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Clarity

Have you ever sat in a meeting listening to somebody very senior and thought; “I have no idea what you are talking about”?  Do you enjoy watching corporate warriors use powerpoint slides to explain strategic imperatives? Or do they leave you worrying that you are plain thick?

You are not alone

Laura Rittenhouse started her career working for Lehman Brothers. Her job was to help investors decide where they should place their money.  This means that she has ploughed through more than her fair share of corporate reports and public relations articles.

She came to the conclusion that many corporate communications are unintelligible.

Rittenhouse analysed these texts with the linguistic tools that the Securities and Exchange Commission use to see if people are telling the truth.

She developed an algorithm to highlight FOG — Fact-deficient, Obfuscating Generalities.  Ultimately this led to the creation of a “candor score” for every document.  Corporate communications that were clear, concise and honest got a high score.  Documents that contained lots of clichés, euphemisms, jargon and platitudes got a low one.

Words count

The “candor score” predicted financial performance remarkably well. Companies that scored in the top quartile of her survey routinely outperform the S&P 500 average.

Arrogance

As well as looking for obfuscation, Laure Rittenhouse also counts how many times the C.E.O. uses the word I in his letter to share holders.  Apparently “Arrogant, self-serving, out-of-touch CEOs present a serious financial risk.”

Honesty matters

Next time you are sitting in a presentation and you start to think you are being a bit thick, you are not.

Anybody who claims to be building a “World class execution engine that is driving incomparable stakeholder value” really means that things aren’t going well and they need help.

Being honest that you have a problem and clear what you are going to do about it creates action and inspires trust.  Both of which are more likely to get you a result than “evolving the strategy into the corporate DNA”.

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Management Innovation

When people think about innovative businesses what excites them? I’ve heard plenty of people getting frothy about their new phone and all the fancy apps it comes with but I have yet to hear anybody getting agitated about washing machines and microwave ovens. Domestic appliances or “white goods” do not set the imagination alight.

A sea of white

In 1999 Whirlpool, one of the larger appliance manufacturers, confronted this reality. They realised that customers saw their market as an undifferentiated “sea of white”. A washing machine looks like a washing machine, no matter who made it.

In a rather unimaginative attempt to address the issue, the then CEO appointed an Innovation Tzar. Her job was to make Whirlpool more innovative.

Murder the Tzar

The Romanovs were not great role models. Tzars don’t have a history of being successful. They tend to make a very large amount of money, for a very short period of time, then they are executed. 

Persistance pays

At Whirlpool that didn’t happen. The Chief Executive stuck with his Tzar. Over the next ten years she developed a host of management initiatives to improve innovation:

  • Innovation became a central topic in leadership development programmes.
  • Every product development plan had to contain “New to market innovation”.
  • A capital budget was set aside for innovation projects.
  • Innovation boards allocated this capital and reviewed progress.
  • Managers defined “Innovation” (to prevent business units sucking up innovation capital).
  • Employees were allowed to approach multiple innovation boards for investment.
  • 600 innovation mentors were trained and appointed.
  • Every employee went through innovation training.
  • The senior management bonus was reconfigured to promote innovation.
  • Quarterly business reviews had time specifically allocated to discuss innovation plans.
  • An innovation portal was built that allowed employees access to innovation tools and data.
  • Metrics were developed to measure innovation inputs, outputs and work in progress.

This plethora of initiatives didn’t fall out of some master plan. They developed over time as the organisation hit obstacles and overcame problems. Whirlpool persisted with its approach and after ten years of testing and learning it started to work.

The payback

Innovation and new products became a substantial part of Whirlpool’s revenues.

The increasing revenue from innovation helped Whirlpool to maintain its top-line. This was despite a major recession and a significant drop in the value of the housing market.

Copy that!

It is one thing for a competitor to reverse engineer a new washer dryer. It is another thing altogether for them to knock off a complex, interlinked, management process and culture.

The stream of new products was impressive but the business capability that Whirlpool built was the real innovation.

Where do you need to innovate?

We all run our businesses on the same tried and tested policies, procedures and processes that everybody else does.

