Market-Based Management®

The Five Percent Solution

I had always thought that the Dilbert cartoon strip was created from the beginning to make fun of the "cubicle culture" - the modern dysfunctional workplace.  Not according to Scott Adams:

When Dilbert launched in newspapers, the response was underwhelming. In the early years, it wasn’t a workplace strip. It was about Dilbert’s life in general. He just happened to have a job. I was surprised to learn, via my e-mail, that readers loved the relatively rare comics featuring Dilbert in the office. Personally, I didn’t think those were my best work. My ego told me to do it my way. My readers told me I was wrong.

Receiving negative feedback - from the market, customers, bosses, co-workers, employees - is never fun.  But we ignore it at our peril.  Ego can get us into a lot of trouble if we don't manage it.    We can feel threatened when we receive feedback telling us we're not doing as well as we could be... and that causes us to get defensive.

What the hell do readers know? After all, they aren’t syndicated cartoonists, and I was, albeit in only a few dozen newspapers. But this time, fortunately, I ignored my ego, changed the focus of the strip to workplace humor, and it took off.

My grandfather once told me, "if someone calls you a donkey, laugh at them... but if everyone is calling you a donkey, buy a saddle and start selling rides."  In other words - think about what people are telling you and don't ignore reality. 

A colleague once told me that when listening to feedback he assumes 5% of it is true.  This allows him to avoid getting defensive and to start getting curious about which 5% - so he has to consider all of the feedback.  It is good advice that might lead to some rather spectacular breakthroughs in your performance. 

Give it a shot - it worked for Dilbert.

A Self-Decieved Traveler

Self-deception is not necessarily a negative buzz word around most offices. Inefficiency, distraction, lack of motivation, alarmingly loud phone conversations—maybe. But “Well Jane is just so self-deceived” hardly makes the cut for the top-ten most common accusations whispered in the coffee break room.

It’s amazing how books can lodge vocabulary in your head, however, because those two words now bring to mind a myriad of connotations. During a recent trip, the national bestselling book Leadership and Self-Deception: Getting out of the Box written by The Arbinger Institute was open on my tray table for the majority of my longer-than-I-would-have-liked journey. Those two events—the extension of my flight plans and my reading of this book—coincided in an ironic way.

The trip was supposed to be an easy “out one day, back the next” sort of deal. But when I turned the corner towards the airline check-in counters on my return leg only to run into a line stretching what seemed miles from the counter, I re-examined my expectations.  My flight had been canceled and every other flight out until the next day was overbooked.

What I did next would be labeled by our friends at Arbinger as “getting in the box.”  I decided I was the victim and decided the computer-clicking, uniform-wearing employees behind the desk were single-handedly responsible for my wallowing state of frustration and self-pity.

The theory of self-deception starts with the premise that people deceive themselves daily. Instead of looking at situations rationally, Arbinger says our natural instinct is to “1) Inflate other’s faults, 2) Inflate our own virtue, 3) Inflate the value of things that justify our self-betrayal, 4) Blame” (79).  This distortion in our views of others inhibits everything from healthy work environments to loving family situations.  It is a continuous cycle of justification and blame that can only be broken by facing the truth of self-deception, or in Arbinger-lingo, by “getting out of the box.”

If I were “out of the box,” I would have realized that the four people behind the counter were not actually responsible for the thunder storms over Chicago, for the inconvenient airline policy of overbooking, or for the technical difficulty that left me unaware of my flight cancellation.

However, the next “box exiting” step is the harder one.  It is deciding to leave your box even if others stay in theirs.  No questions asked, those airline attendants were huddled in their boxes. They slowly called people to the desk one-by-one with annoyed looks on their faces and made no efforts to communicate with the rest of us in line. However the point stands: if everyone stays in their boxes and justifies it because “they are in theirs,” no one will ever escape and frustration and inefficiency will rule. The line would have moved twice as fast if both parties had been more willing to take some responsibility and engage the situation head on.

It is easy to see how the theory of self-deception explained in Arbinger’s book underlies many of the MBM guiding principles. When we are stuck in our boxes we inhibit value creation, take the focus off of the customer, obstruct the exchange of knowledge, fail to respect others, and limit both our own and our co-worker’s fulfillment.  When the theory of MBM meets the reality of MBM in daily work, an effort to look at the world through MBM glasses will fail if a box limits our vision to two inches in front of our faces.

