What makes us feel good about our work?

I have been writing blogs about several businesses, political economy, and politic issues. Those blogs have been collected about specific themes from various authors. In those blogs I have tried to simplify some topics so that can be understandable even for individuals who are not from filed which specific topic covers, for example; Corporate Finance.
I have resolved that next „level“ of blogs will be short talks from experts, but not lectures for experts or ones in Universities, but lectures that are short, and understandable for every person.

The second is 
Dan Ariely Professor of Psychology and Behavioral Economics,Fuqua School of Business Duke University.


I want to talk a little bit today
 about labor and work. When we think about how people work, the naive intuition we have is that people are like rats in a maze — that all people care about is money, and the moment we give people money, we can direct them to work one way, we can direct them to work another way. This is why we give bonuses to bankers and pay in all kinds of ways. And we really have this incredibly simplistic view of why people work and what the labor market looks like.

At the same time, if you think about it, there’s all kinds of strange behaviors in the world around us.Think about something like mountaineering and mountain climbing. If you read books of people who climb mountains, difficult mountains, do you think that those books are full of moments of joy and happiness? No, they are full of misery. In fact, it’s all about frostbite and difficulty to walk and difficulty of breathing — cold, challenging circumstances. And if people were just trying to be happy, the moment they would get to the top, they would say, “This was a terrible mistake. I’ll never do it again.” “Instead, let me sit on a beach somewhere drinking mojitos.” But instead, people go down, and after they recover, they go up again. And if you think about mountain climbing as an example, it suggests all kinds of things. It suggests that we care about reaching the end, a peak. It suggests that we care about the fight, about the challenge. It suggests that there’s all kinds of other things that motivate us to work or behave in all kinds of ways.

And for me personally, I started thinking about this after a student came to visit me. This was a student that was one of my students a few years earlier. And he came one day back to campus. And he told me the following story: He said that for more than two weeks, he was working on a PowerPoint presentation. He was working in a big bank. This was in preparation for a merger and acquisition. And he was working very hard on this presentation — graphs, tables, information. He stayed late at night every day. And the day before it was due, he sent his PowerPoint presentation to his boss, and his boss wrote him back and said, “Nice presentation, but the merger is canceled.” And the guy was deeply depressed. Now at the moment when he was working, he was actually quite happy. Every night he was enjoying his work, he was staying late, he was perfecting this PowerPoint presentation. But knowing that nobody would ever watch that made him quite depressed.

So I started thinking about how do we experiment with this idea of the fruits of our labor. And to start with, we created a little experiment in which we gave people Legos, and we asked them to build with Legos. And for some people, we gave them Legos and we said, “Hey, would you like to build this Bionicle for three dollars? We’ll pay you three dollars for it.” And people said yes, and they built with these Legos. And when they finished, we took it, we put it under the table, and we said, “Would you like to build another one, this time for $2.70?” If they said yes, we gave them another one. And when they finished, we asked them, “Do you want to build another one?” for $2.40, $2.10, and so on, until at some point people said, “No more. It’s not worth it for me.” This was what we called the meaningful condition.People built one Bionicle after another. After they finished every one of them, we put them under the table. And we told them that at the end of the experiment, we will take all these Bionicles, we will disassemble them, we will put them back in the boxes, and we will use it for the next participant.

There was another condition. This other condition was inspired by David, my student. And this other condition we called the Sisyphic condition. And if you remember the story about Sisyphus, Sisyphus was punished by the gods to push the same rock up a hill, and when he almost got to the end, the rock would roll over, and he would have to start again. And you can think about this as the essence of doing futile work. You can imagine that if he pushed the rock on different hills, at least he would have some sense of progress. Also, if you look at prison movies, sometimes the way that the guards torture the prisoners is to get them to dig a hole and when the prisoner is finished, they ask him to fill the hole back up and then dig again. There’s something about this cyclical version of doing something over and over and over that seems to be particularly demotivating. So in the second condition of this experiment, that’s exactly what we did. We asked people, “Would you like to build one Bionicle for three dollars?”And if they said yes, they built it. Then we asked them, “Do you want to build another one for $2.70?”And if they said yes, we gave them a new one, and as they were building it, we took apart the one that they just finished. And when they finished that, we said, “Would you like to build another one, this time for 30 cents less?” And if they said yes, we gave them the one that they built and we broke. So this was an endless cycle of them building and us destroying in front of their eyes.