This is great if you are happy to stick with the pack, but if you want to be good at something — Credit Risk, Decisioning, Logistics, Recruitment, Sales — then you had better try something new.

What capability is your organisation building?

Where are your managers innovating?

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Our Innovation | Whirlpool Corporation - YouTube

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TED Talk

Rory Sutherland

Rory Sutherland points out that big, strategic, expensive initiatives don’t always work. There are a myriad of small projects that are just as powerful.

Although big important people like big important projects, the money that they throw about is often wasted.

Rory urges us to figure out what the small inexpensive stuff is that works. Then focus on that.

Why is it necessary to spend six billion pounds speeding up the Eurostar train when, for about 10 percent of that money, you could have top supermodels, male and female, serving free Chateau Petrus to all the passengers for the entire duration of the journey?

You’d still have five billion left in change, and people would ask for the trains to be slowed down. […]

Click here to view the original web page at www.ted.com

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The perfect organisation

There are a hundred and one ways you can structure your organisation:

  • You can have a flat structure
  • You can have a tall structure
  • You can have an inverted structure
  • It could be network driven
  • It could be geographically driven
  • It could be project driven
  • Power can be devolved to the regions
  • Power can be held in the centre

You can have cross functional processes and you can have cross process functions. If you really can’t decide you can utilise a matrix management approach.

I think I have murdered the point.

So many options

Designing the perfect organisation is a difficult task. It is confusing and there are hundreds of combinations. Perhaps you could use the services of a reputable firm of management consultants to guide you. They will help you with your structure, ensuring you think through roles, responsibilities and processes. Then they will create a target operating model (T.O.M.) for you to migrate to.

If you have cash to spare they will also help you manage the transformation.

The seductive lever

In my life time the National Health Service has undergone 49 major reorganisations. Each one of which was designed to:

  • Improve patient care
  • Devolve responsibility to the shop floor
  • Enable clinical excellence
  • Integrate patient services
  • Reduce bureaucracy and management

I think it is fair to assume that the first 48 attempts didn’t hit the mark. Maybe the current structure has finally resolved all the problems. Maybe.

Rearranging the deck chairs

I’m getting on, but I’m not quite past it yet. That is almost one reorganisation per year. We have had a bit of a slow down recently, I suspect that is because our politicians are currently busy reorganising Europe.

You can change your organisation, realign reporting relationships and shuffle responsibilities to your heart’s content. Performance is always fine within the boxes. Between them it is a different matter.

Any fool can have a reorganisation. Building a cooperative workplace is much more of a challenge.

Does your T.O.M. address that?

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The Entrepreneur:

A person who takes direct responsibility for turning an idea into a profitable new product or service.

The Intrapreneur:

An employee who takes direct responsibility for turning an idea into a profitable new product or service.

Spot the difference?

Is this the same job? There is only a vowel between them after all and they do very similar things…

To get an idea off the ground they both need to attend a lot of meetings. They must lobby for funding and persuade the great and the good to invest in their idea and not somebody else’s.  Then, after they have secured the money, they need to coordinate, organise and improvise. They do whatever it takes to make the idea a reality. 

The critical difference

In an entrepreneurs world all it takes is one man to say “Yes” and he gets the money he needs.  Then the idea will take on a life of its own.  

In the intrapreneur’s world all it takes is one man to say “No” and the idea will grind to a halt.  In all those “Design Reviews”, “Development Meetings” and “Investment Boards” all somebody needs to say is “No” and the idea will never see the light of day.

One man to say yes or one man to say no…

According to Credit Suisse the average lifespan of a fortune 500 company is under 20 years, down from 60 years in the 1950s.  Credit Suisse thank disrupting technology for this dramatic shortening of lifespan.

Of the 100 companies in the FTSE 100 in 1984 only 24 were still alive and well in 2012.  

No doubt you have heard the BlockBuster and Kodak stories. Do you also remember British Leyland, British Steel, Dunlop Rubber, Our Price Records, Plessy or Radio Rentals?

The management dilemma

How do you balance the need to innovate and improve with the need to reduce risk and maintain control? Which is most important?  An organisation with a bias for action or a bias for the status quo?

