3-2-12 analyzing systems: Humanization

Humanization is the ultimate skill of analysis, the gift that sooo few of us are capable of doing and maintaining it with long times of dealing with abstract numbers

That is most impotent with systems that affect people. Humanization is the skill of translating the numbers to actual human beings, understanding how these numbers stand out in a world full of humans with feelings and emotions

People with this skill need to be around people all the time, not just setting on front of their laptops … as it is kind of skill that fades with time if you keep out of the customers and people for some time.

This empathy part is where A LOT of the best data analysts miss. It is easier for them to control numbers. The more they understand what these numbers really are in the real world, the more useful the data becomes and the better they can use it to improve the system

3-2-11 analyzing systems: Segmentation

A very useful way of adding context to a measurement is to segment it: take a measurement and split it up into groups

For example: segment customer data by age, social level, location, how long they stay in the store, how they know about us …etc.

Segmentation is how you add meanings to the number by looking into details. It is adding new dimensions to the data to help you understand what is actually changing in detail

The more data you can collect, the more ways of segmentation you can figure out, the more ways you can interpret, understand and get insights in the data

Raw, unorganized and un-segmented data are very low-value data 

3-2-10 analyzing systems: Context

There is no such thing as "The awesomeness factor" or something; the one number that if you look at it you will understand if your business is doing good or bad and what needs to be worked on to improve things …ect.

You actually can come up with one, but the toooo much abstracting you will do to get that one number will actually take out any possibility to learn anything from this number or get any details from it

You have to look at more than one measurement, interrelated pieces of information to understand what these number actually mean and what is going in the right direction and what is not and what needs to be done to improve your business 

3-2-9 analyzing systems: Proxy

Is the method you use when you have some important to measure but you can't measure it directly e.g. Customer Satisfaction

So what you do? You look for things that are directly correlated to this thing and measure them. The more tightly they are connected to the original thing and the ore they are, the more accurate representation you will have

For example; you can measure the customers' satisfaction by measuring the number of returns/refunds, the number of complaint calls etc.

Know that this won't give you a 100% perfect measurement, but if you do it right it will give you pretty good representative numbers 

3-2-8 analyzing systems: Norming

It is "comparing your business now with itself earlier" to see if you are improving or not.

-          It needs a significant amount of historical records

-          For your Norms to be valid, you have to have the same measurements. If the measurements changed, you can't compare

-          One important benefit of this is to compare the same period/season over the years to get a better understanding of the seasonality of your business 

3-2-7 analyzing systems: Ratio

At certain point you have to compare two results (numbers) with the same nature

Ratio is the relationship of two numbers of the same nature. It gives us a sense of direction; where thing are going and a sense of comparison between stuff

Ratio can be a single number, a percentage, a fraction

So when you need to compare, to have a wider look or just want fewer numbers to look at; think of using ratios 

3-2-6 analyzing systems: Counterparty risk

People staring highly-interdependent businesses - where they have to participate with other companies of have partners that they don't have control/influence over – usually are the most ones that will deal with this term

"Counterparty Risk" is the risk of someone you're working with not doing what he is supposed to do & how does that impact the system as a whole

What makes this so important is that you don't have control over him, and people tend not to expect or consider any delay or problems happen with these partners  

You have to keep that in mind all the time, watch and keep track of their progress and assess that risk and keep a B-plan in your pocket just in case

3-2-5 analyzing systems: Sampling

If the system you are trying to analyze is not very simple and small, you will find that it is impossible to collect all the data, so you need to take a sample

Sample is: a subsection of a whole that can be representative of that whole the best way possible; so that you don't need to collect the whole data pool

How to select a sample, and how much sample you need to get, etc….. this is a whole other realm of science labelled "Statistics", "Sampling", "Data warehousing"

One last thing, "Confidence Level" is the certainty of how accurately the sample represents the whole system … and "Principle Of Statistics" let you answer this question and other questions of sampling 

3-2-4 analyzing systems: Garbage in – Garbage out

So you are collecting data to feed into your measurements systems to get results. If you enter crappy data, your measurements will be crappy and you will get crappy results 

When you are collecting data/info; beware of any human error, data entry error, outdated data, process errors, biases, spams and malicious data. Also keep your measurements equations and processes updated all the time with all important factors included 

The quality of your measurements depends on the quality of the data fed into the measurements processes and how good are your measurements' processes

-          Sometimes you will find that you or the people working with you knowing that there is something wrong with the data they are entering of with the measurements but they are ignoring them because correcting the error will make them look worse; for example lowering the number of website visits, cut the sales numbers in half …etc.). A very basic human nature is that we want to look good, and looking worse puts us out of our comfortable zone.

