It is also the start of the strategic planning season for many different types of financial institutions. It’s that time of year when boards and senior leadership teams get together to work out the budget for the coming year, putting silos and internecine battles aside to focus on what’s best for the customers, and thus the overall enterprise.
It’s that time of year when the leaders of various business lines calculate how much money they need to spend right away so that it doesn’t get lost in the budget for the following year. It is around this time that executives begin to try to curry favor with their bosses and jockey for positions by convincing their bosses that their business unit is far more deserving of additional funding than their competitors’ business units.
Even though it appears illogical, all of this behavior is perfectly reasonable
A significant portion of the strategic planning process, particularly those dealing with budgeting, is essentially a zero-sum game. All of the funding requests for the bottom-up that are sent out from the top of the organization to frontline leaders (with varying degrees of sincerity) invariably add up to far more expenses and far less current revenues than what the C-suite has already telegraphed to investors. This is because bottom-up funding requests are based on the same assumptions as top-down funding requests. As a result of the subsequent haggling, backstabbing, and unsatisfactory compromises, limited resources are typically dispersed throughout the organization in the manner of a thin layer of peanut butter. Nobody goes hungry, but only a small percentage of the population gets enough energy.
What can we learn from the experience of Las Vegas?
In contrast to many Wall Street investment bankers and traders, the majority of those who run commercial banks and credit unions are naturally risk-averse. Even though there is a risk associated with not taking risks, as I have previously stated, it appears that Las Vegas does not provide many useful lessons for the second group.
However, if you are serious about reaching a new level of performance, now is the time to focus on doubling down on a small number of bets with the potential for outsized returns. This includes removing some bets from the table if the odds appear to be stacked against you.
Spreading your bets across the roulette table may appear to be a prudent risk-mitigation strategy; however, due to the house’s advantage, this strategy will result in an expected loss that is at least equal to betting all of your money on black over the long run. Or red.
Transitioning from the House Edge to the Player Edge
Blackjack players are the only people in Las Vegas who have a chance of making money in the long run (aside from the casino itself), but not just any blackjack players; only those blackjack players who:
Understand the odds associated with each wager that can be placed, recognize when the odds have shifted in their favor, and adjust the number of wagers accordingly.
Learning the odds of each possible bet in blackjack may take some time, but it is not a difficult task. Basic strategy cards the size of wallets can be purchased from casino gift shops. Millions of gamblers, on the other hand, will ignore them in favor of betting on “hunches,” “streaks,” and “strategies” based on wishful thinking rather than the mathematics of probabilities and statistics.
To recognize when the odds have changed, you must be able to count cards. This ability became well-known as a result of Ben Mezrich’s 2003 book “Bringing Down the House: The Inside Story of Six M.I.T. Students Who Took Vegas for Millions,” which was later adapted into the 2008 film “21,” starring Kevin Spacey.
Counting cards is a blackjack strategy that involves carefully tracking what has happened in the past to improve one’s ability to predict what will happen in the future. (Does anyone have an interest in predictive analytics?) This holds when dealing with a fixed number of decks; however, it does not hold when rolling dice or spinning a roulette wheel, where each result is independent of the others. Card counting is not illegal, but it violates the rules of every casino in the world.
This is because card counting reveals when the player has gained a temporary advantage over the casino. When a player believes that the odds are in their favor, they can take advantage of any of this information and bet more. If the majority of the cards dealt up up to this point have had lower values, the likelihood that the majority of the cards dealt next will have higher values increases significantly. It is recommended that players increase their wagers in response to this development because it is likely to work in the player’s favor in the long run (in part because it is likely to result in the casino going bankrupt more frequently).
These factors rarely combine to produce a sure bet, which means that the outcome is guaranteed to be a win 100% of the time. As in business and life in general, there is still a significant element of random chance at work in blackjack. Despite your hopes that the remaining tens will help you draw to 21 and force the dealer to bust after she reaches 12, they could just as easily cause the opposite result.
Using each of these strategies in conjunction with one another, on the other hand, can help create more winning sessions, which is a positive development.
Putting Things on Their Heads in the Boardroom
How can you apply what you learned at the blackjack table to the situation at the conference table? What are some strategies for increasing your chances of success during this season of strategic planning?
Keep track of the odds on your current wagers. Do you have any products or business lines that are growing slowly, and do you know deep down that you won’t be able to grow any faster in those areas? Especially if they are unimportant to the overall strategy of the company and do not contribute a significant portion of its ongoing profits.
Recognize the places where the odds have shifted. Are there any emerging companies, products, or services in which you do not currently invest but believe you should? Should you work with any outside partners to take advantage of the new opportunities that have arisen? Have recent changes in the competitive landscape revealed any new vulnerabilities in your defenses that need to be addressed?
When placing your bets, show some guts. One of your most important responsibilities as a leader is to distribute available resources. History, legacy, and sunk costs should not be allowed to distract you from the question of where the next dollar should be invested. Where should you remove your bets so that you have more money to put down on games with better odds?
There is always the possibility that the odds will shift against you in the short run, but using this strategy can help you have more wins and win more over a longer period.
I hope that the odds are always in your favor.