Lumpers, Splitters, and Decisionmaking

There are two kinds of people; lumpers, and splitters. Lumpers look for commonalities, and lump things into groups. Splitters look for differences between things, and treat each individually.

For example, you, Ernst, and Ralph are looking at a toy poodle, a labrador, a newfoundland, a sharpei, and a mastiff playing in a dog park. You ask them each to break the dogs into groups.

Ernst says there is just one group – they’re all dogs. Ernst is a lumper. You press him, and he comes up with this group:

Color	Dogs
White	Toy Poodle
Black	Labrador
	Newfoundland
Brown	Mastiff
	Sharpei

You press him some more, and Ernst identifies this group:

Size	Dogs
Large	Newfoundland
	Mastiff
Medium	Labrador
Small	Toy Poodle
	Sharpei

Now it’s Ralph’s turn. Ralph says there are no groups, all the dogs are different. You press him, and Ralph comes up with this:

Color, Size	Dogs
White, Small	Toy Poodle
Black, Medium	Labrador
Black, Large	Newfoundland
Brown, Small	Sharpei
Brown, Large	Mastiff

Note that, although Ralph has identified categories, each dog has his own.

Neither of these approaches is wrong – you need both approaches to make effective decisions. For example, an extreme lumper will not be effective at working out loans, because he or she will offer the same modification to every borrower, and the same modification will not work for every borrower. An extreme splitter will also be ineffective, because every modification will be customized for each borrower, and the time that takes will result in few modifications being completed.

The error lumpers make is the failure to identify relevant differences. The error splitters make is to identify differences which are not salient, encumbering the decisionmaking process.

Ideally, what you want is to identify the salient differences between borrowers (a splitter skill), and group the borrowers according to their salient differences (a lumper skill) so similar modifications can be offered to the each group.

Obviously, people can put on different hats and function as a splitter some of the time and as a lumper on other occasions. I do believe, however, that people have a preferred mode.

These ideas are drawn from Scott Page’s excellent book, The Difference, which I highly recommend.

Are You Consistent Enough to Manage at Wal-Mart?

From Carpe Diem:

Charles Platt (picture above) is a journalist, computer programmer and author of over 40 fiction and nonfiction books and was a senior writer at Wired magazine. Charles moved recently from being a senior writer at Wired magazine to an entry-level position at Wal-Mart, "a company reviled by almost all living journalists," after he read the book "Nickel and Dimed," in which Atlantic contributor Barbara Ehrenreich denounces the exploitation of minimum-wage workers in America…Here are some excerpts from his BoingBoing blog post "Life at Wal-Mart":

Several of my co-workers had relocated from other areas, where they had worked at other Wal-Marts. They wanted more of the same. Everyone agreed that Wal-Mart was preferable to the local Target, where the hourly pay was lower and workers were said to be treated with less respect (an opinion which I was unable to verify). Most of all, my coworkers wanted to avoid those “mom-and-pop” stores beloved by social commentators where, I was told, employees had to deal with quixotic management policies, while lacking the opportunities for promotion that exist in a large corporation.

No surprise that better pay, being treated with respect, and opportunities for promotion would influence people’s employment choices. But, how often do we inflict quixotic decisions on the people we manage? It’s important to people that management heads consistently in the right direction. If Wal-Mart can get it right, certainly the rest of us can too.

What to Do When You’re Dissatisfied : Part III – Voice and Loyalty

What should you do when you’re unhappy with a situation? You have three options. In previous posts I’ve talked about reframing your attitude so you’re no longer unhappy, and about exiting the situation. Your third option is to try to change the situation by voicing your concerns.

This option comes into play when the problem is bad enough that you can’t change your attitude towards it, but the overall situation is good enough that it’s worth trying to improve it. Also, you need to believe there’s a realistic chance the situation can be changed.

By staying and trying to make things better, you are being loyal to the organization. Too often people who object to the status quo are perceived as being disloyal, when in fact the opposite is true. The most loyal employees are the ones who don’t exit, and who try to make things better by giving voice to the issues.

