Risk aversion and the law of unintended consequences

The news that the UK Credit card company EGG is about to withdraw 161,000 credit cards from customers who are considered to be 'higher risk' is an interesting case study in risk aversion.
On one level their actions make a lot of sense for the company. If they are actually targeting individuals who propose a higher risk (and there is a question about how they have made this decision) in times of economic slowdown then restricting their ability to get into debit does reduce this companies exposure to risk later on - but only if other companies don't do the same thing.

In times of tougher money and in particular credit supply reducing peoples flexibility to move (and access) money around is very likely hasten the levels of bankruptcy. If you are in a tight spot and your emergency supply (the credit card) dries up and there is no way to get more money meaning you can't pay your debts then you will go bankrupt and then default on everything. This means that if every credit company, as is widely expected, follows suit, then this is quite likely to accelerate the numbers of payment defaults which is they very thing the strategy is trying to prevent.

This is a typical mode one (from the book the Ambiguity Advantage more of which later) risk averse reaction. When things look difficult more controls are put into place. Logically this appears to be the right thing to do. 'Things are going to be tight so we will reduce spending (or in this case the ability to spend) across the board'. That makes sense for the individual credit company. However if everyone does the same thing, the more they all control the money supply the less there is to spend, the less there is to spend the less people buy, the less people buy the less profit there is, the less profit there is... you get the picture.

So a risk reduction strategy that works for one company for a limited time, when copied and used widely is likely to actually bring about the very conditions they are trying to prevent.

This is also true within companies. Many companies that we have seen, cause themselves problems when things get tough by reducing spending / effort on the wrong things. So at the very moment when things need to change and employees need to think differently, get creative and find new ways of doing things you find that activities like better training and development, coaching etc, are usually slashed thereby exacerbating the situation.

Risk aversion often brings about the very thing we are trying to prevent.

Leadership when people are scared III

When you are leading people who are scared here are some do's and don'ts:

DO

1. Learn to be become emotionally resilient. In a recent study we found that this is the single biggest factor in dealing well with difficult and ambiguous situations. This means that you can control the balance between your emotions and thinking whilst still keeping in touch with your instincts and remaining empathetic. More about this.
   
2. Give people a sense of positive direction and movement. This really helps when people are unsure and emotions are running high.
3. Communicate lots and keep in touch with people. One of the biggest failures, especially in situations of flux and change is not to keep people with you every step of the way. You should be acting as if you are on a mountain in bad weather with poor visibility. You rope everyone together and move as a group.
4. Listen lots. All to frequently when the going gets tough , managers and leaders become autocratic, start telling and stop listening. History is full of such instances where leaders wouldn't listen to 'negative talk'. This is a big mistake. Listening to everything can notify you of so much like how people are thinking and feeling, dangers on the horizon are closer and more. The special forces (SAS etc) have what is called Chinese Parliaments. These are group meetings where everyone regardless of rank or status can and are expected have their say and put forward ideas, thoughts or questions including criticisms of leadership decisions and thinking. This form of tough love has lots of advantages.
5. Keep people busy and thinking. The more they have to think the less time they have to feel scared. So let them solve problems rather than what most leaders tend to do is do the solving themselves (often poorly - see this). Make sure any tasks you give people are real tasks. people know when they are just being kept occupied with meaningless tasks. Navigating difficult and ambiguous times is a team effort.
   

DON'T

1. Panic! Keeping your emotions is vital now. If others think that you are in a negative emotional state and making knee jerk reactions rather than using the resources around you, they are unlikely to follow willingly. Additionally you may find that people start to loose respect for you.
2. Make decisions in isolation no matter how good you think they are. Test them out and modify them in the light of different thinking from others.
3. Surround yourself with comforting people who think like you do. This will just lead to group think. Find diversity in views and challenge. Now more than ever everything, and I mean everything needs to be challenged. Failure in difficult and uncertain situations usually come about because of the assumptions people make that go unchallenged. Paradoxically right now you need people who will confront, contest and question, which is the opposite often of what most leaders do in difficult situations which is to surround themselves with people who will agree and make them feel comfortable with their decisions. This is another reason why you need to be emotionally resilient.
   
4. Shoot down daft ideas. Right now you need all the creative, imaginative and innovative ideas you can get. Treat one idea with contempt or anything less than being very welcome and you will kill creativity stone dead. Even the daftest (to you) ideas could well lead to an opportunity or the solution you need. Far too many leaders and their teams shut down prematurely on ideas and never find that killer concept. Nurture all ideas and see what flowers.
   
5. Try to control things too much. The normal response to difficult times is to start to put in place tougher controls. This is often a very big mistake as it stops great and creative things happening, those happy accidents that get you out of the pile of poo you are in. These are known in complexity theory as emergent properties and they can only really occur when things are allowed to flow. More controls are frequently a sign of an emotional response to what is seen as a negative situation. Chill, look for opportunities and play!
   

Leadership when people are scared II

We have covered some of the physiological effects of being scared. These in turn create change in the heart and the mind. The heart sends signals to the brain affecting the way it operates. We get to a situation where we can't think straight and we soon have the sensation of this. Thought becomes difficult, in fact all we can often to is concentrate of the feelings, which makes the situation worse. Basically our cognitions become flooded and overwhelmed. There is a very good reason for this. Danger produces a fight or flight response, which is fine when there is an immediate physical danger present that we either need to get away from or confront quickly and overpower. However as our lives are a tad more complex than when these responses were required our system doesn't have a way of easily distinguishing between fear from immediate physical danger and the danger of loosing our jobs, or the perceived danger of new and uncertain situations. Our minds and bodies therefore react the way they were programmed; for the more binary threats that existed when the programming was set.
Anyway the issue is that because many people react to uncertainty in this way the important point here is that in this state people are in an emotional space not a cognitive one, so simply resorting to 'reason' and 'logic' is unlikely to work at least in the first instance. Next some smart (and not so smart) things you can do as a leader of scared people

Leadership when people are scared

Leading when things are good is an art. Leading when things are difficult and people are frightened is a whole different matter. When people are scared a number of physical attributes occur which leaders need to be cognisant of as it will affect the way people receive and process information and make decisions.

1. The first thing that most people become aware of is that their heart rate increases significantly. In extreme cases people report the feeling that their hearts were going to pound its way out of their rib cage.

2. The next sensation is that their eyes are wide and that their pupils are dilated. The effect of this paradoxically is that too much light enters the eye and they lose peripheral vision, having to actually stare directly at things to see them with any clarity. This is in acute cases becomes tunnel vision and people find it hard to fix on any one thing with their eyes having to flit between things, often not long enough to take in any detailed information.

3. Their hearing becomes more acute, hearing things in greater clarity. However like the vision there is a paradox here in that whilst the hearing becomes sharper it also becomes more selective, taking in only certain information it deems to be part of the threat, excluding other sounds. People are often unaware that their auditory faculty has changed.

