Tad Waddington: A second interview by Bob Morris

Posted on: October 17th, 2011 by bobmorris

Tad Waddington

Tad Waddington is Director of Performance Measurement for Accenture. He received his PhD in Measurement, Evaluation, and Statistical Analysis from the University of Chicago. He is the co-author of Return on Learning: Training for High Performance at Accenture and the author of Lasting Contribution: How to Think, Plan, and Act to Accomplish Meaningful Work, which has won six prestigious awards. Fluent in Chinese, Tad is Global Senior Advisor to the Asia-Pacific CEO Association Worldwide. He is also among my most cherished personal friends

Morris: So much has – and hasn’t happened – in the world since our last conversation a few years that I really don’t quite know where to begin. So, for those who have not as yet read Return on Learning and/or Lasting Contribution. Let’s begin there. First Return. What was the book’s ROI for you

Waddington: The return for me has come in two big ways. First, I love to travel, because it, to paraphrase Kant, shakes me out of my dogmatic slumbers. I’ve spoken on the return on investment in training in Beijing, Cairo, Hanoi, Kuala Lumpur, London, Mumbai, Nanjing, Nice, Saigon, Singapore, and dozens of other places. Second, it was the beginning of my understanding of how incredibly high, robust, and pervasive are the returns on investments in human capital.

Morris: Then and even more so now, Accenture is a very large and very complex organization. For years it has been my great pleasure as well as privilege to work closely with owner/CEOs of hundreds of small companies (i.e. those with annual sales of less than $25 million). Here’s my question: What are the most valuable lessons that leaders of small companies learn and apply from what you and your co-authors share in the book.

Waddington: Employee learning (aka, human capital investment) is more important than leaders think it is. I’ll give an example. Imagine that you run a very small business and that your business performance is a function of People, Process and Technology. If you’ve invested $5 in Process and $5 in Technology and $1 in People, then your total output is ($5 * $5 * $1) $25 units of production. If you increase your investment in People by $1, then your output goes to ($5 * $5 * $2) $50. The formula return on investment (ROI) is:

ROI = (Value – Cost) / Cost

In this example, the value added by the training was $25 at a cost of $1.

ROI = ($25 – $1) / $1 = 2,400%.

The ROI in training is absurdly high, because training helped to realize value in the other factors of production. For example, suppose I am barely skilled at using some software. Upgrading me to the newest version or giving me a faster computer would not yield as much value as would increasing my skills with the software. Increasing my skills will allow me to draw more value out of both the software and the hardware. In other words, because organizations have traditionally underinvested in training, they will see extraordinarily high returns. Therefore, it is well worth the CEO’s investment of resources (time, money, attention) to align learning with the organizations strategy

Morris: In your opinion, what is the single greatest challenge that world leaders now face?

Waddington: In the West in particular, short-term thinking. Most of our public companies seem to look only to the next quarter and our politicians, only to the next election. A more concrete example is that in North Dakota oil companies burn off 100 million cubic feet of natural gas every day, because it is cheaper to burn it than to capture it. In the short term, this makes economical sense. In the long run, we can’t get that gas back, it adds millions of tons of carbon dioxide to the atmosphere, and it is just plain stupid .

Morris: What is the single greatest opportunity, one that did not exist until recently? How best to take full advantage of it

Waddington: This goes back to something I spent a great deal of time working on in graduate school. It is clear that science has led to progress; we have medicine, computers, transportation, and so on. And yet progress could be much, much greater. How? To date there have been an estimated 50 million scientific article published. Nobody can read even a small fraction of that.. Here’s an example of why this is a problem: One of my PhD advisors, Don Swanson, had Raynaud’s disease. When it gets cold, his fingers and toes hurt, a lot. Since he invented the research database, he knew of its limitations so when his doctors told him there is no cure, he got to searching.

