Re-thinking tradeoffs

Photo by roland

During the last few weeks, as part of our AGSM MBA integrative experience, we participated in a simulation with a software called Markstrat. The simulation allowed us to run companies in teams as part of a competitive environment, making decisions about operations, marketing, strategy and more. In the end of the two weeks experience we each had to write a short essay about what we learned from the experience.  Here is a short part of what I handed in:

As future managers we should be aware of that and think carefully about the implications each decision has on our cognitive resources. Attention and time are the scarcest resources a manager can allocate, even more then money. Thus, they should be considered in a decision like any other scarce resource.

This relates to an idea I have been writing and thinking about a lot lately. Tradeoffs. I think as human beings we have the immediate tendency to want everything. To try and be everything. To try and be the best at everything. Maybe instead we should focus our attention on being the best at something. Just one thing that will make us stand out. Not because being good at everything is bad. It is because it is so hard to achieve all at once. Because success is so many times the result of tradeoffs. Of actively deciding not to be good at something, because we put all our resources on something else.

Maybe, in our multi-tasking world, we need to re-learn what our forefathers, the hunters, knew how to do so good – focus on one thing. Become your prey. Follow it enough and you will understand it, start to think like it and finally hunt it.

I was reminded of this concept yesterday while I was reading Seth Godin’s post: “Spare no expense!“. Godin, makes the same point about tradeoffs in a different setting. The resources companies put into making one customer happy. A short excerpt:

The reason we get trapped by (c) is that, “I’m doing the best I can” is always much easier than, “we need to be disciplined and help more people, even if that means that some special cases will fall through the cracks. The internet makes this even more difficult because people who fall through the cracks are able to amplify their complaints ever louder.

The way around it, I think, is to set expectations early and often. If you’re going to give me your phone number, you better answer it. If you’re going to offer a warranty, you better honor it. If you position yourself as a company with real people eager to make every single person happy–you better deliver.

No matter what, you should decide. In advance. How much do you want to spend on ad hoc emergencies, how much do you want to reserve on design and helping the masses improve their experience?

The hard part is making the decision and sticking to it. We see many companies saying things like – “we put our people first” – but when it comes to making the actual choice, the actual tradeoffs, they don’t. It is not only about not fulfilling your promises; it is about not making the right tradeoffs even though you decided to make them.

So, what are your actively chosen tradeoffs? And what do you to keep them?

Elad

Seth is wrong

Photo by Daquella Manera

Well, maybe it is not very creative. Maybe I am an imitator. But some of the most successful people in the world built their careers on imitation. What am I talking about? The title of this post, is a spinoff of Seth Godin’s post titled: “Malcolm is wrong“. In that post Godin said that it doesn’t happen to him a lot. For those of you who follow this blog, you might know that this does not happen to me a lot too…

But I really think he is wrong. What I am talking about. Godin’s post: “Wining on the uphills“. Here is the gist of it:

The best time to do great customer service is when a customer is upset. The moment you earn your keep as a public speaker is when the room isn’t just right or the plane is late or the projector doesn’t work or the audience is tired or distracted. The best time to engage with an employee is when everything falls apart, not when you’re hitting every milestone. And everyone now knows that the best time to start a project is when the economy is lousy. Most of your competition spend their days looking forward to those rare moments when everything goes right. Imagine how much leverage you have if you spend your time maximizing those common moments when it doesn’t.

This is not a sustainable strategy. If all we do is try and concentrate on trying to fix something that we have broken, even if we do the best fixing job possible, in the end – the customer will give up. If you get me upset once and fix it – you will buy my loyalty. If you constantly make me upset and then fix it, I will go somewhere else. I am willing to settle for a little less to avoid the trouble.

The focus should not be on the rare moments that things when everything goes right. It also shouldn’t be on maximizing those common moments when it doesn’t. It should be on making sure that those rare moments when everything goes right are not rare. That they are the standard. This, off course does not mean that a recovery plan in case things go wrong is a bad idea. But each and every such occasion should be directed to making sure you won’t have to go to your back up plans. To making sure the systematic failure is fixed. To making sure that the moments everything goes right are not rare.

