Thursday, September 24, 2009

The Paradox of Choice & Why Chipotle Taste So Good

Consumers want choice. The more, the better. Searching for any item on Amazon will turn up a staggering number of options such as the 140,000 watches you could purchase with a click. With so many options sanctification is nearly guaranteed! How could you not find what you want? Yet an interesting paradox is noted by philosopher Barry Schwartz: A greater numbers of options lends itself to a greater opportunity of discontentment. With so many options human are plagued by the idea of missed opportunity costs. Yes, the watch is everything I wanted, but what if I had purchased the other one? This lowers our enjoyment/utility of a decision.

Another related note is the effect choice has on our assignment of blame. If it were 1909 and you choose to purchase the only car availalbe, the Model T Ford, any dissatisfaction would be directed 100% toward Ford. Now, in 2009 if you were disappointed with your Ford's performance you would partially blame yourself. Why did I choose this car? Why not the Honda? I should have know better...

This plays out brilliantly in a modern Chipotle. As the customer moves along he/she builds their burritos making narrow selections; beef not chicken, corn salsa not hot, etc. Lets assume the impossible that the customer was dissatisfied with the burrito. Since the customer co-developed the product the majority of the disappointment is directed inward rather than outward toward the company. The result is a return customer that a bad Steak House would never enjoy.

Brilliant. The paradox of choice has turned a bad customer experience into my fault. This is why Chipotle, Subway, Starbucks, etc will continue to grow and be emulated.

Next time your coffee sucks, demand a new cup: It's not your fault!

Friday, April 3, 2009

Budgeting that works (make it easy)

Knowledge itself is not sufficient for change, but rather the application of knowledge is what brings about real change. Personal finance is simply not that complicated. Anyone with an Internet connection can Google personal finance and find literally 72 million sites offering advice, resources, and strategies for personal financial success. All advice on personal finance is given on the basis that the hearer will enact specific recommended course of action. Often recommended methods will simply not work for a given lifestyle. Cash in a monthly envelope with labels on the front may work for some but is simply not practical for my family in 2009.

For the past 6 months my wife and I have turned to Mint a wonderfully simple personal finance site owned by our trusted friends at Motley Fool. Basically Mint allows us to categorize our purchases and set budgets, reminders, and warnings. Similar to a Quicken or Money product but much more accessible through online only interface with optional iPhone apps and mobile support. Overall I can say that Mint has lowered the bar for tracking personal finances especially when juggling multiple accounts, credit cards, by numerous family members. If you primarily utilize electronic purchasing (credit cards, debit, etc) Mint could be just the enabling type of service you need to finally stick to that budget.

Friday, March 20, 2009

Motivating Employees through Goal Setting

Currently at work we are setting our personal objectives for 2009. Employee goals are often overlooked or underutilized. While goal setting can be viewed cynically I personally feel goal setting is the most effective means of employee motivation which is critical for performance. I thought I would take a moment to share some thoughts regarding goal setting and specifically how goals motivate employees towards performance. First the principle based largely on Vroom's expectancy model combined with some great insight from a professor of mine :

Employees are productive when they have the necessary support, proper abilities, and motivation. We will look at each component individually:
  1. Support: Do your employees have appropriate resources to be productive? Is there enough time, money, and equipment to perform the tasks? Asking a lumberjack to drop a tree would be impossible if given only a pocketknife. Equally import is the employees perception of support, does that employee believe he possess required support (software, hardware, access, etc)?
  2. Ability: Is the level of required performance within the ability of the performer? Is the goal honestly attainable by the employee or are you expecting a level of unattainable performance? It is not reasonable to assign the human genome project to the office secretary.
  3. Motivation: An employee with abundant support and dazzling ability with do very little unless motivated. There are many models and theories regarding motivation ranging from financial, social, relational, etc. I am convinced goals are the most effective means for motivation
Next we will explore motivation through goal setting. Gary Lathham in The blackwell Handbook of Principles of Organizational Behaviour discusses the theory of goal setting stating "the simplest most direct motivational explanation of why people perform better than others is because they have different performance goals." Motivation can be broken down into three necessary components:
  1. Expectancy - If I work, I will succeed. Also called self-efficacy, this is a belief held by the employee that they can accomplish the goal. A lack of expectancy can be addressed in multiple ways such as enactive mastery (progressive small goals to build confidence), modeling (matching the employee with a role model), or peer motivation (co-workers can accomplish the tasks).
  2. Instrumentality - There is some reward. This reward does not have to be financial compensation but rather could be recognition, a successful project launch, a promotion, Winning the presidents acknowledgment award for increasing revenue, etc.
  3. Valence - A belief held by the employee that the reward is worth it.
An employee must feel that a goal is within their reach, carries a reward, and that reward is of value. Remove any one of these three variables and you are left with a demotivated employee. Recycling is easy, it saves 10 trees, but I don't care. No motivation.

