Tipping Point


March 19, 2016

Hi Everyone,

 

I was awakened by a call from the CEO in London. He wanted me to go to Mexico that day. He said that the plane ticket for a 8:00am flight to Mexico City would be waiting for me at the airline counter. If I took a quick shower and drove to the airport, I would make the flight. So, go!

 

What could be so urgent and important for me to fly into a country operation that I had never put a foot in? I just could not imagine what could be going on there. Why me? Why today? When I got there, everyone seemed calm and there was no sign of panic. The Finance Director told me that everything was under control and it would be in order by tomorrow. “Mañana!”, he said.

 

The next day, I went into the office and asked if they had figured out what was going on. He said that they were almost there, but most certainly “Mañana”, he reassured. The day after that, my hope turned into surprise when I found out that things were not sorted out at all. That was when I figured out that they had absolutely no idea what was going on! I told the CEO what was really going on in Mexico and he had to make a decision. He said, “Shut down the operation immediately!”
When do you decide that a bucket half full is really a bucket half empty and the slow leak is about to become an uncontrollable burst? How do you catch a turning point?

 

In the stock market, the investor sentiment can shift very quickly. What was the darling of the growth stocks yesterday could start to fall precipitously the next day with no news to account for the movement. The analysts and traders blame sky high valuations and management guiding down the sales forecast even though they met both revenue and earnings estimates this quarter. What could cause a publicly traded company stock to fall 40% in one day? What pushed them over the tipping point? Sentiment shift, they say.

Malcom Gladwell wrote a book called “Tipping Point” in which he describes what appears to be an almost intuitive decision, is in fact the result of analyzing many data points some of which we are not even aware. Furthermore, some of the data points are not binary, meaning it is neither good or bad conclusively, and many are in the grey area. Though they cannot be counted, the data points in the grey area get picked up quietly by the pattern recognition process and alert us when “something does not feel right.” It is not a linear progression to a tipping point but often it is persistent and compelling hunch.

 

The irony is that, most of the time, we are actually trying to balance several priorities at the same time so that it won’t tip over. There is so much going on lately that you wonder if you are allocating your time and emotional energy correctly. No matter how much you think about the better decision at every split, you are nowhere near the answer. When things are so muddy, you just have to keep reaching outward until you find something that you can grab onto. The situation may be way beyond logical thinking and heavily layered with hopes and fear that distort what is really in the core. But once again, senses are your best friends.

In the case of the CEO who made that difficult decision, he had much input from different people in London and Mexico City who were closer to the situation, whose opinions were influenced by their own self-preservation and hope. He perhaps needed a completely objective opinion from someone who was outside of the operation to assure the integrity of an unbiased opinion. That was what he needed to tip the scale one way or the other. It had to be me.

 

Come to Ormsby Hill and find the balance before you tip the scale…

 

In pursuit of the best pattern recognition system…
Yoshio

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