crisis

On The Power Of Habit

I chose to read The Power Of Habit by Charles Duhigg, given my inherent belief in the power of habits and also the strong review/ratings this book has received. Let me start by saying this book did not disappoint in delivering both in terms of content and delivery.

There are three parts to this work, as summarized by Charles, that cover the power of habits in three contexts from the most specific (individual) to the most general (society):

This book is divided into three parts. The first section focuses on how habits emerge within individual lives. It explores the neurology of habit formation, how to build new habits and change old ones, and the methods, for instance, that one ad man used to push toothbrushing from an obscure practice into a national obsession…The second part examines the habits of successful companies and organizationsThe third part looks at the habits of societies. It recounts how Martin Luther King, Jr., and the civil rights movement succeeded, in part, by changing the ingrained social habits of Montgomery, Alabama—and why a similar focus helped a young pastor named Rick Warren build the nation’s largest church in Saddleback Valley, California. Finally, it explores thorny ethical questions, such as whether a murderer in Britain should go free if he can convincingly argue that his habits led him to kill. Each chapter revolves around a central argument: Habits can be changed, if we understand how they work.

Recent research in neurology and psychology has allowed us to advance our understanding of habits and their impact on our lives:

In the past decade, our understanding of the neurology and psychology of habits and the way patterns work within our lives, societies, and organizations has expanded in ways we couldn’t have imagined fifty years ago. We now know why habits emerge, how they change, and the science behind their mechanics. We know how to break them into parts and rebuild them to our specifications. We understand how to make people eat less, exercise more, work more efficiently, and live healthier lives. Transforming a habit isn’t necessarily easy or quick. It isn’t always simple. But it is possible. And now we understand how.

Habits are necessary shortcuts for our brains:

But that internalization—run straight, hang a left, eat the chocolate—relied upon the basal ganglia, the brain probes indicated. This tiny, ancient neurological structure seemed to take over as the rat ran faster and faster and its brain worked less and less. The basal ganglia was central to recalling patterns and acting on them. The basal ganglia, in other words, stored habits even while the rest of the brain went to sleep…Millions of people perform this intricate ballet every morning, unthinkingly, because as soon as we pull out the car keys, our basal ganglia kicks in, identifying the habit we’ve stored in our brains related to backing an automobile into the street. Once that habit starts unfolding, our gray matter is free to quiet itself or chase other thoughts, which is why we have enough mental capacity to realize that Jimmy forgot his lunchbox inside. Habits, scientists say, emerge because the brain is constantly looking for ways to save effort. Left to its own devices, the brain will try to make almost any routine into a habit, because habits allow our minds to ramp down more often.

Habits are a process loop consisting of three steps a cues, a trigger and a reward:

This process within our brains is a three-step loop. First, there is a cue, a trigger that tells your brain to go into automatic mode and which habit to use. Then there is the routine, which can be physical or mental or emotional. Finally, there is a reward, which helps your brain figure out if this particular loop is worth remembering for the future. Over time, this loop—cue, routine, reward; cue, routine, reward—becomes more and more automatic. The cue and reward become intertwined until a powerful sense of anticipation and craving emerges…Researchers have learned that cues can be almost anything, from a visual trigger such as a candy bar or a television commercial to a certain place, a time of day, an emotion, a sequence of thoughts, or the company of particular people. Routines can be incredibly complex or fantastically simple (some habits, such as those related to emotions, are measured in milliseconds). Rewards can range from food or drugs that cause physical sensations, to emotional payoffs, such as the feelings of pride that accompany praise or self-congratulation.

Marketing was among the first functions to leverage the power of the habit from a commercial perspective:

“I made for myself a million dollars on Pepsodent,” Hopkins wrote a few years after the product appeared on shelves. The key, he said, was that he had “learned the right human psychology.” That psychology was grounded in two basic rules: First, find a simple and obvious cue. Second, clearly define the rewards. If you get those elements right, Hopkins promised, it was like magic…And those same principles have been used to create thousands of other habits—often without people realizing how closely they are hewing to Hopkins’s formula.

