The Culture of Learning as The Ultimate Competitive Advantage

‘The end of work’ has been quite of a debated theme, including by Brynjolfsson, McAfee, Drucker, Keynes, Andreessen, among others. As Nobel Prize winner Wassily Leontief has put it,

The role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the end of introduction of tractors.

Fast forward, (robotic) engineering and automation in general have played quite a role in the last decade. As Mr. Gave put it in his book titled “Too Different for Comfort”,

Thanks to functionality, and lower prices, the global ‘labor-cost arbitrage’ trend, which was the predominant macroeconomic feature of the past decade, may now be coming to an end.

Automobile manufacturers were the main beneficiaries of robotization wave #1, followed by electronic devices industry. More recently, we have seen other industries also benefit from the same trend.

The most staggering fact though is that we may be entering into a new revolution within this decade – a Robolution – as lower robots costs and inflationary labor costs converge, favoring robots adoption by industry participants.

But what types of jobs are at risk? Again recurring to Gave’s book “Too different for comfort”, he categorizes 4 kinds of jobs, being:

That said, categories 3 and 4 certainly fall at risk, while we (equity investors & research analysts) certainly follow under category 2 – non repetitive and complex tasks – and are likely shielded from robots. Thus, if we are indeed safe from robots, how could we lever our skills to better perform our jobs at the individual level, but more importantly, at the company level? Here kicks in Edward Hess and his recently published book “Learn or die: Using science to build a leading-edge learning organization”.

Hess’ motivation to write the book likely emanated from the conclusion that continually learning better and faster than the competition may be the only sustainable competitive advantage individually and organizationally. Take McGrath’s thought-provoking book “The end of competitive advantage: how to keep your strategy moving as fast as your business” as the basis of this. If this assertion is correct, then to perform at a high level on job category 2 we must lever critical thinking, innovative thinking, emotional and social high engagement and other humans. As Hess put it,

the way to unify operational excellence and innovation in an organization is to have a learning culture, because learning underlies operational excellence and it underlies innovation.

In a recent interview with Hess conducted by Shane Parrish from Farnam Street blog, Hess lied a couple tenets of a learning culture, such as de-emphasized hierarchy, intellectual and leadership humility, curiosity, questioning, the right to debate freely, clarity, preparation, a praise for vulnerability, strong processes, accountability, empathy, compassion, humane relationships, no complacency, and so on.

At the end of the day, what we are talking about here is a CULTURE OF LEARNING. At Bridgewater, for instance, the culture is so strong we might call it a doctrine or a religion – if haven’t read Ray Dalio’s principles yet, please do! As companies with such a peculiar culture say it, “we are not for everyone!”

As I don’t to spoil Hess’ amazing book, I will finish this post with a couple quotes I got from his previous mentioned interview.

Number one, underlying innovation and operational excellence, go back to root cause analysis, or the five why’s. Unpacking assumptions, good digging, the why, why, why, is underlying both processes.

Hierarchy as an elitism is de-emphasized, and there is a real push for highly engaging employees and leadership humility, and intellectual humility. (…) Does the CEO own the learning culture and walk the talk? (…) Has the organization put in place culture, structured leadership behaviors, HR policies, measurement and rewards to enable and promote learning behaviors? (…) You’ve got to start small and figure out and prioritize what you are really going to start working on.

Arrogance is a huge inhibitor to learning. Arrogance comes also from success in positional authority.

Where can I improve? What happened today? What would I do differently in how I think? What would I do differently in that conversation as to how I relate?

A leadership model that is very, very humanistic and people-oriented.

 The purpose of the whole system at Bridgewater is to overcome our humanness in a humane way. (…) The first thing they want to talk about is their vulnerability.

You don’t put things off. You deal with them directly, honestly, openly. (…) everything about everybody is public record. 

Indeed, we are all work-in-progress until the last day of our lives. Thinking about how we are thinking is a never ending loop. We can’t ever truly get comfortable. As this topic may look too ‘soft’ for for-profit companies, actually, it’s not according to Hess:

There’s this whole concept in the business world that if you’re humanistic and engaging with people, you’ll come across as soft. People will take advantage of you. (…) It’s not the case. You can be humanistic and have high standards and high accountability. The companies I write about, every one of them are outstanding performers because they have the highest of standards that they hold themselves to. There is no softness in standards. There’s a human element.

Learning By Thinking

“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third, by experience, which is the bitterest.” – Confucius

According to a very recent HBS paper titled Learning by Thinking: How Reflection Aids Performance, Di Stefano, Gino, Pisano and Staats argue that by “reflecting on and articulating the key lessons learned from experience, a person boosts her self-efficacy, which in turn has a positive effect on learning. In this respect, (…) the process of transforming a tacit into codified knowledge requires a cognitive investment that generates a deeper understanding of this knowledge.”

In other words, reflection is as important as experience and is often underrated. If you haven’t read the post on sense-making, you should, as both subjects (learning and sense-making) are correlated.

Learn smarter, not harder.