However, know that "Honest Systems" don't give a damn about your feelings! All they care about is getting true numbers and giving you true, objective results. 

3-2-3 analyzing systems: KPIs

"Key Performance Indicators" are the things that you can count that are actually count for something, things that can make great difference if you make use of them

If you can't use a measurement, then it is not a KPI

-          Some measurements are more important than others.

-          There are things that are easy to measure, and things that are important to measure :) .Sometimes they intersect but most of the time they don't

KPIs are the things that help you measure what the system is actually trying to do

You can figure out what your business's KPIs are. KPIs are numbers describing:

-          How much you put in

-          How much you are getting out

-          What is the speed of the process

The previous three numbers or measurements are for the 5 core business processes: value creation, sales, marketing, value delivery and financial stuff

Notice that not all of these 15 measurements are the KPIs of your business. You will find that one or two numbers (maximum 4 numbers) are the real indicators of how you are doing; if they are rising up then you are right, if they are going down then there is something wrong 

3-2-2 analyzing systems: Measurement

To understand anything you must analyze it

To analyze anything you must measure it

A very important part of analyzing a system is to figure out whether if its parts are doing what they are supposed to do or not, and the only way to do this is to look at different parts of the system and asking that question

-          You must keep track of your business all the time, especially of you are starting a new business and don't have a complete analytical system; as it is very easy to ignore stuff

-          This works as a verification of quality and progress … you compare what you are doing against competitors, standard reference … and the only thing you can compare them with is numbers. That's why you need to measure

Notice that:

-          A lot of things that are easy to measure aren't the important things to measure

-          As Albert Einstein said: "Not all the things that counts can be counted, and not everything that can be counted counts"

-          The hardest things to measure is the qualitative stuff, but there are ways to do it

Measurement is a critical part of understanding your business. "What gets measured gets managed" … and if you can't measure things you are then completely blind; you can't figure out if you are doing right 

3-2-1 analyzing systems: Deconstruction

The skill we use when we want to analyze any system is called "Deconstruction":

Taking a complex system and break it down to its simpler systems, studying them as if they stand alone

-          Any system consists of smaller simpler systems that are connected to each other

-          You take the small, easy-to-understand part and:

-          Examine it

-          Know its inflows and outflows

-          Know the connection between it and other parts

-          Know its order in the process

-          Whether it is a slack, constraint or not … etc.

You keep doing that with any system you want to analyze till you are finished with analyzing all its parts, and then you make a diagram/ flowchart of the system to get a whole eagle-eye look at it 

3-1-10 understanding systems: Second order effect

What is the relation between uncertainty, change, and interdependence?

-          What makes a complex system a very hard thing to understand and predict is that it has a unique and unpredictable interdependencies that we don't figure out yet. So, there is still uncertainty about a lot of stuff in it

That's best explained by a term called (Second order effect):

We can make a change to a very complex system, and we may predict what is the direct consequence of that move. But there are consequences to this consequence and there are effects to this … which is known by (second and third and fourth order effects) … that in the end; the final effect of this may result in things COMPLETELY opposite to what you intend to get by taking this course of action in the first place

-          The smallest change in a complex system results in huge consequences, mostly unpredictable

-          The basic rule of a complex system is: you DON'T mess with a system that you don't fully understand. You will do more harm by messing with it than if you let it by itself

-          Internalizing these concepts and understanding them is the best way to begin dealing with such systems 

3-1-9 understanding systems: Critical path

A set of steps that if happen in order with no problem will get you the finished product in the least time possible with the most possible efficiency and least slack of any type [resources, time, effort, labor ….. etc.]