Sport teams/coaching leverage habits as well:

“Champions don’t do extraordinary things,” Dungy would explain. “They do ordinary things, but they do them without thinking, too fast for the other team to react. They follow the habits they’ve learned.”

How can we effectively change a habit? The golden rule of habit change:

His coaching (Dungy) strategy embodied an axiom, a Golden Rule of habit change that study after study has shown is among the most powerful tools for creating change. Dungy recognized that you can never truly extinguish bad habits. Rather, to change a habit, you must keep the old cue, and deliver the old reward, but insert a new routine. That’s the rule: If you use the same cue, and provide the same reward, you can shift the routine and change the habit. Almost any behavior can be transformed if the cue and reward stay the same

The other key ingredient to successfully changing a habit? Belief:

It wasn’t God that mattered, the researchers figured out. It was belief itself that made a difference. Once people learned how to believe in something, that skill started spilling over to other parts of their lives, until they started believing they could change. Belief was the ingredient that made a reworked habit loop into a permanent behavior.

What about for changing corporate habits? The key there is to tackle a keystone habit that sets a chain reaction of changes:

‘I knew I had to transform Alcoa,” O’Neill told me. “But you can’t order people to change – That’s not how the brain works. So I decided I was going to start by focusing on one thing. If I could start disrupting the habits around one thing, it would spread throughout the entire company.” O’Neill believed that some habits have the power to start a chain reaction, changing other habits as they move through an organization. Some habits, in other words, matter more than others in remaking businesses and lives. These are “keystone habits,” and they can influence how people work, eat, play, live, spend, and communicate. Keystone habits start a process that, over time, transforms everything…If you focus on changing or cultivating keystone habits, you can cause widespread shifts. However, identifying keystone habits is tricky. To find them, you have to know where to look. Detecting keystone habits means searching out certain characteristics. Keystone habits offer what is known within academic literature as “small wins.” They help other habits to flourish by creating new structures, and they establish cultures where change becomes contagious.

Corporate habits are necessary shortcuts, just as our individual ones are for our brains:

Or, put in language that people use outside of theoretical economics, it may seem like most organizations make rational choices based on deliberate decision making, but that’s not really how companies operate at all. Instead, firms are guided by long-held organizational habits, patterns that often emerge from thousands of employees’ independent decisions. And these habits have more profound impacts than anyone previously understood…These organizational habits—or “routines,” as Nelson and Winter called them—are enormously important, because without them, most companies would never get any work done. Routines provide the hundreds of unwritten rules that companies need to operate. They allow workers to experiment with new ideas without having to ask for permission at every step.

In some cases, a crisis is needed to remake or changes some of these organizational habits:

Good leaders seize crises to remake organizational habits…In fact, crises are such valuable opportunities that a wise leader often prolongs a sense of emergency on purpose.

On social movements, and the role of habits to make them self-propelling and help them achieve critical mass:

A movement starts because of the social habits of friendship and the strong ties between close acquaintances. It grows because of the habits of a community, and the weak ties that hold neighborhoods and clans together. And it endures because a movement’s leaders give participants new habits that create a fresh sense of identity and a feeling of ownership. Usually only when all three parts of this process are fulfilled can a movement become self-propelling and reach a critical mass. There are other recipes for successful social change and hundreds of details that differ between eras and struggles. But understanding how social habits work helps explain why Montgomery and Rosa Parks became the catalyst for a civil rights crusade.

On a concluding note:

Habits are not as simple as they appear. As I’ve tried to demonstrate throughout this book, habits—even once they are rooted in our minds—aren’t destiny. We can choose our habits, once we know how. Everything we know about habits, from neurologists studying amnesiacs and organizational experts remaking companies, is that any of them can be changed, if you understand how they function. Hundreds of habits influence our days—they guide how we get dressed in the morning, talk to our kids, and fall asleep at night; they impact what we eat for lunch, how we do business, and whether we exercise or have a beer after work. Each of them has a different cue and offers a unique reward. Some are simple and others are complex, drawing upon emotional triggers and offering subtle neurochemical prizes. But every habit, no matter its complexity, is malleable. The most addicted alcoholics can become sober. The most dysfunctional companies can transform themselves. A high school dropout can become a successful manager. However, to modify a habit, you must decide to change it. You must consciously accept the hard work of identifying the cues and rewards that drive the habits’ routines, and find alternatives. You must know you have control and be self-conscious enough to use it—and every chapter in this book is devoted to illustrating a different aspect of why that control is real.

