Friday, May 27, 2011

Headcount freeze: How behavioural economics can help

Inevitably at some stage or another you won't have, or cannot have the level of team resourcing you believe you need. You catch your team muttering about "being two heads down" and morale's on the slide.  As many Australian businesses inch towards the end of financial year, deferring recruitment of staff to maximise financial results, what lessons can we draw from Behavioural Economics to improve matters?

Behavioural Principles to Apply
Social contract - it can be tempting to ask staff to work above and beyond for the good of the team, applying social norms to a work relationship. But you can't have it both ways - if you expect staff to go above and beyond, they'll expect you to protect them. Any cuts will breach the social exchange and further impact morale.
Completion - we innately seek to complete tasks. If you have to stop projects, reallocate priorities make sure you give your staff the opportunity to close-out the activity. Get them to do a final status report even if the project is pulled mid-stream because scrapping the project in front of their eyes is deeply disheartening.
Framing - due to the strong sense of "loss" of staff, you will need to reframe the team. Shake off the absence of these resources by changing the physical surrounds so that the empty desks are not a reminder. And do more team driven activities to make the sum of parts a greater whole.

Case studies
Have you ever noticed when someone leaves, parts of the job they used to do just fall away? Even when two people are doing the same job they will focus on different aspects.

In a headcount freeze scenario, you want to have the non-essential elements of the jobs people get busy doing, fall away. That means bringing to a conclusion some 'pet' projects that people invariably develop.

Now, it's easier said than done to stop a staff member working on something they enjoy, particularly when it will generate benefits for the business. You'll need to be aware of the Ikea effect (discussed by Dan Ariely in both Predictably Irrational and Upside of Irrationality), where we overvalue something because of the effort we have contributed. It means that the project that your staff member has worked so hard on will come with significant emotional attachment.

Use your knowledge of completion (our drive to see things through) to have the staff member provide a final status report even if the job is midstream so at least in their eyes, their work has been acknowledged and concluded.

Image from

Sunday, May 22, 2011

End of the world as a S.M.A.R.T. goal?

In amongst Charlie Sheen's latest antics and the latest football scores, you may have noticed that the world was meant to (begin to) end yesterday, 21 May 2011.  That's why I held off posting till now.

The good news is that the 21 May was only judgement day...the end of the world is actually slated for 21 October 2011.  Five months to count down people.

The man behind this prediction is a preacher called Harold Camping who stated that on 21 May those worthy would be taken to Heaven by Jesus whilst the rest would be left to endure the end of the world over the next 5 months.  The prediction was based on some...interesting...mathematical gymnastics (see below for the calculation).

Now, rather than dwell of the religious aspects of this prediction, I thought I would instead dig into both the behavioural and goal setting aspects of this event.  What techniques did radio station owner Camping use to grow his subscriber base stimulate worship?

Behavioural principles
Loss aversion: We have an aversion to loss and will be motivated to take steps to avoid it.  In the drive for members, Harold Camping was putting the mother of all losses up for consideration - the loss of your life.
And to ensure he helped people over the line, Camping applied an old favourite marketing technique across a reputed 2000 billboards; "Judgment Day 21 May, 2011. The Bible Guarantee's it".

Anchoring: Camping used a specific date to fix people on his prediction.  The specificity of the date (and the 'complicated' calculation) gave it a marketing and media focus that it otherwise would not have gained.

Herding: Camping created two distinctive groups through this activity; the worthy and unworthy.  Appealing to the sense of pack behaviour, Camping was forcing us to decide between being a part of the Rapture or not (or indeed, between being part of his cult or not).

Status quo bias: Inertia is our default state. In order to tip people out of the status quo, Camping had to come up with something powerful and dramatic.  What better than the end of the world through earthquake and natural horror to convince us to pray?

Goal setting
The Camping prediction can also be used to illustrate one of the classic business tools - S.M.A.R.T. goals.  The theory is that you will maximise your chances of accomplishing your goal if it is specific, measurable, actionable, realistic and timebound. 