So although self-deception may not buzz around the coffee room, I have personally discovered, regrettably a few hours too late, that self-deception’s lack of jargon popularity no more discounts its tragic effects as it discounts its need to be remembered.

Big is Beautiful

If you like train wrecks of the intellect, Nick Douglas has got a doozy for you over at Slate.com in which he demonstrates an astounding ability to simultaneously misunderstand the market economy and undercut his own arguments.  His thesis?  YouTube (not online video, just YouTube) is way too popular.  (All emphases in quotations are my own.)

Web video isn't an oligarchy, it's a dictatorship. You're either on YouTube or nobody's watching.

...

YouTube ... gets 60 percent of all online video traffic—that's up from 43 percent a year ago.

First, I wasn't aware that 40 percent of video traffic is equivalent to "nobody's watching."  Second, I was under the impression that most dictators enforce their wills through force and fear.  Contrast that to YouTube, which is a website that people are free to use or not at their own pleasure.  That is to say, online video is a democracy, and YouTube is winning in a landslide.  To me, that suggests that YouTube is doing something that a lot of people like.  And, it turns out, Mr. Douglas' article spells out exactly what that is:

Until recently, file formats and bandwidth costs made sharing video online a gigantic pain. ... In order to watch videos in your browser, you had to download all sorts of plug-ins. Mac-made videos often didn't work on PCs, and vice versa. Then, in 2005, YouTube launched, fixing all of those annoying problems.

YouTube wasn't the first site to host online video, but it was the first to do it well. YouTube instantly trumped sites like Vimeo, Veoh and Grouper by converting all uploaded videos into universally viewable Flash videos—so long, browser plug-ins!

Oh, so YouTube became popular by introducing an innovation that made mass online video sharing possible and started stomping it's competition?  Shocking!  But wait, there's more:

Once YouTube grabs a viewer, it doesn't let go. While the site got 43 percent of all visits to video sites in 2006, it earned 54 percent of page views—that means YouTube users stick around longer and watch more video than people who browse on competing sites.

YouTube will grab me and not let go?  How does it do that?  Spyware?  Viruses?  Hypnotism?  Oh, wait...

Next to every clip, YouTube lists up to 20 related videos, as well as other videos by the same creator and four "director videos," all promoted with an enticing thumbnail. With so many tempting links, it takes a lot of self-control not to veg out and clip-surf for hours.

So it keeps me watching by bringing up a lot of other entertaining material that I might want to see without my even having to ask for it?  I think most people would consider that a feature.  And maybe, just maybe, YouTube is such a big player because it's creating so much value for its viewers through such features.

Nevertheless, Mr. Douglas insists that YouTube's size is a problem because it stifles the artistic creativity of it's users:

...[N]ot everyone is welcome on YouTube. While the site has done a remarkable job building up the infrastructure that allows people to watch videos on the Web, it has also created a number of barriers to entry. The site bans nonpornographic nudity, places a 10-minute limit on most uploads, and has a resistance (so far) to including live streams.  And if you want live streaming video, you'll have to go to Ustream or Stickam.

Let's leave aside whether any of this constitutes "barriers to entry" as an economist would define the term.  What Mr. Douglas is pointing out is that there is still room for improvement in the online video business.  Which means that if YouTube's competitors address the shortfalls in its service (and apparently some already are), they can knock it from its current perch and reap the spoils. 

So let's recap.  YouTube dominates the online video market because it 1) introduced an extremely valuable innovation and 2) tries to offer its viewers more of what they want without their even having to look for it.  This has made it wildly popular and its competitors less so.  But YouTube's service isn't perfect, and there's plenty of money to be made by competitors who can innovate to offer a better service.  Mr. Douglas seems to find this all very vexing.  But as a consumer of online videos, I couldn't be happier.

What Affects "Them" Affects You

Although they are necessary, I have yet to find anyone who likes paying taxes. However, there is no shortage of people who like it when others meet their tax bill for them, which is why I love the lottery. Consider the 1990 imposition of luxury taxes on expensive cars, jewelry, furs, private airplanes, and yachts. What is there not to like? As I consume none of these goods, then those who do presumably reduce my tax bill (or lessen the amount of government borrowing that I will have to pay for later).