4. Physically people frequently report a range of affects including inability to walk properly, sick / knotted feeling in the stomach, tense muscles. In extreme cases the individual may find that they have lost the ability to talk.

Given these responses it is not difficult to see why leading people in this state takes something very different to normal situations, especially when you add the fact that the reason people are in a heightened emotional state is because either things are uncertain or difficult in some other way. However I have to say it is usually copious amounts of ambiguity coupled with some form of threat that flips people into negative emotional states. So is it is an uncertain situation that has risk associated with it, the leader is also likely (depends on the individual) to be under stress and not performing at their best which compounds the issue, which is why we tend to develop the emotional resilience of the leader(s) first before getting the team into a more resilient place.

The next blog will look at some things a leader should and shouldn't do in these situations.

Fear, Emotional Resilience & Risk Aversion

With in less than 24hours of the last blog about risk aversion and recession this happens based on fear, the perception that something might happen.
One of the things that we discuss on our workshops is the role of fear in risk aversion and behaviour.
Fear is a largely anticipatory activity; rarely does it occur after an event. Quite often with our fear we bring about the very event we don't want to happen, as discussed yesterday. An analogy if you like is learning to ride a motorcycle. When learning to ride the thing that most learners find difficult is cornering as you have to lean into the corner and until you get used to it , it feels like a pretty unnatural position, especially if you are used to driving a car. What learners then do is have a fear of running off on a bend and as a result of which they fix their eyes on the kerb, where they don't want to go of, just to check that they are not getting too close. Of course you tend to aim for where you are looking, the fear in this case increases the chances of running off on a bend! Experienced riders on the other hand fix their eyes on where they want to go, around the bend and they look for the exit not the thing they don't want to happen. As a result they can get around much faster and safer.
Fear makes us aim for the thing we least want. The acronym for fear is
False
Evidence
Appearing
Real
How many things have you been scared of that turned out to be nothing? It leads to risk aversion and often brings about the very thing we don't want to happen.
If everyone decided that the market was ripe for investment and opportunity the market movement would be very different. When fear is endemic things start to go badly wrong as fear feeds of fear.
I am sure most of us will remember as a child being in a group telling ghost stories. As the stories build so does the group fear until eventually someone actually sees a ghost and everyone runs screaming! Group hysteria.
This is the reason why emotional resilience, as opposed to intelligence is so important, which is the cornerstone of our workshops with people like the emergency services, disaster managers et al.
There is nothing that exists now that didn't exist last week in the financial market. What is happening is based on an emotional reaction (or lots of them) feeding off each other in a fear frenzy. Tomorrow should be interesting.
It may not have escaped anyones attention that many wars start similarly.

How increasing risk aversion leads to recession

Risk aversion is not a stable phenomena. It can increase and decrease depending on individual's and / or organisation's perception of their environment. Take for example a well known trend of many individuals to engage in more risky investments and gambling depending on their perceived level of wealth. So the better off they feel the less risk averse they become increasing the chance that they will engage in more risky investments, and speculative spending. On the other hand the less well off an individual feels coupled with perceptions of reduced opportunities for income generation the greater the increase in risk averse activities and behaviour.
The same is true for institutions and companies. When they anticipate difficult conditions they frequently become more risk averse, tightening boundaries and procedures, reducing innovative practices, and cutting costs, training etc and reducing productivity. Every organisation that starts to engage in risk averse behaviour accelerates the possibility of more organisations perceiving a threat and engaging in risk averse behaviour and so on.
Take for example the current credit crunch. A perception of increased risk in the market triggers the banks to reduce lending and start to call in existing loans, thereby weakening the quality of their existing assets. If this thinking catches on, which it usually does, as every bank watches each other, triggering a follow-my-leader spiral increase in risk aversion accelerating a slide into a recession.
So why do banks, organisations and individuals all contribute to the situation they fear the most?

The first thing to note is that the the situation has moved from one of a perception of stability, confidence in knowledge, apparent low risk and growth (a positive condition) to one of uncertainty, a lack of belief and confidence in the level knowledge held which heightens the perception (belief) of the possibility of decline (a negative emotional and cognitive condition), therefore a belief that the situation is high risk and disinvestment follows.
The uncertainty here that triggers a panic (recession) is that people find themselves in a situation where they have no way of analysing the situation, either because it is wholly new or the complexity of it prevents normal rational analysis, or the form of analysis is currently too immature ie no prior experience in this situation. In other words the belief in the knowledge they hold moves from one of more certainty to one of less certainty. The situation is compounded because people see that others are also uncertain and their beliefs are confirmed.
This uncertainty means that people are less likely to ignore worrying data than before. Any sign of problems in such situations are more likely to trigger disinvestment and risk averse behaviours than in situations where there is a confidence in the knowledge held.
The scene is set as people are watching for any signs of disinvestment, whilst preparing for action just in case. One event can then set off a chain reaction. Slow at first the reaction then increases in speed and ferocity as each event increases the uncertainty and risk aversion increases as panic ensues.
As each agent is acting individually rather than communicating and working on the situation collaboratively their emotional and rational involvement is one of self preservation rather than that of systems thinking. So increasing risk aversion helps to contribute to recession, particularly in, but not confined to the financial sector.
Makes you feel a whole lot better!

An interesting quote that has nothing to do with risk management / aversion...

Success consists of going from failure to failure
without loss of enthusiasm.
-Winston Churchill

Yin & Yang of Risk Management and Opportunity

I am doing some work with a large multi-national at the moment, having been asked to run some workshops by the Risk Management Group of the company. The intention behind the workshops for the group was to make more of the organisation risk aware. As you can imagine this was an interesting proposal for me, kind of poacher turned game keeper. I decided to take the job and do something a little differently. I devised an exercise that really turned their heads. Here is the exercise and the results. It worked like a charm after a few tweaks:
I divided the group into two sub groups at random and gave each group the same selection of quality newspapers (Financial Times, The Times, The Independent and the Guardian) for that day. I had high lighted the same stories in each and asked them to go to different rooms and read the stories.

Now remember the context, these people are on a risk awareness workshop - the aim being to get better at identifying risk.


I went to one group and asked them to identify as many risks to their operation as possible in the articles chosen and then to choose 3 more articles that contain risks for the company and do the same analysis.
The second group I gave exactly the same instructions to with one exception;to identify all the opportunities that exist in the chosen articles and then to find three more articles that they believe could present real business opportunities for the company.

Then came the cute bit. I moved each group the the others rooms to comment on their analysis without telling them that they were engaged in different activities. Oddly two of the articles they had chosen were the same!

The energy of the two groups were noticeably different. The opportunity group had a lot more energy were having fun, were enjoying the task and were really enthusiastic. The risk group on the other had had a marked lower energy, were doing their task seriously and at one point complained that the opportunity group weren't taking the task seriously.

