Quality and Innovation

John Hunter shared some excerpts from Warren Buffett’s 2009 Letter to Shareholders. I particularly liked this one part where he reflects on the outcomes of economic modeling and forecasting:

Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.

I’d like to amend this: Beware of geeks bearing formulas who a) can’t tell you what every part of the derivation means, b) don’t know the model’s underlying assumptions, and c) don’t know what “threats to validity” are. (And if you’re the geek in question, be able to explain how your models and forecasts work!!)

Models can be a great way to capture the dynamics of social and technical systems, and simulations can help us explore how these systems will evolve over time – but how those models are initialized, and the simplifying assumptions they use to generate results, are just as important as the answers they propose.

A couple days ago, Sonia Simone presented an article entitled “Four Old-School Reasons Why You Can Thrive in this Recession”. The general philosophy of her insights is straightforward:

It’s impossible to really see massive change when we’re still in the middle of it. But there are a handful of things you can bank on. One of them is that human nature doesn’t fundamentally change, even though the environment can change radically… So it might be time to think about the ancient traits that have helped entrepreneurs since the dawn of history, and how they relate to the emerging 21st-century economy.

She presents four notions: self-reliance, great ideas, “the village is your customer”, and “it’s in your DNA”. The one I want to focus on is #3 (if you want to read about the others, please visit the full article). When the village is your customer, Simone notes, quality becomes the focal element of the production and customer service processes. Hundreds of years ago, and into the early decades of the 20th century, people knew their neighbors in the community who made the products and provided the services. Personal relationships would form between you and your baker, your pharmacist, your doctor, your grocer, and so on. If your grocer sold you rotten food, for example, he would violate a trust relationship that you had established over a long period of time. Not only would breaking this trust hurt his business, but it might hurt his feelings too if you shared your discontent with your neighbors or gave him a dirty look while walking down the street.

But times changed remarkably. By the late 20th century, production, consumption and service had all become anonymous – the guy who services your car is probably not someone you know personally, nor is your mailman a personal friend. As a result, less personal impetus to provide high quality translated into an organizational imperative to deliver high quality. Without the driving force from within to provide excellent products and services, the company would naturally become the enforcer of high quality. (And without this enforcement, well, it would be a roll of the dice whether you got high quality products and services or not.)

Now fast forward to 2009 and the Web 2.0 world:

the village is back. If we blow it, customers publicly rap on our window (with social media, blogs or Twitter) and give us a piece of their mind.

Once again, our reputation and our products are one and the same. What we create doesn’t have to be perfect, but it does have to show that we give a damn.

The inconvenient part is that the village isn’t stuck with you. If your baguette isn’t great, your customer can FedEx something from an artisanal bakery in Napa or Madison or Boca Raton.

The cool part, though, is that if you make something handmade (even if it’s delivered in pixels), personal, and/or magnificently useful, your village can and will find you. Whether you make homespun yarn or an interactive course on how to start a dog-walking business, your product can find its own profitable village of happy customers.

On a related note, my next door neighbor is a dentist. She’s been trying to get me to sign up as a patient at her office for a while, but I’m nervous (not because I don’t like or trust her,which I do, but because she’s a dentist). Every time she asks me when I’m going to make an appointment, and I nervously shirk, her response is usually pretty consistent: “Do you really think I’m going to hurt you, knowing that I have to look at you every day across the yard?”

The personal relationship is a driver for providing high quality. How can we make personal relationships a component of a quality-driven strategy?