Specific: a date (21 May 2011), a name for the activity (Judgment Day), and details of what would happen to those who did not repent helped the prediction gain traction.

Measurable: Camping provided the calculation for the both Judgement Day and the End of the World.

Actionable: Having a deadline is great, but you need to know what you need to accomplish - in this case` it was to pray and listen to Camping.

Realistic: well, this can be debated. However, by quoting scripture, providing crazy date calculations and pointing to real-world events as evidence of the prediction's veracity, Camping convinced many of the realistic nature of his prediction.

Timebound: specifying the dates of judgment and end of the world certainly qualify as timebound.

The ethics of what Camping did aside, you would have to agree that if his goal was to grow his member base through stimulating consideration of his preachings, then it probably worked (albeit temporarily).  Camping's combination of behavioural principles and goal setting created world wide interest in his church and his radio stations.  And whilst this is certainly no lesson in establishing credibility or an ethical or sustainable business model, just imagine the possibilities for your business if one crazy pastor can generate behavioural change in so many. Suddenly that product launch doesn't seem so hard.

The Camping 'calculation'
From wikipedia: Camping taught that the world would end May 21, 2011[17] using the following reasoning:
  1. According to Camping, the number five equals "atonement", the number ten equals "completeness", and the number seventeen equals "heaven".
  2. Christ is said to have hung on the cross on April 1, 33 AD. The time between April 1, 33 AD and April 1, 2011 is 1,978 years.
  3. If 1,978 is multiplied by 365.2422 days (the number of days in a solar year, not to be confused with the lunar year), the result is 722,449. (This, however, is a rounded number; taken precisely, the figure is 722,449.0716)
  4. The time between April 1 and May 21 is 51 days.
  5. 51 added to 722,449 is 722,500.
  6. (5 x 10 x 17)2 or (atonement x completeness x heaven)2 also equals 722,500.

Sunday, May 15, 2011

22 Minutes to a Better Business, my new book

I have been following what I can of the 'normalisation' Behavioural Economics. By that I mean, how businesses are applying the lessons learnt in the lab about our propensity as consumers to not always act rationally.  To my surprise, I have discovered that there seems to be a gap between the theory, or more precisely, the findings, and instruction on how they may be applied to common business issues.

Headcount pressures, budgets cuts, whether to increase prices/change your service mix/introduce a new fee, closing the sale, losing market share, staff productivity...these are the key issues with which every business grapples.  So where's the guidebook?

Welcome to "22 Minutes to a Better Business: How Behavioural Economics can help you tackle everyday business issues".  I wrote this short book because I believe that Behavioural Economics can deliver better business outcomes for no additional outlay - it's about what we do today, just better.  In the book I cover 18 common business issues, outline the behavioural principles at play, and provide a short case study to illustrate the point. 

And why have I called the book 22 Minutes to a Better Business?  Well, I figure if a show like Two and a Half Men can hold the attention of so many for a run-time of 22 minutes, then that should be my objective too.  I'm asking for you to skip one episode of a sitcom re-run and read this quick dip into Behavioural Economics applied to common business issues...surely you have nothing to lose?

Here's an example of issue number 14; A business that is trapped in an incremental change cycle when it needs to do more.

Issue #14 Deck chairs: Incremental change when more is needed
It's the talk in the corridors. Why aren't we doing more?!  What can you do to get your business leaping rather than tip-toeing forward? As the saying goes, are you moving deck chairs around on the Titanic?
Behavioural Principles to Apply
Not Invented Here Bias - it is our nature to shun ideas from others because we may not understand them.
Commitment - it's difficult to let go even when things aren't working due to our aversion to loss. You need to cast an eye to where the current course is taking you. Restating your desired future will help you reset your short-term plans.
Group think - odd man out. If theirs is a dissenting view, people will tend to doubt themselves, relent and  go with the pack. Galvanize your allies and raise your voice if you want change.
Short term and status quo bias - making short-term targets through cost cutting or expedient deals can be attractive. If your business doesn't reward longer-term projects then you will need to appeal to non financial reasons like legacy and ego to  secure support.
Case studies
Unfortunately, most businesses tip toe.  Sony fell into this category when they failed to see the rise of MP3 technology.  Yellow Pages have likewise taken too long to move to digital from print.  But it is too easy to judge these businesses in retrospect - at the time the people involved are swayed by the status quo.  It is hard to shape the future, particularly when you are the incumbent.