-          A tightly-coupled system has mostly one path that is the critical path. And there are no other paths or any other alternative paths are much lower in efficiency and quality than the critical path

-          However, in a loosely-coupled system; there are many alternative paths with very close efficacy and quality to the critical path

Pay attention to how your system is designed;

-          Is it a tightly or loosely coupled system?

-          Is there any way to make it more loosely-coupled?

-          How to enhance the alternative paths to make it as close as possible to the critical path regarding the performance of the system and quality of the end-product?

3-1-8 understanding systems: Interdependence

In order for a system to work some of the factors or elements in it have to interact with each other in a certain way … depend on each other in order for the system to work

There are two types of systems that exist

-          Tightly-coupled system

-          Loosely-coupled system

-          Tightly-coupled system:

-          Highly dependent system

-          Time dependent: things happen before and after things

-          Ordered: A has to happen before B and then C …. Etc.

-          There is only one path to a successful outcome

-          There is very little slack

-          Failure in one part of the system cascades to the depending parts and the whole system fails to give the desired outcome

-          Example: [Domino trick]

-          Loosely-coupled system:

-          Low-dependent system

-          Parallel system: things happen at the same time

-          Not ordered: in most parts of it

-          There are many paths to a successful outcome

-          There is significant slack

-          Failure in one part of the system may be not noticed. It affects the system as a whole but only the one failing part and the few depending parts shut down for a while

-          Example: [Orchestra]

 Know that no system is 100% tightly or loosely coupled. It depends on the number of dependencies it has and the how they affect the final product 

3-1-7 understanding systems: Uncertainty and change

We can't see the future, we can just simulate what is most likely going to happen depending on what is happening now and extrapolate the most likely predictions of what may happen after certain period/s of time.

 That's how predictions and risks are assessed and calculated

But we know also that any complex system is never static. The environment is one of the most complex systems we know of. Our predictability and extrapolating abilities are very limited with such very complex systems. The environment always surprises us with what we don't expect … either with a fortunate or unfortunate event/s 

Do differentiate quickly between these three terms:

-          Chance: a predictable good event

-          Risk: a predictable bad event

-          Uncertainty: something we can't be prepared for because it is not predictable     

The best quote I heard that explains uncertainty is:

"You never step in the same river twice"

So, if something is unknown and I can't predict it … what am I supposed to do about it?

1-     Don't underestimate how RANDOM things are on the fortunate and unfortunate side

2-     Plan always a step or two steps ahead for any chances or risks you can think of

3-      Be prepared mentally for any unexpected change. Prepare and train yourself not to panic when you face unexpected twist

4-     Add a factor of resilience in your system and don't build your system in a way that it will collapse if anything unexpected happen to it … don't make so stiff and rigid 

3-1-6 understanding systems: Feedback loops

It means that you input something in the system, get an output and re-input it I the system ….. and so on

There are types of feedback loops

1-     Positive feedback loop

-          The output is positively larger than the input

-          It gets bigger exponentially

A special type of feedback loop is

Autocatalysis

-          Type: self-reinforcing feedback loop

-          It is a chemical term: some reactions produce what is necessary for them to continue – provide the conditions for the next reaction – even make the reaction be better/ stronger …etc.

-          Output ≥ input, and the output is re-inputted in the system again and again

-          Example: marketing campaigns that gets more money than the input amount and then re-input it into the system again (positive, exponential loop)

-          This kind of loop isn't infinite … it is converted with time to balancing loop because of market satisfaction or changes in the environment  

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2-     Negative feedback loop

-          You put negative input in the system

-          You get bigger negative output

-          The negative output gets larger and larger exponentially with every cycle

3-     Balancing feedback loop  

-          The output is smaller than the input

-          It gets smaller and smaller with time till it vanishes 

3-1-5 understanding systems: Environment

Every system operates within an environment that impacts it someway

-          Something you should know about systems/businesses; that they are like self-perpetuating live forms. They exist and create/produce things from the environment to keep their existence

 

-          The challenging thing that environments change all the time, and systems must cope with these changes fast enough in order to survive

-          Darwin concept works pretty well here too: the death of the unfit

It works like this:

Environment changes, the priorities change too, customers' criteria and preferences change in response …. And the systems must cope from the other way to meet these new changes