The group who were looking for risk described the opportunity seeking groups work as not critical enough and the opportunity group were struck by the negative tones of the risk groups work. Indeed so powerful was this that the opportunity group asked if they could leave the risk groups room as they were finding the whole thing depressing.

The opportunity group produced about 4 times the number of ideas as the risk group did and just from the sheer amount of work produced in terms of writing produced roughly twice that of the risk group.

We have now run a number of these workshops with almost zero variation in results. The managers are really starting to think about the effects of risk averse behaviours. The interesting thing is the company has now taken some of the people from the risk management group and formed a new group called Business Growth with that group managers title now being Head of Opportunity. The Head of Risk still remains in an altogether greyer office!

Risk averse innovation

A number of research surveys including this report in Management Issues highlight the link between risk and innovation.
The ability to think new thoughts, try new things and innovate requires that we break out from the thinking and practices of now. There is a saying

If you always do what you've always done you always get what you always got.

in other words if you want something different you have to do and think different things. The issue here is that in order to do something different takes nerve. To do and think like everyone else, as we have before, may give comfort and make us feel safe, part of the pack. However if we want innovation we have to risk being different, not part of the crowd.
Part of the report mentioned above quotes George Davie, a Managing Director of The Hazelton Group, an Archstone Consulting company:

The survey also found that having a culture that does not foster risk taking was the biggest impediment to innovation.

Basically innovation requires risk taking, the ability to stand out, to think, be and look for difference. Risk averse attitudes brings at best adaption and slow change, making sure that every step is thought through and makes 'sense' - by the thinking of now.
How many organisations reward difference? How many leaders promote real risk taking? How many managers expect and are happy to allow errors and mistakes to be made? Deciding that we need innovation means opening the doors to errors. As any innovation is new there is no knowing what will come up and whether any particular innovation will work or what effect it will have. Indeed many don't, at first at least and need to be played with, tweaked and allowed to mature. For every successful innovation there are many, many ideas that never make it. People who want innovation must be or must become comfortable with ambiguity and risk. The mindset of minimising risk will reduce the appetite to trial and error, experimentation and will stifle innovation. In organisations around the globe the wish to 'just make sure' holds them back. In fast moving and ever changing markets and conditions playing safe is anything but.

I must have dreamt it

And a day later this article appears on the business opportunities weblog. Spooky! Zzzzzzzzzz

Sleep on it

A small break from risk aversion. I was talking to a friend today about problem solving. She asked me how I solved problems. I said I have a number of different approaches, it depends on the nature of the problem and started to rattle though a few methods. She stopped me and said no, I don’t mean like that. How do you solve the problems you don’t know how to solve?

Damn good question. I thought about it for a minute and then realised I sleep on it. I have a note book by the bed and before I go to bed I ask my mind to solve the problem I am working on. I then go to sleep. I usually awake with an answer. This also works for when I loose something. If I don’t have it by the next morning I usually have the answer in a couple of days.

I then came across this report later on about an inventor who dreamed a solution. Sleeping on it can be considered to be a viable and valid method of solving problems.

I just wonder if this is better for certain types of problem than others and if it works for everyone.

Risk aversion IV - Gender

Are men or women more likely to be risk averse? There are a couple of studies. The first by Jianakoplos & Bernasek (1998) found that single women display more risk averse behaviour than single men when choosing financial products. Men were significantly more likely to hold risky investments than women.
Other research (Bajtelsmit and VanDerhei, 1996; Hinz, McCarthy, and Turner, 1996) found that women tend to (not all women) invest in more conservative - less risky pension arrangements. This means that on average they will get more modest returns compared to most men, however less women tend to loose their investment as a consequence.
However in a project that examined men and women leaders working together in a simulated takeover scenario Gadsby & Maynes (2003) found that there was no significant difference in risk taking when making decisions. However when the men and women were seperated and little feedback was given about the performance of their actions men tended to continue to make riskier decisions. The researchers conclusion was that women tend towards conformity more than men.
Just remember I only reported the research I didn't do it!

Jianakoplos, N.A. & Bernasek, A (1998) Are women more risk averse? Economic Inquiry 36 (4), 620–630.
Gadsby, C.B. & Maynes,E. (2005) Gender, risk aversion, and the drawing power of equilibrium in an experimental corporate takeover game. Journal of Economic Behavior & Organization Volume 56, Issue 1, January 2005, Pages 39-59

Risk aversion and ambiguity

Just a quicky - someone has just asked me why I am writing about risk aversion when my main area of expertise is ambiguity.

The quick answer is that risk aversion is usually seen to be part of an individuals level of tolerance to ambiguity. Thus the link in the previous blog about risk aversion being a reaction to uncertainty.The inference being that people who aren't comfortable with ambiguity or uncertainty tend to display risk averse attributes. Therefore risk aversion is an important area of the research on ambiguity.

Risk aversion III - the lottery and insurance

Risk aversion is of great interest financially. If we can model risk aversion or better put risk taking accurately it opens up the possibility to be able to work out for instance:

• What risks a person offers for personal insurance purposes and therefore whether an individual should be insured or what premiums they should pay. Here risk aversion is seen as a positive, insurance companies want risk averse people as clients. It is less likely that you will have to make a payout with a risk averse person as opposed to a risk taker. Or are they? Are risk averse individuals safer?
  
• The other side of the insurance coin and risk is how likely the individual is to take out insurance anyway. So it might be that the more risk averse you are the more likely it is that you will buy insurance.
  
• Investment companies want to know how risk averse an investor is so that they can sell the appropriate products. Indeed in investment terms risk adversity is described as how much risk an individual will hold for the likelihood of similar returns. The most risk averse tend to go for things like building societies or premium bonds where they are either guaranteed a certain return or at least their money back.
  
• One angle of economic risk looks at whether an individual actually saves 'for a rainy day' or just lives for today with the expectation that their income will continue.
  
• Another angle of economic risk is what people will do to earn money. Are they most likely to be employed, self employed or casual or even work in the black economy (prostitution, drug selling, selling things for cash outside of the state taxation system for example).
  
• Gambling is another financial risk activity. Now where the line is between gambling and investment and speculation is a fruitful area for discussion. However there are more and less risky gambling activities.
  

It is tempting to say that a risk averse person will be:

1. Good to insure - least likely to engage in risky activities and therefore have accidents
   
2. Most likely to want insurance - least likely to risk being uninsured
   
3. Most likely to save regularly - least likely to spend, spend, spend.
   
4. Will tend to save in 'safe' institutions - as opposed to making high risk investments
   
5. Most likely to be in employment in a safe job - least likely to engage in high risk or illegal occupations
6. Unlikely to gamble, however if they do are most likely to go for safe bets like the premium bonds.

Most of the financial risk modeling, as you would have expected , is algebraic in nature as are the financial theories. For a good overview of these see the Theory of Risk Aversion website.

So are risk averse people risk averse in all areas of their lives or do they engage in paradoxical behaviour, taking risks in some areas and not in others?
For example are risk averse people safer because they don't engage in risk laden activities or does their risk adversity make them more of a risk because they are too cautious?

