Love of Economics

In a recent coaching call, I tried to share the differences between doing Economics and Finance. It was not easy; somehow pre-University students feel rather muddled between finance and economics which came as no surprise to me. The thing is, both deals with business; but economics is a much broader topic of which finance is actually a subset. What we call ‘finance’ as a topic is actually ‘financial economics’. A word of warning – I actually love economics so maybe I’d sound a little biased here but I try to be balanced.

Economics deals very broadly with questions pertaining to the functioning of the economy both at the broad level (macroeconomics) and the industry or firm level (microeconomics). It has since applied those concepts and thinking into various other areas such as decision-making (basically cost-benefit analysis), behavioural sciences (extrinsic and intrinsic incentives, cerebral resource allocation, psychological biases and mistakes – okay I made up the second one up but you do get the drift). The focal point of economics, is not money; it is the ends behind money – the goods, services, psychological satisfaction, or ‘utility’ in Jeremy Bentham’s formulation.

Finance deals with money, in all its forms – cash, credit and many of the newer, colorful ways in which promises to pay are structured and secured as well as the flow/movement of it. It is generally focused on movement across legal/geographical boundaries (exchange rates), movement across time (interest rates), how to price those rates, how to value cashflows. From an economist point of view, finance is a means, to achieve the ends which is utility. But in finance, there’s no notion of utility, everything is simply measured in terms of money, which ever currency you define as the base and within the period/time-horizon of consideration.

Now the reason for asking the difference, was really to consider what kind of career options these degree programmes open up. The truth is, finance sector takes in graduates from economics as well, and even engineering (some banks actually prefer taking engineers); but of course, the finance graduates certainly have it better in banks and might be more comfortable with the jargons and methodologies required when they first start out. They might also be more motivated by the kinds of programmes that the jobs serve up to them because the degree programmes tend to also build those areas of skills that are useful in banking (yes I’m talking about tidying up your excel models, dressing slickly, speaking well and networking).

Economics is broader, in that it gives you the flexibility to apply the set of thinking tools that you learnt in many other areas in terms of jobs – public policy roles, strategy consulting, business consulting, business development and more. But the thing is that economics is so general all these other jobs can also be filled by students from various other (albeit slightly different) disciplines. So in a sense, there’s nothing really ‘unique’ about economics graduates. If one desires to devote one’s university life towards building one’s career post-university, then the best bets are to go for professional sort of degrees: accounting, law, medicine, engineering, actuarial science, architecture, urban planning. In all of them, follow through and obtain your professional qualifications, then practice. These will be your fall-back regardless of what work you eventually branch out into. I’ve friends who were lawyers or accountants becoming entrepreneurs but at least if things fail, they are able to go back to their professions and do reasonably well.

But honestly, what good is it to devote your degree and life in university to doing something you’re planning to do for the rest of your working life anyways? To me, it’s important to draw upon that time as one that challenges your mind in the manner you deem appropriate, so as to discover how you can use it to contribute to the world. Pick subjects asking the kind of questions you feel excited about and that you want to answer them but don’t know the answers to (yet). Pick subjects that allows you to fail in a way that you have courage to, and feel proud of, and can share your wild experiences with your grandchildren. Be practical, but use the time wisely and well – don’t allow yourself to be enslaved to the expectations of the society or the world.

All the best!

Growing Organisation

As I stepped into the working world, I became fascinated by micro-cultures within workplaces, organisations and groups of people working together within a department or division. This micro-cultures had a huge impact on the productivity of teams, the behaviours of its members, the output, the way results are articulated and above all, the well being of the members. Then I came across this old article from Havard Business Review.

Growth Mindset

I never quite knew about Carol Dweck or her book but I do recognize the term Growth Mindset and this is perhaps something I was directly or indirectly exposed to some point through my teenage when I was growing up. This idea was appealing to me then because I was never taught to think too highly of myself. I’m often kept in check by my parents who reminded me that my sister was more intelligent than me even when I did better in school and so on. I was praised, however, for my hard work and the desire to learn and improve myself. That constant feedback on my effort and the small wins that I secure encouraged me and allowed me to go farther in stretching myself.

I was surprised that the writer used Jack Welch as an example of a leader who fosters growth mindset in the organisation and encourages employees to grow. Because I imagined General Electric to be the sort of survival of the fittest organisation where the top quintile was richly rewarded and the bottom quintile was fired and replaced. That bell curve GE approach to performance appraisal stuck in my head because like probably many other workers of big bureaucratic organisations, that was pretty much the approach towards talent management. And to me, that is what a fixed mindset, ‘star’ organisation was like – they name and crown winners and allow them to keep on winning. When one stays in such organisation for too long, one takes on the fixed mindset and that necessarily affects his productivity, and willingness to work hard.

For instance, employees at companies with a fixed mindset often said that just a small handful of “star” workers were highly valued. The employees who reported this were less committed than employees at growth-mindset companies and didn’t think the company had their back. They worried about failing and so pursued fewer innovative projects. They regularly kept secrets, cut corners, and cheated to try to get ahead.

The Right Combination

Keeping secrets, cheating to get ahead, cutting corners all sound pretty nasty and value-destroying. And of course, the employees themselves are as culpable as the culture they reside in but isn’t it amazing that we continue to perpetuate micro-cultures in organisation that do this. Yet why was Jack Welch heralded for the growth mindset? It was the other practices he brought in to encourage growth and give opportunities for mobility within this whole bell curve exercise.

He hired according to “runway,” not pedigree, preferring Big 10 graduates and military veterans to Ivy Leaguers, and spent thousands of hours grooming and coaching employees on his executive team—activities that demonstrate a recognition of people’s capacity for growth.

In that sense, the bell curve appraisal approach must be combined with proper hiring practices in place that would actually encourage overall organisation growth. By adopting just the tool to encourage competition amongst employees without encouraging the culture of sharing and passion for learning, the organisation exacerbates the ills of a fixed-mindset organisation.

Growth-mindset organizations are likely to hire from within their ranks, while fixed-mindset organizations reflexively look for outsiders. And whereas fixed-mindset organizations typically emphasize applicants’ credentials and past accomplishments, growth-mindset firms value potential, capacity, and a passion for learning.

Singapore organisations suffer this way disproportionately; being a society transfixed with past credentials, accomplishments, rather than potential and capacity, we are allowing our genuine potential suffer when we don’t pay attention to our micro-cultures or hold our CEOs accountable for these aspects of organisation performance. To make matters worse, culture is a long-term matter while organisations are typically organised to deliver results year on year. CEOs with short (planned or unplanned) tenure aiming for quick results pays little attention to creating a good culture or designing a growth-oriented organisation.

Your Role

As a director interviewing CEOs, ask them questions about people and their perspective on manpower. Whether they are theory X or theory Y is an important hint to the kind of cultures they will foster. As middle management, focus on caring for your people and creating the friendly, growth-oriented micro-culture within your sphere of influence in order to provide a divisional best-practice that the entire organisation can imitate or learn from. As an employee, provide formal and informal feedback relentlessly about culture, about the signal that management sends to employees through their actions, policies, and practices. Don’t allow management to dominate feedback conversations (they have sufficient opportunities at appraisals already).

Finally, as a CEO, ask yourself if you care more about your paycheck or leaving a genuine legacy in where you’ll be. Do you have that stillness of mind and firmness of principle when you take on the role and promise to deliver? As visible as the evidence of hard output and results may be a reflection of the CEO’s competence, they are short-lived compared to the lasting legacy and wonderful memories of a leader who cared and changed their lives and mindsets.