Water water everywhere

Weather pictureSo, it’s coming to the end of December 2015 and the UK is reeling from torrential rain storms and, as a result, unprecedented flooding across circa. half the nation.

It makes for a really interesting case study of systems.

As a reminder, a system is “a network of inter-dependant components that work together to try to accomplish the aim of the system” (Deming)

Now the UK’s rain water dispersal system has many components, such as:

  • the high ground on which the majority of the rain falls on;
  • the small streams from which it flows downwards;
  • the lakes and rivers in which it gathers;
  • the flood plains on which the water spreads out;
  • the man-made structures (banks, bridges, culverts, tunnels, protection barriers) put in place to ‘guide’ the water through major towns and cities; and finally
  • down to the estuaries which feed into the sea

…and all along these components lays humanity and its man-made assets (domestic and commercial).

We all know that there is variation in rain-fall (though in the UK the rain switch seems to be more often in the ‘on’ rather than ‘off’ position) and that there are sometimes special events. Unfortunately the UK has experienced record breaking rainfall…

…and the system is unable to cope without having a drastic effect on people.

The UK Environment Agency (EA) has the unenviable task of protecting people and their possessions. They have spent years, and billions of pounds, building flood defences.

The outcome of the rain, whilst somewhat grisly for those involved, provides lots of examples of behaviour that is optimal for one component but catastrophic for another.

How about these:

  • sand baggingSand-bagging around your house: This is at the smallest end of the scale and sounds sensible and innocuous doesn’t it. What’s not to like?

Well, let’s say that you successfully sand-bag around your gate…where does the water go now?

…next door! This sets off a chain reaction. As each person sand-bags their door, then the volume of water that has been ‘turned away’ increases, making the poor bugger who hasn’t managed to plug their hole enough to become deluged with everyone else’s diverted problem; which takes us up the scale to…

  • Fosse BarrierThe Fosse Barrier was built to protect the City of York from the River Ouse. Once closed, it prevents the River Ouse from forcing flood waters back up the tributary River Fosse and into the City of York, whilst simultaneously pumping the River Fosse around the barrier and into the River Ouse. Sounds tricky!

The barrier was lowered a few days ago but, due to concerns about the unexpectedly high waters flooding (and thereby seizing up) the barrier mechanism, the EA took the (brave and/or daft?) decision to lift the barrier before this could occur…and thus knowingly flooded parts of York…although, by their calculations, reducing flooding elsewhere.

Here’s a picture of York after the River Fosse burst its banks:

York flooded

 …and on to an even bigger example:

  • The Jubilee River is an artificial channel that was dug (at a cost of £110m) to divert flood waters from the River Thames around the towns of Maidenhead and Windsor. It was opened in 2002 and, given that it rejoins the River Thames below these towns, those residents unlucky to be downstream are seriously unhappy about it!

Here are a couple of quotes from angry residents It’s grossly unfair that a man-made river can be to the benefit of some people and to the detriment of others.” and “I believe we are being used as sacrificial lambs!”

…and so what might the EA’s answer to this be? Well, to extend the scheme of course! “We have very extensive plans to continue the Jubilee River all the way down…to Teddington…It’s very expensive but it’s got huge support.” I bet it does – by those who will benefit! Erm, but won’t that just move the problem again?

Now, the EA can build walls and divert rivers the length and breadth of the land…and we can be certain that each engineered ‘solution’ will uncover the need for yet another one nearby. But what about reasons as to why the flooding is soooo bad this time? Is it about more than the volume of rain falling?

Here’s an interesting article written by George Monbiot on the subject (it’s aptly called ‘Going downhill fast’). Rather than trying to cope with the water once it’s got into our rivers, he looks at why it is rushing at such speeds to get there…such as:

  • down from all that high ground that used to have trees on it (which massively soak up and contain water) but which have been cleared for grazing, grouse shooting and other such uses; and
  • over all that land that has been concreted for industrial, commercial and domestic purposes.

The point:

Now, the above is in no way an attempt to advise the UK EA on what to do! I am merely using it all as a superb example of a complex and dynamic system, with all its various components.