The answer appears to be yes! I will explain in the next blog.

Risk Aversion II

So in the search for an answer to the question,

How much of risk aversion / risk taking is an individual perceptual issue and how much is as a result of cultural factors?

I would just like to say here and now that I do realise that separating the individual perceptual factors from cultural ones is a little like platting fog, however having engaged in similar processes before the process will offer up some interesting insights about risk aversion.

My first port of call was wikipedia - OK I'll admit not the most academic of starts, that comes next but in reality it's not a bad place to start when you see who some of the contributors are.

The first interesting thing is that the opening paragraph firmly gives an individual explanation:

... related to the behaviour of consumers and investors under uncertainty. Risk aversion is the reluctance of a person to accept a bargain with an uncertain payoff rather than another bargain with a more certain, but possibly lower, expected payoff.

This to me is at first sight an individual explanation. The interesting thing here for me is the link being made with uncertainty. A causal relationship is being suggested - risk aversion is associated with uncertainty. Hmmm. Lets see.
Anyway back to the question just because there appears to be an individual explanation for risk aversion it doesn't give an indication as why the individual might react to uncertainty like this. How much of this is innate and how much is socialised? Do we naturally react to uncertainty by becoming risk averse?
Ok I'm off to plat more fog....

Perception of risk

Odd thing risk. I was talking to a group of friends yesterday about business. One of the group, a teacher was very quiet for a while as the conversation continued about the various businesses a number of the group are running, what their current challenges are and how they are building new business. The teacher eventually broke her silence and said "I just don't know how you do it. You are all risking so much. I couldn't take that kind of risk. What if your ideas don't work?"
The rest of the group just looked at her for a few seconds blinking. The first person to break the stunned silence said "Actually I see what I do as far less risk than you run being employed. I am my own boss and what happens is in my own hands. If you get a new boss or a new minister or a new government policy you have to go with whatever someone else decides. You have no real say in what happens. If you get good bosses then great if you don't then you have no power. No that for me is a real risk. I can't imagine why I would want to risk my future on someone else making the right decisions."
Today I was party to a different discussion about risk at an investment bank I work with. There was a stock that had been doing well during the morning. One investor was making money on the stock whilst another had decided not to invest because he didn't know enough about the company to make a good judgment. I asked the first investor what he knew about the company involved and he admitted that he knew very little but the opportunity existed in the movement and not the company. The second just shock his head and wandered off. When I caught up with him he laughed and said he needed to know he was going to win as the thought of the potential losses of getting it wrong was just to much. He dubbed it professional suicide.
This began a train of thought. If risk is perceptual are the perceptions catching? Is risk aversion or risk taking purely a personal issue or can it be 'transmitted'?
In organisations where risk aversion is a theme is it because they recruit and foster risk averse people or do people mediate their behaviour and thinking based on the prevalent atmosphere? In effect how much of risk aversion / risk taking is individual and how much is cultural?
Stay tuned as I will report what I find.

Emergent properties

Odd, as I was writing the last blog I recieved a copy of an article published this week in the Economist called The Accidental Innnovator. The argument behind the article is that leaving yourself open to 'stumble' upon emergent properites or in the articles language, 'accidents' is what produces innovation. It goes on to say:

Evan Williams (originator of Blogger and Twitter) accidentally stumbled upon three insights. First, that genuinely new ideas are, well, accidentally stumbled upon rather than sought out; second, that new ideas are by definition hard to explain to others, because words can express only what is already known; and third, that good ideas seem obvious in retrospect.

The article then talks paradoxically about planning to make happy accidents happen. They do things like asking what can we take away to create something new rather than the usual what can we add? A really nice example of the paradoxical thinking of this and that I was trying to describe in the last blog.

There is also a brief discussion about the positive role of frustration in innovation. Which is often the opposite to conventiaonal wisdom of minimising frustration.

The point is that here is a nice example of someone using paradox to be innovative and find the emergent properties inherent in a situation rather than managing the situation so tightly that accidents can't happen and no new properties or innovation can emerge.

Loosen up and innovate!

2008 - the year of the paradox

Happy New Year.

Blogs, websites and news agencies have moved from their reviews of the year to predictions of what will be in vogue in 2008. I am not sure that I want to fall into the same trap of making predictions virtually all of which I (nor anyone else for that matter) have no real idea will come to fruition. The art of forecasting, predicting what will happen next is usually based on what we already know to the the case now. Largely these are based on research that is ongoing and have some trends already, trends that are happening now and are then projected. The front page of this months Focus magazine (the BBC science and technology magazine), for example has a very informative article and a prediction about the future for power based on a new breed of steam engines. We appear to be very good at pulling a series of not quite disconnected facts together and making an extrapolation to project. Now this is a very useful trick that allows us to have visions of the future and then work to make them so. Everything that we are all working on now is based on this ability. Our cognitive ability to perceive patterns, extrapolate and project them is part of what makes us, us and drives 'progress'.
On the other side of this fantastic ability is the problem that it also constrains our vision, makes us miss even the most obvious competing thoughts and ideas and frequently creates the conditions where we cancel out ambiguities. The idea that steam driven engines are about to come into their own for personal power, for example in cars, whilst an interesting intellectual exercise misses a few issues that at the moment makes this not the most practical solution to our growing energy crisis.

This isn’t a critique of an article on steam driven personal transport, it is intended however as a illustration of the opposite side of our abilities. One of the things that has struck me in the last year or so is how everything has an opposite and equal. This has become a bit of a theme. Now I admit this is not an original thought as I am discovering. The earliest known text dates back to 300 years before Christ and are usually attributable to Lao-tzu, (580-500 B.C.), it is believed to predate him by several centuries.

I bought a book for a friend for Christmas called ‘Change your thoughts, change your life’ by W.W. Dyer. Whilst the title didn’t do much for me I knew that she was ‘into this kind of stuff’. I am a little hooked and have stolen it back!

The book opens with a quote from George Bernard Shaw

Progress is impossible without change, and those who cannot change their minds cannot change anything.

Anyway, the first chapter introduces the Tao with the first few lines from the Tao Te Ching and “Lao-tzu tells us that the “Tao is both named and nameless.” This sounds paradoxical to our western intellect – and it is! (sic)”

He then goes on to describe how our western thinking highlights and maintains opposites as opposing thoughts and that the eastern Taoist thinking embraces such paradoxes as part of the same entity allowing both to exist side by side.

(These are my thoughts) It’s sort of dualist thinking (this or that) and holistic thinking (this and that). Dualism separates and makes one side oppose the other. If we think or see something it is usually to the exclusion of the opposite. Paradoxes become confusing and something to be resolved, preferably by working out which side of the paradox is right. This line of thinking come about because we think in ‘facts’ and facts have to be right or wrong (hence dualism, this OR that). The problem is that when exploring what the reality of a situation is this type of ‘factual’ thinking leads us to miss things as we only look for what fits.

