Street-Smart versus Book-Smart

In my day to day activity I am increasingly confronted with a new burden: the need to work, communicate and maintain a balance of influence among groups of individuals that are framed as either street-smart or book-smart.  I admit, I struggle with the idea that one is more important than the other. In a society that is increasingly influenced by perceptions and is more connected at a superficial (virtual) level, empirical evidence suggests that street-smart people are doing better, are more prominent and more adapt to the current trends. However, I believe that both types have beneficial influences over the impacted audience.

The way I define this reality is by looking at it from different perspectives:

Book-Smart People                      Street-Smart People

Concerned with Substance            Concerned with Form
Create knowledge                           Able to relate information
Understand the principles              Figure out the application
Generate solutions                          Amplify ideas
Learn through formal education     Learn through observation
Know a lot about few things          Know little about a lot of things
Invent new things                            Innovate and improve
Higher IQ                                         Higher EQ

It is easy to get mesmerized by the ability with which Street-Smart people exploit opportunities in life, by impressing audiences with their extensive “know-what, know-how and know-who”. However, leaders and managers in authoritative positions are frequently confronted with the need to discern between information that is made available to them by Street-Smart versus Book-Smart subordinates. The mission of good management is to separate the real information in the message from the noise.
 
And there is considerable noise in the system;
   • created by unverified or exaggerated information,
   • embedded into the signal through misinterpretation or distortion
   • multiplied through repetition and extrapolation
   • strengthened by buzz-words and name-dropping
   • hidden under the umbrella of charisma and enthusiasm
   • reinforced by bullies and laud, energetic promoters

The unfortunate property of the signal amplifiers is that they magnify indiscriminately the whole wave sound, with all the useful as well as twisted components. There is no distinction between fact and hearsay, between reality and appearance, or between truth and distortion. That is why probing and testing of information accuracy is needed more than ever, in a world where verbal and written interaction has become so intense - due to the mobile, virtual and personal features of the communication tools – and the people are overwhelmingly interconnected.

So what I propose is an analogy with the electronics systems where the useful signal is generated by the Book-Smarts, is amplified and transmitted by the Street-Smarts and filtered and interpreted at the other end by the wise and experienced Manager. The filtering could be done either at the emitting point – although transmission could inject additional noise – or at the receiving end. The trick is to correctly identify the quality of the source, the character of the communicators in the channel, and the motivation of the interpreter.

The Role of Management

After spending a good portion of my professional life in management structures, I arrived to the conclusion that the fundamental role of management is to anticipate, assess and mitigate risk.


In absence of risk there is no need for management. I know, some will argue that any activity needs coordination and administration and therefore, it requires management. But isn’t that just another manifestation of risk?

Let’s assume an ideal operating environment that is self running. It has only a leader (owner) and an army of executants (employees).
• One day an employee does not show up for work and the owner realizes that there is a risk of that happening from time to time, among the employee population. Consequently he nominates an HR Manager to deal with the absenteeism.
• Another time the material needed for processing does not arrive, because of some supply problem; so he designates a Purchasing Manager to ensure that the material is ordered and received on time, and procured at the right prices.
• The products are ready for delivery now, but the truck hasn’t been called to pick it up; woops, there is a need for a Logistics Manager
• Opportunities for business present themselves in an irregular sequence, and the assignment of work among co-workers needs to be changed daily  a Production Manager is put in charge to coordinate the allocation of resources
• Customers are interested in the product but they want to talk to somebody where they could place their orders or learn about the product. Technically the orders could be recorded by phone or e-mail, and the reading of the brochure should provide enough information, but faced with the risk of loosing customers or orders because of lack of response the owner nominates a Sales Manager
• The PO suggests when the customer wants the product, but for some reason, the project activities are not happening according to plan  the risk of not finishing the project on time – unless properly coordinated - gives enough reason for the existence of a Project Manager
• Finally, the product is shipped and invoiced, but the payments are delayed, and the bank is raising questions about the overdraft level in the company’s account. That is when the Controller justifies its position.