 Don’t fix problems, prevent them.

Elad 

Dashboards

Photo by dawnhops

I have touched the subjects of information, vital signs and the right way of measurement many times in this blog. That is why I rejoiced when I saw a post by Seth Godin titled: “Dashboards“. The idea is to create new and improved ways to present important information in real-time. Godin presents it from a marketing perspective. But it is just as applicable from a manager’s perspective.  An interesting quote:

Or consider the ambient dashboards that have been built in surprising ways. One company put pinwheels on a VPs desk. When sales went up, the pinwheels spun faster.

Just curious: what do you think would happen to energy consumption if every car registered in the US was required to have a digital mileage readout installed?

Imagine that you could sit at your table and see how each and every one of your employees is doing… that your dashboard will be able to show you the vital signs of your organization and employees. Imagine that your employees could see it as well, and get an instant validation for their efforts.

Off course when we design these dashboards we need to think about all the challenges that were mentioned in my other posts and in Godin’s one. What do we measure? We should be careful not to measure something just because it is there and available. We should think off the affects that the dashboard has on our decision and frame of thinking. Taking Godin’s example: do we really want to put sales as our vital sign? How will that effect decision making?

Challenges notwithstanding, I am pretty sure this is where management of people is going. Not only balanced scorecards that are discussed every quarter, but continues attention to details in real-time. The questions that this approach will raise cannot be predicted. We should especially be careful from short term attention this could create. But I am confident, that it will help us create a much needed culture of greatness.

Elad

The resistance to free is futile

Photo by Kalandrakas

The notion of Free is becoming more and more prominent in our economy and in business thinking. More services are becoming free and some things, like information, are starting to be free as a standard. I discussed this phenomenon a while back here on my blog, especially the validity of business models that rely on advertising.  

I started thinking about this again after reading Malcolm Gladwell review of Chris Anderson’s new book, “Free: The Future of a Radical Price” and Seth Godin’s take on the two. This is the gist of Godin’s view:

The first argument that makes no sense is, “should we want free to be the future?” Who cares if we want it? It is. The second argument that makes no sense is, “how will this new business model support the world as we know it today?” Who cares if it does? It is. It’s happening. The world will change around it, because the world has no choice. I’m sorry if that’s inconvenient, but it’s true.

While I do agree with Godin that free changes a lot I am not sure that his take is fully accurate. You have to agree with Gladwell’s take on the example of Youtube:

YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds

I was just reading an article for the strategy course I am currently taking at my AGSM MBA and in it the writers describe how E-bay reacted to the public auction initiative that was started by Yahoo!. Yahoo!’s product was free and E-bay originally thought that was going to be a problem. But it turned out, like in the Youtube case, the free attracts, as Anderson and Gladwell call it: “Crap”. If it is free to post an auction, you start auctioning stuff that their possibility to sell is close to 0. Even though in E-bay, the payment was about 25 cents, this payment still held barriers that made their service better. It turned out, free was the wrong way to go.

So, what is the lesson here? Gladwell says that:

The only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.

Godin, says something similar:

In a world of free, everyone can play.

My personal take is that the rules are changing. On one hand, you have to realize that some industries will have to remodel their business to a world of free. Like newspapers, book publishers, and probably even the music industry. On the other hand, you cannot ignore the physiological effect of free (research shows that when people pay for something, they enjoy it more). And you cannot ignore the fact that even if there are things for free in the industry people will still not be willing to pay for special, unique and scarce. As Godin puts it:

People will pay for content if it is so unique they can’t get it anywhere else, so fast they benefit from getting it before anyone else, or so related to their tribe that paying for it brings them closer to other people. We’ll always be willing to pay for souvenirs of news, as well, things to go on a shelf or badges of honor to share

This means we should be careful. We should not ignore free. But we should not fall for the trap it represents. Free has advantages and disadvantages. We need to further study how free works because it works for certain industries and it does not for others. One thing we can’t do. We can’t allow the past to control our future. Fighting free, where it is relevant, will not work. Resistance is futile.