The systems which resist these changes are risking the opportunity of seizing to exist. That's why there will be always newcomers and rising stars in the business

And for your info, the business that can keep itself on the top for a sufficient time, it will be more adaptable to changes and it will get to the point that it can control the changes in the environment … and the gap between it and the rest of systems/businesses will be like the gap between us –humans- and the rest of the creatures 

3-1-4 understanding systems: Constraint

The performance of any system is limited by the availability of the most critical input (resource of the lowest inflow level) in the system

And to improve the performance you have to make enough of this constraint resource

Every system must has one constraint … once it is improved, the next slowest thing becomes the constraint and need to be improved and so on

-          Then, how to identify the constraint and make the system better?

1-     Identify the constraint

Hint: best way to do this is to look at the big picture of the system. A diagram or a flow chart of the system will do and you just ask yourself what is holding me back?

2-     Exploit the constraint

Making sure that the resources that are designed to make this constraint aren’t spending time making anything else because anything else isn't as important

Dedicate all the resources -used to produce, improve this constraint- to this constraint, nothing is more important than it and nothing can share the same resourced with it until it is no longer a problem

3-       Subordinating

Knowing that everything else is less important than making this constraint run better ….. And start taking from other available, abundant resources to serve this constraint

4-     Elevation

Invest more money, energy, time and people to expand the capability of that constraint

The most expensive and consuming choice and you don't use it until you run out of all previous actions and still no results

5-     Check if the system again to see if the constraint is still there

Yes: keep working on it

No: search for the next constraint

-          Know that presence of constraints is a healthy indicator of a good, normal business/system. And I quote here:

"If your pathway is paved and you meet no troubles in it, know that you in the wrong direction"

"Those whom GOD wished to destroy, are given unlimited resources"

-          You can always make something good with the amount of the time and budget you have. It is a matter of making good choices that will make you successful, not the presence of plenty of resources or not

3-1-3 understanding systems: Slack

Slack is the exact amount/number of resources you have as stock you have in the system

What you should know about a slack is that it is a bad thing; they are just resources waiting in your system unused and cost you inventory costs, certain storage conditions and periodic quality tests. Slack is just "stuff waiting :/ "

What you need is just the right amount of slack in the system

-          Just enough to be efficient and not slowing down the flow because of their scarcity

-          And not too much be a burden in the system consuming money, time, energy 

3-1-2 understanding systems: Inflow/Outflow - Stock

The first thing you should learn about a system is that it every system has "FLOW":

There are always things [resources] entering the system: the inflow, and resources that exiting your system: the outflow

Almost all things have a flow in the system: people, money, materials ….etc.

And you should be aware of everything that enters and exits your system (in another way: everything that follows a flow pattern)

The water in the sink

What we call the resources that are already in the system? We call them (STOCK)

Stock is the pool of resources that are in the system

And the two most basic things to learn about them are how to increase them and how to decrease them. To know that … think of them like water in a sink

-          To increase a resource in the system

1-     Increase its inflow

2-     Decrease its outflow

-          To decrease it

1-     Decrease the inflow

2-     Increase the outflow

You can use one or both of the 2 ways at different rates to achieve the pool amount you want in your system 

3-1-1 understanding systems: How systems work/Gall's law

System is the environment we –people- work in when we are in a business. It is the model, the repeatable process we do to create the 'value form', sell it, develop it, acquire lifelong customers, control quality…..etc. 

It is the way in which a business works.

And one of the most important concepts to understand how to build a system is what is known as "Gall's law":

“A complex system that works is invariably found to have evolved from a simple system that worked. The inverse proposition also appears to be true. A complex system designed from scratch never works, and cannot be made to work. You have to start over beginning with the simple system.”

This law is all about the iteration concept. You have to start with a simple thing and build on it one by one and with time you will build the most complex system in the world and it will work then

Why a complex system can't be built from scratch at once?

-          The system is an interactive process … it doesn’t work with itself … it has many other factors that affect and change it the same way and level it affects them … I mean the managers, the employees, the customers, the partners …etc.