How to make change happen is a huge topic and way beyond the scope of this post, but if you want to get started a good place to begin is the About.com article, “Disagree Without Being Disagreeable.”

Differentiating Yourself

Almost always when you are trying to reach new ground (obtaining a new client, seeking a promotion or additional responsibilities, getting a better job) you are competing with others. How do you distinguish yourself from the pack?

Here’s a list from Andrew Sobel’s Making Rain: The Secrets of Building Lifelong Client Loyalty:

1. Do It Faster
2. Do It Better
3. Be Different
4. Be Better Prepared
5. Reframe the Problem
6. Provide Unique Information
7. Establish an Emotional Connection
8. Be Readily Accessible
9. Listen and Learn Fast

I think that pretty much covers it. I highly recommend the book. Here are some links to other work by Andrew:

4 Ways to Deliver Value to Your Clients

Fair Game: 8 Principles for Making Your Competitors' Clients Your Own

Winning a New Client When There Is an Incumbent

What To Do When You’re Dissatisfied: Part II - Exit

The shortest time I’ve ever held a job was six weeks.

I realize that is not a record (I’ve had new hires fail to show up for work after lunch on their first day). But for me, it was traumatic, especially since it was a great job in a great place (Newport Beach, CA), with a great company (Bankers Mutual, since acquired by Deutschebank), working with people I admired and liked. What went wrong? I was under the impression I was working on commission with a draw, and my employer believed I was being paid straight commission. I was selling commercial mortgages and the closing cycle is a minimum of four months, so I was looking at an extended period of no income, with bills to pay and no reserves (and with a bad case of post-divorce blues, too). Under the circumstances, there was only one thing to do; exit.

In a previous post (Part I of this series) I have discussed changing your attitude about your situation rather than changing the situation. But, sometimes changing your frame of reference doesn’t get you anywhere. Over my career, I think I have left jobs for all the reasons it makes sense to exit:

The job is dangerous/unhealthy. In 1977-78 I worked on a mobile flax mill. It gradually dawned on me that the chronic respiratory and arthritis problems the older members of the crew suffered from were probably related to the dust we were breathing and the work we were doing.

You hate, hate, hate the work. Busboy, 1979 for six months. Enough said.

Fundamental misunderstanding about the job (duties, compensation, etc.). The Bankers Mutual situation (1987) in the opening paragraph.

Your employer is too stupid to be associated with. In 1988 I was a workout officer for the FSLIC. During the 14 months I was there, I did not resolve a single, solitary deal. Our days were spent doing endless data scrubs and preparing elaborate committee presentations which were invariably kicked back for more analysis. It became just too embarrassing to be a participant.

Your job has run it’s course. From 1989 to 1995 I was Assistant Director of Special Assets (income property workouts, foreclosures, bankruptcies) at Home Savings in Los Angeles (then the country’s largest S&L).  I had a great team doing interesting challenging work at a great institution. But, the real estate recession was coming to an end, we were laying people off, and I could see the handwriting on the wall.

You are accomplishing no useful work. In 1996, I was Regional Chief Underwriter for Mellon Mortgage in Los Angeles. During that year, I had only one deal to underwrite (and that was one I went out and found myself). Some people might be happy catching up on their reading and web surfing, but I had a perpetual sense of impending doom –surely someone at some point would notice the lack of output.

You stop learning. 1997 – 2005 I was Chief Credit Officer at ARCS Commercial Mortgage (now PNC/ARCS). Like Home Savings, this was a great company, and I had a great team doing interesting work. But, I basically had the same job for 9 years, and in my opinion that’s about four years too long. Malcolm Gladwell in his book Outliers talks about how it takes 10,000 hours to become an expert. My guess is I spent around 27,000 hours at ARCS. The combination of a great work environment and partnership vesting kept me around, but looking back, that extra four years are the only years I wish I had spent differently.

Your organization changes direction. During 2006-7 I was Senior Vice President of Asset and Credit Management for Capmark’s Affordable/Low Income Housing Tax Credit unit. Very interesting work, but six months into it Capmark decided to wind down that line of business.