Pilots are trained to challenge if they see their co-pilot going off course. But in business, fear of "career limiting moves" can stymie dissention.  Train to challenge the status-quo; make it an expectation.

The crew at Intel tackled there need for change by asking "If we got kicked out and a new CEO came on board, what would they do?". When in doubt, think like an outsider and give yourself the same latitude.  Throw off your aversion to loss, your status quo bias, and think like Richard ("I love tackling lazy industries") Branson. 
How can you get a copy of 22 Minutes? The book is available to purchase on, and is priced at cost until midnight 30 June 2011, after which I will be introducing retail pricing. A preview is available below.  I am also providing a softcopy to the first 50 people who mention 22 Minutes when they connect with me through LinkedIn, so jump to it! 

Most importantly, please spread the word because 22 Minutes to a Better Business is there to be shared.  I hope you enjoy.

Book preview

Wednesday, May 11, 2011

The trap of retrospective appraisal

You might recall a post I wrote about Tim Minchin, an Australian self-styled rock-star comedian. In it, I drew some lessons about business life from his performance; 1. be distinctive, 2. risk a reaction, 3. it's about you not the business, 4. be illuminating and 5. be fallible.

Recently I purchased a DVD of Tim's 2007 live performance. His hair was shorter, clothes less stagy, and it was Tim on his own, no band, no orchestra. 

I must admit it was strange to watch a less refined, less honed performance. And it was interesting seeing him perform before he knew the success he would become. was kind of disappointing because I had experienced a 'better' Tim.

This got me thinking about retrospective appraisal.  Reviewing something at a point in time, quite removed from the context of that experience. It's why fashion from years ago looks awful but we wore it at the time. After listening to the Royal Commission into the 2009 Victorian Bushfires, the hearing some reviews of the Brisbane Floods, I can't help but feel it is unfair to judge the actions of people who were on the front-line, making decisions on limited information, from the distant and objective perspective of a later time.  Whilst these reviews invariably and thankfully lead to improved processes, systems and training, can we rightly blame the individuals?

What has this to do with your business context?  We make decisions everyday under different pressures. Make budget cuts because the imperative is this financial period.  Allow that discount to lock in the deal.  Sign that business case without reading it because I don't have time. But when we look back, when we retrospectively appraise that action, how will we be judged? Many times I have been questioned on a decision from a period long past and try as I might to conjure up the context of that decision, it simply does not carry the same weight as it did in that moment.  And that feels uncomfortable.

So what can we do? The genius of Tim Minchin was real in his performance of 2007. The audience loved him and this show ultimately led him to the one I enjoyed in 2011. It is unfair for me to judge Tim for the work of a different time; instead I should (and am) appreciative of a master shaping his craft, and I can be happy that he has progressed enough for me to be a bit disappointed. 

And this is the difference. When we retrospectively appraise something, we should rightly be disappointed if there has been no semblance of progress between then and now. But let us not judge unfairly those who were making their best judgement within a different context at a different time.

Wednesday, May 4, 2011

3 business lessons from poking your tongue

Sticking my tongue out was all part of the plan.  It felt a bit uncomfortable, a bit rude, but it's once again driven home for me the importance to businesses of understanding behavioural economics.

I am fortunate enough to work with an employer who provides a range of health services, and this month was a Chinese Medicine 'Tongue and Pulse' check.  For those who haven't experienced this form of health assessment, effectively the tongue's colour, shape and texture can provide clues about the larger biological system.  It involves you poking your tongue out at the practitioner who then prescribes a course of holistic treatment.

