One of the many benefits of a summer vacation is the chance to catch up on your reading list. This summer I read the excellent book ‘fooled by randomness’ by the famous author Nassim Nicholas Taleb, who also wrote the book ‘The black swan’.
The book is mainly about the impact of chance and luck on financial markets. He writes in a humorous way about human flaws in judging cause and effect and especially the common mistake of confusing success caused by personal skill with success caused by luck.
As a professional with an interest in HR analytics there were two short chapters that particularly struck me as relevant for data driven HR. In HR analytics we use the logic of math, data and statistics to make better decisions about people and predict the behavior of people. But maybe the reality of work, organizations and behavior is not always driven by logic. Maybe chance plays a bigger role then we would like to think. If that is (partly) true then we are trying to predict a non-logic reality through logically constructed algorithms. It is like trying to understand Chinese with only a French dictionary. Chances are your algorithms will be about as accurate as flipping a coin.
First the author talks about nonlinear systems. A nonlinear system is a system where a change in output is not proportional to a change in input. For instance one drop of water can make a bucket of water overflow while the millions of drops before did not have the same impact. We have a tendency to think that life progresses in a linear way. We think that if you study at university for 4 years you will have learned twice as much as when you studied for two years. In reality, your actual intellectual progress can stagnate for months when studying a tough new subject, while on the other hand making a giant leap during an inspiring class of just two hours.
Organizations often perform like nonlinear systems. For example, a manager with ten years of experience may perform worse than a manager with just one year of experience. You can have meetings that last for hours and not accomplish a thing but also make a decision in five minutes that will completely change the performance of an entire company for years to come. A startup with little resources can disrupt a billion-dollar industry. Small events can have a big impact.
Nonlinear systems often behave in a chaotic way and are hard to predict with math. Seemingly small events can lead to major change and vice versa. It is hard to predict which of all those small events will have impact as these systems are often dynamic and can change faster than you can do research.
Most startups will never be able to disrupt an industry. But you just cannot ignore the small chance that one will because if it does your company might be out of business.
Click here to continue reading David Verhagen’s article.