I recently went to a (very expensive) workshop given by a consultant in complexity. Much of the workshop was spent hearing his opinion of what were good and what were bad theories, people, books and ideas. Whole books and ideas were dismissed with the wave of a hand because they weren't 'valid'. I was a little struck that when considering complexity, which I have written about in 'The Ambiguity Advantage' the idea of dismissing things because it doen't fit seems a little like buying an Ikea wardrobe, emptying all the bits on the floor from the box and throwing some of the bits away because they don't look right before waiting to see if you need them.

The eastern condition is this and that. Both are true at the same time. If this is true then that (the opposite) is true as well. What this means is that with such thinking exploring the reality of a situation we look for what fits and the opposite at the same time not only allowing both to exist but seeing what emerges from the existance of competing ideas. The central tenat of complexity theory is allowing things to be enough, without over managing them to find the natural emergent properties. It is these that give complexity practitioners the edge.

Many failures in decision making and problem solving occur not because there weren’t enough facts, if anything there are often too many (of one type), but rather because of the facts we were disallowing because that don’t fit or make sense.

How many of us, and I include me in this, have dismissed someone (some book, some article) and their thinking because they aren’t making sense? We make this decision before really hearing what it is they are trying to communicate. Logic is judged to be logical if we understand and agree with it, i.e. it fits with our system of logic. If it doesn’t fit with my / our system of logic then it is deemed to be illogical. The idea that only one can be true may just mean that we are missing something and narrowing our thinking.

2008 - embrace a paradox.

Filling in ambiguity to find a mate

In a recent article entitled Ambiguity Promotes Liking for the New York Times, Marina Krakovsky reported on a piece of research conducted by Michael Norton at Harvard Business School. The research examined perceptions of attraction between people on online dating sites. What Norton and his colleagues did was to have people who were arranging dates via an online dating site to rate the attractiveness of the other individual before the date and then do the same thing post date.
What they discovered was that people are much more likely to assume that people are attractive and similar to us online in anticipation of the date as opposed to the reality of the first date, on which the team discovered daters were much more likely to down rate their dates considerably where as before they had a fairly rosy view of them from the largely ambiguous data provided online.
Norton explains what is happening “People are so motivated to find somebody they like that they read things into the profiles” creating their own reality from ambiguous data. The example given in the article is that if a man writes that he likes the outdoors, his would-be mate imagines her perfect skiing companion, but when she learns more, she discovers “the outdoors” refers to nude beaches.
This is a beautiful example of a typical mode one and two response to ambiguity - ignoring the ambiguity and creating their own reality and expectations, in other words filling in the gaps with their own model of the world.
Whilst this is just an irritation for people trying to find a partner, when it comes to political issues like taking a nation to war over ambiguous data or ignoring ambiguous data on the flight deck of Florida flight 90 which plunged into the Potomac in Washington killing 75 people, or ignoring ambiguous market data and plunging a company headlong into disaster, things are more serious.
Part of the problem is that we train people to plan for the things that they can see. We don't teach them how to spot ambiguities and know when they are making assumptions.

Resilience and resistance II

One of the most requested topics we have been asked to provide an organisational change / development guide about has been on how to overcome resistance to change. When I asked what the purpose was behind each of the requests the answer was fairly unambiguous and the same in every case; we are engaging in organisational change and whilst people can see the need for the change for all the other departments in the company they don't see why they need to be included. Resistance to change, it would appear, is the number one concern of those having to manage / lead change and development programmes.

Having given this some thought, and still being a researcher at heart I would like to propose the following research question (which turns the question around):

What has to happen in order (what are the factors that are necessary and sufficient) for people to start to resist change?

I have asked the 900 people in our org change / development community and I will post the results just after New Year.

Resistance and resilience

Do resilient people resist change?

Cat-in-a-box

Just a question.

Have you ever tried to put a cat in a box? If not, imagine trying. If you have tried to put a cat in a box you will no doubt have experienced a cat turning itself into a large and somewhat frantic and highly inconvenient star shape as your arms are shredded to a bloody mess in a flurry of teeth and claws.

And yet place a box on the floor and leave it for any time and what happens? Turn around to fill the box and you will doubtless find it already full of cat.

It's amazing how many calls we get because 'our staff are resisting the change programme'.

Just a thought. Not that this has anything to do with leadership of change, or ambiguity or anything.

Being too positive - the Hitler Syndrome

"Don't bring me problems bring me solutions."

"S/he is always negative"

"S/he is always positive"

"No problem"

"What's with all of the negativity?"

"Why can't we just be positive about this?"

What happens inside when someone walks into your office or calls you up and says "We have a problem?" I will lay 10 - 1 odds on that you have a sinking feeling or something similar. Join the rest of the human race.

A problem arises when the following unquestioned associations are frequently arrived at:

1. Problems = bad = failure,
   
2. Being positive = nice/good = success.

Many managers and leaders don't want to hear about problems, they want to hear about success and they certainly don't want to tell their bosses about problems that they have, they would far rather let them know about successes, especially about successes that they brought about. Unless that is of course to tell of someone else's problems and failures, the reflection being that "Look there was a mistake I wouldn't make, idiot!"

One of the worst things that you can be seen as in any business is someone who is has failures (this is seen as the person being a failure, which is interesting and faulty logic). The next worst is being seen as someone who just sees the negatives, the problems that exist. One way to be left alone and not get invited to meetings is to stop being positive and start to see the problems in things. I won't take long in most corporate environments for you to become blissfully meeting (and promotion) free!

Many corporate (and governmental) cultures are now so full of spin that no one really knows what is true anymore and as a result many largely suspect most of what is said, especially by the management is spin - a polite word for lying.

The effect of all this positive glossy 'don't bring me problems, you are too negative' culture? Eventual crisis usually. The most immediate affect is that people don't really know what's going on, what the reality of the situation is. If they don't know what is really happening then they can't make good judgments, solve the most urgent problems and make great decisions. Hiltler so berated his commanders when they either provided a critique of his tactics or gave him any bad news that in order to save their careers and in many cases their skin, the rule became never to provide a critique and never ever tell him of any losses. As a result he was committing divisions to battle that were so depleted that they had zero tactical impact or in many cases simply didn't exist any more. I have seen similar situations in many organisations where every project works (according to the evaluations conducted by the project owner), where large programmes keep going as per the plan because anything else would show that the plan (and therefore the authors of the plan) was wrong, even though all the data suggest that the plan now needs to be changed or even scrapped. The vast majority of projects are admitted to be failures long after everyone (privately) really knew that things weren't working. This isn't the effect of hindsight.
We have tracked a number of projects where the warning signs that things need to be changed were clear to the project participants and others. During interviews people would say things like "this is madness, it isn't going to work, but I am not going to be the one who is seen as the barer of bad news." When you interview a number of people who all say very similar things in the same company you do start to realise that there is disease in organisations where critique and critical thinking is seen as being negative which can get you labeled as a blocker or a problem.


