Putting the “Tea” in IT

Published
by
Peter
on 16/07/2008
in Computer technology, Decision theory, Lead users and marketing strategy
. 0 Comments

One of the key ideas in the marketing of high-tech products is due to Eric von Hippel of the MIT Sloan School, the idea that lead users often anticipate applications of new technologies before the market as a whole, and even before inventors and suppliers. This is because lead users have pressing or important problems for which they seek solutions, and turn to whatever technologies they can find to respond to their problems.

A good example is shown by the history of Information Technology. The company which pioneered business applications of the new computer technology in the early 1950s was not a computer hardware manufacturer nor even an electronic engineering firm, but a lead user, Lyons Tea Shops, a nationwide British chain of tea-and-cake shops. Lyons specified, designed, built, deployed and operated their own computers, under the name of Leo (Lyons Electronic Office). Lyons, through Leo, was also the first to conceive and deploy many of the business applications which we now take for granted, such as automated payroll systems and logistics management systems. One of the leaders in that effort, David Caminer, has recently died at the age of 92. LEO was later part of ICL, itself later purchased by Fujitsu.

This post is intended to honour David Caminer, as a pioneer of automated business decision-making.

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Banking on Linda

Published
by
Peter
on 28/06/2008
in Decision theory, Probability theory and Uncertainty
. 0 Comments

Over at “This Blog Sits”, Grant McCracken has a nice post about a paradigm example often used in mainstream economics to chastise everyday human reasoners. A nice discussion has developed. I thought to re-post one of my comments, which I do here:

“The first point — which should be obvious to anyone who deals professionally with probability, but often seems not — is that the answer to a problem involving uncertainty depends very crucially on its mathematical formulation. We are given a situation expressed in ordinary English words and asked to use it to make a judgement. The probability theorists have arrived at a way of translating such situations from natural human language into a formal mathematical language, and using this formalism, to arrive at an answer to the situation which they deem correct. However, natural language may be imprecise (as in the example, as gek notes). Imprecision of natural language is a key reason for attempting a translation into a formal language, since doing so can clarify what is vague or ambiguous. But imprecision also means that there may be more than one reasonable translation of the same problem situation, even if we all agreed on what formal language to use and on how to do the translation. There may in fact be more than one correct answer.

There is much of background relevance here that may not be known to everyone, First, note that it took about 250 years from the first mathematical formulations of uncertainty using probability (in the 1660s) to reach a sort-of consensus on a set of mathematical axioms for probability theory (the standard axioms, due to Andrei Kolmogorov, in the 1920s). By contrast, the Second, even now, the Kolmogorov axioms are not uncontested. Although it often comes as a suprise to statisticians and mathematicians, there is a whole community of intelligent, mathematically-adept, people in Artificial Intelligence who prefer to use alternative formalisms to probability theory, at least for some problem domains. These alternatives (such as Dempster-Shafer theory and possibility theory) are preferred to probability theory because they more are expressive (more situations can be adequately represented) and because they are easier to manipulate for some types of problems than probability theory. Let no one believe, then, that probability theory is accepted by every mathematically-adept expert who works with uncertainty. Historical aside: In fact, ever since the 1660s, there has been a consistent minority of people dissenting from the standard view of probability theory, a minority which has mostly been erased from the textbooks. Typically, these dissidents have tried unsuccessfully to apply probability theory to real-world problems, such as those encountered by judges and juries (eg, Leibniz in the 17th century), doctors (eg, von Kries in the 19th), business investors (eg, Shackle in the 20th), and now intelligent computer systems (since the 1970s). One can have an entire university education in mathematical statistics, as I did, and never hear mention of this dissenting stream. A science that was confident of its own foundations would surely not need to suppress alternative views. Third, intelligent, expert, mathematically-adept people who work with uncertainty do not even yet agree on what the notion of “probability” means, or to what it may validly apply. Donald Gillies, a professor of philosophy at the University of London, wrote a nice book called, “Philosophical Theories of Probability” (Routledge, London, 2000), which outlines the main alternative interpretations. A key difference of opinion concerns the scope of probability expressions (eg, over which types of natural language statements may one validly apply the translation mechanism). Note that Gillies wrote his book 70-some years after Kolmogorov’s axioms. In addition, there are other social or cultural factors, usually ignored by mathematically-adept experts, which may inform one’s interpretations of uncertainty and probability. A view that the universe is deterministic, or that one’s spiritual fate is pre-determined before birth, may be inconsistent with any of these interpretations of uncertainty, for instance. I have yet to see a Taoist theory of uncertainty, but I am sure it would differ from anything developed so far. I write this comment to give some context to our discussion. Mainstream economists and statisticians are fond of castigating ordinary people for being confused or for acting irrationally when faced with situations involving uncertainty, merely because the judgements of ordinary people do not always conform to the Kolmogorov axioms and the deductive consequences of these axioms. It is surely unreasonable to cast such aspersions when experts themselves disagree on what probability is, to what statements probabilities may be validly applied, and on how uncertainty should be formally represented.”

