0

Perverse Incentives And Your Business

Perverse incentives are everywhere. I guarantee you've got at least one in your business right now.

ARE YOUR BUSINESS PROCESSES AS CRAZY AS THIS?

cambodia a book for people who find television too slow perverse incentives

I was talking about Cambodia: A Book for People Who Find Television Too Slow (NOT an affiliate link) and it triggered another memory.

This was another little European colonial adventure into darkest Africa. The name of the game was “Take The Rubber” so that natural resource could be used back in the civilized world. The Congo was divvied up between some corporate concessions and here’s where things start to get weird.

Perverse Incentives In The Belgian Congo

Some soldiers were required to account for every single bullet they’d been issued.

They either had to have the shell...or the hand of a native they’d presumably dispatched with said ammunition.

Humans being occasionally awful, you can see where this is headed.

Emil decides he wants rabbit for a late afternoon snack. Not being the greatest shot, he pops off three shells before hitting his target.

Let’s say The High Command is all right with the rabbit accounting for one of the shells. But the first two shots? Them bullets have to be accounted for somehow.

A lot of Congolese ended up walking around as amputees.

Logical. Right? The ultimate in Lawful Evil mentality, for you gamers.

Your Business And Perverse Incentives

My question for you today is: Are there processes in your business that are as nuts as some of those of the Belgian Congo? Are you measuring and creating results because of a robotic “If This Then That” conformity with loony premises? Is it time to make a change towards sanity?

Additional examples of perverse incentives are the:

  • Soviet era glass plant, first making too-thick and then too-thin glass, neither of which was useful to anyone but still satisfying the incentive structure
  • System that at first rewarded private firms transporting prisoners to Australia by the number of convicts loaded at departure, rather than those who arrived at the destination...leading to overcrowding and unnecessary deaths
  • time IBM attempted to produce more robust code by rewarding programmers by the line, which instead lead to bloated programs.

I describe a factory that produced a production scam with its piecework reward structure from my own experience in this podcast.

Government organizations such as the US Department of Veterans Affairs are not exempt from claims of perverse incentives.

Perverse incentives are particularly common in sales compensation programs.

Frankly, if you think your system is "too good for" or somehow exempt from perverse incentives, you probably aren't looking hard enough.

>> Jason Kanigan is a business strategist trained in operations improvement methodologies. To book a time to discuss your situation with Jason, click here. <<

0

Talent Or Skill?

Talent or Skill? Which is it, and why is the distinction important?

People frequently shut themselves down because they're not great at something the first few times they try it.

"I'm just not a salesperson," they say.

or

"I'll never be a good cook."

or

"I bought this expensive camera; how come it doesn't take good pictures?

What's incredibly useful in situations like these is asking yourself, "Is this a talent we're talking about here...or a skill?"

talent or skill carpentry tools

Is This Talent Or Skill We're Talking About?

A talent is a natural affinity for a task. You can have athletic talent. Or the talent of thinking like a photographer. Or a talent for understanding how mixing ingredients will determine flavor.

But a skill is something you have to work on. To be good at a task, you must persist in developing the skill. No matter how much talent you may have, the skill needs to be honed.

No less a writer than Stephen King said:

"Of course there has to be some talent involved, but talent is a dreadfully cheap commodity, cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work and study; a constant process of honing. Talent is a dull knife that will cut nothing unless it is wielded with great force—a force so great the knife is not really cutting at all but bludgeoning and breaking"..."Discipline and constant work are the whetstones upon which the dull knife of talent is honed until it becomes sharp enough, hopefully, to cut through even the toughest meat and gristle. No writer, painter, or actor—no artist—is ever handed a sharp knife (although a few are handed almighty big ones; the name we give to the artist with the big knife is “genius”), and we hone with varying degrees of zeal and aptitude.”

Many people mistake the need for skill for the need for talent, and give up. It's not talent you need. Many talented people do nothing with their talent. And many people with far less or no talent do well because they practice and hone the skill.

You almost assuredly didn't learn how to ride a bicycle in one attempt.

Stephen King On Talent Or Skill

Notice what King says: "[Nobody] is ever handed a sharp knife". Despite talent, or lack thereof, everyone needs to work on their skill to get better results. It's not instant and it's not easy.

So when you feel you're "just not talented," what are you really saying? Are you thinking about giving up because you lack natural talent and weren't handed a sharpened blade...or is the truth that you need to work on the skill? And that some effort put into the skill will get you good results?

>> Is it time to talk with Jason? Book your consultation <<

0

Added Value: Potatoes vs Potato Chips

Added Value: let's talk about this concept.

Have you ever noticed the price of potatoes versus the price of potato chips?

Potatoes are one of the cheapest things under the sun. You can get an eight pound bag for a handful of dollars.

But potato CHIPS? Oh no, now they're worth their weight in gold: that same eight pounds could easily cost you SIX TIMES as much. For eight or nine bags puffed up with air.

potato vs potato chip added value

Insane, isn't it?

For a little slicing, oiling, spicing up, baking, and packaging?

Added Value and Transformation

What are we paying for, really? The chips surely don't have six times as much nutritional value applied to them in the manufacturing process.

So what is it that sets the tone and makes the difference in our perception of value between raw potatoes and finished potato chips? And how do we gauge the sense of value between a $4 and $7 bag of chips?

Productization,

Branding,

Transformation,

and

Convenience.

How could you apply factors like these to your own sales funnel? In product development?

Added Value and Perception

To the extreme side, a friend shared an example with me after I first spoke about this concept. In the Paqui Carolina Reaper Chip "One Chip Challenge" each individual chip was valued at $10 or more.

Note that in this instance, it is not the chip alone that determines the value: the activity around it creates more drama and thereby drives up the money the buyer is willing to part with. It isn't just about the chip: it's about the experience.