Okay sports fans, here's my explanation of Behavioral Economics...RE: @mikeandmike

Okay sports fans, I was listening to Mike and Mike in the Morning on ESPN Radio. Last night the Tampa Bay Devil Rays had a chance to clinch a playoff berth. Now, they didn't win, but that's another story. For these purposes, it's important to know that a couple of millionaire athletes (David Price and Evan Longoria...not to be confused with actress Eva) were "embarrassed" because even for such a crucial game, they couldn't get more than 10-15 thousand fans out. To quote Longoria, "For us to play 155 games and go a full season of playing really good baseball, it's kind of like, what else do we have to do to draw fans into this place? It's actually embarrassing for us."

As I listened to Mike (Golic) and Mike (Greenberg) in a heated debate about whether the athletes were justified in their rants, it was clear to me that this debate can only be solved with behavioral economics. You see, Golic's debate was purely logical. His feeling was that no fans who would not otherwise purchase tickets would change their minds and purchase tickets, as a result of the players calling them out. Therefore, it was nonsensical for them to expend the effort in criticizing those fans. He repeatedly said, those millionaires have no right telling those fans how to spend their money. We can all relate to those sentiments (even though millionaire marketing execs spend their whole lives convincing middle-class citizens how to spend their money). Meanwhile, Greenberg felt the athletes had every right to voice their opinions. To Greenie, those fans should be a part of the culture. They play a role in the success of their team and should step up and do their part by attending. Greenberg's argument was playing to the emotional attachment of those fans. In that sense, Greenberg wins the debate.

You see, current research shows that of all the decisions consumers make, 70% are based on EMOTIONAL factors, while only 30% are based on RATIONAL elements. While Greenie wins the debate for his premise that players need to play more to their fans' emotional attachment, he fails in recognizing that the players' statements also carry the potential to have an adverse impact on emotional attachment. In fact, it is easier to erode the emotional attachment of your customers than it is to create it.

So I'll let you be the judge... what impact would the players' statements have had on you as a fan? Would you be more or less likely to attend the next home game? If your answer is MORE likely, then Greenie wins the debate. If your answer is LESS likely, then the award goes to Golic (even though he based his argument on the wrong premise).

Behavioral economics can best be defined as the role human nature plays in just about everything. Are your models for understanding customer and employee behavior rooted in behavioral economics? Or are they still limited to the old rational, neoclassical economics?

 

For more on behavioral economics, follow me on Twitter @clintcarlos

Getting to work before dawn = productive day

How did America find $10 trillion? Who invented the internet?...and the recipe for innovation.

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Did you hear that joke about how Al Gore invented the interne? Or, perhaps you revere Vint Cerf for his role in designing TCP/IP? For a moment, try to forget everything you know about how the internet was invented and follow this thought...

25 years ago, if you tuned into nearly any news source you would have observed a bi-partisan panel of economists unanimously predicting that the U.S. economy would fall to 3rd in the world. Japan would be the largest economy at about $5 trillion, followed by Germany at $4 trillion. The U.S. was predicted to be somewhere in the range of $3.5 trillion in GDP. Economists were dead on with Japan ($4.5 trillion) and Germany ($4 trillion), but miscalculated U.S. GDP by a whopping $10 trillion.  Never before in history, and not since then, have economists as a whole been so colossally wrong.

For modern societies, economy is everything. Economic expansion gave the U.S. its moral authority around the world. This engine afforded America the ability to maintain an edge in national defense, infrastructure, and other luxuries of prosperity. Democracy borrows its credibility from the fact that democracy (as an idea) actually worked in building the world's largest economic engine. 

So why were economists wrong? They were wrong because they were using economic models that accounted for everything except talent.

Now back to the internet for a moment...

The internet was a major contributor to the $10 trillion worth of windfall GDP growth in American history...and while there were other contributors, this serves as a model for understanding the link between innovation and economic growth.

A review of the history of the internet is a story about people.