Obviously there are steps you can take in some of these situations so that it makes sense to stay. A change of direction could actually be a new opportunity. If you feel like you’re not accomplishing anything useful or aren’t learning anything new, it might make sense to try to redefine your job doing other work in the same organization. But, if you’ve truly exhausted the possibilities, exiting is the right thing to do.

Would You Rather Not Know?

If you had an opportunity to know if someone was acting in your best interest, would you take it?

Conventional economic theory would say, “of course”. Companies devise elaborate controls to ensure their employees act in the company’s interest, and not their own. All too often these systems fail (for example, The New Yorker has a fascinating account of how Jérôme Kerviel was able to lose billions of euros in unauthorized trading for Société Générale). There is a whole branch of political science and economics that focuses on the principal-agent problem:

In political science and economics, the problem of motivating a party to act on behalf of another is known as ‘the principal-agent problem’. The principal-agent problem arises when a principal compensates an agent for performing certain acts that are useful to the principal and costly to the agent, and where there are elements of the performance that are costly to observe. This is the case to some extent for all contracts that are written in a world of information asymmetry, uncertainty and risk. Here, principals do not know enough about whether (or to what extent) a contract has been satisfied. The solution to this information problem — closely related to the moral hazard problem — is to ensure the provision of appropriate incentives so agents act in the way principals wish.

But, do people really want to know if their agents are acting appropriately? A recent study (via Overcoming Bias) found the study subjects would “…systematically prefer to remain ignorant…” of the decisions made by a trustee investing on their behalf.

Every parent has experienced this. My son is supposed to clean his room. I know (or at least strongly suspect) he hasn’t. If I confirm this suspicion by opening the door, I will need to punish him, and I don’t like doing that. Better to keep the door closed.

I think this tendency is where a lot of control mechanisms go wrong. The system and procedures may be fine, but if implementation is left to people who would really rather not deal with problems, the safeguards won’t work.

We Want to Trust – Sometimes Too Easily

Trust is an essential element in all good relationships, both personal and business. But, sometimes we are too willing to do so. From a post on The Baseline Scenario:

Free Exchange has Anthony Gottlieb’s recollections of interviewing Bernie Madoff about financial regulation:

“At the time he came across merely as calm, strikingly rational, devoid of ego, and the last person you would expect to make your wealth vanish. I certainly would have trusted him with my money. I cannot say the same of other financial superstars I interviewed. . . . Perhaps it is the most confidence-inspiring ones that you have to look out for.”

I couldn’t agree more. We human beings have this completely misplaced confidence in our ability to judge people by “looking them in the eye.” I recall reading about one study (sorry, I don’t remember anything else about it) which showed that hiring managers were more likely to make good hires by selecting solely on the basis of resumes than by interviewing people - because using resumes is completely objective, while interviews allow you to interject your own erroneous beliefs. (I do believe that if you use interviews well - that is, to obtain factual information, like how well someone can actually write a computer program - you can do better than just using resumes; but maybe I’m just fooling myself.)

I think differentiating “strong situations” and “weak situations” sheds some light on where we go wrong. A strong situation is one in which environmental cues are so strong and widely known that everyone behaves in a consistent way (for example, members of a particular faith know how to act at a wedding or funeral conducted at their house of worship). Weak situations are situations with weak environmental cues which are not widely known (for example, a new employee will probably not know the expected behavior at the company Christmas party).

To loop back to the excerpt above, interviews with a journalist or for a job are about as strong a situation as you can get. You are kidding yourself if you think conduct in such situations is representative of how a person might act in a less structured situation.

Martin Luther King, Jr. once said, “The ultimate measure of a person is not where they stand in moments of comfort and convenience, but where they stand in times of challenge and controversy.” Until you have witnessed someone’s behavior in a difficult or ambiguous situation you don’t have a good basis for a decision to trust them.

You can find a further discussion of strong and weak situations in Personality and Organizations by Benjamin Schneider et. al. A less academic discussion of how situations influence personality is in The Lucifer Effect by Philip Zimbardo.