Critical ThinkingLeading Innovation and Value Creation

Andrew L. Urich, J.D.

Puterbaugh Professor of Ethics & Legal Studies

Spears School of BusinessOklahoma State University

aurich@okstate.eduwww.andrewurich.com

What Happened to GM?

Why is it So Hard to Face Reality?

Why Don’t They Give Us an Owner’s Manual For Our Brain?

Why is Charlie Sheen an Actor?

Déjà vu All Over Again?

Critical ThinkingDon’t try this at home!

I prefer being given the correct answers rather than figuring them out myself.

I don't like to think a lot about my decisions as I rely only on gut feelings.

I don't usually review the mistakes I have made.

I don't like to be criticized.

I don’t have the courage to move outside my self-imposed limits.

The Secret to Happiness

Smart People Trying Hard

Applied Critical ThinkingRemove Boundaries

Thinking has boundaries– bounds, limits, borderline

Beyond the boundary line is theFrontierLocation of most advanced, newest activity

GM History

1950’s - Half of all cars in the US

GM History 1980 - 853,000 to 284,000

worldwide

1999 “The most versatile vehicle on earth”“Lifestyle support vehicle”

1999 “The most versatile vehicle on earth”“Lifestyle support vehicle”

1999 “The most versatile vehicle on earth”“Lifestyle support vehicle”

1st Q 2009Passenger cars

Toyota 19.4% GM 15% Honda 12.4% Nissan 10.2% Ford 10.0% Hyundai 6.2% Chrysler 5.2% Mazda 3.4% BMW 3.2% VW 3.2% Kia 2.6% Subaru 2.6%

Volvo 0.8% Saab 0.2%

What is Critical Thinking?

Using your brain to create value for yourself and your organization!

Making decisions and taking action based on reason, evidence and analysis.

Focus on what matters Identify drivers of value Embrace diversity Face reality

1.

Focus on What MattersJD Power Top 10 Reliability

2004 2007 Buick145 Porsche 110 Lexus 145 Lincoln 114 Cadillac 162 Buick 115 Mercury 168 Lexus 115 Honda 169 Mercury 121 Toyota 178 Toyota 128 BMW 182 Honda 132 Lincoln 182 Ford 141 Subaru 192 Mercedes 142 Jaguar 197

2004 2007 Buick145 Porsche 110 Lexus 145 Lincoln 114 Cadillac 162 Buick 115 Mercury 168 Lexus 115 Honda 169 Mercury 121 Toyota 178 Toyota 128 BMW 182 Honda 132 Lincoln 182 Ford 141 Subaru 192 Mercedes 142 Jaguar 197

2004 2007 Buick145 Porsche 110 Lexus 145 Lincoln 114 Cadillac 162 Buick 115 Mercury 168 Lexus 115 Honda 169 Mercury 121 Toyota 178 Toyota 128 BMW 182 Honda 132 Lincoln 182 Ford 141 Subaru 192 Mercedes 142 Jaguar 197

2004 2007 Buick145 Porsche 110 Lexus 145 Lincoln 114 Cadillac 162 Buick 115 Mercury 168 Lexus 115 Honda 169 Mercury 121 Toyota 178 Toyota 128 BMW 182 Honda 132 Lincoln 182 Ford 141 Subaru 192 Mercedes 142 Jaguar 197 Acura 143

Focus on What Matters

BMW “We don’t make automobiles [we make] moving works of art that express the drivers love of quality.”

GM: Car guys and bean counters– no marketing

Focus on What Matters

Focus on What Matters

Focus on What Matters

Focus on What Matters

Emphasis on Big Picture

CalipariFocus on what matters

Relentless marketing– Image Think differently Inspire dedicated fans Big picture (China) Look for big challenges

What Matters Most?

Iraq and Afghanistan

What Matters Most?