1)      It required multiple geniuses. Beginning with Vannevar Bush in 1945 and Norbert Wiener soon after, the concept of the internet was conceived. J.C.R. Licklider and Lawrence Roberts paved a way for a national communications network. The use of packet switching came later thanks to Paul Baran and Donald Davies, and then the first communications were passed between UCLA and Stanford (led by Kleinrock and Engelbart). Vint Cerf and Robert Kahn later developed what would be the most widely used protocol (TCP/IP) around the world.

2)      None of these brilliant inventors could have done it alone, but it didn’t take that many. In fact, if you look at the other contributors to economic expansion (Microsoft, Wal-Mart, etc), the total number of people to credit is quite small. Some 100,000 people can be credited with each contributing $100 million of GDP growth. Only 100,000 people or 0.03% of a society with 300,000,000 citizens. This number is staggeringly small.

3)      Why were those 100,000 people living in the U.S.? Of all the places in the world, we were lucky enough to have them here. Is this the result of “American” genetics? No. In fact, of the 100,000 people who deserve credit for America’s expansion, more than half migrated from some other country.  

This brings us to the most important insight on innovation. Innovation is not genetic, and it has very little to do with a person’s country of origin (including all of those societal factors; especially education).

Innovation occurs when you bring the right talent into the right environment.

For America, this happened when more than 50,000 individuals migrated here in search of a place to express their talent. The right environment was created by protecting the rights, liberties and freedoms of those people. I hope we don’t lose sight of that.

For your organization, this can occur when you focus on the right types of talent and bring them into a work environment that breeds innovation by incenting people to express their creativity and by protecting their rights and aligning with their ambitions.

In closing, let me offer 4 distinct types of talent that led to America’s affluence and I think could be helpful in your company.

1.      Innovators. They get the ideas that create new products, markets and stock value.

2.      Entrepreneurs. They are typically super-sales-people or rainmakers. They see an idea, recognize its potential, and figure out the necessary steps to make the idea a reality.

3.      Superstars. These people are extremely creative achievers. Unusually gifted in niche disciplines. Technologists, designers, product architects or philosophers.

4.      Super Mentors. Innovators, entrepreneurs and superstars rely on genius developers. Those developers are people who say, “Your idea can work. I’ll help.” Super Mentors may be inside or outside of your company, and add value because of their experience and network.

Do you have the right talent to innovate? What about the right environment?

Follow me on Twitter @clintcarlos

What's all the fuss about Knowledge Management? 3 things you need to know before it's too late.

Knowledge Management is a top priority among companies looking to sustain an edge on competition. At face value KM is an important field that very few organizations have actually mastered, which makes it a keen target for consultants. However, as I've attempted to help some of my clients sort through the clutter, I've found very few best practices to draw from. First, as mentioned very few organizations get this right to begin with. Second, the needs and dynamics within organizations are so diverse in terms of KM that it would be nearly impossible to model one Knowledge Management System (KMS) on another. Exacerbating this problem, a huge population of knowledge-holders are retiring within the coming years. The threat to organizations is that as those baby boomers leave the company, so will the valuable insights, industry secrets, and best practices that have allowed them to succeed over past decades. Another trend has been that knowledge migration simply has not kept up with technology. Demographics and digitization, while opening the door for tremendous opportunity have crippled countless organizations. As I've been doing my homework, I've landed on three keys to overcoming these challenges that I hope are universal enough for all to apply.

1. The why matters as much as the how

Across the focus groups and stakeholder interviews I've conducted, baby boomers are continually worried that they are seen as expendable resources. Perhaps this is a new phenomena as a result of the countless layoffs we have seen throughout the current recession. Be that as it may, tenured employees don't feel the same sense of loyalty as they once did. Incentives appear to be misaligned to encourage the discretionary effort needed to pass on expertise to the next generation. Furthermore, because organizations have opted for lean over ample priority is given to the current projects underway, with little room for documentation, record keeping, or mentoring. Companies have repealed employee stock ownership programs (ESOPs), or purchased back treasury stock in a way to counter the decline of corporate valuations for their shareholders. Other companies have been purchased or restructured, leaving employee ownership ambiguous and convoluted. Even in situations where stock ownership is not the driving force for loyalty beyond retirement, a general distate exists between long-time employees and the companies they once loved. Great, world-class organizations find a way to reverse these trends. They know that senior workers can add value long after they retire and find ways to align their incentives with the future of the company. Think about why your workers will want to save and share knowledge with tomorrow's leaders. If you don't know why, then I can assure you this: neither do they.