Now what happens when you compare these two conditions? The first thing that happened was that people built many more Bionicles — they built 11 versus seven — in the meaningful condition versus the Sisyphus condition. And by the way, we should point out that this was not a big meaning. People were not curing cancer or building bridges. People were building Bionicles for a few cents. And not only that, everybody knew that the Bionicles would be destroyed quite soon. So there was not a real opportunity for big meaning. But even the small meaning made a difference.

Now we had another version of this experiment. In this other version of the experiment, we didn’t put people in this situation, we just described to them the situation, much as I am describing to you now,and we asked them to predict what the result would be. What happened? People predicted the right direction but not the right magnitude. People who were just given the description of the experiment said that in the meaningful condition people would probably build one more Bionicle. So people understand that meaning is important, they just don’t understand the magnitude of the importance, the extent to which it’s important.

There was one other piece of data we looked at. If you think about it, there are some people who love Legos and some people who don’t. And you would speculate that the people who love Legos will build more Legos, even for less money, because after all, they get more internal joy from it. And the people who love Legos less will build less Legos because the enjoyment that they derive from it is lower. And that’s actually what we found in the meaningful condition. There was a very nice correlation between love of Lego and the amount of Legos people built. What happened in the Sisyphic condition? In that condition the correlation was zero. There was no relationship between the love of Lego and how much people built, which suggests to me that with this manipulation of breaking things in front of people’s eyes, we basically crushed any joy that they could get out of this activity. We basically eliminated it.

Soon after I finished running this experiment, I went to talk to a big software company in Seattle. I can’t tell you who they were, but they were a big company in Seattle. And this was a group within this software company that was put in a different building. And they asked them to innovate and create the next big product for this company. And the week before I showed up, the CEO of this big software company went to that group, 200 engineers, and canceled the project. And I stood there in front of 200 of the most depressed people I’ve ever talked to. And I described to them some of these Lego experiments, and they said they felt like they had just been through that experiment. And I asked them, I said, “How many of you now show up to work later than you used to?” And everybody raised their hand. I said, “How many of you now go home earlier than you used to?” And everybody raised their hand. I asked them, “How many of you now add not-so-kosher things to your expense reports?” And they didn’t really raise their hands, but they took me out to dinner and showed me what they could do with expense reports. And then I asked them, I said, “What could the CEO have done to make you not as depressed?” And they came up with all kinds of ideas. They said the CEO could have asked them to present to the whole company about their journey over the last two years and what they decided to do.He could have asked them to think about which aspect of their technology could fit with other parts of the organization. He could have asked them to build some prototypes, some next-generation prototypes, and seen how they would work. But the thing is that any one of those would require some effort and motivation. And I think the CEO basically did not understand the importance of meaning. If the CEO, just like our participants, thought the essence of meaning is unimportant, then he [wouldn’t] care. And he would tell them, “At the moment I directed you in this way, and now that I am directing you in this way, everything will be okay.” But if you understood how important meaning is, then you would figure out that it’s actually important to spend some time, energy and effort in getting people to care more about what they’re doing.

The next experiment was slightly different. We took a sheet of paper with random letters, and we asked people to find pairs of letters that were identical next to each other. That was the task. And people did the first sheet. And then we asked them if they wanted to do the next sheet for a little bit less moneyand the next sheet for a little bit less money, and so on and so forth. And we had three conditions. In the first condition, people wrote their name on the sheet, found all the pairs of letters, gave it to the experimenter. The experimenter would look at it, scan it from top to bottom, say “uh huh” and put it on the pile next to them. In the second condition, people did not write their name on it. The experimenter looked at it, took the sheet of paper, did not look at it, did not scan it, and simply put it on the pile of pages. So you take a piece, you just put it on the side. And in the third condition, the experimenter got the sheet of paper and directly put it into a shredder. What happened in those three conditions?

