The Cost of Social Norms (Predictably Irrational)

by D. Ariely

  • We live simultaneously in two worlds: 1) governed by social norms (i.e. friends making friendly requests of on another) 2) governed by market norms (i.e people pay money for a service)
    • These two worlds often collide (i.e. offering to pay for a date and then asking about sex)
  • Experiment: asked people to drag a virtual circle into a virtual box as many times as possible in 5 min ( measure of labor output.
    • There were three groups: 1) paid well to complete the task 2) paid poorly to complete the task 3) not paid to complete task
  • Findings of experiment:
    • The group that was paid well did better than the group paid poorly (159 v. 101 circles)
    • The group that wasn’t paid (but was doing it as a favor–‘social norm’) performed the best (168 circles)
  • What happens when you reward social norms with gift, rather than money?
    • no one is offended by getting a gift because it lies in the realm of social norms; gifts don’t change outcocmes
  • Israeli Day Care example covered (one mentioned in class by professor)
  • When social norms collide with market norms, the social norm goes away for a long time
    • social relationships are not easy to reestablish
  • There is a trend now with companies where they tried to position themselves as your friend
    • “Like a good neighbor, State farm is there”
    • At the same time, they can’t have it both ways. You can’t be a friend and charge hefty surcharges or late fees; that’s not how social relationships work
  • Companies are less 9-5 and more 24-7, this is advantages to them because it creates an environment where social norms prevail
    • as a result, people work harder, spend more time at work, and are more passionate
    • If companies do this, they should provide comprehensive social benefits like childcare, healthcare, exercise rooms, pensions, cafeterias, etc.
  • It’s no surprise why ‘company loyalty’ is at an all-time low; when social norms prevail people leave for better treatment more frequently
  • Burning Man experience for author was formative; it was a great experience in a moneyless society
    • it is a direct rejection of market norms
  • Conclusion: fewer market norms behaviors and more social norms leads to a more satisfying, creative and fulfilling life.

The Context of Our Character (Predictably Irrational) Pt. I & II

by D. Ariely

Pt. I

  • Financial cost of workplace fraud and theft estimated at $600B/yr
    • cost of all robberies in U.S is only $525M

Critical question: Why are some crimes, like white collar crime, less judged than others?

Two kinds of dishonesty:

  1. blatant crime: i.e. criminals robbing a gas station
  2. Generally honest people doing small things like borrowing a pen from a conference room
  • Author conducted honesty experiment at HBS (and later UCLA, MIT, and Princeton):
    • Multiple-choice standard test
      • First group paid $.10 for ea. correct answer on bubble sheet
      • Second group with same setup BUT with pre-marked correct answers on bubble sheet; could covertly change answers…also paid $.10/per right answer
      • Third group with same setup but could shred original answers and transfer their answers to a new bubble sheet so there was no evidence of wrongdoing
      • Fourth group could destroy all answers (original and transferred) and just take money from a jar based on what they think they got right
    • Experimenters were testing whether people would cheat…
    • First group had no way to cheat and got a 32.6 avg. score
    • Second group scored a 36.2 and so did the 3rd and 4th groups; all three groups cheated
    • Further experiments yielded similar results as well
  • People are dishonest only to the point that suits them; people don’t want to be caught so even when you can shred evidence they don’t claim perfect scores
  • Theory: people want to be honest, but our honesty monitors only kick on for big transgressions
    • i.e. taking one pen from a conference room is fine, but not the whole box
  • Sarbanes-Oaxley was supposed to keep companies honest, but it’s been somewhat ineffective
  • In other studies, telling people to recite the ten commandments before assigning a task decreased their likelihood of cheating
  • People who sign professional codes are less likely to cheat as well
    • (This is why they make us sign honor statements)
    • this method only works when done repeatedly before opportunities to cheat (i.e. before a test)
  • US 20th most honest country in the world; New Zealand #1

Pt. II

  • Ran experiment
    • Put 6-pack of cokes in fridge in dorm room– they were gone within 72 hours
    • Put $6 in cash in same fridge, no one touched them
  • Conducted another experiment similar to in Pt I…outcome was similar: if given chance to cheat, people cheats BUT kicker was experimenters used tokens instead of cash. More people cheated when it was token-based system because they thought it wasn’t material, even though they were told it was redeemable for real cash
    • A way to mitigate this issue is to put the price of things on objects

How Management Teams Can Have a Good Fight

by Eisenhardt, et al.