2. No one will go looking for knowledge if it doesn't come to them

Some of you might be thinking right now, "It's okay, as long as we capture knowledge somewhere our people will be able to find it when we need it." Let me expel that myth right now with three simple words. NO THEY WON'T. Even if they wanted to, most would give up after only a few attempts for several reasons. Either they will encounter too many barriers to finding the right information, or by the time they are close to succeeding it will no longer be timely or relevant. The third reason is that the world today (and presumably tomorrow) doesn't know how to go find information. This is the result of a world that pushes any relevant information to the consumer when they most need it. We've grown lazy as a society of learners. Even when we really want to learn about something specific, we are overwhelmed with conflicting messages that take precedence because they are pushed at us. KM systems that work have migrated from old filing cabinets and online depositories to streams of relevant information, targeted by subject to select audiences, based on current projects and team orientations. Mentoring is no longer done with junior associates sitting next to senior employees "learning the ropes". It is an iterative experience, with a little here, a little there, and only succeeds when both parties are proactive and work to bridge the demographic gaps. This is anything but universal...sadly it's the exception. Technology is important, but it isn't everything. There are other methods for sharing information that can follow these principles, even when technology infrastructures are behind the times.

3. Curation is more important than creation

I recently sat in on a company's strategic planning that talked ab out the need to create a formal documentation process, whereby project teams would follow a template to detail the goals and outcomes of each project. The idea was rooted in a belief that this organization was not creating enough content to be shared with future generations of employees. This was a false premise. Information is everywhere inside this company. The problem for this company and many others is there is no way to sort through the mass of information to find the most relevant bits and pieces when needed. In fact, creating more documentation would only weaken the company's ability to apply relevant information. What this company and many others need is better curation practices. Curation is why the world's most renowned art museums never lose their lustre. This is why some restaurants always seem to have the perfect wine to accompany a meal, or why certain bloggers seem to get all the best ideas first. Curation is a method or process by which companies can obtain a competitive differentiation in the way it identifies the most important ideas and puts them in front of the right eyeballs. Employees are your audience for Knowledge Management, and the information your company holds are your artwork. Think carefully before you save, document, file, or share anything. The best way for you to manage knowledge is to decide what not to share with your employees. Curation can be performed by people, systems, or be captured in traditions...but the important thing is that without proper curation, all the brightest ideas in the world will be lost in the sea of mediocre or terrible ideas that plague your company.  

 

Follow me on Twitter @clintcarlos

Feedback...

I'm hoping to make my social media experience more interactive. It's therapeutic to listen to myself ramble, but I'd rather engage in some discussion... What do you think?

If you agree with what I say, I'd love to hear it.

If you disagree with what I say, I'd love to hear it.

If you have more questions for discussion, please post them here.

 

 

The Problem With Groupon...3 Reasons Not to Buy

The other night I decided to finally use our Groupon at a local Sushi joint with my family. My 9 yr old actually loves sushi, but my 3 yr old needed some persuasion.

It's important to know that I am anything but a coupon freak... I tend to avoid any coupon or discount club like the plague. I never carry cards around for a free tenth meal and I never sell my personal info to the grocery store in exchange for saving a nickel here or there on milk. I absolutely never pay to play in these schemes...you know the old "$20 now to save $100 later" trick that never seems to add up. Sure, I might pay more than other people on occasion, but I rarely have regrets. In all it is a sum zero game and I don't have to worry about where to put all those membership and discount cards, and I never have to spend time clipping coupons.

Recently everyone I know (including my wife) has been on a Groupon craze. I get emails daily from people saying, "Did you see this deal?" of "Did you buy today's Groupon?". I've read the nightmares of business owners dealing with Groupon, which was discouraging but in some way I figured if they were losing then the Groupon buyer must be the winner. Because of my intrigue with this phenomena, I've been interviewing friends about their experiences with Groupon and I've discovered 3 consistent problems:

1. Overwhelming demand precipitates a backlog of terrible service.

Most companies offering Groupons, do so because they are desperate to increase traffic/demand for their product or service. This means, they are not currently running at full or over capacity. They are comfortable delivering for the slow trickle of customers, and wholly unaware of the flood that will crash down on them as soon as Groupon goes live.

