Archive for April, 2008

Competing on speed

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.”


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?

Extreme teams

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

    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.


    But what is interesting is the complex set of both politically correct and prejudiced rulings from which this ad, as well as the current Guinness one, evolved. Four blokes in a pub? No. Looks like a hooligan gang. Two blokes? No, no, no! Not that there’s anything wrong with it, but Strongbow’s not that sort of pint. One bloke? No. A loser. Probably got a book. Gotta be three blokes. Two blokes and a girl? Bloke and two girls? Too much implication of ménage à trois. Three girls? No. Too much implication of knickers round ankles at two in the morning in the town square, doubled over and urinating into a gutter. When it comes to women and pints, Al Murray’s glass of white wine for the ladies holds unironically true in adland. No, it has to be three blokes, blokes who like doing it with women so long as the “it” isn’t social drinking. Three white blokes? No. A bit BNP nowadays. Two white blokes and a bear in a pork pie hat? Too retro. Three black blokes? Now steady on. Two black blokes and a white bloke? Not being funny or nothing, but what would the white bloke be doing there?

    So, it’s settled then – two white blokes and a black bloke, going down the pub to get completely and utterly, well and truly “refreshed”.

    The future is bright, the future is sepia!

    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.