Elad

Are you always going for the average?

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A statisticians Obituary:

“We regret to announce the death of Mr. William Smith, well known statistician, who was found drowned in a lake of an average depth of 7.4 metres”

Source – this site

The average is not only dangerous for statisticians. It is also dangerous for managers and decision makers. What is the problem with being average? After all, average is safe. It is easy to come by. The average is a compromise. It is the middle ground that everybody can agree about.  But if you think about it from a business perspective, what is more important – making everybody happy or succeeding with the business?

There are so many companies who settled on average products or services and disappeared, because being average is like a death sentence. We already know that there is no such thing as an average, one suits all, product.

In contrast to the pool, in real life, the average never stays average. The standards in everything (sports, academia, and business) are rising. What was considered great yesterday is now good, and what was once considered good, is now poor. So, if you start from being average, you don’t really have a chance. That is why people who are at the top don’t feel comfortable:

Why Are Tiger Woods, Oprah, and Bill Gates Uncomfortable?

They are uncomfortable because they are the best at what they do…and the best are never comfortable with where they are. Why? Because they have a burning desire to improve and grow and this naturally creates a healthy discomfort.

Most people think that the best live a life of blissful ease and bask in the glow of their success but that is not the case. Rather the best are always thinking of ways they can take their “game” to the next level and they’re always pushing themselves out of their comfort zone

Even though we all know, in some very deep way that this is true, we still go for the average. We still don’t choose between deeper and wider when faced with the buffet dilemma, we try a mix; a little bit of both.

I think this is the reason governments fail to create changes a lot of the time. Politics is about the average. It is about compromising. You can see a lot of legislation that was much needed in principal, but when it goes through the motions, it is changes due to the different agendas and what you get is an average that causes more damage than the original situation.

Sometimes, when I work in teams, I find myself in the opposing side. Somebody is making an offer I do not agree with. in these situations, if I do not succussed in convincing the other side that I am right, I always try to consider going with the other side’s approach instead of reaching some kind of average. We can both leave the argument happy and feel like we won something, but if the final result is mediocre, than it is not worth it. I rather take the risk of failing but have the chance of excellence, than going for the average. Because in the long term. The average kills you.

Or as Hugh MacLeod puts it:

Quality isn’t job one. Being totally fucking amazing is job one.

So, when is the last time you chose the extreme over the average?

 Elad

 

 

Is good enough good enough?

In the last few days I was thinking a lot about the question of good enough.

When do you give up and just stop improving whatever it is your working on and when do you try to create something remarkable and different?

Two references for my thoughts. First, Seth Godin, who writes:

You end up, if you’re talented, with something good enough.

Is that enough? Is good enough enough to win? To change the game? To reinvent your organization and your career? In a crowded market, when all the competition is good enough, not much happens.

Good enough is beyond reproach. It’s safe at the same time it represents quality. Good enough demonstrates effort and insight and ability. People rarely get fired for good enough, which is a shame.

I must admit, I love this approach. Too many little things in life are just plain mediocre. Just because somebody decided that the service, or the design or the product should be only OK. If we really want to make a change, we should not settle for good enough, only for great. To many things are so mediocre, when they should not be.

But then, I think about the importance of picking your battles. And I am reminded, like I so often do, that there are no complete truths in life. Check this post, by Karlyn Morissette:

All too often in higher ed, we get bogged down seeking perfection, when something that is good enough will do just as well.  I can tell horror stories about tying up hours of time from five or six employees in search of the perfect Facebook Ad.  Yes, you heard me right – FACEBOOK AD.  The picture had to be designed just right and the copy had to be written and edited and it had to be mocked up so the client could see what it would actually look like in Facebook, etc.  It was absolutely ridiculous.

All of us have been there. We spend too much time on things that are not really important. Actually when I worked at a law firm, I guess that about 30% of my time was spent on perfecting things that had no real influence in the outcome. How the document looks, if the paper came out of the printer a little smeared, etc. Not that it is not important to produce perfect work. We just need to be realistic sometimes and understand that sometimes, good enough is good enough because it is more important to do stuff than to do them perfectly.