He went into Pub Med and pulled every article with the word “Raynaud” in the title. Then he stripped out meaningless words and pulled every article with meaningful words. The result was two sets of articles published years earlier that nobody had ever cited and that didn’t cite each other. One set said that Raynaud’s has something to do with blood viscosity. The other said that fish oil decreases blood viscosity. He started taking fish oil supplements and his disease cleared up. He published the work and clinical trials have proved him right. He then did the same thing with his headaches: “Role of calcium entry blockers in the prophylaxis of migraine” and “Magnesium: nature’s physiologic calcium blocker.” Nobody knew of these connections, because the literature crossed disciplinary lines. People know what is in their area of specialization, but not potentially related areas.

Swanson argues that the idea of an information explosion is a misnomer. Since it is people who produce articles, the ratio of articles to people isn’t unmanageable. The real problem—the supernova of explosions—is in the connections between articles. Connections grow exponentially. Looking at just pair-wise relationships, you get

Connections = (Number of Articles * Number of Articles -1) / 2.

2 will get you 1. 3 will get you 3. 4 will get you 6. 5 will get you 10 and 50 million will get you 1.25 * 1015.

Only a very small percentage of articles needs to connect for there to exist a great deal of undiscovered public knowledge.

It is a problem, because we already have solutions for much of what ails us. The problem is that one person knows that A leads to B. Somebody else knows that B leads to C. Nobody knows A leads to C.

What is the opportunity? The biggest potentially game-changing invention to come along since the internet is IBM’s Watson, the computer that beat the best at Jeopardy. The internet digitizes information, but the information is in human language. Watson, however crudely, can handle human language. This allows us apply the power of computing to knowledge discovery.

To take full advantage of it, I would have Watson read everything and have it ask the experts such questions as: Steve Jobs died of pancreatic cancer. This cancer is caused by these genes turning off and those turning on. This dermatology drug turns on these genes and that schizophrenia drug turns off those genes. If he had taken these two drugs in combination, would he still be alive?

Step one is just figuring out logical implications: If A leads to B and B leads to C, then doesn’t A lead to C? Step two is mapping out what is known and not know and then suggesting studies that could be done to fill major holes in our thinking. For example, A>B>C>E>F. Shouldn’t we look into D?

Morris: More books and articles are now being written about China than about any other country. In your opinion, what are the most common misconceptions that people in the United States have about China, in general, and the intentions of its leaders, in particular?

Waddington: The three things that first come to mind are, first, that China is a billion people with the per-capital income of Ghana and about the population of the US with the per-capita income of Italy. To weather the Great Recession, they overbuilt so hundreds of huge buildings now stand empty. A banking crisis is coming to China soon. And they have to find jobs for six million college graduates every year. And there are many more men than women and huge numbers of country folk are migrating to the cities. Chinese know their history and know that every time they have had large numbers of poor unemployed males, they have had a rebellion and if there is one thing China does not like, it is rebellions.

Second, people in the West also seem to forget that China never went through the Enlightenment. The ideas of human rights, freedom, and checks on government power aren’t givens in their culture, as they are in ours.

Third, China is extraordinarily polluted and many cities have traffic that makes Los Angeles look like the autobahn. In short, China has many difficult problems to solve simultaneously and trivial things like whether they are manipulating their currency rank pretty far down on their list of priorities. Indeed, the RMB will rise when inflation becomes so painful that they have no other choice but to let it rise. In other words, on their time scale and for their reasons—in the same way that quantitative easing has manipulated the value of the dollar in our time for our reasons.

In short, China has many difficult problems to solve and will solve them in its way, a way that may be very alien to us, alien but not purposefully malicious.

Morris: In your opinion, which country currently poses the greatest threat to the best interests of the United States? Please explain.

Waddington: Unquestionably, far, far more than any other country, the one that poses the greatest threat to the US is the US. Nobody forced us to run up our deficit, to engage in unnecessary wars, to let our infrastructure crumble, to let our schools slip into shoddiness, to have an ineffective government, or to grow lazy and complacent. I often reflect on the fact that when China first encountered the West, it said, “We don’t need you. We are healthier, live better and longer, have a better infrastructure, are more advanced in all of the following demonstrable ways….” As the West caught up, the Chinese said, “We like your clocks and your astronomy, but don’t need anything from you.” When the West surpassed them, they said, “We’re more civilized.” America used to say, “We have greater life expectancy, better roads, demonstrably better education…” and other things that we could point to. Now we say, “We have greater self esteem.” Or, “We’re more creative.” The more abstract the things you can brag about are, the more trouble you are in

Morris: On a scale of 1-10 (with ten being Outstanding), how would you rate the quality of public school education in the United States? Please explain.