I often talk about two excellent systems effects/ analogies and they are brilliantly demonstrated above:

  • ‘Systems bite back’ and
  • ‘The push down, pop up’ or ‘balloon effect’: “squashing down on activity in one place causes it to pop up somewhere else”

The whole point of systems thinking is to recognise that everything in the system is connected and interacts, usually in highly complex and unexpected ways…and in so realising, move our thinking to the ‘whole system’ level, rather than its components.

In the words of Indira Gandhi “Whenever you take [what you think is] a step forward, you are bound to disturb something.”

…and so it is the same within any organisation, and its value streams.

Organisational value streams

Each of our value streams are like the UK rain water dispersal system: they have a purpose, a start and end, and many components in between.

To manage at a component level is to cause problems elsewhere.

We can only truly improve a value stream (the system) when we think about it from end-to-end, understand it’s purpose from the customer’s point of view and fully collaborate along its full horizontal length….and, to do this, we need to remove any and all system conditions and management thinking that are impediments.

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A Pet Hate of Mine

screamSo, probably once a year throughout my career (mmm, that’s a grandiose word), I have been invited to an annual Corporate ‘road show’ type event at which the current ‘leader’ stands on stage and holds forth for up to an hour on ‘their vision’ for us – the gaggle of employees corralled together before them.

Over my 20 years of such ‘fun’ I’ve seen all sorts of performers and heard all sorts of visions. Some good, many mediocre, some bad.

But a pet hate of mine is how they usually start off.

Picture the scene. The VIP is standing in the wings, waiting to come on and another (slightly less hierarchically) important person has the job of introducing them onto the stage.

…and what do these ‘introducers’ always seem to say? Something like this…

“we are all very lucky to have [insert name of important person] here with us today…s/he has freed up his/her extremely important time in order to be with us…so put your hands together in appreciation for [  ]”

And I always want to SCREAM!

Now obviously each announcer uses their own personal wording but it’s usually around:

  • us ‘being lucky’: as if we are worshippers at the VIPs altar; and
  • they (the VIP) having ‘freed up’ their time to be here, as if they have far more important things to be doing than to be talking to us.

A refreshing change

I was lucky enough 🙂 for the first CEO of my working life to be intelligent/ humble/ astute enough to realise the huge error in the above.

The first time John was introduced it was just as above. But he shot up on to the stage, put his hands out and asked us to stop.

He then made clear that we were not lucky that he was ‘before us’, that there was nothing ‘more important’ that he should be doing and that he should be thanking us for coming along and listening to what he hoped to say.

He recognised that he had to earn his ‘leader’ moniker by:

  • gaining (and retaining) our respect and trust; and
  • motivating us to want to follow him for ourselves

His mild (yet respectful) rebuke of the person that had introduced him ensured that I saw him speak many more times (because I wanted to) and, subsequent to that first time, no-one introduced him other than to ask us to give him a warm welcome…which we should give to anyone (and which ‘leaders’, in turn, should want to give all of us back).

I was never asked again to feel lucky about seeing him speak. Nice!

“Stop being so puerile Steve!”

Now you might read the above and think that I am a truly awkward and prickly bugger (and you might be right) but the fact is that:

  • the ‘VIP’ wants us to listen to them because they want our help in achieving their aim of a successful organisation; and
  • we have our own personal purpose and it is up to us to work out if and how it fits with what this VIP is putting forward to us – we can’t be made to love the words coming out of their mouths (though many of us can be bribed to comply)

To conclude – How to avoid my pet hate:

Please don’t ever tell me that I am lucky that you (or one of your associates) came before me and I was lucky that I heard you speak! Thanks….and I won’t presume the same of you 🙂

It’s my job to listen, consider and then make my own mind up, rather than be told that I should be grateful.

 

My 2nd pet hate at these events is the Q&A session near the end…but that’s another story!