All these other factors cannot just take the system as it is … they must have an important part in creating the system; and this is done by giving them a simple thing then get the feedback and make your adjustments as you develop it

-          Another reason; there are some parts of the systems that must be tested in the real world before they are approved valid and build on them, otherwise you will find that a great deal of the system is invalid because the basics of it is invalid

So, take your time building the complex system you want. Start with a simple thing then build up on it. Always remember that you will need to use the "empirical evidence" and "iteration" in many parts of your system 

2-3-21 working with others: Option orientation

Shit happens all the time, and whatever you do it will happen no matter what precautions you are taking

So how to deal with it:

-          Don't focus on the problem. That will just consume most of your energy and attention

-          Focus on the solution and how to treat this

-          Know that the problem that has happed already is outside your locus of control, but the solution is the thing you can control all the time

-          Don't go to tell anyone about it without you figuring out options to solve it and picking out the best approach to deal with it 

2-3-20 working with others: Attribution error

When something goes in the wrong way/ doesn't work as expected …we tend to blame the reason on someone else, and this someone blames it on another person …. Everyone and everything is wrong but us :/

Actually it is almost one of two things:

1-     You are part of this if not the essential cause of what happened and you just don't want to admit that

2-     It is because of inevitable circumstances and the guy you blame is doing his best but that was just out of his control

So before you take action you are gonna regret, collect as much info about this situation as possible, know about the context of this …. Then try to fix it first then blame who is ti be blamed and take action against him (don't reverse this as you may need that person you are going to blame –to fix this situation because things may go wrong when blaming him and he refuses to assist you fixing this)

And if you don't know detailed context about the problem, assume it is due to some circumstances. Unless this kind of behavior/action becomes sort of a pattern with a specific someone, then you are free to take action against him

Also, be fair and blame some of this on you, at least for not foreseeing this coming 

2-3-19 working with others: The secret

It is a test-proven concept about self-filling expectation:

If a leader has expectation for people work with him, make them know this and treat them like this; they will rise up to these expectations

This rule has 4 conditions to work:

1-     You believe that they actually can do and perform better

2-      You make them know this. This is crucial for this concept to work

3-     Deal with them like this

4-     Be reasonable about how good you tell them you expect them to do

And also this work vice versa; the less you expect them to perform, the less they will actually perform

And this has nothing to do with perception or the way you see it, this is tested and compared to absolute standards

But be aware of the cons of this rule:

-          Quality vs expectation: the more you expect them to perform, the more disappointed you will be when they don't live to your expectations

-          Contrast: you may perceive the bad worker that performs better than you expect better than the good worker that performs lower than your expectations; even if the good worker has more productivity and improvement rate than the bad worker >> as it is not a fair compare between the 2 workers, it becomes a compare between each worker and your expectations of him

So, always give your employees a good reputation to live up to and treat them like it. Leader's expectations actually influence the performance of people around him   

2-3-18 working with others: Planning fallacy

This applies on complex plans and things you don for the first time

-          If you didn't do it before, then you don't have much experience about it, and you don't have a good mental simulation because you are missing information and don't know exactly what you are doing, so you tend to underestimate the time it will actually take to do it

It always take more time than expected, for any unforeseen issues, unpredictable tasks, problems to handle, unexpected situations …. Etc.

It is a very normal things and it happens with most people all the time

We are bad at predicting deadlines and milestones time-points, we don't know what will happen in the future … people are almost never on schedule

So what is the solution to that?

-          It is not but extra weeks, months for slacking … BAD IDEA … it will just make people postpone and fit their work into the new extended durations

-          It is not assigning more people to it … communication overhead will just hit the sky and you it will take much longer time

The best solution is to divide the plan into certain small tasks; they are easier to predict … then put a small buffer time for but you don't tell people about it

And probably you will also be late on schedule

Here is the ingenious rule of this:

"It always takes longer than expected, even if you take into account this law"

-          Be patient with yourself

-          Understanding that being always a little late for schedule will make everyone work fast and do their best and there are no intentional slack time

-          Always assume that your schedule isn't quite right

And the best strategy to deal with this fallacy is to understand that:

"Plans are useless, but planning is indispensable" 

-          The process of planning  is the actually useful thing

-          Plans are just in-process guide to keep you going in the right direction

-          Deal with plans as processes more than some deadlines

-          Adjust as you go  and deal with them constructively