Goldman Sachs’ Foresight Culture

Recently I posed two questions about Foresight in Organisations: What are are the intervention points?  After five or six years, who are the teachable case studies for successful implementation of the foresight function?

I’ve only read the Los Angeles Times and New York Times reviews but Charles D. Ellis’s The Partnership: The Making of Goldman Sachs (Penguin Press HC, New York, 2008) has some answers to both questions.

Ellis suggests Goldman Sachs has three intervention points to cultivate a foresight function: (1) a human resources function staffed by A+ people who recruit “A+++ people” usually in computational finance, financial engineering and statistical arbitrage; (2) an organisational culture tolerant of the “longer-term view” that is linked to the “[operational] details” necessary for strategic execution; and (3) a creative tension between past excellence and new frontiers.  Intriguingly, the “longer-term view” or “forward view” in Foresight parlance, emerges from people in a supportive culture who are faced with challenge at the boundary of the firm and the external competitive environment.

Two other biographies partially validate Ellis’s insights.

Perry Mehrling’s biography Fischer Black and the Revolutionary Idea of Finance (New York: John Wiley & Sons, 2005) and his working paper ‘Understanding Fischer Black‘ describe why Goldman Sachs recruited the economist Black: to tap his academic knowledge to design new financial instruments, and use his influence as coauthor of the Black-Scholes equation in finance to impress clients.

Emanuel Derman describes his Goldman Sachs collaboration with Black in My Life As A Quant: Reflections on Physics and Finance (New York: John Wiley & Sons, 2004) and how the firm benefited from the influx of PhD graduates in the 1980s.  Derman was bored at AT&T Bell Labs which had a reactive culture of research management.  He transitioned into Goldman Sachs’ fixed income division in 1985 and then moved to equities in 1990 where he thrived for the next decade in a culture that appreciated how conceptual expertise can underpin a firm’s competitive advantage in new growth markets.

The contrast was so different that I pointed Derman’s experience out in a private submission to Australia’s National Innovation System Review (aka Cutler Innovation Review) in comments about the institutional design and research management culture of Cooperative Research Centre consortia.  Maybe given the subprime fallout CRCs can also learn something from Goldman Sachs and Berkshire Hathaway‘s Warren Buffett who has now taken a $US5 billion equity stake in Sachs’ foresight culture.

Change.gov

During a stint as Disinformation‘s site editor I learnt to monitor how analysts and experts respond to significant events.  Analysts and experts can situate the significant event in relation to a discipline or knowledge area.  So, it’s a strategy in which the event and the expertise are wayfinders to help learn about the discipline, in a contextual, real-time way.

For the past five days I’ve looked at Change.gov: how President-Elect Obama uses open government principles and strategic communication to implement his transition prior to the Inauguration on 20th January 2009.  It’s not all gone smoothly: ProPublica‘s Mike Webb and BoingBoing‘s Xeni Jardin note that some early information on Obama Administration policies were removed (Slate confirmed this occurred).  The Obama campaign’s Twitter page may be dead as the President-Elect now opts for more traditional media outlets.  Despite this, Change.gov is a very intriguing project that generates lots of commentary in the media and policy circles.

As a real-time case study Change.gov may turn out to be a richer learning experience than an entire bookshelf of dotcom era books on change management projects, e-government transformation and e-policy ecosystems.  Who will write the case study for Harvard Business School MBAs and Harvard Kennedy School policymakers?  Will the Obama Administration license David Bowie‘s “Changes” as the site’s theme music?

A side-benefit of Change.gov is some really insightful media commentary about the games that new political appointees must play to thrive in the Beltway.  Exhibit One: The New Republic‘s Noam Scheiber explains how Tim Geitner cultivates a keen political awareness for institutional buy-in and is a frontrunner for the US Treasury Secretary.  Geitner’s insights are useful for change agents or anyone who wants to navigate organisational politics.