 

Clarification: I am more than happy for such communication events to occur and, yes, I want to know what’s happening from the person charged with leading us but:

  • don’t use ‘happy talk’: treat me like an adult and tell me ‘warts and all’;
  • don’t attempt propaganda and corporate babble on me: this naively assumes that I don’t feel what’s really going on around me (which you, the VIP, are highly unlikely to truly know);
  • don’t think that, just because you said it, I agree with it and will embrace it; and finally but most importantly
  • don’t use 1-way corporate events and communications as substitutes for regular, respectful and meaningful 2-way ‘gemba walking’.

I knew it wasn’t that simple!

Prospect TheoryI’ve recently had that experience: the one where you’ve always thought something is peculiarly wrong about conventional wisdom but couldn’t quite put your finger on why…then you happen to read a book and “aha! That explains it.”

Now, rather than pointing you to the research…or (worse) attempting to rewrite (by which I mean ‘butcher’) it here, I’m going to try and provide a concise post around my ‘aha’ moment:

The topic in question:

I’ve written before about the harm that contingent rewards do, and this has mainly been from the point of view that they distract us and distort our actions (and these remain massive criticisms) …but I’ve always thought that there is more to be said about the emotions people experience when it comes to the annual bonus.

If you’ve worked in an organisation that uses financial incentives, cast you mind back to the joys of bonus time. How much of the following rings true:

  • You’ve got a bonus but you aren’t exactly ecstatic about it…there’s plenty of negative emotions going on
  • You are aware of what you didn’t get
  • You compare with what you got in previous years
  • You were really only ‘arguing over’ a couple of hundred dollars in your performance review…but you still fought hard for this or, if you are introverted, perhaps you did so in your head.
  • …no doubt you can add your own thoughts for the reactions and emotions you experience (or, if you manage people, have to deal with).

This sounds crazy – you should be happy shouldn’t you?…you got a bonus! So what’s going on?

Utility Theory1:

Classical economists have based their thinking around the ‘rational person’ for hundreds of years. In particular they assume that, given a set of options, we make logical comparisons and then make rational choices.

Given that two options may not be directly comparable (say a carrot with a banana), Economists talk about utility as a measure of worth. At its simplest, the measure of utility is your willingness to pay different amounts for different goods (and services).

Further, when there is uncertainty about an outcome, utility theory assumes that we rationally use probabilities in our thinking. i.e. If there’s a 75% chance of earning $1,000 then the utility of this option is $750.

…but it turns out that we aren’t that rational!

Example 1: You are offered the choice between:

  1. a sure gain of $750; or
  2. a 75% chance at winning $1,000 and 25% of winning nothing

What would you do? … please consider and take a few seconds to decide.

Utility Theory expects these choices to be identical (both valued at $750) but, to the vast majority of us, they are not.

It turns out that we overwhelmingly prefer the certainty in the sure gain of $750 (we are risk-avoiding). This probably feels right to you but what’s going on?

‘Behavioural Economists’ to the rescue…

Psychologists consider what people really do (and why), as opposed to what a rational (well reasoned) analysis says they should do.

Some of these psychologists started looking at ‘real’ decisions made by people that contradict what a rational economist would expect. This gave birth to the rather trendy (and I would say fascinating) school of ‘behavioural economics’.

Prospect Theory2:

Two of the early giants of behavioural economics, Amos Tversky and Daniel Kahneman, spent years together considering scenarios where utility theory broke down (i.e. where real people took irrational decisions) and how this can be explained.

They arrived at a new ‘Prospect Theory’ that far better explains3 why we behave as we do. So, now that you have this background knowledge, let’s consider the annual bonus:

That wonderful (?) annual bonus:

So, when ‘Management’ believe that they are offering you a healthy bonus, they likely think you are conforming to Utility Theory. Indeed, much of their (verbal and written) communications around such a bonus suggest this is so.

But such thinking is far too simplistic, and flawed. Tversky and Kahneman identified a number of cognitive features at play. I’ll explain two key features below:

Feature 1 – Reference point:

Do you think that a financial trader should be ecstatic with her mega $2 million bonus?

What now if I told you that this is only half of what she has become accustomed to?