A job for life is a thing of the past.  Sooner or later all companies die, but that doesn’t mean you shouldn’t try your hardest to drag it out a bit.  Remember that next time you are about to say “No”.

I predict one day Amazon will fail…
We have to try and delay that day as long as possible

Jeff Bezos

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Swiss cheese

I went skiing during half term. It is the thing to do. The only (and I mean only) time you will ever prise the British middle classes out of their Volvos and BMWs and onto a bus is during the spring half term break. Then, miraculously, you will find all the little Joshuas and Bettinas on a coach heading from Geneva airport into the Alps. During half term it is obligatory to have week of skiing and fondue. During the rest of the year we wouldn’t be seen dead on the megabus.

I was with my brother, sister and their families, we had a super time. Well almost super. I had a bust-up with my brother-in-law. We still aren’t speaking. (This isn’t true, but all the best stories get taller with the telling).

Responsible adults

My brother-in-law and I were left in charge of three, ten-year-old children. Our task was to navigate them up and down a handful of ski runs in the afternoon whilst our respective wives held forth in a sauna or spa somewhere.

It was all going well until my niece (his daughter) declared that she didn’t want to ski down any more runs and wanted to go and play in the snow park instead. The snow park is a wonderful thing if you are ten years old. If you are fifty-year-old bloke and have seen it five times already that day, it is about as much fun as a… [inset suitably crude term here]. I declined.

At this point my niece decided that I was not the man that she wanted to ski with for the rest of the afternoon. She adopted a pose that would have put Franz Klammer to shame and disappeared down the side of the Alp at a remarkable rate. My brother-in-law muttered something under his breath and gave chase, leaving me to shepherd the two remaining children down the mountain.

We weaved our way to the bottom of the piste, only to find that the last ski lift home had a queue two hundred people deep. I couldn’t see my brother-in-law and niece anywhere. I pulled out my phone and tried to call him, but Vodafone don’t do a great job in the middle of the Alpine wilderness. We waited for a couple of minutes. Then we waited a couple of minutes more. I asked the children if they had seen their cousin on the way down. We agreed that we hadn’t passed them. So we assumed they were buried somewhere in the queue ahead of us and joined the tail-back to be carried up the mountain

At the top my brother-in-law and niece were still nowhere to be seen, so we went to enjoy the après ski. (If you are a ten-year-old child this looks like a large hot chocolate with more whipped cream on the top of it than can be good for your arteries).

The big bust up

An hour and a half later I met my brother-in-law back in the chalet. He was — how can I best put it? — displeased. As far as he was concerned I had left him on the side of a mountain with an injured daughter and I should have been… [insert second suitably crude term here].

A Brother-in-laws tale

My daughter, who is only ten, took off down the side of the mountain. She isn’t great at the stopping part of skiing, so I gave chase. Unfortunately she skied right off the piste and then had a rather nasty fall. I was a bit frightened and gave her a good dressing down for being so reckless. James and the other children skied right past us, oblivious to our plight

We headed off to catch them, but now my daughter was scared and we made slow progress to the bottom. There was huge queue at the ski lift and no sign of James. I was a bit peeved that he had left us, but we caught the ski lift back up the side of the mountain so we could make the final descent home.

Unfortunately I am partially sighted and I missed the turning. We ended up in a small village 5 miles away from the chalet and I had to pay for a taxi home. When I flicked open WhatsApp on my phone  I wasn’t delighted to see a picture of the others grinning back at me over cups of hot chocolate.

It wasn’t that bad

He was right, I had left a partially sighted man on the side of the mountain with an injured child. I resisted the urge to bite back and tell him he should keep his daughter under control. You can imagine what that would have done for family harmony.

Fortunately we both had the sense to apologise and focus on the adult version of après ski instead. It is easy to see how family feuds start.