When I interviewed a group of successful entrepreneurs what was interesting in this context is not that they never made any mistakes not that they had no failures. Indeed quite the opposite was true, they spoke at length of the failures and mistakes and importantly what they had learnt from these mistakes and how they had used to learning to turn failure into success. When you think about it when a child is learning to walk, for example it doesn't give up the first time it falls over. It just keeos going and keeps learning. It is only later in life that they get the idea that feedback from failure is a failure in its own right. Feedback, honest critical feedback is a necessary component of learning and it is only though learning that organisations and ourselves can be successful as we navigate territory that is ambiguous and uncertain. To deny the organisation and others that feedback is to condemn it. Without critical feedback development becomes slow and at worst stops completely.

Leadership decision making causes more problems than they solve!

Sorry about the gap. Things have been really busy as centre i has taken off. A lot has happened in the area of ambiguity, especially in the areas of leadership, complexity and decision making /problem solving. Over the next few weeks I will endevour to catch up.
In the area of leadership and problem solving we have concluded some of the research we had been conducting around leaders' perceptions of how successful they are when making decisions in ambiguous spaces, where the leader considers that either they were uncertain what the problem was or where the solution path was ambiguous and considered to be a risk.

During the period of 2001 – 2007 and whilst I was working at Cranfield University I had the opportunity to talk with senior managers and leaders (161) from a number (42) of different organisations. I was interested in the problems that they had solved, especially the difficult and ambiguous problems they had encountered. I asked them to tell me about any problem or problems they had encountered over the last 5 years where they had no idea either, what the problem was and/or how to solve it. Them I asked for an estimation of success of the solution and to what they attributed the outcome to.

I then took the problems as they described (they agreed a written version of the problem) them and took them to their manager (where there was one) or leader, their peers, team members and their direct reports. The first thing I wanted to know was did these other people recognise the problems as reported? The next was did they recognise the solutions as reported? Similarly I then asked them for their estimation of success of the solution and to what they attributed the eventual outcome to.

The results are interesting. Of the 161 leaders interviewed 155 (or 96.2%) reported that their problem solving had been totally successful in that the solution(s) that they had applied had worked. Only 6 leaders considered that their solutions to ambiguous problems had not worked either at all or partially (This number is distinct from and does not include the problems that the leaders reported as being too hard or too difficult to solve that they had never even got to formulate or apply any form of solution). Of those 2 reported that the solution had failed, not because of any deficiency in the solution but due rather to other issues like politics or that they had moved on and the next incumbent had derailed the project.

The interviews furnished close to 350 different problems from the leaders. Of which 173 were universally agreed by the others to be ambiguous problems that they recognised. The rest fell into two broad camps. Either the others didn’t recognise the problem at all and couldn’t comment on it, or they recognised the problem but considered that it was not ambiguous and that the company had a system for solving that the leaders appeared not to know about.

With the remaining 173 problems (from 161 leaders) the others considered that 42(24.2%) of the problems had been successfully resolved. The remainder were considered to be either total failures, that the solution got ditched as unworkable or that the solution(s) resulted in outcomes that were as bad as or even worse than the original problem. In short it works out that 75.8% of leadership solutions to ambiguous problems fails.

When I took these results back to the leaders (with a revolver) most of them disputed the findings, about a quarter reluctantly agreed that things hadn’t actually gone as they had expected. Interestingly about 20 percent of these blamed someone else for the failure.

A bit of a problem really. At an address I gave to a Police Leadership Conference in 2007 titled (somewhat tongue in cheek), ‘Leadership problem solving causes more problems than it solves’ I made the quip that it might be an idea to keep leaders away from ambiguity as they just mess it up. On the front row of the lecture theatre the top brass started to look a little uncomfortable when a voice from the lowly ranks at the back shouted out ‘as they cock up certainty as well it doesn’t really leave them with very much to do, does it?”

Emotional Inteligence 2 - Resilience part one

A series of studies in the early 2000's concentrated on the role of human emotional resilience as a useful set of abilities when dealing with crisis and ambiguous situations.
The higher the level of emotional resilience an individual has the better they are likely to handle disadvantageous and ambiguous situations. Emotional resilience is also a strong indicator of a number of attributes, including:

• a person's ability to solve problems in emotionally charged and ambiguous situations,
  
• their level of persistence, especially in difficult circumstances,
  
• their latitude towards diversity, both of other people and differing situations
  
• confidence,
• the ability to analyse, weigh up and take risks,
  
• the ability to collaborate,
• as well as an individuals level of autonomy.

A lot of work was conducted in the Australia and the UK in the early 2000's around Bernard's You Can Do It! educational ideas aimed at improving children's attitudes towards life in general. Based on Cognitive Behavioural Therapy, Bernard developed a series of educational interventions which increased positive attitudes to education and problems solving in deprived areas.
Simultaneously similar work was being carried out by the author in 2002 - 6 whilst training disaster managers in a number of countries around the globe. The aim was to develop a system to improve the reactions and problem solving abilities of individuals and teams given the job of managing and leading in natural disaster and post terrorist attack incidents. These are situations which by definition are high in ambiguity, emotional stress and often personal physical danger. Not the ideal environment for high quality problem solving, however one in which such quality is required as people's lives often depend on the solutions.

The importance of emotional resilience in problem solving, especially when any solutions derived are critical to an individual, company or group, can not be understated.

Emotional resilience comprises of

• Emotional Regulation - the ability to recognise and control (reduce or increase) our emotions at will, (yes it is possible!)
  
• Behavioural Control - the level of ability to be able to determine and regulate our outward behaviours especially when we are in a heightened emotional state,
• Emotional - Cognitive Switching (ECS) - the ability and speed at which we can move from our awareness of and concentration on internal emotional events to engaging with logical, cognitive (thinking) and meta-cognitive processes.

Our Ambiguity Advantage Practitioner Workshops develop emotional resilience and exquisite problem solving skills for all.

Emotional Intelligence / knowledge 1.

"Emotional Intelligence" is a much used and abused term. The concept of an emotional intelligence was first raised by the researcher John Mayer who together with Dr. Peter Salovey developed the idea of EI and later emotional knowledge - a metacognition of a representation of the emotions.

Outside of the current debate about the measurement of emotional intelligence, a useful definition for emotional intelligence is:

An ability, capacity, or skill to perceive, assess, and manage the emotions of one's self, of others, and of groups.