    • Constructive conflict in organizations is powerful, and can lead to more effective decision making
      • It creates richer range of options
    • The key is to have constructive conflict without it turning personal
    • How to successfully minimize interpersonal conflict (six tactics):
    1. Focus on facts – the more objective data you have to work with the better. Measure everything.
      1. i.e. “ “We over-MBA it”­—zealous pursuit of data
      2. companies in conflict rely on guesses and hunches instead of data
    2. Multiply the options – provide more options for discussion rather than less
      1. This makes choices less black and white and allows for a wider range of opinions
    3. Create common goals – align executive and employee incentives
    4. Use humor
    5. Balance power structure—autocratic leaders generate a high level of internal friction
      1. Make quick decisions involving as many people as possible
    6. Seek consensus with Qualification—find ways to resolve substantial conflicts
      1. Teams that force consensus have more disharmony
      2. Consensus means everyone has veto power
    • Where there is little conflict over issues, there is also likely poor decision making
      • Groupthink has caused many corporate and public policy debacles
    • Teams engaging in healthy conflict over issues have better decision making and move faster
    • The key to doing all of this properly is to limit interpersonal conflict
      • Don’t let arguments get personal

Coordination Neglect: How lay theories of organizing complicate coordination in organizations

by Heath, et al.

Thesis: Organizations often fail to organize effectively because lay theories about organizing lead to coordination neglect

  • The importance of coordination
    • Actors are highly motivated to succeed in their given task; however, they choose bad ways of organizing their actions
    • To accomplish work, orgs have two tasks: 1) motivate and 2) organize properly
      • All of the literature focuses on motivating (i.e. the agency problem) and not so much on organizing
  • What is coordination neglect and what is it not?
    • People have lay theories about lots of things (i.e. social interactions, economic markets, etc)
    • These lay theories are incomplete, and cause psychological blind spots that cause people to neglect to coordinate their actions with other people
  • Partition Focus and Component Focus   
    • To accomplish anything orgs divide up tasks between people; this is good, and the responsible thing to do, however there are some risks to be aware of….
    • Partition Focus:
      • Partition focus: the tendency of people to neglect coordination because they are focused on dividing up tasks rather than combining the components they create to foster integration
      • Lego man study example: most MBA teams partitioned the work and became specialists in the ‘torso,’ ‘head,’ or ‘legs.’ This made assembly more efficient, however, huge issues arose during integration (of the parts) because no one had thought to make a plan about how to integrate things.
      • People think about how to divide work (division of labor) more than how to integrate work; partitioning is a bigger component of coordination neglect
    • Component focus:
      • People focus on their own specific component more than the interaction or interrelations of components
        • i.e top managers at Xerox focused on specialization (to the point where people were overspecialized) and lost sight of the bigger picture; they created to modern day PC first but failed to look at the macro picture and see the significance of this
      • Can blind people from realizing the source of their previous successes…
        • i.e. Du Pont created Nylon and then overinvested in research to find ‘new nylons’ instead of keeping their business profitable by looking into complementary products
      • US Navy during WWII copied components of the British Navy, like technology, and this didn’t make them any more successful. They only found success when in addition to the technology of the British Navy, the US copied the Brits org
  • Inadequate communication and Insufficient Translation
    • Orgs can integrate in many ways:
      • Establish rules or routines that standardize actions
      • Establish plans or schedules that govern independent actions
      • Most important way to integrate: communicate on an ongoing basis
    • Coordination neglect is magnified when people fail to communicate on an ongoing basis
    • Inadequate communication
      • Managers systematically underestimate the importance and difficultly of communication when they plan important tasks
        • when projects fall behind managers add more people to the project instead of communicating more; this leads to more communication problems because of onboarding new people to project and new people must be integrated into the existing communication channels
        • Brook’s law: “Adding people to a late software project makes it later”
      • People are likely to misattribute coordination problems to agency problems
        • It is very common for people to be blamed for ‘lack of effort’ when directions seem to be clear; rather than giving people the benefit of the doubt because the coordination isn’t all there
    • Insufficient Translation
      • Specialization creates “new languages (jargon)” that if not translated or communicated effectively can sink integration
        • Specialists choose industry specific abbreviations and symbols without thinking about how they translate to the industries they work with
        • Engineers make more elaborate drawings to make things “more clear”; further documentation leads to further communication problems
      • People in roles that bridge gaps, are often undervalued and are usually the first to go during downsizing….this makes the problem worse
      • Emotional barriers to translation
        • Translation is rational and people ignore the emotional part of communication, which can be key
  • Bad (and good) ways to repair coordination neglect
    • Bad ways that make things worse..
      • Decreasing division of labor can create a lack of requisite expertise
      • Generically using team meetings to solve all coordination issues…more communication is not always better
    • Good ways
      • Use special processes that force integration among separate workers
      • Organizing a process handbook
  • If people fully understood the difficulty of coordination they wouldn’t be as apt to believe in conspiracy theories
    • People believe things are more planned and centralized than they really are—hence, coordination neglect

Cognitive Repairs: How Organizational Practices Can Compensate for Individual Shortcomings

by Chip Heath, et al.