Iraq and Afghanistan Mine Resistant Ambush Protected

Value FocusLoss of Trust & Respect

Trust Issues Consumers Dealers Workers Beat up suppliers Banks, Public opinion Shareholders - Bondholders

Value FocusLoss of Trust & Respect

Loss of commitment Playing favorites Keep your head down and get along Stop working start having meetings

(Sr. VP of Nothing) Lack of Fun

Innovation Creativity

Value FocusJapan has robots we need robots

Embrace Diversity

Group think Stability over conflict Continuity over disorder Status quo over change

50 year old decision making structure Conformity over rebellion

Same design centers Run off renegades

De Lorean fired at GM -- Iacocca fired at Ford

Why is it So Hard to Face Reality?

Why is it So Hard to Face Reality?

Face Reality Market Value versus Cumulated Strategic

Investments at General Motors

1980 GM = $13 Billion

1980-1997 $167 Billion or $332 BillionR&D and capital spending

1997 GM = 40 Billion

Face RealityRoss Perot on the Subject

From 1980 to 1985 GM spent $45 billion in capital investments but only increased worldwide market share by 1%.......

"For the same amount of money, we could buy Toyota and Nissan outright, instantly increasing market share to 40%.”

Gorilla dust

Face RealityAsk Rick Wagoner why GM isn’t more like Toyota. (69/70)

“We’re playing our own game – taking advantage of our own unique heritage and strengths.”

Face Reality “I don't know anything about cars. A business

is a business, and I think I can learn about cars. I'm not that old, and I think the business principles are the same.” Ed Whiteacre

Face RealityLet’s ignore gas mileage

Face RealityNo money in small cars

Face Reality

Who’s Reality Bob Lutz

Global warming “is a total crock of [expletive].” “Hybrids like the Toyota Prius make no

economic sense.” “Imminent GM bankruptcy was always fiction,

created by Wall Street and the media.”

Bureaucracy & the Status Quo Risk taker to Risk avoidance Cash poor to Cash comfortable Contribution to Playing favorites Opportunities to Problems Create value to Doing your job Marketing & sales to Finance & bean-counting Momentum to Inertia Working to Meetings END

Does Bureaucracy Materialize Out of Nowhere?

Applications

Have you clarified exactly how you create value for your organization?

Focus on value creation and avoid activities that are not central to your strategy.

Appreciate and seek diverse (and contrarian) points of view

A fun and exciting atmosphere fosters creativity and productivity

Rage against bureaucracy and the status quo.

ApplicationsManagement Issues

Leader sets the tone Processes often get in the way Bloomberg abolished titles Conflict breeds creativity Presentations– one-way

communication Promote and reward risk taking and

attempts at innovation

ApplicationsJack Welch Bureaucracy Busting

Be relentless and outrageous Celebrate impassioned

boundaryless people Love the people who hate meetings Encourage managers to swing for

the fences Create a culture of excitement END

Critical Thinking

“There is no reason anyone would want a computer in their home.”

President of world’s second largest computer

company (DEC) arguing against the PC in 1977

Critical Thinking

“The world potential market for copying machines is 5000.”

IBM turning down the eventual creators of Xerox

Critical Thinking

“I think there is a world market of about five computers.”

Founder of IBM in 1943

Critical Thinking

“Who the hell wants to hear actors talk?”

Warner of Warner Brothers arguing against the need to add sound to silent movies

Critical Thinking

Obama and McCain spent $1 Billion on their 2008 campaigns – Absurd?

Coca-Cola spent almost $2 billion trying to get us to drink sugar water in 2008.

Critical ThinkingProfessor Robert C. Merton, Harvard University, Cambridge, USA andProfessor Myron S. Scholes, Stanford University, Stanford, USA

Critical Thinking

“Sensible and responsible women do not want to vote.”

President Grover Cleveland, 1905

Critical Thinking

“We don’t like their music and guitar music is on the way out anyway.”

Decca record executive turning down the Beatles, 1962

Critical Thinking

“Television won’t last because eventually people will get tired of staring at a plywood box every night.”

Daryl Zanuck, 20th Century Fox Movie Producer, 1946

Critical Thinking

“Everything that can be invented has been invented.”

