In Chapter 16 of Rolf Dobelli’s ‘The Art of Thinking Clearly’, he talks about the emergence of ‘Chauffeur Knowledge’ – a term Charlie Munger used to differentiate it from ‘Real Knowledge’. Chauffeur knowledge is the sort of knowledge you need to put up a show: it may be to feign expertise, to engage in a conversation meant to impress or merely to deliver information to targeted audience. For example, the news anchor who goes on TV to deliver the news may not exactly know fully what he or she is saying in terms of the full implications of the news nor the exact circumstances leading up to the news. Or the taxi-driver who gives his assessment of the global economic situation based on anecdotal evidence from his experiences driving around New York.
Yet there is increasingly more insidious types whose chauffeur knowledge is difficult to tell apart from real knowledge. We want people with real knowledge about the economy, about policy implications, with a real sense of the politics out there to lead the country – not someone who pieces together random pieces of information out there on Fox News or CNN to formulate views on politics or economy. We need people with business acumen for a large organisation to be the CEO – not merely someone who can show and tell well in front of shareholders. The show and tell skills are useful but only to a certain extent; this phenomena of the rise of a chauffeur knowledge economy is a result of incentive super-response tendency (Chapter 18 of Dobelli’s book) and also Outcome Bias (Chapter 20, ibid).
Incentive super-response tendency relates to people behaving hyper-rationally to incentives such that the behaviours are no longer in line with the original intent of the incentives. Managing such consequences is harder than it seems and it can generate a lot of unintended consequences. For example, the original intention of rewarding comrades bringing in dead rats in China during the times of rat infestation was distorted when people started breeding rats to kill in order to earn the reward. Likewise when CEOs are rewarded based on quarterly earnings results, they start being short-term and divest of strategic assets which may be making short-term losses. Worst still, such salaryman CEOs may even relinquish core capabilities that helps enhance returns on asset in favour of building up a larger base of income-generating asset base, without realising that those core capabilities are necessary to maintain and ensure returns on the asset.
It is not always malicious so to speak; and honestly, employees do not have perfect foresight on how their action impact on the organisation in long run. They could be counting on securing the short term benefits for the organisation since the longer term ‘strategic benefits’ may be uncertain. Or more significantly, they would not materialise as quickly nor in time for them to reap the benefits.
The combination of this two ills plaguing the modern world are making our corporate world, public service, non-profit and all kinds of organisations ripe for disruption. What new management innovations would rise up to challenge this state of affairs? Something to ponder over.