Last week I shared a video explaining how prices help generate and convey knowledge in a free society. Shortly after posting, I came across this article, which is a great example of how prices and profit & loss can direct the owner’s use of resources. Here’s some things to notice if you read the article:
McDonald’s made small changes that the consumers really liked. No matter how much testing is done in focus groups, nothing can tell you as much as what people actually buy or do (we call this revealed preference).
For many of us (me included, as I just had an Egg McMuffin last weekend), we probably couldn’t even articulate the changes that were made. It doesn’t really matter – people like it better than their alternatives.
They’ve made some changes to the way they cook burgers. According to the article, the company hasn’t said if/how those changes have affected sales. Hopefully we’ll hear about this.
The vast knowledge a free society generates may seem mundane or unimportant, but it is not. If we aren’t thinking critically, it might be tempting to say, “who cares what kind of breakfast sandwich people eat?” It can be hard to remember that it’s not just about a breakfast sandwich. Anytime someone spends resources (whether money or time) on something, it tells us a few things:
Something about preferences and therefore what creates value for that person. Remember, value creation is about making people’s lives better, which is subjective. Preferences matter!
They gave up something in order to get this (opportunity cost). In the case of a breakfast sandwich, this person gave up time ordering it, money they could have spent on something else, AND the opportunity to eat a different breakfast.
While we may not be able to tell much about each individual sale, in combination the small choices made by thousands or millions of people can send a good deal of information to producers about what to produce. This is an efficient and effective way to use resources on things people care about vs. what some company things they should care about.
What’s your reaction to the story? What are other types of everyday knowledge producers can learn from prices and profit & loss?
The video below gives an excellent overview of what life would look like without prices – and what prices help us understand (Thanks to Cafe Hayek for sharing it). While many employees are not directly involved with pricing, we can absolutely learn from how prices serve free societies.
As you watch the video, consider what lessons a typical employee might learn from this concept in free societies. Leave your thoughts in the comments.
There are many people trying to start conversations about Good Profit. Below are a few ideas to help you start a conversation.
Pick a chapter and read the quote at the beginning. Discuss why that quote may have been picked. For instance, at the beginning of the Incentives chapter the quote is this: “Ever more people today have the means to live, but no meaning to live for.” Seems like an interesting way to start a chapter that most people associate with money!
Take a hard look at the Virtue and Talents Matrix. If you read closely, you may have noticed there are some changes to that mental model. Discuss what those changes are and how that may impact the way you think about things when it comes to Virtue and Talents.
Ask what 1-2 things stood out. I would wager if we asked 10 people, we’d get at least 10 different answers.
Scan the index. Is there anything in there that seemed interesting that you may not have noticed on your initial read through? Study that section. Ask others to do the same and see what they think.
It doesn’t take an MBM consultant to have great conversations about Good Profit. What’s important is making the time to have conversations and be deliberate about learning more. What are some other things we could to do help start good conversations about Good Profit?
If I had a dime for every time someone has asked me for a reader’s guide to Good Profit in the last week, I’d have some serious pocket change. I appreciate the eagerness to get the latest thinking about MBM, and I want to be as helpful as I can be as folks read this book.
However, I’ve been resisting the urge to be too helpful. There’s a difference between a reader’s guide to help folks and the cliff notes to encourage shortcuts. For now, I have no plans to craft a reader’s guide. Instead, I want to give you a few broad ideas for how you might best approach this book.
If you’re a supervisor/leader in an MBM organization, try reading the book like a typical employee would. Read it cover-to-cover without marking it up. This will likely give you some insight into what questions a more causal reader may have.
Don’t spend too much energy comparing it to Science of Success. MBM has evolved since Science of Success was written. My guess is if you’ve been paying attention, you may have already noticed updates (like we made updates to the Guiding Principles in 2012), so it is likely a waste of energy to compare to something that you know is dated.
After you do a casual read through, study it. Don’t try to do this in a weekend. Instead, use the index if you’re interested in a certain topic. Take it a bit slower – don’t be afraid to read a bit of it and stare out your window to think for a few minutes. Good Profit has more detail than Science of Success and I think careful readers would benefit from soaking on it.
Ask questions – there are plenty of people who can help answer any questions you have. No question is too basic.
Talk about it with others. Whether this is a causal thing or more formal, many people benefit from hearing from others.
Keep in mind that learning MBM is a journey. Good Profit is just one more way you can learn more about MBM.
It doesn’t take long to realize that when it comes to business, stuff happens. Even the best run teams encounter hiccups occasionally. Sometimes great stuff happens, like an amazing, unexpected opportunity that requires quick responses. For those of us working in MBM organizations, when stuff happens — good, bad, or otherwise — our first reaction should be to turn to MBM and see if there is a tool, mental model, or idea that can help us.
MBM isn’t an all-power answer machine. It is a set of time-tested principles that increase our likelihood of getting better results. By relying on principles when we encounter stuff, we don’t have to start from scratch. It’s kind of like how a scientist doesn’t have to re-prove gravity for every experiment. She pulls on the scientific principles of gravity, assuming she knows them well, and uses them to help craft her experiment.
Like a research scientist, the more MBM principles we know the more situations we’ll be able to think through without starting from scratch. As one comment put it, it’s like a toolkit. The more tools in your toolkit, the more situations you can address. So how do you build out your MBM toolkit?
