dog. Remember, it takes a team to build a rocket ship and get to the moon. Finding ways for the team and for everyone to get better and succeed has a compounding effect. Ten individuals each getting 10% better outperforms you getting 20% better. Prioritize values, mentor and onboard with a plan, and role model what you want to develop and help others become productive managers and colleagues. 

Keep It Simple: Another Lesson from the MIT Baseball Team

October 8, 2023 /

My Dad taught me and my brother, “There is no premium for complexity.”  He emphasized the value of keeping it simple, focusing on the most important things you can control, and getting it done. You don’t get paid more to sound like a robot or technocrat, or to add extra milestones or phases. A good plan is simple, and an effective leader or teacher communicates the plan or idea clearly and relentlessly.

Dad’s message still resonates for me in my work at Forisk. Nobody cares about the sophistication of our forest industry models or the length of our resumes if investments lose money or operations underperform.  Simple, well-executed strategies and plans “keep the cow out of the ditch” and on the road towards a pre-defined goal.

Still, most of us can recall times when a plan, approach, or strategy proved overly complex. 

Infield Equations

As a student at MIT, I played baseball for one of the most effective and important mentors in my life, Coach Fran O’Brien. My senior year, our Varsity Baseball Team won its first ever championship, set a school record for wins, and led the NCAA in fielding percentage. I wrote a book about the team called Beaverball: A Winning Season with the MIT Baseball Team, and dedicated it to Coach. However, at times, even the best of managers can overengineer a message.

Each season during spring training, Coach O’Brien reviewed our various coverages for defending bunts. These defensive schemes – which Coach named x, x-squared, y, y-squared, z, and z-squared – were devised for players comfortable with equation-filled chalkboards and electronic circuits. 

Each play designated who covered first and second base, and who would field the bunt laid down by the batter.  Sometimes the first baseman charged with the second baseman covering first; sometimes the second baseman charged and sometimes the third baseman. We reviewed these schemes each year and, frankly, I couldn’t remember them as a player and still can’t recount them accurately today. 

During my time at MIT, I can only think of one instance where Coach called on these bunt defenses in a game. It occurred during my sophomore year, and I was playing first base. I remember holding a runner on first and looking across the infield to see Coach O’Brien barking from the dugout, “Z-squared! Z-squared!” 

I looked to the other players on the infield to see if anyone else knew what to do. We all simply looked at each other, except for Peter Hinteregger at shortstop, who silently clicked into action. I shrugged and moved to cover the bunt as I normally would. Only the bunt didn’t happen – the batter squared around but did not execute – and neither did our bunt coverage. Coach didn’t look at us after the play; he turned away and looked at the ground. That’s the last and only time I remember him calling one of those plays.

Concluding Thought

Sometimes, we prefer a simple restaurant menu, a basic oil change, and clear parking signage. I like recipes that start with “microwave on HIGH for 2 minutes” and avoid buying clothes with “special” washing instructions. Most of humanity prefers that we keep our message, guidance, and plans short and simple. This is true at work, at home, and on the field.