You might think that the question is, how do you decide? Which, I agree, is a very important question. But I actually think there is a question which is even more important. Do you stop to consider? Whatever you decide to go with perfection or good enough is not as important as actually stopping, and taking the time to make that a conscious decision. To weigh the consequences of each path. Don’t do things automatically or just because this is the way everybody does it here. Stop and think. Do I demand perfection? Why? Am I settling for good enough? Why?

I think that most of the time, you would find that the question, is more important than the answer.

Elad

The process of doubting

photo by ktylerconk

“I doubt, therefore I am” René Descartes

Today, I was part of a practice debate. The subject of the debate was: “that executives’ bonuses should be slashed”. I was part of the negative team that is supposed to argue that the claim is wrong. The positive team, which is the first to argue, started by claiming that they do not think that bonuses, which they defined as stock options and monetary compensation, should be totally slashed, but they should be taken down to a reasonable level. Now, I can talk about the subject itself (which I guess I pretty hot in today’s economy), the arguments (who determines what is reasonable?) and about the experience (I recommended it) but I want to talk about something else. Why didn’t they claim that bonuses are ineffective?

I admit that I did not think about this straight away. Like the positive team and without any relation to what my team was supposed to argue, I also took it for granted, that such bonuses are effective in creating productivity and results. I thought about this question later when I was reading an article called “Evidence Based Management” by Jeffery Pfeffer and Robert I. Sutton. In it, the writers claim that managers often take decisions without considering relevant and available evidence. One of the examples they give is the following:

There is, in fact, little evidence that equity incentives of any kind, including stock options, enhance organizational performance. A recent review of more than 220 studies complied by Indiana University’s Dan R. Dalton and colleagues concluded that equity ownership had not consistent effects on financial performance

In this blog I write from time to time about the fact that there are conventional wisdoms of management which are just wrong. As times goes by, I am surprised to see how many are there and how widespread they are. I don’t know if the incentive idea is wrong or right. It might be that the inconsistency is part of the fact that there isn’t one way to create motivation. But the fact remains the same. I think most of the managers you will ask will say it is a good idea. It is a conventional wisdom.

Just today, Seth Godin, in his post, writes about another example of a conventional wisdom: bigger and not better. A short quote:

You’re at a conference, talking to someone who matters to you. Over their shoulder, you see a new, bigger, better networking possibility. So you scamper away. It’s about getting bigger. Compared to what? You’re never going to be the biggest, so it seems like being better is a reasonable alternative.

So, why does this happen? I don’t know. But from my limited experience and according to Pfeffer and Sutton’s article, it happens all the time. So, as managers, what can we do? My answer? Doubt. We need to cast doubt all the time.

The problem is it is harder than it sounds. Besides all the regular hurdles, like pride, the sense that we know better, our preference to our own experience over others experience and more, new brain research actually shows that our brain is such a lazy machine, that it does everything it can not to think about new ideas and concepts. This means we have to make it. We have to create processes that will make us cast doubt. All the time.

So, as managers, we should create processes that facilitate the casting of doubt on a regular basis. I am sure you know better than I do how to do it at your place of work. The question is when is the last time you cast doubt on what you take for granted?

Elad

If it isn’t broken – break it, if it is broken – ask somebody how to fix it

Yesterday I saw this video from 2006 of a lecture by Seth Godin (for better quality see here). It is a fascinating and highly entreating talk. In it, Godin describes how so many things are “broken”, and by “broken” he means just stupid, non-cooperative with the client or non efficient.

I don’t know about you, but the feeling he describes is something that I feel almost every day. You see something and you ask yourself – why is that? Why can’t they make it simpler? Or easier to use? Or just plain efficient? Now, you can cast doubt if all the examples are really “broken”. That is what the commenter’s on the Boing-Boing blog do. But I think doing that is missing the point.

I think two of the main points are:

1. “It is not my job” – Godin claims that many things are broken because the people who can fix it, say: “it is not my job”. I think this thinking is so common we don’t even notice it anymore. When we encounter it, it frustrates us, but it seems reasonable to us. We say to ourselves: “what can we do? It is probably not his job”. Why?