In this plot I’m showing you at what pay rate people stopped. So low numbers mean that people worked harder. They worked for much longer. In the acknowledged condition, people worked all the way down to 15 cents. At 15 cents per page, they basically stopped these efforts. In the shredder condition, it was twice as much — 30 cents per sheet. And this is basically the result we had before.You shred people’s efforts, output, you get them not to be as happy with what they’re doing. But I should point out, by the way, that in the shredder condition, people could have cheated. They could have done not so good work, because they realized that people were just shredding it. So maybe the first sheet you would do good work, but then you see nobody is really testing it, so you would do more and more and more. So in fact, in the shredder condition, people could have submitted more work and gotten more money and put less effort into it. But what about the ignored condition? Would the ignored condition be more like the acknowledged or more like the shredder, or somewhere in the middle? It turns out it was almost like the shredder.

Now there’s good news and bad news here. The bad news is that ignoring the performance of peopleis almost as bad as shredding their effort in front of their eyes. Ignoring gets you a whole way out there.The good news is that by simply looking at something that somebody has done, scanning it and saying “uh huh,” that seems to be quite sufficient to dramatically improve people’s motivations. So the good news is that adding motivation doesn’t seem to be so difficult. The bad news is that eliminating motivations seems to be incredibly easy, and if we don’t think about it carefully, we might overdo it. So this is all in terms of negative motivation or eliminating negative motivation.

The next part I want to show you is something about the positive motivation. So there is a store in the U.S. called IKEA. And IKEA is a store with kind of okay furniture that takes a long time to assemble.(Laughter) And I don’t know about you, but every time I assemble one of those, it takes me much longer, it’s much more effortful, it’s much more confusing. I put things in the wrong way. I can’t say enjoy those pieces. I can’t say I enjoy the process. But when I finish it, I seem to like those IKEA pieces of furniture more than I like other ones.

And there’s an old story about cake mixes. So when they started cake mixes in the ’40s, they would take this powder and they would put it in a box, and they would ask housewives to basically pour it in, stir some water in it, mix it, put it in the oven, and — voila! — you had cake. But it turns out they were very unpopular. People did not want them. And they thought about all kinds of reasons for that. Maybe the taste was not good. No, the taste was great. What they figured out was that there was not enough effort involved. It was so easy that nobody could serve cake to their guests and say, “Here is my cake.”No, no, no, it was somebody else’s cake. It was as if you bought it in the store. It didn’t really feel like your own. So what did they do? They took the eggs and the milk out of the powder. (Laughter) Now you had to break the eggs and add them. You had to measure the milk and add it, mixing it. Now it was your cake. Now everything was fine.

Now I think a little bit like the IKEA effect, by getting people to work harder, they actually got them to love what they’re doing to a higher degree.

So how do we look at this question experimentally? We asked people to build some origami. We gave them instructions on how to create origami, and we gave them a sheet of paper. And these were all novices, and they built something that was really quite ugly — nothing like a frog or a crane. But then we told them, we said, “Look, this origami really belongs to us. You worked for us, but I’ll tell you what, we’ll sell it to you. How much do you want to pay for it?” And we measured how much they were willing to pay for it. And we had two types of people. We had the people who built it, and we had the people who did not build it and just looked at it as external observers. And what we found was that the builders thought that these were beautiful pieces of origami, and they were willing to pay for them five times more than the people who just evaluated them externally. Now you could say, if you were a builder, do you think that, “Oh, I love this origami, but I know that nobody else would love it?” Or do you think, “I love this origami, and everybody else will love it as well?” Which one of those two is correct? Turns out the builders not only loved the origami more, they thought that everybody would see the world in their view. They thought everybody else would love it more as well.