Commissioner of US Patent Office arguing to President McKinley to close down the Patent Office in 1899

Why Don’t They Give Us an Owner’s Manual For Our Brain?

The Brain’s Inner WorkingsThe Wiring 100,000,000,000 neurons (brain cells)

15,000 synaptic connections each

By age 15 half are gone and the superhighways are up and running.

These mental pathways become the filter–producing recurring patterns of thinking, feeling and behavior.

Examples: Empathy–confrontation–authoritarian–dogmatic–emotions–tolerance for uncertainty.

The Brain’s Inner WorkingsThe Parts The brain is full of zero sum games

Ever find yourself feeling conflicted? Competing modules MRI research on picturing yourself as old

Stanford study No payments until next year Disagree– brain off Agree-- pleasure

Parts of the brain Amygdale-fear responses

Fleeing the stock market like you are fleeing a lion Prefrontal cortex – recently evolved – controls voluntary

actions Logical and analytical

Limbic system - oldest physical part of the brain The rat brain – Impulses gut reactions

Amygdale: Fear Responses Total US Stock Market

1982 value = $1.2 Trillion Return 1982 to 2007 13.3% Theoretical 2007 value $28.2 Trillion Actual value $18.7 Trillion Lost to market timing $9.5 Trillion

NASDAQ 9.6% Return 1973 – 2002 4.3% Actual average return to NASDAQ

investor

Zweig, Jason, Money Magazine, December 2007, page 76

Your Strength Strength is a recurring pattern of

thought, feeling, or behavior that can be productively applied.

Strength is more important than experience, brainpower, and willpower.

You cannot teach strength.

Your Strength

What to notice, what to ignore What to love, what to hate Your motivations, ego, altruism How you think - practical or

strategic Your attitude - optimistic or cynical Your filter is your Strength

The Strength of Great Accountants

Innate love of precision

Happiest moment is when the books balance

Gallup survey

Using Your BrainYour Unique Strength + Critical Thinking = Success

Your value and ability to prosper and reach your goals come from:“sensing, judging, creating, and building

relationships.” Thomas Stewart, Intellectual Capital

We all have the same information – it’s what you do with it that counts.

ApplicationsUsing Your Brain

Exploit your strength! Don’t correct weaknesses, work around them. Skills and knowledge can be taught, Strength

cannot. Here’s what we can change!

Core beliefs New skills and knowledge Your values Self-awareness Capacity for self-regulation Hidden strengths

“Our minds are like inmates, captive to our biology, unless we manage a cunning escape.”

Nassim Taleb The Black Swan

Why is Charlie Sheen an Actor?

Why Do We Do What We Do?Albert Einstein

“Fear or stupidity has always been the basis of most human action.”

Worst paper ever….

“People have two legs, animals have four, except fish which have none.”

Basis of Human Action and Decision Making?

Beliefs Act out your beliefs Desires Pursue your desires

Instinct Succumb to instinct

BeliefsYou act out what you believe? I believe the world is a dangerous

place. I believe people should______. I am skeptical of all claims. An “ideal” manager does ______. The best investment philosophy

is___.

BeliefsFilters and Reinforcements

Desires Cialdini knows where our desires

come from Are we honest about our desires?

Mark Cuban and flattery

Desire to feel good Desire to feel safe

I have to scare you first. First I create the disease – then I

create the cure.

Living by Instinct“Nature, Mr. Allnut, is what we are put in this world to rise above”

Rose Thayer (Katherine Hepburn) The African Queen

Human Animals – Instinct…...................Human Beings – Critical Thinking Wealth/Greed................................... Altruism and charity Seek security at all cost....................Get out of your comfort zone Preserve status quo..........................Change Meeting society’s expectations...........Be authentic to yourself

(following the herd).......................... (think for yourself) Traditional gender roles.................... Equality of the sexes Tribalism (nationalism)..................... Multi-culturalism Praise authority................................ Question authority Praise and follow the leader.............. I don’t need a leader Consistency is safe............................Strive for improvement Guided by personal experience...........Critical thinking Freewill???........................................Free Will!!!!! Surviving........................................Living

Basis of Human Action and Decision Making? Beliefs, Desires & Instinct

You do what you feel obligated to do.