Ask yourself. If you think about a way to change something, to make it better, what do you do? Do you go to your manager? Do you put it in a suggestion box? Or do you just give up and say to yourself: “well, nobody is going to listen to me anyway”.

Now, wear the other hat. When is the last time you went to your employees or team members and asked them – “what would you change?”. These are the people who usually say “it is not my job”. They usually know already what is broken and how to change it. Go and ask them.

Some places are already doing that. Check out “My Starbuck Idea“. Think about all the sites that allow anybody to write an applet. “Hey, this site should allow you to do this. Maybe I will just write an applet for that” or “hey, I should be able to do this with my IPhone, I can write an applet for that”.

2. “Broken on purpose” – this is a point Godin makes all the time, especially in his book “purple cow“. In order for something to succussed, it needs to be remarkable, meaning that people will make a remark about that. You create it by creating an exceptional product, or you just make it plain different. Maybe it is time to break your product?

Elad

Free is the new black? Maybe, but it is definitely coming. And not necessarily with advertisements

Photo by neubie

This article from Knowledge@Wharton titled: “How About Free? The Price Point That Is Turning Industries on Their Heads” deals with the new emerging phenomenon of products being provided for free. This phenomenon is off course only increasing as the internet is growing in size, speed and spread. Many products that were once sold for money, can now be found for free, either by established companies (like Google) or by private people (think about music on MySpace). In addition, things that we used to pay for, are incorporated for free into other products (think cameras in cell phones)

A few thoughts I had after reading the article:

• This is another example for changes in social and technological environment that require a complete change of the business models. The music industry reacted too slowly to the change the internet presented and is now paying the price. The next entertainment industry is the TV industry, which is trying to fight products like the TIVO instead of thinking about ways to change their business models. Just a few days ago, the struggle of The Authors Guild against Amazon’s new Kindle, because it has the ability to read E-books aloud has provided another example. Amazon caved to the pressure, but it is only a matter of time until this is changed by Amazon itself or by other competitors who will enable this option.
  A few months ago I wrote about two manifestations of the same idea as articulated by two writers – Set Godin and Lawrence Lessig. The past always tries to control the future. Or as Godin puts it: “…[A]lmost without exception, organizations are run by people who want to protect the old business, not develop the new one”. Today, Freek Vermeulen described this in the HBR blog as the Icarus Paradox: companies become successful doing something but this makes them overconfident and blind to the dangers that other developments pose to them. It is time to develop new models. Free is coming.
• Too many examples in the article discuss the use of advertising as a way to fund this new trend of free products or services. Without disregard to the power of advertising (and Google’s growing profits are evidence that this model still works), I think that in the long run, it would not be smart to build a model based on advertising. I think that one of the results of the GFC will be a decrease in consumerisms (and there are demographical reasons to support that). The future lies in connecting the profit to value instead of basing it on advertising. “What do you suggest?” you must be asking yourself. Well, I suggest you start by reading Kevin Kelly’s Manifesto: “Beyond Free“, which suggests eight ways to make money out of free products, not counting advertising.

Elad

Practical implications of the “Paradox of Choice”

Photo by Harry Brignull

A few weeks ago I wrote about Barry Schwartz’s inspiring talk about practical wisdom. After I relaxed from that amazing talk, I searched for more of his talks on TED and yesterday I saw his talk at TED from 2005. I actually saw it twice, because the first time I saw it I was enthralled to the screen. In his talk, he describes his book “The Paradox of Choice“.

This lecture is so interesting that I decided to recap it here in this post, and add my comments to the summary (in italics).

Schwartz’s theory attacks the official dogma of western industrial societies. In a nut shell, this is the dogma: Citizens welfare is maximized by maximizing individual freedom. Why? Because freedom in itself is valuable and worthwhile and because this gives people the chance to act of their own and maximize their welfare in the best way they can. They know better than some central government how to maximize their welfare. How do we do maximize personal freedom? By creating more choices. The assumption is that more choices lead to more freedom.