I expect that you would be ‘over the moon’ with such a bonus but you also understand that the trader may not be (however much this might annoy or even disgust you)…you have different reference points.

Why the difference? This is because we don’t just consider the quantity of an outcome; we use a reference point as a comparator, though we may not be conscious of doing so.

Here’s another way of thinking about the importance of reference points: If I told you that two people had been at the (horse) races today and they both came out with $50 you don’t have enough information to predict how they feel…you need a reference point: how much did they start with?

Our reference points have a huge effect on our thinking and this cognitive feature is relevant to the annual bonus scheme:

Scenario: Let’s take Bob who is on a $70,000 salary and is being ‘motivated’ (!) by the chance to earn a 10% bonus.

‘Management’ would like to believe that Bob is thinking about his chance to gain up to $7,000; that he will consider this to be a sizeable amount; and that this is a positive experience for him (translation: it is acting as an ‘effective bribe’ to get more out of him):

i) If this is the first year of the annual bonus scheme, then Bob’s reference point is $70,000 and he is happy when he is awarded, say, a 75% ‘performance’ score equating to a bonus of $5,250 (i.e. 75% of $7,000);

ii) If this is, say, the 3rd year of the scheme and Bob has averaged a 75% performance score on both his previous years, then his reference point has become $75,250. This is what he has come to expect and he will compare any bonus he receives this year against this reference point…which you can see means that the bonus has lost a great deal of value to him. Indeed, it is very likely to be a disappointment.

Annual bonus schemes look great at the start, but cause problems after only a few iterations. There is nothing procedurally that can be done to resolve this – the reference point has moved away from a person’s base salary and to what they now expect.

Kahneman notes that “For financial outcomes, the usual reference point is the status quo, but it can also be the outcome that you expect, or perhaps the outcome to which you feel entitled, for example, the raise or bonus that your colleagues receive. Outcomes that are better than the reference points are gains. Below the reference point they are losses.” …which leads nicely on to:

Feature 2 – Loss Aversion:

So far we have only looked at potentially gaining $$$, but what happens with loses?

Example 2: You are offered the choice between:

  1. a sure loss of $750; or
  2. a 75% chance at losing $1,000 and 25% of losing nothing

What would you do? …please consider and take a few seconds to decide.

This looks very similar to example 1 – it’s the same except that we are looking at a loss rather than a gain…but it turns out that people treat gains and losses differently – we are loss averse.

People really don’t like losing and, as a result, are willing to take a gamble (we become risk seeking). The majority of people would go for the 2nd option in example 2 and take the chance. They might get away with losing nothing and they find this attractive as compared to the unpleasant certainty of losing $750.

Note: If you go back up to the graph used as the picture for this post, the curve represents the logic within Prospect Theory, showing that we feel far more pain from a loss than joy from an equally sized gain.

Tversky and Kahneman’s experimental research on peoples’ real choices identified that our loss-aversion co-efficient* is around 2 in many contexts, and much higher in others (e.g. it can be as high as 50 when it comes to decisions about our health).

* This means that I feel as much emotional pain from a $375 loss as I do joy from a $750 gain. They are asymmetric.

Putting the two together:

So let’s assume that it’s year 4 of the bonus scheme’s operation and Bob has become used to the $75,250 ‘salary plus bonus’ reference point. Let’s now compare and contrast two different outcomes for this performance year:

Outcome 1: Bob’s score delivers an annualised $76,000 pay packet– what does he think?

Feeling: “Yeah, big deal, I got another $750…nothing much to that.

Note: He isn’t thinking too much about $6,000 i.e. the absolute size of the bonus

Outcome 2: Bob’s score delivers an annualised $74,500 pay packet– what does he think?

Feelings: “That’s terrible, I’ve lost $750….I’m really not happy about that!!!”

Note: Worse (from management’s perspective) than not thinking about the $4,500 bonus, Bob actually think of it in terms of a loss and that loss really hurts him (far more than its apparent size).

What’s the point?