differential calculus, invented about the same time, was already rigorously formalized by the mid-19th century. Dealing formally with uncertainty is hard, and intuitions differ greatly, even for the mathematically adept.

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Macro-economic models

Published
by
Peter
on 13/05/2008
in Decision theory, Forecasting and economics
. 0 Comments

The New Zealand-born economist, Bill Philiips, is best known for identifying an empirical relationship between a country’s inflation rate and its unemployment, the so-called Phillips curve.  However, before becoming an economist, Phillips had been an engineer, and in 1949 he built one of the first models of a national economy, the MONIAC.  MONIAC used flows of coloured water to represent money flows through an economy, and perhaps explains (or is a reflection of) traditional economics’ obsession with distinguishing stocks from flows.  

In the 1970s, the Australian cartoonist Bruce Petty also built a physical model of a national economy, but this time with seats for several human operators, each representing The Government, The Unions, Big Business, etc.   Instead of the hydraulic flows used by Phillips, Petty’s model used mechanical levers and pulleys, which impacted in convoluted ways on the machine and on the other operators.   This model looked something built by Heath Robinson or Rube Goldberg, and was immense fun to watch it at work.   I’ve not yet been able to find a video of Petty’s model at work.

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A cosmopolite in a cafe

Published
by
Peter
on 03/05/2008
in Globalization and Post-Industrial Nomads
. 0 Comments

One of O. Henry’s short stories has a character who refuses to say where he is from:

“I’ve been around the world twelve times,” said he. “I know an Esquimau in Upernavik who sends to Cincinatti for his neckties, and I saw a goat-herder in Uruguay who won a prize in a Battle Creek breakfast food puzzle competition.  I pay rent on a room in Cairo, Egypt, and another in Yokohoma all the year round.  I’ve got slippers waiting for me in a tea-house in Shanghai, and I don’t have to tell ‘em how to cook my eggs in Rio Janeiro [sic] or Seattle.  It’s a mighty little old world.  What’s the use of bragging about being from the North, or the South, or the old manor house in the dale, or Euclid Avenue, Cleveland, or Pike’s Peak, or Fairfax County, Va., or Hooligan’s Flats or anyplace?  It’ll be a better world when we quit being fools about some mildewed town or ten acres of swampland just because we happened to be born there.”

Of course, this being an O. Henry story, the guy later gets into a fight because someone criticizes Mattawamkeag, Maine, the dorp where the guy is actually from!

O. Henry: “A cosmopolite in a cafe”, pp. 11-15, The Four Million. The Complete Works of O. Henry, Volume 1.  (Garden City, NY: Doubleday, 1953.) 