A must read book, and quoting Daniel H. Pink‘s advance praise of it – “Once you read this book, you’ll never look at yourself, your organization, or your world quite the same way.”

On An Inconvenient Truth

I have recently finished reading An Inconvenient Truth – The Planetary Emergency Of Global Warming And What We Can Do About It – by Al Gore.

Below are key excerpts from the book that I found particularly insightful:

1- “The fundamental outline of the climate crisis Story is much the same now as it was then. The relationship between human civilization and the Earth has been utterly transformed by a combination of factors, including the population explosion, the technological revolution, and a willingness to ignore the future consequences of our present actions. The underlying reality is that we are colliding with the planet’s ecological system, and its most vulnerable components are rumbling as a result…I have learned that, beyond death and taxes, there is at least one absolutely indisputable fact: Not only does human- in caused global warming exist, but it is also growing more and more dangerous, and at a pace that has now made it a planetary emergency.”

2- “But along with the danger we face from global warming, this crisis also brings unprecedented opportunities. What are the opportunities such a crisis also offers? They include not just few jobs and new profits, though there will be plenty of both, we can build clean engines, we can harness the Sun and the wind; we can stop wasting energy; we can use our planet’s plentiful coal resources without heating the planet. The procrastinators and deniers would have us believe this will be expensive. But in recent years, dozens of companies have cut emissions of heat-trapping gases while saving money. Some of the World’s largest companies are moving aggressively to capture the enormous economic opportunities offered by a clean energy future.”

3- “But I truly believe I was handed not just a second chance, but an obligation to pay attention to what matters and to do my part to protect and safeguard it, and to do whatever I can at this moment of danger to try to make sure that what is most precious about God’s beautiful Earth—its liveability for us, our children, future generations—doesn’t slip from our hands.”

4- “”he emerging consensus linking global warming to the increasingly destructive power of hurricanes has been based part on research showing a significant v; increase in the number of category 4 and 5 hurricanes. A separate study predicts that global warming will increase the strength of the average hurricane a full half-step on the well known five-step scale…As water temperatures go up, wind velocity goes up, and so does storm moisture condensation.”

5- “Insurers base their rates—the amount you pay to protect your home against disaster—on their ability to calculate the risk of unexpected events. When extreme weather stops following predictable, historical patterns—as it appears is already happening—companies can no longer estimate risk accurately, which 1 turn makes it difficult to project what their losses will be. The only way to stay n business under these conditions would be to raise premiums for all insurance holders or to stop offering insurance in particularly risky areas, such as Florida and the Gulf coast, which already face increasingly devastating weather every summer. As one business leader put it, insurance companies face “a perfect storm of rising weather losses, rising global temperatures, and more Americans than ever living in harm’s way.””

6- “There are many complex causes of the famine and genocide, but a little discussed contributing factor is the disappearance of Lake Chad, formerly the sixth largest lake in the world, in a period of only the last 40 years. ”

7- “In all of my journeys, I have searched for a better understanding of the climate crisis—and in all of them I have found not only evidence of the danger we face globally, but an expectation everywhere that the United States will be the nation to lead the world to a safer, brighter future. And as a result, since every journey took me back home, I have returned each time with a deeper conviction that the solution to this crisis that I have traveled so far to understand must begin right here at home.”

8- “Losing something is one thing; forgetting what you’ve lost is something else again. Maybe I shouldn’t generalize from my personal experience, but I do believe that our civilization has come perilously close to forgetting what we’ve lost and it then forgetting that we’ve lost it. This is caused in part by never having the chance to commune with nature. That may sound like so much hippie pap, but I defy anyone to take in this country’s unspoiled treasures and not feel calmed, humbled, and rejuvenated by them. I believe that when God created us {and I do believe evolution was part of the process God used). He shaped us, breathed life and a soul into us, and then set us free  within nature, not separate from it, giving us intimate connections to all aspects of it. The relationship we have to the natural world is not a relationship between “us” and “it.” It is us, and we are of it. Our capacity for consciousness and abstract thought in no way separates us from nature. Our capacity for analysis sometimes leads us to an arrogant illusion; that we’re so special and unique that nature isn’t connected to us. But the fact is, we’re inextricably tied.”