You do what is the easiest. You do what makes you feel safe. You do what you’ve always done.

You Might Be Thinking Critically If…..

You change a core belief. You get outside your comfort zone. You admit you were wrong about

something important. You increase your self-awareness. You do something you wouldn’t do.

What if I like what I do?

Punch-line Early in life we get theories of the world

– the theories make sense – but making sense is not the same as being correct.

Beware of your Brain’s wiring! Your brain is programmed

Do We Always Think the Same Way?Did GM Think About This?

Global Product Development Tom Stephens, who runs the company's power-train unit Carl-Peter Forster London, Germany and Greece BMW, Opel

Finally!Mary T. Barra

Requirements of Critical Thinking

1. Awareness of choices and real consequences

2. Self-awareness

3. Value focused proactive mindset

4. Avoid thinking pitfalls

1. Awareness of Choices and Real Consequences

If you choose one of 10 known options when there are, in fact, more than 100 options, have you really exercised critical thinking?

Cognitive bias: Ignoring alternatives

Junkfinger Test Tattoos

Traffic tickets

Brushes with the law

Being sick

Promptness

Pets

If You Don’t Want to Fall in the Grand Canyon--Don’t Go to Arizona

What I do today affects what happens

tomorrow.

Junkfinger TestIn the Business World

Inconsistency

Excuses

Making enemies at work

Always talking, never listening

Accept things as they are

Acting uninterested – not engaged

Lose credibility

Goldfinger

Behavior and attitude that put you in a position for good things to happen:

1. ?2. ?3. ?4. ?5. ?

Most people end up where their behavior indicates they want to be.

2. Self-awarenessMetacognition

“The truth will set you free……….but first it will piss you off.”

Werner Erhard, founder, est Training

“The greatest of all faults, I should say, is to be conscious of none.”

Thomas Carlyle (1795 – 1881) Scottish writer

3. Be proactive (3 kinds of people)What Do You Really Want? (Personal

Philosophy)

Do most people suppress their personalities and their dreams?

Picture your 70th birthday

Reeboks says “Life’s short– Play hard.”

I say “Life’s long– Do something.”

Value CreationGoals and Goal Setting

What do I really want?

How do I set effective goals?

How do I increase the likelihood of good things happening and reduce the likelihood of bad things happening?

The Trick to Setting Effective Goals Worry about the means not the

end.

In other words, set goals that are within your control that can lead to good things– as opposed to outcome based goals.

End based goal:Impress the boss/Get

promoted

Act with enthusiasm, show your passion and demonstrate self-confidence

Don’t just do what you’re told– Develop the habit of doing things impressively

Identify the prototype employee and emulate that person

Professional Image Program

PRO-ACTIVITY HOUR: Spend one hour a week planning and reflecting on how success is measured and why certain people are favored

Ends based goal:Be a millionaire/Retire

early

Study investing and business opportunities for three hours a week

Draft a budget and stick to it

Figure out what “matters” and do the those things first

Get two jobs

Ends based goal: Vice president by age

35 Arrange four networking lunches per month

Volunteer for high profile/difficult projects

Find a mentor and stay connected

Try and make every co-worker/client into a friend and supporter

End based goal:Find a good spouse

Put yourself in places where “good spouses” hang out

Don’t date losers while you’re waiting for a winner

Project the image that attracts “good spouses”

Be proactive not passive

Priorities of ManagementAndy Roddick

Work Hard Have fun Be a good teammate Learn from mistakes Win

4. Thinking Pitfalls

Critical Thinking vs. Traditional Thinking

Cannot Predict the Futurevs.

Spreadsheets and Models Predict Future

Late 70s Energy Crisis

Early 80s Latin American Bank Defaults

Mid 80s Junk Bonds, Michael Milken

Late 80s S&L Crisis

Mid 90s Derivatives crisis

Late 90s Dot-Com Collapse

2000 Long-Term Capital Management

2008 Sub-prime Mortgage Debacle

Before 2015 Unexpected disaster

Cannot Predict Probability vs.

