Category: BOOK-SUMMARY

Nuggets from Buffett – Part one

Srivatsa SeshadriLeave a comment

I recently had an opportunity to read “Essays of Warren Buffett“. Below are some of the key short takeaways (for me). For a more thorough perspective on each of these I would highly recommend the book.

On Corporate Governance

More Money, It has been noted, has been stolen with the point of a Pen than at the point of a gun

Managers that always promise to “Make the Numbers” will at some point be tempted to “Make up” the Numbers

At too many companies, the boss shoots the arrow of managerial performance and then hastily paints the Bulls-eye around the spot where it lands

Good Managerial record is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business good or bad). Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

There is plenty of money to be made at the center of the court. If it’s questionable whether some actions are close to the line, just assume it is outside and forget it.

On finance and Investing

Final Exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many Investors get this one wrong, Even though they are going to be net buyers of stock for years to come, they are elated when stock prices rise and depressed when they fall. In effect they rejoice because prices have risen for the “Hamburgers” they will soon be buying. This reaction makes no sense, only those who are sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price

Lack of capital allocation skills is very high, Most bosses rise to the top because they have excelled in an area such as Marketing, Production, Engineering, administration – or sometimes, institutional politics.

Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rate of return. The worst business does the opposite — that is consistently employs ever greater amounts of capital at very low rate of return. unfortunately the first type of business of is very hard to find;

In a difficult business, no sooner is one problem solved than another surfaces – never is there just one cockroach in the kitchen

This is Part one since i have been able to cover only first 2 chapters …  Don’t expect part two anytime soon  🙂 

On a more serious note, Lawrence A Cunningham has done a commendable job in compiling a lifetime of wisdom to 300 pages.

Understanding Variation

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Donald  J Wheeler, provides a concise summary of the key elements of Process variation in his book “Understanding Variation“. He has also included a summary of the contents presented as “Lessons” along with the Appendix

Below are some of the Key concepts of importance

DATA PRESENTATION
– Data should always be presented in such a way that preserves the evidence in the data, for all the predictions that may be made from the data

– whenever an average range or histogram is used to summarize data, the summary should not mislead the user into taking action, that the user would not take if the same is presented in a time series.

DATA INTERPRETATION

1. No data has meaning apart from their context

2. No matter how the data is presented, one should consistently use the same analysis methods for interpreting data

3. Flawed Assumptions & Flawed presuppositions, can result in flawed interpretations.

when people are pressurized to meet a target value, there are three ways they can proceed
1) They can work to improve the system
2) They can distort the system
3) or they can distort the data

PROCESS VARIATION

Predictions and specifications should not be taken as targets.A predictable process displays routine variation. An Unpredictable process displays both routine and exceptional variation. The Specification approach and the average value approach attempts to attach a meaning to each and every value. The Process behavior chart, concentrates upon the behavior of the underlying process.

Two mistakes in analyzing the data
1. Interpreting noise ( routine variation) as if it were a signal
2. Failing to detect a signal when it is present

Every potential data analysis begins by separating the potential signal from probable noise. While every data set contains noise, some data set may contain signal, therefore before you can detect a signal within every data-set, you must first filter out the noise

IN CONCLUSION

Before you can improve the system, you must listen to the voice of the system (voice of the process) then you must understand how the inputs affect the output of the system, Finally you must be able to change the inputs (and possibly the system) in order to achieve the desired results.

The Best Analysis is the simplest analysis, which provides the needed insight

The Science behind Agile thinking

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Agile Manifesto and principles form the premise for most Agile thinking. Donald Reinertsen in his book, “The Principles of Product development flow” helps us understand why it is economical to shift to an Agile mindset.

Here are a few key points that interested me (Refer the book for more breadth and depth)

For the product development Flow to be effective, we need to understand the economics of Queue’s, Variation, Work-In-process, batch Size, Fast feedback, Sequencing and their interrelations.

Queue’s increase Cycle Time, Variability and Cost of Process. As capacity Utilization increases Queues increase exponentially and processes become unstable.  The longer we delay adding capacity or shedding demand, the more expensive the problem becomes.

Variation is better managed by addressing the other parameters. Perform many small experiments (rather than one big one). Through repetition, reuse, and standardization variation is reduced.

By reducing project scope, we trigger a regenerative cycle of Faster Cycle time, Lower Risk, and shorter planning Horizons. This results in reduced need for oversight. Outcomes are more predictable as forecasting becomes exponentially easier for short time horizons. Accept variability in content to prevent variability in timing

Smaller Batch Size, improve Cycle Time and reduce variability in flow.

As Batch size become larger the consequences of failure increases exponentially, feedback is delayed, Overheads increase and rework will be more expensive. Large batches dilute responsibility and are de-motivating due to delayed feedback. Large Batches make Schedule & Cost grow up exponentially. When we batch together a no. of items the entire batch acquires the properties of its most limiting element.

Small batches reduces risk, there is less changes in technology or requirements to address. Small changes are easier to debug than large ones. Fast feedback improves efficiency because engineers are more efficient when something is fresh in their mind. Small batch size is a powerful tool to Increase urgency, motivation & Accountability. Short run lengths reduces Queues.

Always maintain a regular cadence. Regular cadence of small batch Size reduces Co-ordination overhead. A regular cadence for product introduction prevents delays in one product from cascading to other products. If we have to meet a regular product launch schedule, we need capacity margin to absorb schedule delays at intermediate milestones & variations.

To better understand on Queue theory, Variation, Work-In-process, batch Size, Fast feedback, Sequencing and their impact on product development, I recommend Don’s “The principles of product development FLOW, Second generation Lean Product development”

Summary – High Velocity Edge

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Steven J Spear, In his book “High Velocity Edge” talks about 4 Capabilities that distinguish High Velocity companies from the rest. He illustrates these capabilities with examples of companies that have exemplified them.

The Four Key Capabilities are

CAPABILITY – I – System design and operations

Build a system of “Dynamic discovery” designed to reveal operational problems and weaknesses as they arrive – The Systems & the Processes are so designed, to enable easy & early surfacing of Problems. Thus Problems are made visible as and when they occur. systems & Processes are so designed that the Problems have nowhere to hide.

CAPABILITY – II – Problem Solving and Improvement

Attack and Solve problems as and when they occur converting weaknesses into strengths – As and when problems are made visible, they are addressed with a Sense of Urgency “Swarming & Solving” With Changing market dynamics & continuous disruption, Organizations with this capability will be stronger than their counterparts who are slow to execute or Adopt to the changes.

CAPABILITY – III – Knowledge sharing

Quickly disseminate knowledge gained through problem solving, across the Organization – Minimize Re-learning; different teams in the organization do not solve the same problem; they use the know how to Accelerate towards solutions.

CAPABILITY IV – Develop High Velocity Skills in Others

Create Managers invested in developing everyone’s capacity to continuously innovate and improve – this is the Key to survival. Developing People’s Skills & Competency in the First 3 capabilities is critical to sustained growth

These are also the Key tenets on Lean Thinking, Developing People skills in problem solving & Continuous Improvement is critical for long term sustainence & growth