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Competing on speed

Published
by
Peter
on 21/04/2008
in economics and marketing strategy
. 0 Comments

The growth of alternative trading systems competing with traditional stock markets has been a phenomenon in financial markets over the last decade.  The Financial Times has a nice article on the competition in Europe from these new marketplaces, claiming they typically compete on  speed, capacity and cost.   As it happens, they also compete on anonymity and confidentiality.  Some platforms even allow a trader not to decide whether to buy or to sell a stock until the counter-party reveals his or her hand.

But on speed, the results are impressive: 

“On Chi-X’s system, a trade can be executed in two milliseconds, compared with about six on the LSE [London Stock Exchange].  The blink of a human eye takes about 200 milliseconds.”

Sexapedalianism

Published
by
Peter
on 13/04/2008
in Culture, Decision theory, Forecasting and economics
. 0 Comments

Statistician Dennis Lindley wrote a book called “Making Decisions” which included the stunningly-arrogant sentence: “The main conclusion [of this book] is that there is essentially only one way to reach a decision sensibly.” He justifies this outrageous claim, contrary to all human experience and a moment’s reflection, by saying that, “any deviation from the precepts is liable to lead the decision-maker into procedures which are demonstrably absurd — or as we shall say, incoherent.” (page vii, second edition, 1985). There follows an account of maximum-expected utility decision theory, which is justified in the standard way using Dutch Book arguments (considerations of certain infinite gambles).

I have never trusted these Dutch Book arguments, first because we all live in a finite world, and so games in which one party is guaranteed to win after an infinitely-large time strike as games selling pie-in-the-sky. Everyone is rich eventually when investing in a Ponzi scheme, also. And second, gambling is such a socially- and culturally-embedded practice that I cannot possibly conceive how it could be used to justify decision-making procedures claiming universal validity. (For a start, to gamble you need to believe that events in the universe are not pre-determined, something which perhaps half of humanity does not currently believe.) The statistician Cosma Shalizi over at Three-Toed Sloth has a nice parody of the advice of decision-theory ideologues here:

A: Hey, you over there, the one walking! You’re doing it wrong.
B: Excuse me?
A: You’re only using two feet! You should keep at least three of your six in contact with the ground at all times.
B: …
A: Look, it’s easily proved that’s the optimal way to walk. Otherwise you’d be unstable, and if you were walking past a Dutchman he could kick one of your legs with his clogs and knock you over and then lecture you on how to make pancakes.
B: What? Why a Dutchman?
A: You can’t trust the Dutch, they’re everywhere! Besides, every time you walk it’s really just like running the gauntlet at Schiphol.
B: It is?
A: Don’t change the subject! Walking like that you’re actually sessile!
B: I don’t seem to be rooted in place…
A: It’s a technical term. Look, it’s very simple, these are all implications of the axioms of the theory of optimal walking and you’re breaking them all. I can’t get over how immobile you are, walking like that.
B: “Immobile”?
A: Well, you’re not walking properly, are you?

B: Your theory seems to assume I have six legs.
A: Yes, exactly!
B: I only have two legs. It doesn’t describe what I do at all.
A: It’s a normative theory.
B: For something with six legs.
A: Yes.
B: I have two legs. Does your theory have any advice about how to walk on two legs?
A: Could you try crawling on your hands and knees?

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Extreme teams

Published
by
Peter
on 08/04/2008
in Corporate culture, Planning, Team working and Telecommunications
. 1 Comment

Eric Nehrlich, over at Unrepentant Generalist, has reminded me of the book “The Wisdom of Teams“, by Jon Katzenbach and Douglas Smith, which I first read when it appeared in the early 1990s.   At the time, several of us here were managing applications for major foreign telecommunications licences for our clients - the fifth P (”Permission”) in telecoms marketing. 

Before Governments around the world realized what enormous sums of money they could make from auctioning telecoms licences, they typically ran what was called a “beauty contest” to decide the winner.     In these contests, bidders needed to prepare an application document to persuade the Government that they (the bidder) were the best company to be awarded the licence.  What counted as compelling arguments differed from one country to another, and from one licence application to another.   The most common assessment criteria used by Governments were:  corporate reputation and size, technical preparedness and innovation, quality of business plans, market size and market growth, and the prospects for local employment and economic development.  

