Introduction

Private research demonstrates that mindset is an important factor in society, for its economy, for war and for peace. Mindset is also called mentalities, or “human factor”. An important percentage of the effort in the economy is dissipated, instead of being added to wealth. But recovery is possible.

A cause for the results observed: we miss a fundamental of management

Current indicators for mindset are based on statistics and only provide simplistic information: “good” or “bad”, not enough for designing an improvement program. Therefore decisions are built on the visible part of people, their characteristics and their behaviour, which all are symptoms. What traditional accounting methods don’t capture is swept under the rug. Mindset is ignored and left misaligned. Health care practices illustrate a universal logic: addressing symptoms rather than causes have little chance to stop disorders. The same logic applies to organisations. In management, addressing causes means building decisions focusing on mindset . Hence, three statements:

1. Governing, managing and educating is essentially basing on behaviour driven decisions. 
2. Every manager’s decision to influence people bears high risk of failure. 
3. Improving our understanding of mindset and making mindset driven decisions requires instruments that place mindset on a map.

A method to master mindset

Instruments making this possible have been developed. They are in use in a few large organisations and have been taught in post grade programs for five years. Improved understanding of mindset enables the construction of powerful instruments that enlighten bounded rationality in the decision making process: 
• Predictors of performance of organisations & nations. 
• Predictors of success or failure for projects & strategies, political reforms and wars 
• An estimator for the value of trust, also called social capital, hence the key to the creation of a new economic model that captures soft assets better and improves the quality of decisions of investors and CEOs.

Practically, mastering mindset has an impact on many aspects of governance in our societies. Democracy in times when communication is intense makes of mindset a factor important to manage: mindset impacts elections, the roll out of crises, resistance during war, and contribution to the projects of the community; it impacts commitment, quality, innovation, and safety at work. Sustainable development, cultural tolerance, reduction of pollution, to name a few, will be successfully addressed with mindset drivers, not with behaviour driven decision making.

If we are to serve the community, we ought to set the fundaments of decision making right. The decision accepting process in businesses, nations, and at the head of the European Union requires closer attention and better understanding. At this moment, these organisations are operating at high risk. Hence I offer my time & understanding of mindset to join or form a team, with the purpose of making the newly developed instruments more robust and better known. The team would select priority developments that could include a few as listed below.

Discussion

 

Towards a New Economic Model

Part 1: Description of what has been developed & empirically validated

Mindset 
1. Existence & definition 
2. Construction 
3. Qualitative impact on performance 
4. Anticipation power 
5. Quantitative impact on performance

Points 1 to 4 have been published in RUPERT (R.).- La réponse à la complexité avec la Boussole du management. AG1580, éditions Techniques de l’Ingénieur, traité L’Entreprise industrielle. Janvier 2005. Rédacteur en chef : Jean-François Vautier, Commissariat à l’Énergie Atomique, Paris.

Points 1 to 5 will be published in RUPERT (R.).- Mindset, the indicator for risk & performance. Revue Économique et Sociale. July 2007. Rédacteur en chef : Professeur Fabien de Geuser, HEC, University of Lausanne, Switzerland

More details on mindset

1. Existence: Psychotherapy has the purpose to increasing individual sense of well-being by acting on problems that appear to have no discernible organic basis. There is no need to further demonstrate that the mind exists, that it is the humanity of the person, and hence that mindset is its state during a period of time.

2. Construction of mindset: it is the conclusion of individual comparison of own aspirations and own perceptions. Plays, movies and the simple observation of how people function reflect this ongoing process. In a professional environment, it is the comparison of aspirations for and perception of autonomy at work. This leading indicator for mindset provides much more information than the current statistical approach.

3. Qualitative impact on performance: discussing gaps between employees’ aspirations for autonomy, employees’ perception of autonomy, and the autonomy useful at work enables strategic thinking, risk evaluation bound to the social capital in proactive work and designing mindset driven decisions in reactive work. Hence it avoids leading the organisation or the nation towards paralysis, chaos, opposition or confusion. The characteristics of the gaps display what levers or hinders mindset to be adequate to perform.

4. Anticipation power: mindset is there before behaviour. Hence knowing about mindset provides insights into the action-to-come, the future, i.e. the time to close the process cycle, going from short - a restaurant, to long – the educational policy of a nation. Hence the fall of Swissair was predicted five years before it happened; the extreme cost for the German merger was predicted too.

5. Quantitative impact on performance: about hundred cases examined display a good correlation between gap characteristics and the economic value dissipated. This opens a big door.

 

Part 2: Description of what new developments make possible

 

1. The quantitative impact on performance provides the evidence that mindset is a production factor, like capital and labour. It provides the cost of status quo - the cost for keeping mindset misaligned - hence it is the factor enabling the integration of mindset into the current finance based thinking process. At this moment, the instruments developed provide data at a comparable precision level than ongoing estimates of trade names, patents, and market positions. More work will increase precision. It enables accounting to describe cultural change & soft factors in a monetized way and integrate them into standard accounting. Please see below, Professor Baruch Lev from Stern, New York City.