Blame isn’t the solution

When things go wrong there is rarely one reason why:

  • If only I hadn’t declined the opportunity to go to the ski park.
  • If only my niece was a more competent skier.
  • If only she had stayed on the piste.
  • If only I had one child to focus on not two.
  • If only there had been fewer people in the lift queue.
  • If only Vodafone had planted a telephone mast nearby.
  • If only he hadn’t been short sighted.
So many “if onlys”

Accident prevention experts use the Swiss cheese analogy to explain how accidents happen. When you buy a packet of sliced Swiss cheese you can see the holes in the top slice and the second slice of cheese lying behind it. The holes aren’t in the same place on each slice. Very occasionally you can see right through the pack if all the holes have lined up

Accidents are the same. Often there will be a near miss, “if only” or hole, but the near misses only cause in an accident when they all happen at the same time.

So if you want to stop issues, accidents and family bust ups

Don’t go in for blame and punishment, it won’t help. Focus on the near misses or “if onlys” and systematically remove them. Either fill in the holes in the slices of Swiss Cheese or if you can’t, then add more slices (controls) to reduce the chances of all the failures happening at the same time.

This is what I intend to do next year. I’m going to take my brother-in-law and start the après ski early. My wife can look after the children.

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Flawless Decision Making

We believe in the perfect organisation. It works a little bit like this:

  1. There is a charismatic, wise and intelligent leader, who makes all the crucial decisions.
  2. A clear hierarchy supports the leader, with defined roles and responsibilities.
  3. Data passes up through that hierarchy, providing the leaders with perfect information.
  4. Everybody acts with one voice, there is complete alignment.

Information courses up the chain of command and perfect decisions flow back down.

Perfection doesn’t exist

Of course non of us is foolish enough to believe that we have the perfect organisation, so we strive to build it:

  1. We focus on talent and performance management to develop that wise charismatic leader.
  2. We carry out strategic reorganisations and write SMART objectives. Ensuring we have clear hierarchies and accountabilities.
  3. We invest in data lakes and information systems so that we have one source of the truth.
  4. We mandate culture and compliance programmes to ensure alignment.
A flawed aspiration

The perfect organisation might have existed when we were tribes of hunter gatherers. Everybody knew everybody else and the world was simple. But as our organisations grow in size and complexity, it is far more likely that:

  1. The leader is no wiser or more intelligent than his staff. He is just more driven, works longer hours and spends less time with his children.
  2. Clear accountability has created divisions, issue ducking and finger pointing.
  3. The messages that flow upward are managed, massaged and on occasion mutilated.
  4. We have stamped out dissent and created cultures where yes-men thrive.

The information that percolates to the top is sugar coated to the point of banality. The decisions that flow back down can’t help but be flawed.

That may sound a bit bleak, but do you want to go to the pub with your wise and charismatic CEO? You could tell him how your part of the business is faring.

So what could you do instead?

No one person can hope to understand how our huge, complicated organisations work. Even without the truncated messages that get passed up the chain. There is simply too much for one man to understand.

So instead of managing the information flow upward, force the decision making downward. Those who are closest to the action have the most complete knowledge. Let them make decisions.

Of course that will only work if managers stop telling their staff what to do and start respecting what they have to say. Maybe then the staff will stop sugar coating the information that they pass upstairs.

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A broken valve

In the early hours of the morning on March 28th 1979, a valve broke on a water pipe. That pipe was at the nuclear power plant on Three Mile Island in Pennsylvania.  The failure resulted in the most serious nuclear incident that the USA has ever seen.

Chain reaction

The broken valve led to an alarming sequence of events.  I’ve listed them out below as best I can.  I’m not a nuclear engineer and have no doubt misrepresented the facts in my attempt to explain.  But I urge you to read it — there will be a test…