As I’m sure you see immediately, these criteria are multi-disciplinary.  Licence applications were (and still are, even when conducted as auctions) always a multi-disciplinary effort, with folks from marketing, finance, engineering, operations, legal and regulatory, folks from different consortium partners, and people from different nationalities, all assigned to the one project team.  In the largest application we managed, the team comprised an average of about 100 people at any one time (people came and went all the time), and it ran for some 8 months.   In that case, the Government tender documents required us to prepare about 7,000 original pages of text in response (including detailed business plans and blue-prints of each mobile base station), multiplied by some 20 copies.    You don’t win these licences handing in coffee-stained photocopies or roneoed sheets.  Each of the 20 volumes was printed on glossy paper, hard-bound, and the lot assembled in a carved tea chest.

Work on these team projects was extremely challenging, not least because of the stakes involved.  If you miss the application submission deadline even by 5 minutes, you were out of the running.    That would mean throwing away the $10-20 million you spent preparing the application and upsetting your consortium partners more than somewhat.   If you submit on time, and you win the licence, you might see your company’s share-market value rise by several hundred million dollars overnight, simply on the news that you had a won a major overseas mobile licence.  $300 million sharevalue gain less $20 million preparation costs leaves a lot of gain.   In one case, our client’s share-market value even rose dramatically on news that they had LOST the licence!  We never discovered if this was because the shareholders were pleased that the company (not previously in telecoms) had lost and was sticking to its knitting, or were pleased that the company had tried to move into a hi-tech arena.

With high stakes, an unmovable deadline, and with different disciplines and companies involved, tempers were often loose.   One of the major differences between our experiences and those described in the Katzenbach and Smith book is that we never got to choose the team members.  In almost all cases, Governments required consortia to comprise a mix of local and international companies, so each consortium partner would choose its own representatives in the team.  Sometimes, the people assigned knew about the telecoms business and had experience in doing licence applications; more frequently, they knew little and had no relevant experience.  In addition, within each consortium partner company, internally powerful people in the different disciplines would select which folks to send.   One could sometimes gauge the opinion of the senior managers of our chances by the calibre of the people they chose to allocate to the team. 

So — our teams comprised people having different languages, national cultures and corporate cultures, from different disciplines and having different skillsets and levels of ability, and sent to us sometimes for very different purposes. (Not everyone, even within the same company, wanted to win each licence application.)  Did I mention we normally had no line authority over anyone since they worked for different divisions of different companies?  Our task was to organize the planning work of these folks in a systematic and coherent way to produce a document that looked like it was written by a single mind, with a single, coherent narrative thread and compelling pitch to the Government evaluators.     

Let us see how these characteristics stack up against the guidelines of Katzenbach and Smith, which Eric summarized:

  • Small size  - Not usually the case.  Indeed, many of the major licence applications could not physically or skill-wise have been undertaken by just a small team.  These projects demanded very diverse skills, under impossibly-short deadlines.  The teams, therefore, had to be large.
  • Complementary skills - Lots of different skills were needed, as I mention above.  Not all of these are complementary, though.  I am not sure how much lawyers and engineers complement each other; more often, their different styles of thinking and communicating (words vs. diagrams, respectively) and their different objectives would have them in disagreement.
  • Common purpose - In public, everyone had the same goal — to win the licence.  In private, as in any human organization, team members and their employers may have had other goals.  I have seen cases where people want to lose, to prove a point to other partners, or because they do not feel their company would be able to deal with too many simultaneous wins.   I have seen other cases where people do not want to win (not the same as wanting to lose) — they may be participating in order to demonstrate, for example, that they know how to do these applications.
  • Performance goals - Fine in theory, but very hard in practice when the team leaders do not have line responsibility (even temporarily) over the team members.
  • Common approach - Almost never was this the case.  Each consortium partner, and sometimes each functional discipline within each consortium partner had their own approach.  There was rarely time or resources to develop something mutually acceptable.  In any case, outputs usually mattered more than approach.
  • Mutual accountability - Again, almost never the case, partly due to the diversity of real objectives of team members, divisions and partners.