Waddington: Of the 34 countries that participated in the OECD’s comprehensive world education ranking report (PISA), the US came in 14th, which is 41%. So 0.41 * 10 gives us a score of 4 on a ten-point scale. The problem with looking at things this way is that it ignores the nature of the game. The game goes to the winner.

Morris: In the United States, to what extent are schools, colleges, and universities preparing their students either for (a) jobs that do not exist now or (b) will not exist when those students join the labor force.

Waddington: Our schools are not only not preparing students for the future, they aren’t preparing students for the now. I agree with the Harvard Business Review, the Economist, the Financial Times, and others who blame poor thinking by MBAs for the Great Recession. MBAs used the tools of economics without thinking like economists—taking into consideration incentives, opportunity costs, and implications. I teach a course on thinking so know it can be taught.

Morris: What is the starting point of clear thinking?

Waddington: It begins with asking questions. Here are my half-dozen favorite quotes on the importance of questions:

• “We can understand a text only when we have understood the question to which it is an answer.” — Hans-Georg Gadamer

• “The uncreative mind can spot wrong answers, but it takes a very creative mind to spot wrong questions.” —Antony Jay

• “…answers establish an edifice of facts; but questions… make the frame in which (the) picture of facts is plotted. They make more than the frame, they give the angle of perspective, the palette, the style in which the picture is drawn….” —Suzanne Langer

• “Asking a question is the simplest way of focusing thinking . . . asking the right question may be the most important part of thinking.” Edward de Bono

• “If I had 60 minutes to solve a problem and my life depended on it, I’d spend 55 minutes determining the right question to ask. Once I got the right question, I could easily answer it in 5 minutes—Albert Einstein

I am perpetually dumfounded by the American obsession with freedom while the vast majority of people never exercise that freedom to liberate their thinking from the dogma they were fed as children. The most neutral example I can think of is that I’ve had wealthy colleagues tell me that mortgages are good and that I was an idiot to pay mine off. Now their houses are underwater and they’ve paid ten times more in interest than they saved in taxes.

Morris: During your various travels throughout the world in recent years, which phenomena did you find most significant?

Waddington: Things I thought were natural are cultural. This understanding mostly comes from spending a lot of time in China and having many small, but jarring experiences. At a Daoist temple, what faces the tower of the sword? The tower of the stamp. I didn’t see that one coming. I see people be ruder to outsiders than I can possibly imagine and kinder to insiders than I’ve ever experienced before (and since I speak Chinese and have friends, I’m an insider). We’re having dinner and an old colleague walks into to the room. Several people shout out, “Wow, you’ve really gotten fatter.” Educated women argue with me: Why would I want equality?

Also, when I was in the Soviet Union in the 1980’s and in discussions I’ve had with former Soviet citizens since then, they argued that they had a great deal of freedom, freedom that we do not have. They were free from worries about having to find a job or worry about healthcare. They said that Americans are free to do things while they were free from concerns. This isn’t mere semantics. I’ve talked to artists and athletes who said that they could never have developed their skills in the US, because they would have had to get a job to pay for healthcare, which would have left no time to practice.

In other words, shaken from my dogmatic slumbers, again.

Morris: Here are two statistics I find astonishing: since at least 1964 and perhaps earlier, with 2004 an exception, on average, less than 50% of those eligible to register to vote have done so; and then, also on average, less 50% of those registered voted. Why?

Waddington: This is the unpleasant thought that I’ve been mulling for a while. The answer might just be that democracy doesn’t work. There is your observation about voting patterns. At a more abstract level, there is Arrow’s impossibility theorem, which proves that it is not possible to design a voting system that meets three reasonable criteria for fairness:

• If every voter prefers alternative X over alternative Y, then the group prefers X over Y.