What Does An Astronaut Has To Teach Investors? – Part I

Actually, a lot. First off, these guys spend their whole lives preparing themselves to go to a space mission – unfortunately, not always all of them go on a space mission (just like an investor studying a company until it finds out it isn’t suitable for an investment). Not only their lives alone, but also their families lives. They go through extensive physical and mental training, mastering their engineering skills, conducting pre-mortem and post-mortem analysis, learning how to be a team player and so on.

According to Col. Chris Hadfield,

“An astronaut is someone who’s able to make good decisions quickly, with incomplete information, when the consequences really matter. I didn’t miraculously become one either, after just eight days in space. But I did get in touch with the fact that I didn’t even know what I didn’t know. I still had a lot to learn, and I’d have to learn in the same place everyone learns to be an astronaut: right here on Earth.” 

Who investors are after all but professionals making good decisions quickly and with incomplete information, mastering their knowledge base for years?

Thinking about how an investor has to be prepared through learning, here is Col. Hadfield take on learning:

“I was in an enrichment program that year and the next, where we were taught to think more critically and analytically, to question rather than simply try to get the right answers. (…) Really, we learned how to learn.” 

Also, there’s no boring investment case task:

“I viewed it as a plum assignment, one learning opportunity after another.”

Definitely someone must compare things when thinking critically and analytically, otherwise how could someone judge if it’s either a good or bad thing? Col. Hadfield shares his experience on that:

“Astronauts have these qualities not because we’re smarter than everyone else. It’s because we are taught to view the world – and ourselves – differently. My shorthand for it is “thinking like an astronaut”. But you don’t have to go to space to learn that. It’s mostly a matter of changing your perspective.”

“Operational awareness – being able to see the big picture and focus on what could kill me next – is what kept me safe after I regained consciousness. (…) If you’re focused on the wrong things, you are likely to miss the very narrow window of opportunity to correct a bad situation.”

And yes, separating the signal from the noise comes with a large enough knowledge base, which comes with experience:

“Training in Houston, I hadn’t been able to separate out the vital from the trivial, to differentiate between what was going to keep me alive in an emergency and what was esoteric and interesting but not crucial. There had been so much to learn, I’d just been trying to cram it all into my brain. During the mission, too, I was in receive mode: tell me everything, keep teaching me, I’m going to soak up every last drop.” 

“I spent a lot of time on PTTs looking at the symptoms of false alarms versus actual system failures: pressure regulation, atmospheric constituent controls, the rendezvous sensing system – the list is long. Through this process I started to figure out what to pay attention to and what to disregard, which risks were the greatest and which would trigger the most negative consequences, and then I was ready for the actual Soyuz simulator, to see what the whole picture looked like.”

In order to learn, naturally, investors need to be great questioners, even for the obvious ones since you work with incomplete/biased information:

“What were the best answers to the obvious questions?”

Many times investors are “1st-level-correlated” to money-making opportunists, although

“It takes years of serious, sustained effort, because you need to build a new knowledge base, develop your physical capabilities and dramatically expand your technical skill set. But the most important thing you need to change? Your mind. You need to learn to think like an astronaut.”

Simply change “physical” for “mental” and “astronaut” for “investor”.


And when you get what’s needed to go “all-in”, have a sizable position in your portfolio in your great idea, it’s when you know

“Knowledge and experience have made it possible for me to be relatively comfortable with heights, whether I’m flying a biplane or doing a spacewalk or jumping into a mountain of corn. In each case, I fully understand the challenge, the physics, the mechanics, and I know from personal experience that I’m not helpless. I do have some control. (…) But in order to stay calm in a high-stress, high-stakes situation, all you really need is knowledge.” 

Another interesting metaphor is how austronauts’ (g)ravity is correlated to investors’ (g)rowth. As the space rocket is coming down to space (a 54-minute long trip!), (g)-force receives a multiplier attached to it, so astronauts get dizzy and feel so weak they can’t even stand up when they get down to Earth. After they arrive home again, they spend months with physicians monitoring their recovery. Isn’t it pretty much how investors feel with high multiples attached to companies with strong (g)rowth prospects when they are de-rated? High-growth indeed is foggy.
There’s a lot more we can learn from astronauts, which I shall share with you in the next coming post.

On Knowledge, Ignorance and Misperception

Many times we, research analysts, think we have completed the puzzle. Actually we NEVER do. What we actually do is think we have completed it. At the end of the day we are just tricking ourselves. If you think twice, our job is like playing the Jigsaw game – do you remember the movie? Things are getting scary, right? So, don’t freak out and let me explain it.

Analysts are flood with information from companies, sell-side analysts and stockholders – to name a few. This is just like playing Jigsaw’s game. The game is set up, someone controls your attention. You have to figure out  by yourself, just like a CIA agent, what the actual facts are. Distraction is across the corner, but the facts are buried down there. You will have to triangulate information across different sources in order to reach somewhere. Well, “somewhere” is a place where there are a lot more questions to be answered and that’s what knowledge means: knowing what you DON’T know. In other words, knowledge is ignorance acknowledgement. And so the game goes on. It’s an infinite game. Thus when you get home at night I suggest you to upgrade Munger’s lesson “Make sure you learn something new every single day” to “Make sure you end your day with more questions than when you woke up.”

Want to dig further?

Ignorance: How it drives science by Stuart Firestein

Finite and Infinite Games by James Carse