2. Since the action plan built with mindset driven decisions is defined, the investment required to move culture can be estimated. Since the value recoverable is known too, governments and managers are placed in the traditional return on investment based decision making process. In times of globalisation, when cultures are thrown together, when most conflicts have cultural & mindset dimensions, the possibility to appraise qualitative and financial consequences as well as knowing the cost of mitigating alternatives are critical. International Accounting Standards could play a role in organising this data. Examples include the construction of Europe, the merger of East & West Germany, and the many technology & production transfers taking place today.

3. Once mapped, mindset becomes a factor seen as rational and accepted by all, management & unions. As it points at the key issues, it cuts discussions short. Governments & managements save lots of time. For the last years, Union Bank of Switzerland has been playing a role there.

4. The pharmaceutical laboratories hire the best creative people but observe poor innovation rates. The instruments provide information about the social capital of companies and the analysis is very likely to show that mindset is the problem there, not knowledge. In the same way, risk for fraud & corruption is made visible: going around a rule is a mindset. Major auditing companies could play a role here. Rising labour conflicts are made visible too. Change in social capital correlates with the stability of performance. Hence, following up and ranking mindset changes provides an insight on people related risk, information that is essential to investors. Rating companies have a role to play here. Warren Buffett pays high attention to the above and his results have been telling for decades.

5. Many more operational applications will benefit from robustly constructed instruments, contributing to welfare of the communities applying the key fundamental, mindset driven decision making.

 

Part 3: A few steps of the effort

 

Making the existing instruments more robust requires the contribution of many disciplines including economy, psychology, social sciences, and also mathematics and accounting.

1 There is enough material available already for writing a book.

2 Pilot web based instruments developed by a few post grade students already demonstrate the feasibility of web based fully computerized instruments that would generate a report on the alignment of mindsets. The information is valuable: 
• to operational managers to decide on improvements, 
• to the CEO to decide on the strategy, 
• to investors to decide upon short or long term investment.

3 Additional research programs would address the assumptions made so far. 
Assumption 1: Is the qualitative impact fully universal? 
Assumption 2: Is the economic value dissipated following universal patterns? 
Assumption 3: Does one’s mindset fuel one’s behaviour? There is more to say.

Such research programs would include a greater number of real case surveys. So far, those which form the very base come from my own 20 years of experience as manager, having information on both: the original mindset gap and the value recovered by closing it.

4 Lobbying at government level in order to introduce the idea that social capital has a measurable value, and that it should be made part of the accounting standards in order to improve the quality of management practices. This leads to a global improvement of productivity, hence higher job protection, because social capital belongs to both, the employee and the employer.

Baruch Lev

With all the scrutiny that public companies get these days, you would think there’s little that isn’t known about them. But that kind of knowledge may only scratch the surface of what composes corporations’ true worth. Underneath all of the "hard" facts about plants and inventory and capital investment, some financial experts say, lies a mountain of soft data about such things as R&D, brands, patents and general know-how that traditional accounting methods don’t capture. The problem is that these so-called intangible assets — which by some estimates could make up as much as 80 percent or more of a company’s value — have been so hard to measure that many companies, even if they realized their worth, have swept the matter under the rug. They might not have that luxury much longer. Both the U.S. Securities and Exchange Commission (SEC) and Congress are looking into whether they should require companies to detail intangible assets more closely. That’s needed, so the argument goes, to protect both investors and the companies. Investors are at risk because without knowing the impact of intangibles, a company might be overvalued and the stock wildly inflated. Companies are at risk from the other direction because they might otherwise be undervalued and find it more difficult than they should to attract capital. It’s an argument that Baruch Lev, a professor of accounting and finance at New York University’s Stern School of Business and a true evangelist, has been making to anyone willing to listen. One of the most respected authorities on the issue, Lev has provided evidence to the SEC for its deliberations, and in July he testified before a Senate committee about the increasingly urgent need for companies to make fuller disclosure of intangibles.

Reference list

The reference list includes academics who have reviewed the logic of the method articulating these instruments and business people who have approved their use.

Professor Chris Muth, head of the Human Systems Engineering MAS, Lausanne Professor Fabien de Geuser, University of Lausanne (Economy) Professor Gérard Gouédard, École Normale Supérieure, Paris (Physics) Professor Mathias Rossi, HES, Fribourg CEO Jean-Jacques Jeuch, Paris, ex McKinsey Christian Balzer, head of Business Consulting, UBS, Zurich Curdin Duschletta, head of Education and development, UBS, Zurich CEO Marten Hoechstra, UBS USA