  1. Two days before the incident, maintenance workers left a valve shut.
  2. The evening before the incident another valve was damaged during cleaning.
  3. At four in the morning that valve broke and a cooling pump stopped.
  4. The nuclear reactor started to heat up.
  5. As it got hotter, the pressure of the water in the reactor’s cooling system started to rise.
  6. A pressure relief valve opened, venting contaminated water into a containment tank.
  7. Three pumps started up, providing cooling water to the overheating system.
  8. Unfortunately the valves on the emergency cooling pipes were closed (point 1).
  9. The warning lights started to flash. 
  10. One light hidden behind a maintenance tag, the other was tucked away out of sight.
  11. The warning lights went unnoticed.
  12. As cooling water wasn’t reaching the reactor, the temperature continued to rise.
  13. As the temperature rose, control rods lowered into the reactor.
  14. The nuclear reaction stopped.
  15. The latent heat of the radioactive material continued to heat the water.
  16. Contaminated water continued to flood out of the pressure relief valve.
  17. Pressure dropped back to normal.
  18. A motor kicked in to close the pressure relief valve.
  19. The pressure relief valve stuck open.
  20. An indicator light lit up to show the motor to close the valve was running.
  21. Operators mistook this to mean the valve was closed and the system was sealed.
  22. Contaminated cooling water continued to escape via the open pressure relief valve.
  23. As coolant flooded out of the system, the pressure continued to drop.
  24. A second set of emergency cooling pumps started up.
  25. 1,000 gallons of water per minute started to enter the reactor cooling system. 
  26. Not realising the pressure valve was open, operators worried that the reactor would flood.
  27. They shut down the second set of emergency cooling pumps.
  28. After eleven minutes contaminated water started to spill out of the containment tank.
  29. In the first 100 minutes of the accident almost 32,000 gallons of contaminated water escaped.
  30. After two hours, the cooling water in the reactor dropped below the level of the nuclear core.
  31. The core started to melt and produce radioactive hydrogen gas.
  32. An operative from a new shift realised that the pressure valve was stuck open.
  33. They managed to shut it.  Cooling water stopped leaving the reactor.
  34. By this time the nuclear core was in melt down and continued to heat up.
  35. In the early afternoon the build up of hydrogen caused an explosion.
  36. Radioactive hydrogen escaped from the building.
  37. Several hours later the partially melted core was brought down to a controllable temperature.
  38. The emergency ended.

I have over simplified that horribly, maybe even missed a critical fact or two, but I hope you get the impression that:

The aftermath

39,950 people lived within five miles of Three Mile Island. They were lucky.  The release of radioactive material into the environment was only minor.  They each received a dose of radiation that was less than a chest x-ray.  

But, as you can imagine, passions ran high and there were cries to find those responsible. A full-blown investigation came hot on the accident’s heels.

The test

I did promise one…

If you were the investigator what would you think was the real cause of the accident?  Would you plump for:

  1. Operator error
  2. Lack of training
  3. Ergonomics
  4. Poor management
  5. Faulty equipment

What do you think?

The investigation

The investigators didn’t pull their punches.  You can read the full report here.  Here are some of their rather more damming observations (it reads like a freight train):

  • The control panels displayed over 1,900 different pieces of information.
  • Of these, anybody below about 5’5″ (1 in 20 men) couldn’t see 503 of them when standing directly infront of the panels.
  • The information needed by the plant operators was often poorly located, ambiguous, or difficult to read. Bizarrely — given the number of dials and lights — it was also often non-existent.
  • The alarms were poorly organised, not colour coded and they were not arranged in priority order.
  • Labelling of controls and displays was inadequate or ambiguous.
  • There was little consistency in the nomenclature used in procedures and used on the panel.
  • The dials and indicators rarely showed what the “right” or “wrong” reading was. 
  • Procedures placed too much reliance on operator short-term memory.
  • Operators were burdened with unnecessary information.

On a positive note the inspectors declared that the training program was in full compliance with government-imposed standards.  Unfortunately it also concluded that these standards were inadequate.

The answer to the test is…

I think we could argue a case for all 5 options, but my favourite is ergonomics. The control panel was simply badly designed, nobody could interpret what it was saying.

Imagine you were an operator in the control room that morning.  Over 100 hundred alarms went off in the control room during the first few minutes of the accident.  If you had had any imagination at all, you would have been scared to death.  Is it any wonder that there was “operator error”?

Whether or not operator error explains this particular case … we are convinced that an accident like Three Mile Island was eventually inevitable.

I guess you don’t work in a nuclear power station.