  • Humans are limited, their decision processes are biased, and they often make costly mistakes on important decisions
  • Organizations can overcome individual shortcomings by deliberate analysis, trial and error, and in some cases using statistics or economics
  • Thesis: 
    • Individuals face cognitive limitations and shortcomings, but organizations can provide individuals with norms and procedures to mitigate limitations/reduce shortcomings
  • Practices that repair shortcomings are called “cognitive repairs”
  •  Effective learners must: 1) generate hypotheses that explain causal structure of world 2) collect information to distinguish among hypotheses 3) Draw appropriate conclusions
  • 1) Generating hypotheses
    • People search for hypotheses that confirm their bias or that make them look good
      • cognitive repair: “don’t confuse a bull market with brains”…a warning given to wall street traders; think about luck or circumstance when evaluating success
    • People have a tendency to focus on the actors in a situation rather than the situation. Also known as the Fundamental attribution error.
      • cognitive repair: use vivid statistics to emphasize most problems are caused by bad systems, not people (i.e. “94% of issues come from the system”)
    • People stop searching for causes as soon as they find a plausible enough cause
      • cognitive repair: use processes like Toyota’s ‘5 why’s’; these processes leads to finding the root cause instead of superficial reasons
    • People generate narrow, rather than broad, hypothesis
      • cognitive repair: cue individuals to think about problems from different perspectives; encourage people to recruit others with different expertise; or force people to generate hypotheses independent of one another
  • 2) Collecting Information
    • People collect small amounts of information, because it’s easier (and more available)…and they underestimate the power of larger samples
      • cognitive repair: encourage large sample sizes
    • People tend to collect biased information
      • cognitive repair: institute a process that collects data more systematically to overcome availability bias towards collecting information
    • People collect biased information based on pre-existing theories
      • cognitive repair: encourage employs to do primary research rather than rely on their pre-existing theory
        • A maxim from the company Bridgestone: “Go to the actual place; see the actual problem; talk to the actual people”
    • People only collect part of the relevant information
      • cognitive repair: provide people with schema that encompasses the full range of relevant information they need to find (i.e using acronyms like the 5 C’s to hit all relevant bases)
    • People who collect biased information fail to correct for bias
      • If you get the right outcome but have biased info, you won’t change your ways the next time around
      • cognitive repair: force people to collect unbiased samples from the outset
  • 3) Drawing Conclusions
    • People weigh extreme evidence more heavily, rather than weighing evidence based on its quality
      • cognitive repair: require people to consciously and appropriately classify information according to their appropriate weight
        • Stalin: “A single Russian death is a tragedy. A million is a statistic”; people attached higher weight to what is vivid
    • People use pre-existing theories to interpret evidence
      • cognitive repair: “deviant searches” encourage people to think outside of the box and consider nonstandard theories by which to interpret evidence. Also, ensure people interact with others who are inherently skeptical of their opinions
    • People draw overconfident and overoptimistic conclusions (planning fallacy/optimism bias)
      • i.e people grossly underestimate how long it takes them to do something
      • cognitive repair: allow people to be overconfident and overoptimistic then adjust them overtly
        • i.e. give people a constraint where you have already baked in an additional buffer time. Also, frank feedback can be helpful here
  • “Cognitive repairs” are efficient mental shortcuts and are helpful, but they are not always exact– they’re not going to solve everything, all the time.
    • Always consider the cost/benefit of each repair when assessing their relative potential success
  • Trade offs associated with “Successful Cognitive Repairs” (6 dimensions)
    1. Simple versus complex
      1. Simple repairs have advantages over complex repairs because they have small costs, are easier to remember, and are easier to implement. They are also less likely to be distorted
      2. That being said, simple repairs can be less accurate
    2. Domain-specific versus domain-general
      1. Domain-specific repairs are easier to remember and apply
      2. Domain-specific repairs are not always transferable to other domains so they have limited value, and don’t deal with ambiguity well
    3. Familiar versus Novel
      1. Familiar repairs are less costly
        1. but, could be too familiar and not innovative enough to be adopted; people will lack enthusiasm for it
      2. Novel repairs demand you learn more things from scratch
    4. Corrective versus Preventative
      1. Not all things are easily corrected
    5. Social versus Individual
      1. Successful repairs are social because they overcome individual shortcomings and limitations (per the article thesis)
    6. Top-down versus Bottom-down
      1. Top-down repairs may be perceived with hostility…people don’t like directives from the top
        1. can also seem too political
      2. Bottoms up repairs are familiar, local, homegrom
        1. are more memorable and appealing
  • Reasoning and decision making CAN be improved through social structure and cultural bootstrapping (bringing people along)
  • Managers should think about how cognitive repairs can positively affect their organizations
    • i.e thinking about whether you take a bottoms-up or top-down approach to deliver a message
    • Can use cognitive repairs to design more effective training…
  • Organizations that provide norms, reminders, protocols, and procedures move beyond individual limitations and cognitive shortcomings