Below are a few thoughts from what I have observed. Leave some ideas in the comments if you’d like to add to the list.
Most people learn best by doing. Much of equipping yourself with tools and mental models is being disciplined enough to pause and actually deliberately try to apply MBM. Mistakes will be made but having some tolerance for failure is critical to learning.
Do some study – there is an intellectual component to all of this. Figure out how you learn best and take advantage of it. Some people like to read. Others like to talk through ideas.
Pick one mental model and focus in on it for awhile. The latest brain science (yes, I’m that nerdy) shows that it takes time, energy, and focus for us to re-wire our brains (any time you learn something new you’re re-wiring). If you aren’t actively paying attention to what you’re learning for some period of time, it’s likely not being internalized.
Work with your supervisor and mentor(s) to get a better idea of what you’re already good at and what you need to work on. It isn’t costless to learn mental models. It’s much better to choose the ones that can best help you rather than to pick something random or one that sounds neat.
These are some very broad ideas. I’d love to get some specifics as well. Leave your comments with ideas about how someone can load up their MBM toolkit.
Last year I posted a few thoughts on mentoring in general. Since then, I’ve had the opportunity to talk to hundreds of people about mentoring and, as usual when discussing anything with other people, I’ve learned a few things along the way. Here are a few themes about mentoring that emerged across many groups in many different types of organizations:
Mentoring relationships can take on many forms. They do not have to be deep-cry-on-your-shoulder type relationships. They can be short term or long term and more personal or less personal. As long as it’s helping the employee develop in a way that will create more value, it’s mentoring as long as…
It has a purpose. More time and resources have been wasted on “let’s get lunch” type mentoring attempts than anyone wants to admit. Like the rest of what you do in business, you need a vision for what you want to get out of the mentoring relationship.
Keep it individual focused. It can be tempting to only think of people more experienced than you, but it could be someone with fewer years in their career or in the field. If someone knows something you want to learn, ask!
Don’t be afraid of multiple mentors. Rarely, if ever, can one person help you with everything you might want to learn or know. If you have a distinct purpose for a mentoring relationship, you may discover you need several mentors.
Ask! I’ve spent almost 7 years in MBM organizations and I’ve yet to have the phone slammed down on me when I’ve asked someone for help. In general, I don’t think we ask enough.
What have you learned about mentoring? What advice would you give your younger self on finding mentors?
Grab a pen and paper, I’m giving you an assignment. Below are three relatively common management situations. On your paper, pick at least one (feel free to try it with all 3) and write down your initial reactions. What questions would you ask? What things might you try to learn more about?
Situation 1: One of your direct reports continues to bring you proposals far outside of what your group typically does. You want to her understand the scope of what the team does without crushing her desire to bring ideas to you.
Situation 2: A member of your team has given his two weeks notice. Your recruiter has asked you for a job description. You look at the one you used the last time this type of position was open, but it’s outdated.
Situation 3: You decide to take a job in another part of the business. You need to figure out how to get connected to what your new team is doing.
As you can imagine, there is a lot going on behind the scenes in the MBM world. I am going to do my best to keep updating, especially as Good Profit is published and there should be lots to think about. Below are a few links that have some connects with MBM stuff:
The above article got me thinking about environmentalism and reminded me of this video. Recycling is one of those things where using good economic thinking can help us make the world a better place. (Full disclosure, the scholar in this video is one of my favorite professors in grad school).
Occasionally I’ll check out TED talks because they are just so interesting. Here’s a video featuring a guy who deals with a lot of start ups. He’s got a theory about why some succeed and some fail. It helps illustrate why in MBM we make sure we don’t think good decisions ensure good outcomes. There is something about the complexity of the world that means sometimes good ideas fail.
What have you been reading lately? Leave us some links in the comments.
It’s an expectation of leaders and supervisors to advance the MBM culture. One piece of that is having a diverse workforce that can help to create more value than we would have otherwise (check out last week’s post for more that). So how does a supervisor or leader drive diversity? Here are a few thoughts – please add any you have in the comments section.
Take it seriously: Put time and effort into exploring what a more diverse team might be able to do for you. Work with people who have some expertise in the area – HR or other leaders – to help you have a vision of a better state when it comes to a diverse team.
Think about the types of diverse thinking that could make your team more effective. Notice I wrote “diverse thinking.” Knowing what you lack can help you seek out people who can fill in the gaps. Perhaps your team makes a product that is used in the food industry and you need someone who can help you understand the concerns of restaurant owners. Maybe your team produces products that are used in diapers (yes, I have a baby at home). Understanding daily reality of diaper usage could lead to better ideas about how to improve the experience.
Be aware of your biases: Most people tend to like people with common experiences. For instance, most people are delighted to find people who went to the same college as they did. It’s much easier (in my opinion) to like someone who cheers for the same NFL team as you do than someone who cheers for the Pittsburgh Steelers (sorry Steelers fans).
Try something new: Perhaps you take a chance and invite someone to a brainstorming meeting who you’ve never worked with before. You may get a taste of what a more diverse team is like. Maybe you interview someone with an interesting degree – someone who you may have not even thought about bringing in before.
Stay disciplined: Stay focused on value-driving diversity and don’t compromise when it comes to culture. While we certainly want diverse thinking, we must have people who share our values and beliefs.
What else can leaders and supervisors do to have more diverse thinking in their teams?