9- “According to this way of thinking, if exploitation results in injury to the environment, so be it; nature will always heal itself, and no one should care. But what we do to nature we do to ourselves. The magnitude of environmental destruction is now on a scale few ever foresaw; the wounds no longer simply heal themselves. We have to act affirmatively to stop the harm.”

10- “But despite the negatives, there is something powerful and resilient we must never lose sight of: American constitutional democracy still has the potential to confer on the average citizen the dignity and majesty of self-governance. t is still, in Churchill’s well-known phrase, “the worst form of government except all the others that have been tried.” When it works the way our founders intended, the very act of self-governing can produce m indescribable feeling of goodness and harmony that no cynic will ever be able to diminish.”

11- “The parable of the Aral Sea has a simple message: Mistakes in our dealings with Mother Nature can now have much larger, many of our new technologies confer upon us new power without automatically giving us new wisdom.”

12- “Our new technologies, combined with our new numbers have made us, collectively, a force of nature.”

13- “Now it is up to us to use our democracy and our God-given ability to reason with one another about our future and make moral choices to change the policies and behaviors that would, if continued, leave a degraded, diminished, and hostile planet for our children and grandchildren—and for humankind We must choose instead to make the 21 st century a time of renewal. By seizing the opportunity that is bound up in this crisis, we cam unleash the creativity innovation,and inspiration that are just as much a part of our human birthright as our vulnerability to greed and pettiness.The choice is ours. The responsibility is ours. The future is ours.”

Regards,

Omar Halabieh

An Inconvenient Truth

On Leadership and Investing

I have recently started to think about the parallels that exist between behavioral traits of investors and leaders. This is a multi-post topic that I will be covering, starting with the first trait which is on taking risks.

Leaders are often faced with challenges that require critical decisions and an entailing plan of action. Each decision can be thought of as an investment (short term or long term) in personnel, systems etc. As investment, these decisions are taken based on the general situation (market fundamentals – macro) as well as by comparing alternative solutions (sector choices). The leader has to then assess his risk appetite (volatility) to determine the solution that results in the desired outcome (investment goals).

Another aspect of risk taking, is when everyone seems to be turning away from a given situation (major sell-off) true leaders are not afraid to face the situation head-on and take decisions to remedy it (contrarian investing). It is in such times (crisis/meltdown) that true leadership capital is accrued (think about the recent market recovery).

Next time you are faced with a major decision/situation at work, think about it as an investment. Assess the risks you are willing to take and the associated result that you desire.

Regards,

Omar Halabieh

Review – The Big Short: Michael Lewis

This book should be rated 6 stars if such rating existed. Michael Lewis manages to top his masterpiece Liar’s Poker with an even more thrilling account of the events that led to the recent financial crisis. Although most of us are aware of the fundamental cause of the crisis being the sub-prime mortgages, this book sheds light on the pivotal role that the rating agencies played in creating it. Michael presents the events from both angles, the entities that were long and the shorts who were betting on the melt-down of the financial system. Through reading this book, one does not only learn the events, but learns how to analyze like the financial managers on Wall-Street. This book can be viewed as an investor’s guide to irrational market. Michael does a great job at the end to relate this piece of work to Liar’s Poker and to show how what he talked about then, came to life now in the form of a crisis. One quote I particularly enjoyed is:
“The line between gambling and investing is artificial and thin. The soundest investment has the defining trait of a bet (you loosing all of your money in hopes of making a bit more), and the wildest speculation has the salient characteristic of an investment (you might get your money back with interest). Maybe the best definition of “investing” is “gambling with the offs in your favor.”
In short, if you wanted to read one book to truly understand the financial crisis, this should definitely be the one. Highly recommended!

Regards,

Omar Halabieh