So basically the dogma is more choices create more freedom and more freedom maximizes welfare.

Schwartz’s actually tries to attack the casualty of the assumption. He says that there is no argument that more choice leads to more welfare, but what we usually ignore is that fact that too much choices can lead to less welfare.

And the problem of western societies today is that people have too much choice. If you go to the supermarket you can buy thousands of brands or types of salad dressing. If you buy a phone you can chose from thousands of cellphones. When you go to the doctor he gives you a choice on what medical procedure to take and explains to you the advantages and disadvantages of every choice. Theoretically, it is patient autonomy. But practically, it shifts the burden of choice to the citizen, who is usually less equipped to make that choice. We can work from everywhere with the latest technology. This means that we must decide each and every moment (must make a choice) whether we want to work or not.

Schwartz’s claims that the abundance of choices has two negative effects on people:

1. It produces paralysis rather than libration. When there are too many choices, people find it difficult to choose at all.
 This is a revelation that has implication in the marketing setting. I suggest you read chapter five of the book “Yes!“. The chapter is called “When does offering people more makes them want less”. Two examples from that episode:

1.  
   1. A research showed that the more mutual funds employers offered their employees, the rate of participation decreased (for every additional 10 mutual offered, participation went down 2%).
   2. When “Head & Shoulders” reduced the number of shampoo choices from 26 to 10 they had an increase of 10% in total sales

People usually think that giving more options is a better marketing strategy. It actually isn’t. Too many choices create paralyses. People look for simple choices.

2. Decrease of satisfaction. Even if we overcome the paralysis and make the choice, we end up less satisfied than if we had fewer options to choose from. Why?:

1. Regret and anticipated regret – If you have a lot of choices and you buy one, it is easy to imagine that there is another choice that will make you better. This subtracts from your satisfaction. The more options you have, the easier it is to imagine that you made the wrong choice.
2. Opportunity costs – you lose more features from more choices. Opportunity costs subtracts from the satisfaction we derive from our choice even if our choice was great. The more choices there are the more features we are losing. When you are choosing to do one thing you are choosing not do other things. The more other options you have the more, psychologically, you lose.
3. Escalation of expectations – we have so much choice and a lot of times we end up with the best choice, but we feel worst. Why? With all the choices we have, our expectations about how good our final choice should be goes up. When there is only one kind or one choice – you don’t have a lot of expectations. But if there are a hundred choices, one of them should be perfect! This produces less satisfaction with results even when they are good results. What this point means is that we cannot be truly pleasantly surprised anymore. Today, the best you can hope for is that stuff will be the best as you expect it to be. The secret to happiness is low expectations.
   This reminds me of Seth Godin’s book - “Purple Cow“. If you want a product or service to succeed you have to make it remarkable. You have to surprise people. You have to beat their expectations. Good enough is just not good enough. You have to be great or special (at least at something). Going for the average is the worst thing you can do.
   Surprise is also one of the key characteristics of sticky presentations (and thus, sticky brands) according to the book: “Made to stick“. Today, marketing and good presentations are all about exceeding expectations and surprising.
4. Self-blame - When you have limited choice and something goes wrong. You are not responsible – the world is responsible. What could you do? But, it there is an abundance of choice -when you are disappointed – you are to blame – you made the wrong choice. When people make decisions, the results are good, but they are dissatisfied, so they blame themselves.
   I think this is one reason you have to try not to regret your choices. You cannot affect what happened in the past. This is what is called the sunk-cost bias. People put too much emphasis on the past in their choices when they should be looking to the future.

The conclusion from all of this is that the dogma is wrong. Some increase in the amount of choice does create more welfare, but adding to much choice, actually decreases welfare.

In the last week I have been studying in economics (again) the law of diminishing marginal returns. I am surprised to see in many facets of life it pertains.  Just this last week I wrote about it twice (1, 2). This is the third time. Because Schwartz’s conclusion is basically an implementation of that rule the world of choice.

And just to recap, watch this video – everything is amazing and nobody is happy for a more, let’s say, informal way to introduce the same idea!

Elad