    • Despite not matching these guidelines, some of the licence application teams were very successful, both in undertaking effective high-quality collaborative work and in winning licences.  I therefore came away from reading “The Wisdom of Teams” 15 years ago with the feeling that the authors had missed something essential about team projects because they had not described my experiences in licence applications.  (I even wrote to the authors at the time a long letter about my experiences, but they did not deign to reply.)   I still feel that the book misses much.

    Three men in a bar

    Published
    by
    Peter
    on 04/04/2008
    in Advertising and Culture
    . 0 Comments

    A year ago, the UK Guardian newspapers ran a short article deconstructing a British TV advertisement for Strongbow beer. Watch the advert below, and then read the article. The BNP is the British National Party, a neo-fascist political party.

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    The future is bright, the future is sepia!

    Published
    by
    Peter
    on 03/04/2008
    in Advertising and Telecommunications
    . 0 Comments

    The results of a competition to produce vintage advertisement for modern products can be found here.   The best entry is an advertisement for Mr Nokia’s Patent Mobile Telephonic Communicator and Typographic Messenger with Box-Brownie J-PEG Maker and MP3 Gramophone, circa 1900, which plays on the slogan of British mobile operator, Orange, now part of France Telecom.

    Run-time marketing

    Published
    by
    Peter
    on 28/03/2008
    in Corporate culture, Telecommunications and market planning
    . 0 Comments

    Although mobile communications (mocoms) began primarily as a service for business users and rich individuals, for over a decade mocoms have attracted a mass consumer audience.   Perhaps for this reason, it is often the case that mocoms marketing folk have cut their baby teeth in the fmcg sector — those consumer goods that move off the shelves so fast that only a short, unpronounceable acronym would keep up with them.    But there are many differences between telecommunications and other consumer products and services, and, despite having pre-cut teeth, these imports don’t always cut the mustard.

    We have long tried to identify these differences, and the key difference seems to be the time at which the product is created.     If you sell chocolate bars, you make them in a factory, deliver them to a store, and sell them to consumer.  The product is created before it leaves the factory door.   If you sell draught beer, the product is party created before it leaves the factory (that would be the “beer” part of “draught beer”), but also partly created at the time the service is purchased (the “draught” part).   So a publican who waters down the beer he or she sells will alter the quality experienced by the end-user.

    But telecoms services are not created beforehand, and they are not even created at the time of purchase; instead, they are created at the time of use.  Provision of a network and its level of quality are created and re-created each and every customer call, and not even just once per call, but repeatedly throughout a call.  As a cellular phone user moves around during a call, for instance, his or her call will be routed through different cells, and these may vary widely in quality of service — for example, due to the presence or absence of other, simultaneous users in each cell.   This is quality of service generated on-the-fly, at-runtime, to use some computer-speak.  And, as with all marketing, perceptions matter far more than reality:   if customers expect a network to be congested they may be more accepting of quality of service problems than if they’ve been led to think they will be the only users of it.  

    Lots of fmcg folks don’t see the difference with their prior world.  Marketing can’t simply order the folks in the factory to ensure good quality product, and then sit back, gin and tonics in hand, to commission a few TV spots.  Instead, Marketing has to ensure that customer expectations are set and re-set realistically to match the quality of service being generated by Engineering as the network operates.  For new networks, add, “and as the network rolls out”.    Marketing have to monitor customer expectations and perception of network quality and compare with actual network quality in real-time, and adjust campaign tactics as they do so.  Marketing, too, has to be generated, on-the-fly.  It’s a lot harder than selling candy.

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