The image is pretty clear: In the minute an enterprise is born, there are inherent risks that are threatening the ability of the firm to perform well and make profits. The capacity of the company to generate results is guarded against risks by this institution of Management, whose primary role is to anticipate probable scenarios, evaluate risk exposure, analyze possible consequences, develop solutions and implement plans, structures and processes, measure results and devise reward systems to ensure continuous success. In spite of these efforts, risk does not totally evaporate, but – when things are done well - is minimized.

Once accepted as an objective need, the management expands, gaining legitimacy and consolidating its new platform called “Overhead”. In time, the merits of its contribution are gradually diminished to a point where is perceived as non-value-added, or burden. And from there, in the name of “lean transformation” a process of constructive demolition begins, until the necessary managerial safeguards are no longer in place. Then something happens and the negative impact of such occurrence exceeds by far the cost of its prevention. Instantly we realize the value of risk management and are willing, again, to dedicate resources to it.

However, by now we went full circle, and the history repeats itself.

Does it sound familiar? It should, because is happening everywhere. And emerging from it, an entire army of management consultants make a living.

Financial Regulation - A Common Sense Solution

There are days when complicated issues come on display in a different light, and, suddenly, they look much simpler. It recently occurred to me that the problem with the financial industry may not be residing in the behavior of its players, nor in the ways it functions; it has more to do with the commercial attributes of its products.

I was always troubled by the terminology used in the financial industry. And, I am sure, I am not alone. When I hear bankers using a term like “product” my skin wrinkles, because I know that they do it just to disguise the real nature of the item that is being sold, and the risk associated with it. The psychological effect of calling derivatives and other financial instruments “products”, is that the public is more inclined to accept their legitimacy in the commercial space, as opposed to treat them as pure gambling.

In the real world the product is something that is conceived and made for public consumption or utilization. One of the most common attributes of the commercialized products is the warranty that comes with the transfer of title. That is the real guarantor of quality and performance, even more so than the brand name and firm reputation. In some instances it even comes with an extended warranty, as a differentiator. In the name of this warranty, the product is usually returnable for and exchange, or for a refund if it does not perform to the satisfaction of the buyer. The only other sector where the buyer bears the entire risk of poor quality is entertainment: a ticket to a movie, or a baseball game, where the performance does not rise to the level of expectations is not usually refundable. But, at least in those cases, there is no presumption of potential for any material gain.

So why should the financial products be warranty exempted? Since the claim is that their creation and commercialization is the result of a similar process - concept, design, financial engineering, packaging, marketing, selling – why would they not be subjected to all other requirements of the commercial stream, including taxes? (How would you feel being charged 13% HST for the purchase of a stock, a bond, or any derivative?). To make it more appealing one can even buy insurance on such products. However, you cannot get any certificates of warranty. Isn’t that fishy? It certainly smells like it.

The way it is right now, there is zero accountability of the seller (or the commercial agent) to the buyer of a financial product. This lack of responsibility for the performance of the product is what encourages the speculators to misrepresent the risk of the investment, and hence mislead the buyer. In a world of total accountability, the financial institutions should be required to guaranty a minimum level of performance for their products. That is the only regulation that needs to be implemented: “A money back guarantee”. The rest would fall naturally into place.

Let the financial institutions be as big as they want, so long as they play by the same rules as everyone else. As true products, the faulty CDOs issued by AIG or Goldman Sachs should have been recalled, and the buyers (instead of being victimized) reimbursed the full purchasing values. It is easy to accumulate profits where everything is sold without consequences to the issuer. It is like shopping at the Flea Market, or buying from a Garage Sale. At least in those cases you see what you buy. In the virtual world of financial speculation there is no such thing.

So public beware when buying “products” through such an unregulated channel! As Michael Lewis once said in his book “The Liar’s Poker”: in the market there is always a fool; and if you don’t know who the fool is, it is likely that you are the one.

It is a shame that the financial sector attracts so many intelligent people (intelligence does not necessarily equal integrity) and wastes their talent as flea market merchants.