This is worth thinking about in the context of leadership, problems solving and ambiguity. Defining EI as an ability, capacity or skill suggests that ones EI can be raised or developed. Mayer talks much about this and one of the central arguments about EI is whether it is a fixed attribute or whether it can be developed. Notwithstanding this, my argument here is that the ability to perceive or recognise our emotions can be developed (or raised) as can the ability to control and manage those emotions.
Further, that if emotions can affect our behaviours, interpretations and thinking then those behaviours, interpretations and thoughts are more likely to be historically based reactions rather than contextually sound actions based on some form of logic. For example a person who is frightened or in some other emotional state is more likely to react differently to a situation than if they were in a more stable, emotionally neutral state where they could apply a logic not contaminated by emotion. The idea is that emotionally intelligent people can identify what emotional state they are in at any time and understand the affect this is having on their perceptions of the situation, their behaviours and their cognitions. People who are not as emotionally intelligent are more likely to be at the mercy of their emotions in that they will colour and change their perceptions of reality, their behaviour and the way they think and think about their thinking and emotions without being aware of this.

We all probably know leaders like this.

In my next post I will explore the affect of this on how leaders deal with ambiguity.

Oh yes what is the picture all about? The Amygdala at the centre of the brain are almond-shaped groups of neurons located deep within the medial temporal lobes of the brain in complex vertebrates, including humans. Shown in research to perform a primary role in the processing and memory of emotional reactions. More about this later.

Something is missing

I was working with a group of senior leaders in a very large national institution last week. For 90% of the 2 day long meeting the leaders were all working on the problem of how to develop better leadership underneath them and create a more agile and ambiguity tolerant workforce.
The main problem they mused was that people were following orders blindly, not challenging and that there was a total lack of creativity in the workforce.
Solutions abounded about how to fix 'them' and what should be done to solve the problem.

When asked what it is they are doing to increase their own tolerance to ambiguity, develop their own creativity and challenge people in a developmental way there was silence. Indeed if any of us honestly ask ourselves what we are doing to increase our own tolerance to ambiguity and increase our creativity and critical thinking we would draw a blank.
The first issue probably is that we just hadn't thought about it. Once you do start to think about it the second issue then naturally comes forth - just how on earth do you develop your tolerance to ambiguity? Over the next few blogs I will be exploring just that. How can we all get better at dealing with ambiguity?

Back to the meeting - we explored the effects and affects of emotions on problem solving, ambiguity, perceptions of us and them and critical thinking - evidence based thought. It was widely agreed that the key to al of this was understanding our own emotions and the effects they have on our reactions and thinking; emotional intelligence if you like.

So 90% of the meeting was talking about leadership and how to create a more agile, ambiguity tolerant leadership below the board. The other 10% of the time was spent at the end of the meeting reacting to the news that the responsibility for training of new recruits was being removed from this group and was being given to a central agency.

"Our founder would turn in his grave if he knew what was happening"

"We need to stop this before it goes any further"

"They need to be shown the red card"

"This is outrageous how can we indoctrinate them with the right culture if we are not doing it - we need to do something about this now."

The next blog will concentrate on emotional intelligence - what is it and what does it do for us?

Risky business, ambiguity

Risky business asking for an Ambiguity Advantage workshop it would appear.
I thought that you might like this. I have been asked to provide a workshop to help develop a bit more tolerance to Ambiguity in a large organisation in London. I agreed and the job of arranging it fell to the organisational HR department.
I was asked by them to provide:

• A full rationale for doing the workshop
• A list of all the outcomes of the workshop
• A full by the minute breakdown of the programme 'so we know what to expect'.
• A risk analysis of everything that could go wrong and a statement of what I would do to prevent each item.
• The total cost and a statement of the value this would bring to the company
• A list of all the resources used and why each would be used
  
• A chapter and verse briefing for the participants including a full breakdown of every exercise so that 'there were no nasty surprises'.
• A full CV and a statement of expertise
• Details of indemnity insurance in case 'anything goes wrong'.
• Details of any first aid / medical qualifications I hold
• Details of how to evaluate the outcome to 'ensure compliance' after the event.

I could see the conflict on their faces as I pointed out the dichotomy. The answer was that they would have to go and seek higher authority to make a decision. Talk about disempowerment.

Risk Aversion and Problem Solving

I have been helping a group of managers in a large corporation learn a series of different problem solving techniques. Three of the managers are by their own admission very risk averse. In the words of one of them "I need to know what is happening and I hate anything happening I wasn't expecting, absolutely hate it. I make sure that everyone in my team brief me everyday and anything that goes out of the group only goes through me."

It has been interesting watching this group of managers engage with a series of problems and the process. There are a number of observations worth making:

• The first is that when compared to the rest of the group what constituted a problem was very different. For example a great worker was identified who was the most productive in the firm. A discussion about them started and it was discovered that because she was so outstanding she kept her own hours. Often preferring to work out of the 8 - 6 hours of the office. Sometimes she would be seen working at weekends too. These three managers would have stopped such practices and made her conform to the 'normal' working hours. Such leniency was seen as a risk and therefore a problem. 'The thin end of the wedge' according to two of them.
• The second observation was that people prejudge a problem based on the amount of risk they perceive is inherent in the problem. So their definition of the problem (see previous posts about reality and problem solving) was altered radically dependent on how much risk and uncertainty (which were the same for these three managers) they thought the situation contained. In one case we studied all three of them started to engage in flight behaviour. When explored they saw the situation to be so uncertain either they engaged in displacement behaviour or outright denial. "No one can solve this it's just ridiculous". The answer to this by another (non-risk averse) manager was "Are you kidding this has happened here. I dealt with it last year. They were dumbfounded.
• Another observation about how risk aversion changed the problem solving process is that the range of possibilities of the problem definitions was a lot narrower and 'safer' than for the rest of the team. All of the categorisations of the problem were already part of the common knowledge. Unlike the rest of the group non of them came up with new problem definitions. Interesting once they had settled on a problem definition moving them to other possibilities was hard.
  
• This lead to all of their solutions being ones that they had previous experience of working. Not one solution was experimental, they were all solutions that were historical, tried and tested. When solutions from others came up that were novel and had never been tried these were seen as too much of a risk. "But what if it doesn't work" and "Prove that it will work and then I'll go along with you".

I gave my business card to someone last week. He thanked me and stood there reading it for a while. Then he raised his head and peered over his glasses at me and asked. "What on earth has ambiguity and problem solving got to do with each other?"

Reality and Problem Solving III

Further observations on the exploration of reality and how it effects problem solving and our perceptions of Ambiguity... It strikes me that there are always a number of realities present at any one time. The problem is that each of our realities, whilst they can be categorised is so inextricably linked with the others that they have interdependent relationships.
The first reality is that of self. Our perception of our selves forms a reality and helps often to inform how we will react, interact and create the second reality of situation which we perceive. In other words we have an internal reality and an existential reality or that of experience which is informed by our internal reality.

So if the totality of our reality is constructed from our internal representations of our experiences coupled with our constructed reality of our experience of self and the meanings we place on these, together with the (learnt) thinking strategy we are currently using; it is not going to be a surprise that we all have different realities.

Let me give you an example:

This morning I took my kids to school and it had been snowing. Much excitment, snow angles and snowball fights on they way to the school.