Now not only can the Tongue poking experience, or more correctly, the opportunity provided by my employer to poke my tongue, illustrate some of the behavioural principles at play, but so too the promotion of a free Internet conference that passed my desk.  So here are three lessons about behavioural economics to apply to your business.

1. Free isn't without your customer
The 15 minute appointment was provided free to employees, and even right there, in my building. Further, it was being coordinated through a credible organisation so I had nothing to lose except 15 minutes, and the gain was a new experience that I could choose whether or not to pursue.  If you are trying to get a customer to try something new, it should go without saying that the gain should exceed any "loss", or perceived cost.  However in our excitement to wear the financial cost of delivering the "free" service to customers, we sometimes overlook the cost of free to them.  This can include time, money, status, power....anything that is important to that person.  Free + convenient + credible in this case encouraged me to make the booking. 

On the flip side of 'free', a brochure for The Internet Show was doing the rounds at work, touting 70 free educational seminars.  In this context, 'free' actually worked to denigrate the perceived quality of the conference and people flicked the brochure on to others without being stimulated to attend.  Fundamentally, the effort and time required to attend was greater than the chance of absorbing free content.

What could The Internet Show have done? Perhaps limited free tickets to the first, say 26 to register, thereby stimulating activity by tapping into our aversion to loss.  If I think something will be taken away or forfeited, it makes it harder to give up.  Otherwise, they could have provided something other than the content for free. For example, by promoting that the conference fee of $xyz would be waived for anyone who signed up by 9am or visited two exhibition booths would at least have distanced the connotations of 'free' from the perception of content quality.

2. Safety in numbers
We are a pack species, a herd, and typically like to go where others are (in a general sense, I'm not talking about a romantic beach getaway here).  When the Tongue message was circulated, it became a talking point. Are you going? Maybe. You?  We were seeking some reassurance that others thought the experience worthwhile.  In the booking system, it was encouraging to see that appointments had already gone.  If others think this is ok, I will too.  If you are setting up a booking system or trying to stimulate courage to try something new, let it be known how many have tried your service, and even book out appointments if that helps to create a sense of confidence.

The Internet Show on the other hand, had negative herding going on. The poor first impression aka thin slice with its emphasis on "free" and junky looking material, worked against this conference.  Can you turn a herd around?  Not easily would be the answer. But this is where marketing is central to identify early adopters, secure their advocacy and spread the word.  The speakers are the best place to start - getting them to use their networks and personal credibility to draw the crowd.  For your business, substitute speakers with product managers and the lesson is to get your product managers to shape the herd by lifting the profile of their products through media, speaking gigs, blogs. In a socially networked society, why not use it to shape product herds by using professional credibility?

3. Choice overload
By the conclusion of my Tongue assessment, my interest in Chinese Medicine was definitely piqued enough to seek out a local practitioner. To the search phase! I tried a range of directories and search engines, but have not yet landed on a practitioner I feel comfortable contacting. Why? The choice is overwhelming. Near work or home? Acupuncture or herbal specialist? Private health insurance or not? This directory service or that?  Choice overload is well documented, and can result too often in decision paralysis - it just gets too hard.  What would have helped? A list of practitioners provided by my initial Tongue assessor to streamline my choices.

The Internet Show fell into the choice overload trap as well. 70 seminars to select from across three content streams and two days.  I was exhausted going from one agenda to the other, and so will end up attending none. 

Keep it simple should be your mantra. Fewer choices mean better conversion.  Now, it doesn't necessarily mean paring back your product range, but it may mean communicating your range in a different way. Check out if you want to see how an online retailer has helped reduce choice by personalising the catalogue according to your tastes. 

So three illustrations of behavioural economics; free, herding and choice overload from something as simple as poking your tongue.  How have you reacted to free stuff in the past, and do you agree that we are herders?  I look forward to hearing.

Picture from