Recently a friend of mine purchased a massage on Groupon from a local masseuse. He spent $35 for what was typically an $80 1-hr massage. Sounded like a great deal, since he had an upcoming triathlon and would surely use it to recover the following day. He bought the Groupon, waited the standard 1-day period before booking his massage, only to find out the masseuse had been so overwhelmed by Groupon that he could not book an appointment for 5 months!

Another friend purchased the Groupon for www.mywinesdirect.com, which offered a $95 case of 6 bottles of wine for $44. She went to the website to redeem her Groupon, only to find that Mywinesdirect.com was also overwhelmed to the point that they had put the offer on hold for 2 days while they sorted out a new landing page on the website to handle Groupon. Moreover, once she finally placed the order several days later she found that her case of wine would not arrive for several months. She's still waiting. If Mywinesdirect.com is trying to be the Zappos of the wine industry, they just blew their chances with a huge volume of potential customers, a la Groupon.

I could continue, but I think you get the point. Any value saved by purchasing a Groupon here, was completely diluted by the unbelievable deterioration of service and timeliness.

2. Groupon users have a stigma.

I've never been in a position where I had to use food stamps at the grocery store, but after using a few Groupons I can surmise exactly how that feels. Wow, I never figured it would be quite such an embarrassing situation. I've used gift cards a number of times and that is nothing like using a Groupon. Let me just spare you the suspense. Business owners have been burned so badly by Groupon that they hate to see you come to their business and use them. Employees know that Groupon users don't tip well and are often overly demanding... and even if that isn't your modus operandi, they will think you are just like all the others.

This brings me back to my sushi story. As my family entered the restaurant, I politely let the waiter know that we had a Groupon. Keep in mind our typical Sushi bill is around $100 and my Groupon was for $30, so I came prepared to cover the distance. I was raised right by my parents and had also prepared mentally to tip on the full amount of the bill, rather than excluding the Groupon portion from my tip calculation. Apparently, most Groupon users are not as well schooled in this area. It was obvious from the first time the waiter came to our table that he was extra precautious and less than excited to serve us as a result of the Groupon. I thought I saw him whispering with the restaurant owner in the corner and point at us a few times. I felt like I needed to keep the Groupon hidden in my pocket until just the last moment when I would sneakily put it in the black folio along with my cash. If you think I'm exaggerating, the restaurant went out of its way to print up a special note along with the bill for Groupon users...spelling out Groupon etiquette. Here is a picture of that notice from my iPhone: 3. Groupon exaggerates the value of its products and services, ignoring other competitive offers.

How many times in the last decade have you paid full-price for an oil change? If you're like me, the answer is never. Every day I get offers in the mail for $10 off, or a Signature service for $19.95... these offers are a dime a dozen. In fact, I rarely pay full price for anything ever. It's too easy to find some form of discount... especially for the types of services or products that Groupon typically promotes. So why are we okay with comparing Groupon rates to the "standard retail" prices? It would make more sense to compare Groupon rates to the average price paid for those goods or services. If you look at it this way, it's easy to see that Groupon is not as remarkable as it seems, and sometimes people actually pay less through other offers.

All things considered, I'm scratching my head as to why people would continue to buy Groupons. I've bought 4 and never quite been satisfied with my experience. Lesson learned. 

Video of Joe Ricketts (Founder of TD Ameritrade) Speaking on Entrepreneurship

I never tire of hearing great entrepreneurs talk. Even the ones with less than impressive oratory skills are so intriguing to me, because of the action behind their words. It's so different than hearing Academicians talk of business or entrepreneurship, because I've found that those self-declared experts rarely have first hand experience. An entrepreneur, on the other hand, carries a level of authenticity that makes his message relevant.