When I took my son in to his class his teacher said "He can go out and play in the snow for a while if he likes in the playground. We will call them when it's time to start." Big from my son and out he trots to play with his friends.

When I took my daughter to her class (all the same school) the teacher "No one is to go out, you must all stay in. I don't want you all getting wet." Big from my daughter (Who by the way calls her teacher Miss Devil!)

Two different teachers two very different frames of thinking and each with very different realities. The outcome two very different solutions each the product of their own realities.

I could be tempted of course to ask which is the correct reality, however this is either / or thinking and clearly both exist and are correct for the individual concerned.

My interest is:
a) How a persons thinking helps to construct their reality and how this in turn frames their thinking and therefore how they then define the problem and then once defined the strategy they use to find a solution. Often, I would propose, once the problem is defined (without much concious thought), the solution appears to be axiomatic to the individual concerned.
b) What place the emotions play in such problem definition and resolution.
c) What happens when there is a conflict of realities, thinking and emotions (my daughter and teacher),
d) Equally what happens when there is an agreement of realities (my son and his teacher) - how does this effect problem solving, and
e) How to 'free' up the problem solving as much as is possible from the reality frames created by people? I don't believe this is ever totally possible - a bit like being totally objective!

My answer thus far has been for people to explore with a frame of open discovery learning - exploring the possibilities with an attitude of being there to learn what we can - about the situation (reality 2) and more importantly ourselves (reality 1).

I am exploring other solutions to this. More to follow!

Reality and problem solving II

Firstly the blog has been idle but I haven't. The book (The Ambiguity Advantage: what great leaders are great at) has been published (Palgrave Macmillian) and I have been very busy as a result. Anyway here it is again.

So what is reality and how can you get to it? Why does it matter and what's the purpose behind the question?

Here are some thoughts on these questions. In the best traditions of awards we'll tackle these in reverse order.

The purpose behind questions about reality in problem solving is that it is all too easy to end up solving the wrong or a non - existent problem. Let me give an example from some work I have been doing recently in a large organisation. The scenario is that the Director of HR has a problem. The problem as she saw it was that a member of staff was breaking one of the organisations many regulations. The offence was that the individual in question was discovered to be running quite a nice consultancy, thank you. He was it appeared putting his talents to use earning more in his spare time than he was working for the organisation.
There were no complaints from within the organisation in question about this particular employees time keeping or work. Indeed he was considered to be amazingly productive having a first rate track record of developing quality products in time frames no one else could match. He had many creative ideas and those he settled on were almost all winners. In anybody's book this employee was a real asset, a star employee... except to was breaking the rules. He hadn't asked permission from the Director of HR. The HR director also knew that this employee kept his distance from HR and had on a couple of occasions been reported to have questioned the efficiency, thinking and ability of this department.
When interviewed the HR Director was clearly upset about this individuals behaviour. and (and this is important) was having an observable negative emotional reaction to him.
I am sure you can guess the HR directors solution to the issue was bearing in mind that the only offence committed was that he hadn't asked permission to do work outside. There was no evidence that he was using the organisations resources or doing anything that was in competition with this organisation.
Yes he was sacked leaving a lot of people in the organisation incredulous at his sudden departure. Both the HR director and the (ex) employee were interviewed.

First lets look at the rationale of the HR Director:

Q: Why was he sacked?
A: He broke the regulations.
Q:He was considered to be the most productive and creative employee xxxxxx (the organisation) had.
Pause at this point she started to look uncomfortable
A: Look I don't make the regulations and he broke them.
Q: Some people think xxxxxx have lost one of their best employees and that includes all of the heads of departments.
A: Yes but if you let one get away with breaking the rules it send the wrong message out.
Q: What was his reason for breaking the rules.
A: I'm not sure, greed I suppose.
Q: Did you ask him why he was behaving like this?
A: Er well no not really it's obvious isn't it?
Q: Did he give any explanation?
A No not at all, which is typical of his arrogance.
Q: Arrogance?
A: Yes he was very arrogant.
Q: In what way?
A: He thought he knew it all. He thought he was superior to everyone.
Q: Can you give me an example?
A: He was always questioning every thing and criticising.
Q: Did you like him?
A: I didn't dislike him (she coloured up). Pause He was very critical you know and he broke the rules, he was a maverick, not a team player.
Q: Would it surprise you t0 hear that he was regarded as being one of the leading lights in his area and around the company he was seen as being brilliant. The sorts of comments I have had include and I quote "He was amazing, a real legend around all of xxxxxx." "He had droves of people coming to him form every area of the business. He was so busy it was difficult to get to see him." "He worked so fast. Once he had an idea if you left him to it it would just happen". "He was very funny, I liked him. He hated time wasting administration and committee meetings. We found that as long as we let him get on with it things would just happen as if by magic. If he had to go through a committee he would struggle as they would slow things down and change them. "
A: No reply
Q: Why was he sacked?
A: I think I have had enough of these questions. He broke the rules and this is confidential to the company and I am not going to discuss it any further.

And so the interview ended.

The (ex) employee was interviewed:

Q: Why were you sacked?
A: A couple of reasons I think. The regulation reason was that I broke some rules about doing other work without getting permission which is fair doo's. The underlying reason I think had more to do with xxxxxxxx xxxxxxx (HR director). I got the feeling she wanted rid of me. The way it happened was odd. She was clearly worked up and started by saying "I'm not as stupid as you think I am". She then said she had investigated me and found that I was doing work outside and I hadn't asked her. She appeared to be offended that I hadn't asked. This wasn't a clinical sacking. I said that it can't have been much of an investigation as I hardly kept it a secret. Indeed I had previously asked for her reference under the companies enterprise scheme where employees can use a room set up to help people set up their own business. She refused as she said I was too busy.
I had then asked her if I could go part time so I can develop my external work and she refused.
Q: Had you criticised her openly
A: (Laughs) I suppose, what I actually criticised was the nature of the thinking of HR. It has a bureaucratic view of the world. Let me give you an example. After a recent employee survey they got feedback that there was too much bureaucracy. Their response was to set up a committee with minutes and everything to fight bureaucracy! They even developed a policy about bureaucracy. Yes I made a joke of that and other things they have done.
Q: Why were you doing other work?
A: I suppose I have always done this. It's my time, it's not in conflict with xxxxxx, in fact it has brought a lot of work in and help me develop my thinking. It is very easy to get quite insular in this business. My last boss at xxxxxxxxxx (another company) encouraged it as it widened our thinking. I suppose they money is nice but that's not it, I have many interests and love doing stuff. I'm not a 9-5 person and love keeping busy.
Q: You don't appear too upset.
A: I miss my friends at work but I'm very busy and earning more so it's ok. I just know that y departure has caused problems for the group which I am sorry for because I like the people there.

A nice example of different realities coming up with different solutions. What I am finding interesting at the moment is how the emotions effect people's perception of reality and the causal chain that this creates in problem solving and perceptions of risk and ambiguity.