Theory Predicts Probability

“Most negatives in housing are behind us.”

Alan Greenspan, October 2006

Cannot Predict Probability vs.

Theory Predicts Probability

“I don’t see (sub-prime mortgages) imposing a serious problem.”

Treasury Secretary Henry Paulson, April 2007

Cannot Predict Probability vs.

Theory Predicts Probability

“We see no serious broader spillover to banks from the sub-prime market.”

Fed Chairman Ben Bernanke, October 2007

Cannot Predict Probability vs.

Theory Predicts Probability

“The effective management of risk is one of the core strengths that has made Lehman Brothers so successful.”

Still found on Lehman Brothers website one month after collapse.

Focus on Unknown Unknowns vs.

Focus on the Known

Risk Management - Mirage Hotel in Vegas Hundreds of Millions on

Cheating Detection Employee Monitoring Probability and Diversification Theft Protection

Four biggest losses: Tiger attacks Siegfried or Roy Contractor wires hotel with dynamite Forms not turned in to IRS Owner’s child kidnapped

Source: 2006 Report to the Nation on Occupational and Fraud Abuse by the Association of Certified Fraud Examiners (ACFE)

Focus on Unknown Unknowns vs.

Focus on the Known

Observation to Theory vs.

Theory to Practice

Coin flips heads 50 times in a row--what are the odds tails comes up next?

Ideology = Tails is due

Scientific probability theory = 50/50

Critical Thinking = Crooked coin

Embrace Uncertainty and Ambiguity vs.

Must Have an Answer or Explanation

Underestimate the role of luck in life

Overestimate it in games of chance

Think we can measure it in decision-making

Thinking vs.

Computing

The energy conferences

Dot-com’s new world

Critical ThinkingApplications

Awareness keeps your brain on track Question your beliefs and assumptions Be honest about your desires

Struggle to think critically Lifelong learning Put yourself in positions for good things to

happen Set goals and make things happen Doubt and wonder

The Secret to Happiness

The Secret to Happiness

Self-delusion

Hypocrisy

Ignorance

The Secret to Happiness

Ignorance is Bliss“People who do things badly are supremely

confident in their abilities—more confident, in fact,

than people who do things well. Not only do they

reach erroneous conclusions and make

unfortunate choices, but their incompetence robs

them of the ability to realize it.”

Dunning, David Journal of Personality and Social Psychology December 1999.

The Secret to Happiness

Why?

Researchers believe that the same skills

required for competency are the same to recognize

incompetence.

The Secret to Success

Focus on what matters Identify drivers of value Embrace diversity Face reality Wonder, worry and

doubt!

Critical ThinkingImagine

“Imagination is more important than

knowledge.”

Einstein

“The reasonable man (woman) adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on unreasonable men (women).”

George Bernard Shaw

Thank You

I appreciate your time and attention.

aurich@okstate.edu

www.andrewurich.com

References

Ailes, Roger. You Are the Message. New York. Doubleday, 1988. Bazerman, Max H. Smart Money Decisions, Wiley & Sons, 1999 Buckingham, Marcus, First, Break All the Rules, Simon & Schuster, 1999. Cialdini, Robert B. Influence: Science and Practice. 3rd Ed. New York:

Harper Collins, 1993. Ghemawat, Pankaj, Strategy the Business Landscape, Addison Wesley,

NY 1999. Golman, Daniel, Emotional Intelligence, Bantam Books, New York, 1995. Hirshberg, Jerry, (Founder Nissan Design International) The Creative

Priority, Harper Business, NY, 1999 Koch, Charles G., The Science of Success, Wiley & Sons, 2007. Lakoff, George, Moral Politics, Paul, Richard. Critical Thinking. Santa Rosa, CA: Foundation for Critical

Thinking, 1993. Pink, Daniel H. The Whole New Mind, Riverhead Books, NY, 2006. Schramm, Carl J. The Entrepreneurial Imperative (HarperCollins) 2006.