Types of Strategy: What Fits Your Business?

by Harvard Business Review

  • There are lot’s of different strategic frameworks…how do you know what’s best for your business?
  • 4 basic strategies to maintain profitability in marketplace:
    • Low-cost leadership. 
      • think: discount retailers. Success=deliver goods at low prices.
      • products undifferentiated or are commodities
      • consistency in low prices,while maintaining profitability is key to their customer experience
      • low-cost leaders squeeze costs out of supply chain
      • strategy mainly works for physical good, however, vanguard is an exception that isn’t a physical good
      • Able to maintain low-cost leadership through operational efficiency, exploiting the experience curve, product redesign, and an unbeatable supply chain
    • Product/service differentiation
      • every successful strategy is about differentiation at its core
      • can differentiate commodities through customer service
      • differentiation only matters if customers value the difference.
      • being different for the sake of being different is not helpful
    • Customer relationships
      • retaining customers through customer service
      • Making customer relationship strategy work:
        • simplifying customer’s lives/work
        • provide ongoing benefits
        • personalized service. (Think: hotel rewards programs)
        • customized solutions…no one-sized fits all
        • continuous learning through CRM systems
        • personal points of contact, not transactional
    • Network effects
      • a phenomenon in which the value of the product increases as more products are sold and the network of users increases
      • fairly new strategy…effectiveness of it relies on companies ability to be the dominant player
    • Vast majority of business strategy involves one of these aforementioned strategies
    • When selecting strategies think about trade-offs, and customer alignment

Airborne Express

by Harvard Business Review

  • Airborne was third player in express shipping market behind FedEx and UPS
  • People spent $16-17B on expedited shipping services annually (1996)
  • There was a proliferation of new services in order to differentiate the players
  • Everyone was a customer in the expedited shipping business
    • Express mail became mainstream and the norm/expected
    • Low customer loyalty because of discounting
  • Collectively, the big three shipping firms sent 5 million packages per day; 98% of them on time
    • How they shipped all these packages?
      • Large fleet of vans/drivers
      • Packages driven to airport in containers; cargo containers were highly operationalized
      • Created massive hub facilities and other infrastructure
  • The big 3 were 85% of the market, but tons of second tier and international competitors
    • Led to massive industry war on everything: product, services, speed, and price
  • FedEx owned 45% of market and virtually invented express mail; ‘fedex’ became a verb
    • created from a term paper
    • integrated computer tech early
    • high quality control
    • aggressive marketing
    • great employee culture
    • int’l ambitions
  • UPS in second place with 25% of market share
    • originally charged fixed price
    • competed with USPS
    • regional hubs
    • owned by company managers
    • int’l ambitions
  • Airborne is in third place with 16% market share
    • fastest growing
    • Purchased airline facilities, unlike the other two players
    • relied on automation more than humans
    • focused on major metro areas
    • tech a differentiator
    • no advertising/marketing
    • low prices
    • frugal culture
    • no int’l ambitions
  • Airborne developed relationship with Roadway package systems (RPS) to reach UPS’s user base better. Also, there is potential for even closer integration

Questions

  1. Is Airborne in a secure position?
  2. How agitated are FedEx and UPS by them?
  3. Is avoiding the int’l market sound?
  4. How important is RPS to them strategically?
  5. Should Airborne do distance-based pricing like FedEx/UPS?