Lia DiBello on the Mental Model of Business

Podcasts · Business

Note: hold on to lessons from this very weakly – little evidence to demonstrate if what she is talking about has value. Her company generates sub-million dollar revenues after more than a decade of existence (which is very low for a consulting company) and hardly has any employees, except for two other full time employees who are also directors in her company and interns. Most others who have worked full time (mostly in software development) seem to have left after 6-12 months, which seems like a red flag. She claims to have a process that really works, but it would’ve likely been adopted widely if it really worked as advertised. Might just be that she has great ideas but is bad at marketing them, though!

Discovered in 2000 that all great business people share a common mental model of business

Claims to have a process that accelerates the acquisition of business expertise

Business is a really good place to look at cognition in action – you know if you're successful or not

People have to reinvent their mental models constantly in the current environment. Cognitive Agility is a really fundamental skill for operators right now

If you continue to learn complex tasks, you keep your cells [she probably means synapses, not cells?] and don't go into cognitive decline

Extracted a mental model of business in a 4-year NSF-funded study in 2008-09

• When you work with a lot of companies, you see a lot of similarities. You realize that business is a closed system of rules – this is what allows people to become experts at it. It's very complicated, but it is a closed system
• Like chess experts (another class of experts in a closed system), business experts have different styles. Many different styles can be successful
• In a study for IBM, realized that experts understood the businesses that they were serving regardless of the industry that they worked in. They were all very similar to each other
• Then looked at other customers and started sorting them. Who were the one-trick ponies that got lucky, and who are the people who were generally immune from down-markets or were able to rebound quickly from them
• Realized that businesses only have 3-4 organizing forces, and people who are great operators are great at managing these 3-4 organizing forces (with a lot of detail attached to the forces)
  • What's the capital market doing? (Capital)
  • What's the market for your product/service doing? (Demand)
  • What's the supply environment like? (Supply)
• Example: after a significant economic event, the capital market changes. This often changes supply and demand, and experts are good at identifying how these 3 things interact with each other. Experts are folks who are good at all 3 legs of this triad – a one-trick pony is usually only good at one of these (usually sales) and doesn't understand how their actions are impacting the organization

Can experts transfer their expertise from one industry to another?

• It depends — the most transferable skill is capital. The hardest to transfer is supply (the operational part). You need to have a really talented operations person as a partner
• Business expertise in an executive team is a form of distributed cognition – both expertise and blind-spots are generally distributed around the team
• Capital is a very useful skill, though. A lot of European family businesses, for example, are experts at demand and supply. But they often need to bring in external expertise in the form of both capital acquisition and capital management

The FutureView Profiler

• Instead of asking people "are you smart? do you know what you're doing?", recognize that they probably don't know themselves
• They give them 5 years of an anonymous public company's history, financials, documents etc. These are companies that have gone through a down period but have recovered. Then ask them to make decisions
• They'll give them the first year of the company's performance and ask them what's going to happen. Is this company going to succeed, or will there be a problem? What's the stock price going to be? What will be the operational challenges?
• Then they ask them, in the dataset we gave you, click on the things that gave you clues. And also ask them to score their confidence
• This allows them to understand people's competence and blind spots. A novice might buy into a company's story wholesale – an expert will typically identify what's missing and will sense that the quality of the information they've been provided is not good

How does she get a client to accept profiler recommendations?

• One way: "we just wait until they've tried everything else out and they're desperate"
• Be selective about the jobs you take, and take jobs where the upside you see is more than the upside

Midwest Foundry

• Foundry was making castings. Was very heavy in debt and the owner was doing some very irresponsible things – had taken out personal loans and was using them to run the business. The internal management of the company was in bad shape too – was difficult to separate batches from each other. Logistics were a nightmare, too
• Asked them – how do you know what to work on? do you have an ERP system? They'd never seen a graph before. Had used the ERP system to print labels to ship things, but it wasn't a core part of their process
• What she did:
  1. Created a strategic rehearsal – had cards with a representation of every function and every operation in the entire foundry system. Asked people to arrange these in the way that the foundry currently ran – it was a mess
  2. Then, told people that they'll rejig the way they do things. Told people to follow the ERP system, and that nothing will get made unless there's an order and that the order is in the ERP system
  3. Also told them – "you'll not make anything you can't sell. what you'll make will be delivered on time. and if it's not on time – the customer will get it for free, but the customer will get it"
  4. When they did the strategic rehearsal, it was a disaster. Told people it wasn't the time to finger-point (since the strategic rehearsal is not a life-or-death situation), but to actually identify the issue
  5. Essentially taught them Just-In-Time manufacturing by placing constraints and asking them to do an exercise, instead of giving them a lecture about it
  6. Later visited them after things had been figured out, and realized that they were doing perfectly fine now – they also got their scrap-rate down really low

Cognitive Agility

• This is the ability to change your mental model when the world or the situation has changed and adjust your mental model to accommodate the change, instead of applying what you've always done. That's hard
• Dibello doesn't think it's a fixed trait – though there's some disagreement with her colleagues here