Unfortunately, these very popular luxury taxes did not quite work according to plan. The $31 million in revenues the taxes were supposed to have raised ended up being only $16.6 million; as those who would have paid the luxury tax just bought their yachts and jewelry in other countries or switched their consumption to other goods they valued not covered by the tax.

At the same time, the drop in demand for luxury goods led to the elimination of an estimated 330 jobs in jewelry making, 1,470 in aircraft manufacture, and 7,600 in the boating industry. These job losses ended up costing the government $24.2 million in lost income tax revenue and unemployment benefits. So the tax on "them" actually produced a $7.6 million hole in the government fisk that had to be made up somehow—presumably by taxing you and me or cutting the government services we receive.

The surprising news is that the government always seems to learn its luxury tax lesson very quickly. Congress repealed most of the 1990 luxury taxes in 1993, and had apparently done the same in 1965 after similar shenanigans.

However, we sometimes observe a very similar (and equally destructive) "let them pay" attitude in large companies. Often large, multi-divisional companies will contain certain services that are available to all groups and businesses within the company. Information technology or facilities management are good examples. One of the most popular ways to pay for these services is for the company to add up all of the expenses and assess them across the different business groups in the form of a tax. Unfortunately, as everyone pays into a common pool and receives communal services, the incentive is for the different businesses to make excessive demands.

For example, a business may demand complicated and costly additional services from IT that may only yield marginal value. The same business may also make excessive use of facilities management—ordering the whimsical movement of walls, painting and repainting, frequent office swapping, and expensive furniture and fixtures. The business groups assume that while they pay for some of the services they receive via the assessment, any expenditure in excess of the tab will be picked up by the contributions of other businesses. This "let them pay" attitude is very quickly adopted by the other businesses, which are quick to drive up their own expenses. As a result, the "tax" needed to cover the communal services has to be raised every year. Expenses quickly spiral out of control and lead to conflict between the businesses, who complain that the support services cost to much, and the support services, who complain that the businesses ask too much of them.

The solution to this all too common problem is the internal market. If business groups pay directly for the support services they receive, then they will tend to consume only those services that produce the most value for the business. Although not unique to MBM, internal markets are very much a part of it. Because, to paraphrase Milton Friedman, when you spend someone else's money on yourself, then you are really going to have a good lunch!

Starvation in the Land of Plenty: how property rights saved America

On the occasion of America’s birthday, it is probably a good time to reflect on this nation’s troubled beginnings and pay homage to the institution of private property that made this country possible. As children we are all told that that the first English colonies in North America nearly failed because the colonists were gentlemen—fellows unfit and unused to labor and more inclined to games of bowls than hacking a new nation from the wilderness. True, the early colonists were lazy, but was it because they were gentlemen? You would think the prospect of starvation would stir even the most indolent Elizabethan dandy to fruitful labor. However, the truth of the matter was that the laziness of these early colonists sprang from their lack of property rights. The Virginia Company expected those it sent to North America to labor on common land and contribute to a central store, which would be shared out accordingly. Not surprisingly, as each individual colonist saw no benefit from his labor but could expect his share of the communal store, then he naturally tended towards idleness. In a desperate move to stave of starvation, the colony resorted to private property.

The historical record remains a little hazy, but the source of the land reforms appears to have been Sir Thomas Dale, who arrived in Virginia as high marshal in May 1611. Sometime in 1612 or 1613, Dale dismantled the system of communal ownership and awarded each man in the colony three acres to till as his own. Of course, the colony still had to pay for itself, so Dale levied a yearly “flat tax” of two and a half barrels of “corne” (wheat). These changes produced immediate effects. Colonists threw themselves into their work and set about innovating, improving their land, and taking up all manners of crafts. In short, they started acting like Americans. By 1616, the Virginia colony was not only out of the woods, but carrying on a brisk trade exporting food to many Native American tribes.

An almost identical situation prevailed in Massachusetts, where communal ownership produced nothing but starvation and conflict amongst “godly and sober men.” Governor Bradford responded by allocating families their own plots of land in the spring of 1623. He recorded the results soon after (updated for spelling and punctuation):

“This had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better contentment. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression.”

I took these examples from Tom Bethell’s superb book The Noblest Triumph: Property and Prosperity through the Ages. Private property is no tool of oppression, but, rather, the key to a free and prosperous society. Too often we forget exactly how important an institution it is, but without it we would have neither things to eat, nor a country.