Our emotions about our annual bonus award are dealing with far more than the simple bonus number printed on the payslip: There is sooo much more going on in our minds:

  • Reference points: can reduce a seemingly large bonus figure down to a virtual irrelevance; and
  • Loss aversion: can turn us to think in terms of losses, and feel emotionally hurt by them by far more than would appear to be rational.

I always knew it wasn’t as simple as looking at that bonus figure on my payslip – there are lots more emotions going on!

I am reminded of Alfie Kohn’s insight that “within every carrot, there is a hidden stick”.

Annual bonus schemes appear great in their first year (if you subscribe to Theory X thinking )….and then become a major burden.

Some organisations think the answer is to ‘reboot’ them every now and then. I don’t.

Notes

  1. This introduction to Utility Theory is necessarily ‘overly simplistic’ but it makes the necessary point about rationality vs. reality.
  2. You can read an account of this in Kahneman’s mind-bending book ‘Thinking fast and slow’. Their paper on the theory was first published in 1979 and is included as an appendix to the book.
  3. Kahneman recognised that Prospect Theory isn’t perfect. It has since been revised as ‘cumulative prospect theory’.

Good Morning Mr Hill, how can I help you today!

Hello DaveSo I moved house a few months ago and I’ve been really slow at updating my address details with all those organisations that have wheedled their way into my life – I am suffering from the well known condition called ‘Post Office redirection service’ apathy.

(i.e. once you’ve got a 6 month redirection arrangement in place, you forget about it!)

I finally got around to attempting some address changes…which meant that I had to interact with organisations back in my land of birth (England). I naively thought that this would give me a feel for where ‘state of the art’ customer ‘centricity’ had got to!

So, off I set: I pick my UK pension company as the place to start my address changing chores. I find some paperwork in my filing cabinet and, yippee, it indicates that they’ve got an online presence. A further dig around and my paperwork shows that I registered for their online service a few years back – excellent, this should be easy!

Next, I go to the website. After a few wild guesses at my online sign-in details, I finally crack the code and I’m in!

Yep, there’s the ‘My details’ section and yep, there’s my old address…now to change it….oh, I can’t…eh?…oh, right, go to that tab that says I can and…no, the function is there but it doesn’t appear to be activated for me…apparently I have to ring them!!

So, I ring them.

I get a weird sounding computerised voice straight away:

Computer lady thing: “In a few words, please explain what you would like us to help you with”

Me: I look around the room. I feel somewhat silly holding a conversation with a machine and I wonder how good ‘she’ is at understanding me…so I speak slowly and clearly: “CHANGE  (pause)  ADDRESS”

Computer lady thing: “Can you tell us whether you are an employer, trustee, financial advisor or plan holder?”  

Me: Erm, I’ve got no idea whether ‘she’ understood my answer to the 1st question! She’s moved straight on without comment. I wait for what I think is an appropriate time and provide an answer to the 2nd question: “PLAN (pause) HOLDER”

Computer lady thing: “Can you tell us your plan number”

Me: And so, after what I think is a reasonable pause, I do, with clear enunciation on each letter and number…I’ve still got no idea how well she’s doing at getting what I have said so far – she’s not complained so I assume all is good.

Computer lady thing: “Please tell us your surname”

 Me: I wait, and then say my surname loud and clear

Computer lady thing: “Please tell us your date of birth. Please say it like the following example –  23rd March 1972”

Me: I wait and then provide my date of birth in the format requested.

Computer lady thing: “I’m sorry I didn’t understand that. Please tell us your date of birth”

Me: Aha, I think, that shows that ‘she’ must be getting everything else I’ve said so far! I provide my date of birth again but slower and, hopefully, even clearer!

Computer lady thing: “Thank you. A customer service agent will be with you as soon as they can.”

I then wait, wait, wait…yes! I now get to speak to a human.

 Call handler: “Good Morning Mr Hill, how can I help you today” said in a very smiley (empathetic) way

Me: “Eh? I’m not Mr Hill!”

 Call handler: “Ah, sorry sir, can I take your details”

…and so I am asked for all of my details again by a human with a brain.