Superior performance is achieved when support and ability is pared with a high level of motivation. Motivation alone without actual ability or support leads to frustrated employee. Similarly support and motivation without ability is a chasing after the wind.

Do you agree?

Friday, February 6, 2009

Begin With The End In Mind

Recently we all heard of Nancy Killefer's failure to pay taxes which lead to the withdraw of her appointment as Chief Performance Officer. Setting aside the ethical and moral issues I'm amazed at her "oversights" in not paying taxes. Considering this situation made me thing about long term planning for our lives and careers. Often individuals take actions assuming that their consequences will never affect them. How short sighted. Regardless of whether you agree with Steven Covey and his "habits" his writings on starting with the end in mind is critical in all aspects of our lives. Recently I had good friend ask for my counsel about a potential business arrangement which was legal but hinted at impropriety. In my response I asked him if he ever wanted to run for public office or be the CEO of a large company. While that may not be his goal I was driving home the point of beginning with the end in mind. In business and our personal lives we should make every decision as if it were to one day be reviewed in our confirmation hearing.

Rather than a wonderful career Nancy will be recorded in history as someone who stepped down because of a $946 tax issue. Let us watch our lives closely.

Tuesday, January 27, 2009

Online Banking

Early in college I learned some very difficult financial lessons regarding late fees. While I considered myself knowledgeable regarding financial transactions I consistently found myself paying late fees for every bill around. I adopted early to online bill payments as a means of avoiding these sapping charges.

Currently the only bill I manually pay is the monthly transfer of funds from Checking to pay my credit card (a transaction I like to oversee). Mortgage, car insurance, cell phones, student loans, etc. all manage themselves. Here are a few benefits of online bill pay for my personal life:
  1. Avoid Fees - Many services charge $15-$30 for delayed payments
  2. Reduce Stress - How much energy do you devote to thinking when bills are due? For what purpose? Assuming your are financially solvent are you really not going to pay your electric bill?
  3. Maximize Interest- The time value of money is a simple concept: hold on to your money for as long as possible to maximize your return given a positive interest rate. Online payments allow you to set a payment date as close as possible to the due date leaving your funds earning interest until the last possible second.
  4. Access - Information is only as your ability to access it.
  5. Reduce clutter - You don't really need to save that electric bill, why clutter your mailbox? I don't have a home office and living in the city I certainly don't have room for boxes of bills and used checks.
I highly recommend my bank for anyone interested in online banking. I have also read very positive reviews of PNC's Virtual Wallet.

Monday, January 19, 2009

$10,638,425,746,293.80 - US National Debt

I just read an interesting article over at Emerginvest

The US national debt has reach a record $10.6 Trillion dollars with an estimated $1.2 Trillion annual budget deficit to dig the hole deeper. Divided by the nearly 204 Million Americans ages 15-64 that equals a $52,152 bill for each of us growing daily.

The majority of economist (and myself) believe that we must spend our way out of the current recession. Hopefully Keynesian economic theories hold true and greener pastors are ahead for our wonderful nation.

The greatest struggle will not be weathering the current recession; but rather the ability of individuals and our leaders to show fiscal restraint once the US economy rights itself through stimulus. Unless we can master this act we are doing nothing but re-inflating a bubble for future generations to pop with ever greater consequences.

In the meantime looks like $14,000,000,000,000.00 is a number we will all have to attempt to comprehend.