• If every voter’s preference between X and Y remains unchanged, then the group’s preference between X and Y will also remain unchanged (even if voters’ preferences between other pairs like X and Z, Y and Z, or Z and W change).

• There is no “dictator,” i.e., no single voter possesses the power to always determine the group’s preference

There’s the European financial crisis. There is our inability to plan long-term (as opposed to China’s five-year plans, which we scoff at, but they seem to work, e.g., from 1990 to 2010 they grew their economy at 9% per year). Once you start to question the dogma of democracy, you start to see and hear new things. When I was in Katmandu recently, somebody talked about how they overthrew the king and replaced it with democracy, “So now instead of trying to satiate one person, we have to try to satiate 29 million.” Back to the subject of complacency, on October 4th 1957, the Soviet Union launched Sputnik. What did we launch on the same day? Leave It to Beaver.

One the one hand, I’m not sure we need democracy per se, but I am sure we need checks and balances. On the other hand, I certainly wouldn’t trade what we have for what the Chinese have. On the other, other hand, Churchill may have been right about it being the worst form of government, except for all of the others. In any case, I don’t think democracy should go unquestioned.

Morris: In light of these statistics, it seems ludicrous to me for the United States to attempt to impose or at least proselytize principles of participatory democracy across the globe. What do you think?

Waddington: Until we have a functioning government, full employment, have wiped out our deficit, have a working infrastructure, and first-rate schools, I really think we should mind the beam in our own collective eye.

Morris: With regard to the current Recession, Depression, Great Reset, Great Disruption (call it what you will), do you think we are at “the end of the beginning” or at “the beginning of the end” of economic upheaval throughout the world?

Waddington: I usually answer micro questions with macro answers, but this time I’ll give a micro answer to a macro question, because in some ways it is a higher-fidelity answer: Some of each, depending on who you are. The explanation for growing income disparities is that technology allows excellence to have a greater reach and therefore to receive greater rewards. The usual example is something like: Two hundred years ago it would have been OK to invite people to your house to listen to the 50th best opera singer. Today, you can download the very best or travel to listen to the very best. The 50th best gets very little reward while the very best receives a very large reward. Unemployment for people who haven’t finished high school is 14.9%, for PhDs it is 1.9%. My point is that for highly skilled individuals, it is roughly accurate to say that there is no economic upheaval. For unskilled, it will never end.

Morris: We’ve covered quite a few topics in this interview. How would you tie it all together?

Waddington: With an insight provided by Alexander Field’s book A Great Leap Forward. Field argues that the common understanding that it was World War II that got us out of the Great Depression is wrong. It was technological and infrastructure investments made during the Depression that allowed us to grow our way out of the Depression, to win WWII, and to become an economic powerhouse in the second half of the 20th century.

We now live in the information age and in a knowledge economy, but we have not made the human capital investments necessary to win the game as it is now played. Worse, we think short-term, but investments today don’t pay off for a generation. Also, we’ve wasted so much money in unproductive ways that even if we had the will to invest, the way would be difficult.

So what do we do? I’d start by asking questions: If we are so admired all over the world, then why do we need to spend more than all other countries combined on our military? Is our military so valuable that it is worth spending more on it than everything else in our budget combined? What if we took some of that money and invested it in potentially-game-changing strategies, such as searching for undiscovered public knowledge? Since ours isn’t working so well these days, is there an alternative to democracy? Do we really think that blaming China for our problems is productive? Given that the ROI in human capital investments is demonstrably very high, can we afford to not make such investments?

*     *     *

Tad Waddington cordially invites you to check out the resources at these websites:

An introduction to Tads’ book Lasting Contribution

A deep dive into explaining Confucianism

Don Swanson’s computer program for searching for undiscovered public knowledge in medical research databases

The Nova documentary on IBM’s Watson

Field’s book, A Great Leap Forward http://yalepress.yale.edu/book.asp?isbn=9780300151091



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