In his blog, my brother discussed Cialdini’s research on influencing behaviour through peer pressure. In particular, he focused on an experiment were a household’s energy usage was compared to that of the neighborhood’s.

What is even more interesting is Goldstein’s research:

And in research I conducted with Wesley Schultz and several colleagues, California households that were informed they were using more electricity than their neighbors reduced their consumption, but those informed that they were using less increased their consumption by 8.6% (emphasis mine). (Goldstein in HBR January 2009)

So, peer pressure leads to improvement or mediocracy? In factory settings, operators who receive bonuses according to their performance, find the “sweet spot” of effort/reward and don’t move an inch past it. Even when the performance measures change, people are quick to adapt (we thrive in feedback loops after all). Visualization of performance is important, but maybe it could focus on piecemeal but continuous improvement – like sports and high scores in video games.

The Wall Street Journal (via Curious Cat) has an article on companies that refuse to do layoffs despite the crisis.These companies have made a kind of social contract with their employees and explore more creative ways of coping with excess capacity, like transferring employees and using 4-day workweeks.

The article also mentions some of the obvious benefits of layoffs:

Some workplace experts say layoffs are a useful part of the business cycle, allowing employers to weed out poor performers, increase efficiency and promote a high-performance culture. Layoffs “are not inherently bad,” says Mark Nadler, a partner at management consultancy Oliver Wyman’s Delta practice. “Some people…are just more crucial to the survival of the organization than others.”

But the downsides are severe too and include loss of productivity and loss of knowledge capital (even in “low-tech” industries, like metal processing).

Lincoln Electric, a Cleveland maker of welding and cutting products, guarantees employment to U.S. workers with at least three years experience, says spokesman Roy Morrow. He says the company, with 9,000 employees world-wide, hasn’t had a U.S. layoff at least since 1949.

Is there a premium gained from such altruistic behaviour? Increased loyalty and flexibility come to mind. But, how can one achieve such stability without things becoming too stable – and driving away top performers?

From LBS Professor Freek Vermeulen comes piece of counter-intuitive (and therefore interesting – Bateson) advice: in a downturn a company should diversify rather than focus exclusively on the core product. The rationale is that, in a downturn, no single pocket of revenue is big enough to sustain the firm. This kind of thinking extents to the firm’s clients too:

…firms should not be focused on winning any big accounts, major new products or customers; they should aim for many smaller ones. They are relatively cheap to access and often the firm will already have knowledge about them; they shunned them in the past considering them too small to advance at the time.

The only real downside of Vermeulens’ idea is that such diversification and focus on more and smaller accounts will exhaust the managerial and “attentional” resources of the firm, in a period when it needs them the most in order to perfect its operations.

An intriguing article by John Kay about the credit crisis and the amount of control that the “big heads” actually had: none! In any crisis or success (e.g. Seven Habbits of Highly Effective People) we tend to attribute causality to the people at the top because it is easier that way:

Our desire to see history through the lives of great men blinds us to the real complexity of politics, business and finance, and leads us to find intentionality and design where there are only chance and improvisation. The philosopher, Alasdair MacIntyre, put it acerbically: “When imputed organisational skill and power are deployed and the desired effect follows, all that we have witnessed is the same kind of sequence as that to be observed when a clergyman is fortunate enough to pray for rain just before the unpredicted end of a drought!” He also said: “One key reason why the presidents of large corporations do not, as some radical critics believe, control the US is that they do not even succeed controlling their own corporations.” That was the experience of Chuck Prince, former Citigroup chief, and Stan O’Neal, former head of Merrill Lynch.

Could Napoleon have coped in a credit crunch?

Reality is too complex for simple causal links…

Industrial Engineer’s dream: a nice Shadow Board (via Evolving Excellence). Sometimes, factories get lost in buzzwords – Lean/TPS, Six Sigma etc., attempt to implement them using a top-down approach, but neglect the basics! The “shadows” show the designated place for each tool and give instant feedback on what’s missing!

Evolving Excellence: Examples of Excellence: Shadow Board

Good times are over and drastic measures are needed VC uberlords Sequoia Capital (via Techcrunch). Trimming the fat off the corporation is a necessity, but what about growth? Where will it come from? Unless the product/service is something really revolutionary (no Jaiku-style crap), you are in for some tough competition.

Sequoia Venture Capital Warning to CEOs – Get more Business Plans

In between work and ALBA lectures, here’s a funny primer on the subprime mess with no comments  Subprime Primer!

Airline food – that perennial comedy club staple is in danger as troubled, full service airlines consider dropping it. Predictably, there was an outcry by regular passengers, but why? Is in-flight food any good? The answer is no, but it’s a way to pass and (suprisingly) track time. One interesting fact is the complications arising from the high attitude environment:

 â€œIt’s just as well that in-flight food isn’t about gustatory greatness, because meal service isn’t easy when you’re five miles high. Even coffee is problematic because it’s harder to bring water to proper temperature at 40,000 feet. When McDonald’s did a Happy Meals promotion with a major carrier in the 1990s, the burger giant had to reformulate the cheese so it would melt rather than liquefy in flight. And forget about gourmet dining. How do you create a four-star meal when open flames are verboten, prep space is nonexistent, knives have rounded edges, and flight attendants must serve dozens of passengers at once using a convection oven?

In-Flight Food – Business Travel Column – Joe Brancatelli – Seat 2B – Portfolio.com

In FT, Pankaj Ghemawat argues that the world isn’t flat. Semi-globalization means that local companies can still successfully compete with global behemoths: as an example he mentions Goody’s vs McDonals in Greece! Although we tend to think that the internet has led to global hyperconnection (as people in the Victorian age thought of the telegraph), there are still cultural and economic barriers that still leave good niches to flexible players.

Summer is always a chance to catch up with the classics. So apart from studying Competitive Advantage (more on this on a later post), I came across Deming’s “Out of the Crisis” where he mentions the 7 Deadly Diseases of management (via Curious Cat):

1. Lack of constancy of purpose
2. Emphasis on short term profits (Overreaction to short term variation is harmful to long term success. With such focus on relatively unimportant short term results focus on constancy of purpose is next to impossible.)
3. Evaluation of performance, merit rating or annual review
4. Mobility of top management (too much turnover causes numerous problems)
5. Running a company on visible figures alone (many important factors are “unknown and unknowable.”
6. Excessive medical costs
7. Excessive legal damage awards swelled by lawyers working on contingency fees

One can see that the first 5 form a chain of incompetence. High turnover (4) makes management short sighted (2) and running the company on visible numbers alone (P&L) (5), which in turn leads to a lack of constancy of purpose (1). The latter is I believe the ultimate sin: without clear purpose there can be no strategy, and this leads to a company that pursues divergent goals at the same time: low cost position, top quality, differentiation. Usually, this leads to mediocre performance and below average returns (e.g. Grundig in the home electronics industry – which went from iconic high quality brand to jack-of-all-trades failure).

What is interesting, is the fact that the path to mediocrity  is quality > low cost, rather than the other way round:

The company either loses its actual quality advantage and is forced to compete on cost, or the product becomes a commodity so there is no perceived quality advantage. The company tries to compete on cost but usually is not equipped adequately (manufacturing- and culturewise).

It seems that in order to achieve constancy of purpose a long view is essential. But with high turnover this can be elusive…