Tag Archives: risk

Lessons on Competition from Mother Nature

An interesting short article by Joel Barker with some ideas to think about, Surviving the Fittest: New Lessons on Competition from Mother Nature:

As a result of this emerging body of research, we now must reexamine our competitive paradigm and factor in the new information. It is now clear that ‘the fittest’ not only don’t win all the time, but are only a piece of the more complex system. This information can lead to new strategies for small companies and new insights for the big companies that presently dominate their industries.

The idea that what is winning right now is best is flawed. What is successful now is dependent on the larger system and the conditions that impact that system. In the news the last few days British Airways had to shut down flights worldwide. This has happened numerous times for major airlines in the last few years.

view from a train in Rocky Mountain National Park with tree and snow covered mountains in the background

By John Hunter, see more of my trip to Rocky Mountain National Park.

The systems that they settled on may seem to be working well for years and then suffer catastrophic failures. Why did they accept systems that could fail so completely? Given the frequency it is happening numerous competitors are choosing solutions that are too fragile. And it isn’t just one organization doing it, numerous huge airlines (United, Delta, British Airways, Southwest) have found themselves caught in a situation where they fail to deliver what customers pay for due to so complete a failure of their IT system that they cannot fly any planes many hours in a row.

I suppose this could be evidence that designing an IT system for a huge airline is not something that can be done with the reliability we expect from most things (that the business doesn’t have a day every decade or two where they business just can’t operate that day). But I doubt it. It seems much more likely the existing system creates organizations that are more focused on other things than building a reliable, robust IT infrastructure.

A post I wrote on my Curious Cat Science and Engineering blog a few years ago, 500 Year Floods, looked at the problem of making judgements about unknown systems. The concept of 100 and 500 year floods is to help us make decisions about long term planning and risks. Looking at an area to build a building (or city) can be aided by history and seeing what the area has experienced in the past. But you can’t just assume the future will be the same as the past. Systems change over time. What worked in the past doesn’t necessarily work well in the future.

And as I mentioned in my article, our evidence and understanding also changes (hopefully by us gaining more knowledge and gaining a clearer understanding as we learn more). Thinking systemically takes into account the impact of interactions on results. Results are not independent of the circumstances.

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Taking Risks Based on Evidence

My opinion has long been that football teams are too scared to take an action that is smart but opens the coach to criticism. So instead of attempting to make it on 4th down (if you don’t understand American football, just skip this post) they punt because that is the decision that is accepted as reasonable.

So instead of doing what is wise they do what avoids criticism. Fear drives them to take the less advantageous action. Now I have never looked hard at the numbers, but my impression is that it is well worth the risk to go for it on 4th down often. In a quick search I don’t see a paper by a Harvard professor (this article refers to it also – Fourth down: To punt or to go?) on going for it on 4th down but I found on by a University of California, Berkeley economist (David Romer wrote called “Do Firms Maximize? Evidence from Professional Football.”).

On the 1,604 fourth downs in the sample for which the analysis implies that teams are on average better off kicking, they went for it only nine times. But on the 1,068 fourth downs for which the analysis implies that teams are on average better off going for it, they kicked 959 times.

My guess is that the advantages to going for it on 4th down are greater for high school than college which is greater than the advantage for the pros (but I may be wrong). My guess is this difference is greater the more yardage is needed. Basically my feeling is the variation in high school is very high in high school and decreases with greater skill, experience and preparation. Also the kicking ability (punting and field goals) impacts the choices of going for it on 4th down and that dramatically increases in college. So if I am correct, I think pro coaches should be more aggressive on 4th down, but likely less aggressive than high school coaches should be.

But in any event the data should be explored and strategies should be tested.

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