J. Joe Ricketts of Omaha, is not just any entrepreneur. He's the Founder and Former CEO of TD Ameritrade, one of the world's elite online brokerages, which has been on a growth tear since its inception only 30 years go. Again, he's no Obama when it comes to polished presenting skills, but here's a video of him sharing some insight to entrepreneurship:  http://spne.ws/8jy

Enjoy!

 

Follow me on Twitter @clintcarlos

Performance Management for Customer Service Roles

Over the course of 15 million employee interviews, research has proven that perhaps THE best driver of high performance is when employees have clear expectations. However, performane mangement can get convoluted in a hurry. With good intentions, too many companies make their performance management systems overly complicated, diluting any positive benefit they might have gained.

For this post, I'm going to focus specifically on customer service roles. Here is what I've seen to be the world-class standard:

An employee is paid a significant amount (enough to influence behavior), based on simple metrics that they psychologically own, and have been statistically proven to link to business outcomes; and as that employee models those behaviors repeatedly creating positive customer interactions, real increases in customer loyalty can be measured, and as loyalty increases, customers spend more, stay longer and encourage their friends to do the same.

That sounds complicated, but if you break it down into pieces it becomes easier to execute.

Step 1: ensure that at least 40% of employee's pay is performance based

Step 2: show employees evidence that the metrics they are judged on have a clear link to the performance of the company

Step 3: ensure that employees can in fact influence those metrics through certain behaviors, and provide tools, training and coaching to embed those behaviors

Step 4: validate by measuring loyalty trends and linking loyalty back to the performance of the company

Step 5: remove organizational barriers that prevent employees from executing this strategy, and correct any systemic business model conflicts that lead to dissatisfied customers

There... wasn't that easy?

Measure your Wellbeing. Which of the 5 areas do you need to improve most?

Last week my wife and I participated in the annual health screening offered by my company's wellness partner. These are a good annual gauge on whether I'm gaining/losing weight, how my blood pressure and cholesterol are doing, and what my risk is for common health threats. I try to do an annual physical with my physician as well, and occasionally I find myself stepping on the scale at LifeTime Fitness where I workout. These positive activities are commonplace.

Similarly, I find myself pulling up my Mint app on my iPhone to get a daily read on my net worth, keep an eye on credit/checking transactions, and making sure no fradulent charges were made on any of my accounts. It's a good way to keep myself grounded.

Following these steps on a regular basis keeps my physical and financial health in check and afford me the opportunity to refocus on the big picture of where I'm heading in life. However, these do not make up the entirety of my life. There are other factors that go into my overall quality of life...or as some label this: Wellbeing. 

In fact, there are five areas of wellbeing that deserve equal attention. While it would be difficult to focus on all five, all the time, the occasional checkup is needed in these areas. For years I would sWellet annual career goals, or look for ways to be more active in the community, but I never had a gauge to track my success on an ongoing basis.

This summer, Gallup released a revolutionary tool that has really changed the way I evaluate my life on an ongoing basis. It's called the Wellbeing Finder (http://www.wbfinder.com/home.aspx). By answering a set of questions about my life on a recurring basis, I'm given a gauge on the five key areas of wellbeing. Those areas are Social, Physical, Financial, Community and Career. I like to think that my spiritual wellbeing is present in all 5 areas and that is a topic for another day. However, these five areas give me a great holistic view of my life and where I'm heading. Pick up the Wellbeing book and use the code for the online assessment. It let's you repeat the assessment as often as you'd like and set action plans and reminders in each area.

One key finding for me is the huge impact that my social netwok plays on my Wellbeing. The more friends I have that use this tool, the more insight I can gain about the impact of social networks on my overall Wellbeing. Right now I have a small handful who have used this assessment and it has opened up great dialogue about how we can enhance the quality of each other's lives. I hope you'll join the dialogue.

New home for the College World Series

TD Ameritrade Ballpark in Omaha is almost finished with construction.

My office view

For any Omaha haters, I thought I'd share my view of the Missouri river from my desk.

fun day at work

A group of 75 execs from a certain well-known motorcycle company are here for some training. It should make this an interesting day. Check out the pics!

 

See and download the full gallery on posterous