But if you work in a hospital, or a bank or maybe an IT service centre your working environment is complicated. An error will cause all sorts lots of unseen ramifications and has the potential to go quite horrifically wrong.

As for your “control panel”, I will take a fair sized bet it is set of PowerPoint slides or spread sheets with far more information crammed onto them than you can hope to understand.

What could possibly go wrong?

More things should not be used than is necessary

William of Occam

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Executive express

There is a new model of executive saloon on the market. It comes with all the bells, whistles and gizmos:

It sounds lovely, would you like one?

Additional features

If you are remotely unsure about the necessity of the purchase the C-Suite model comes with these additional features as standard:

  • Automatic 8 speed gearbox without reverse gear
  • Additional cabin space as the steering wheel has been removed

After all, course corrections are undesirable and a straight forward reversal of a faulty policy is unthinkable. No matter how screwed up it might to be.

Would you like one?

No? Isn’t it odd that the way we drive our cars is so different from the way we steer our businesses and economies?

You turn if you want to.  The lady is not for turning

Margaret Thatcher

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It stands to reason…

Imagine you are on the board of an educational charity.  You are trying to improve the standard of education in Sub-Saharan Africa. How should you invest the charitable donations?  What would be the most effective way to spend the money?

In his book Adapt, Tim Harford tells the story of the Dutch charity, International Christelijk Steunfonds who had this problem. They funded a ‘school assistance programme’ for the Kenyan government.

Text books

The simple, most self-evident approach is to invest in books.  After all you can’t get much of an education without any books to read.  

Some organisations would have made the decision, shipped the books and moved on.  Political pressure calls for fast action and it stands to reason that books would make a big difference.  Children’s lives were being wasted with every day’s delay.

But that is not what this charity did.  Instead of investing all out in books it decided to run a trial.  It randomly allocated books to some schools whilst others received non.  A year later the charity went back and measured the difference.  It transpired that the books didn’t make any difference.  There was no discernible uplift in the performance of the schools that received the books versus the schools that didn’t.

Why was that?  One reason put forward was that the books were written in English, and English was the third language of the region.  Books aren’t much use if you can’t read them.

Visual aids

As the books weren’t useful, the charity thought that visual aids might be. They decided to try flip charts with bold graphics.   Teaching doesn’t have to be reliant on a single language.  A map of the world is a map of the world and Pythagoras’ theorem is the same in English, French, Spanish or…

So the next test the charity undertook was to provide some schools with visual aids whilst others went without.  Once again it transpired that the test didn’t make any difference at all to the standard of education.  The flip charts were a flop.

Why was that?  A suggestion put forward was that the schools all had high levels of absenteeism.  Flip charts are no good if you don’t see them.

Pills

In remote communities in Kenya, intestinal worms are rampant.  They stunt growth and cause lethargy, all of which leads to absenteeism.  So the third approach the charity tried was to provide some schools with worming tablets for their students whilst other schools went without.

This time the results were excellent.  The worming tablets reduced illness which lead to an improvement in attendance.  This in turn resulted in much better test scores.  It appears that worming tablets are far more effective at improving education than books.

Concrete

What next?  Another charity in Mexico also tried to reduce intestinal infection levels amongst children.  They tested putting simple concrete floors in people’s houses. This dramatically reduced the number of pests in houses and subsequent infections.  In Mexico concrete floors have led to a significant improvement in education amongst the poor.

Could concrete floors have the same effect in Kenya?  An ounce of prevention is worth a pound of cure. Should the Dutch charity change its investment strategy?  Or maybe just test it?

A twist in the tale

Whilst this is an interesting story about the power of trial and error, it also shows the danger of jumping to conclusions without understanding what is going on.

In the book Black Box Thinking, Matthew Syed rams this second point home.

When deciding which charity to donate to many people look at how the charity spends its money. Conventional wisdom states that one of the core metrics people look at is the proportion of money the charity spends on charitable activitiesIt stands to reason that a well run charity will minimise the amount spent on overheads and staff costs. 

The last thing a benefactor wants is his valuable donation squandered on unnecessary expenses like testing and statistics…

Things that stand to reason rarely do.

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