In the next version we tried to do the IKEA effect. We tried to make it more difficult. So for some people we gave the same task. For some people we made it harder by hiding the instructions. At the top of the sheet, we had little diagrams of how do you fold origami. For some people we just eliminated that. So now this was tougher. What happened? Well in an objective way, the origami now was uglier, it was more difficult. Now when we looked at the easy origami, we saw the same thing: Builders loved it more, evaluators loved it less. When you looked at the hard instructions, the effect was larger. Why? Because now the builders loved it even more. They put all this extra effort into it. And evaluators? They loved it even less. Because in reality it was even uglier than the first version. Of course, this tells you something about how we evaluate things.

Now think about kids. Imagine I asked you, “How much would you sell your kids for?” Your memories and associations and so on. Most people would say for a lot, a lot of money — on good days. (Laughter)But imagine this was slightly different. Imagine if you did not have your kids, and one day you went to the park and you met some kids, and they were just like your kids. And you played with them for a few hours. And when you were about to leave, the parents said, “Hey, by the way, just before you leave, if you’re interested, they’re for sale.” (Laughter) How much would you pay for them now? Most people say not that much. And this is because our kids are so valuable, not just because of who they are, but because of us, because they are so connected to us and because of the time and connection. And by the way, if you think that IKEA instructions are not good, think about the instructions that come with kids. Those are really tough. (Laughter) By the way, these are my kids, which, of course, are wonderful and so on. Which comes to tell you one more thing, which is, much like our builders, when they look at the creature of their creation, we don’t see that other people don’t see things our way.

Let me say one last comment. If you think about Adam Smith versus Karl Marx, Adam Smith had the very important notion of efficiency. He gave an example of a pin factory. He said pins have 12 different steps, and if one person does all 12 steps, production is very low. But if you get one person to do step one and one person to do step two and step three and so on, production can increase tremendously.And indeed, this is a great example and the reason for the Industrial Revolution and efficiency. Karl Marx, on the other hand, said that the alienation of labor is incredibly important in how people think about the connection to what they are doing. And if you make all 12 steps, you care about the pin. But if you make one step every time, maybe you don’t care as much.

And I think that in the Industrial Revolution, Adam Smith was more correct than Karl Marx, but the reality is that we’ve switched and now we’re in the knowledge economy. And you can ask yourself, what happens in a knowledge economy? Is efficiency still more important than meaning? I think the answer is no. I think that as we move to situations in which people have to decide on their own about how much effort, attention, caring, how connected they feel to it, are they thinking about labor on the way to work and in the shower and so on, all of a sudden Marx has more things to say to us. So when we think about labor, we usually think about motivation and payment as the same thing, but the reality is that we should probably add all kinds of things to it — meaning, creation, challenges, ownership, identity, pride, etc. And the good news is that if we added all of those components and thought about them, how do we create our own meaning, pride, motivation, and how do we do it in our workplace and for the employees, I think we could get people to both be more productive and happier.

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Michael Porter: Why business can be good at solving social problems

 

I have been writing blogs about several businesses, political economy, and politic issues. Those blogs have been collected about specific themes from various authors. In those blogs I have tried to simplify some topics so that can be understandable even for individuals who are not from filed which specific topic covers, for example; Corporate Finance.
I have resolved that next „level“ of blogs will be short talks from experts, but not lectures for experts or ones in Universities, but lectures that are short, and understandable for every person.
I will begin with Professor Michael Porter!

 

Michael Porter: Why business can be good at solving social problems!

I think we’re all aware that the world today is full of problems. We’ve been hearing them today and yesterday and every day for decades. Serious problems, big problems, pressing problems. Poor nutrition, access to water, climate change, deforestation, lack of skills, insecurity, not enough food, not enough healthcare, pollution. There’s problem after problem, and I think what really separates this timefrom any time I can remember in my brief time on Earth is the awareness of these problems. We’re all very aware.

Why are we having so much trouble dealing with these problems? That’s the question I’ve been struggling with, coming from my very different perspective. I’m not a social problem guy. I’m a guy that works with business, helps business make money. God forbid. So why are we having so many problems with these social problems, and really is there any role for business, and if so, what is that role? I think that in order to address that question, we have to step back and think about how we’ve understood and pondered both the problems and the solutions to these great social challenges that we face.

Now, I think many have seen business as the problem, or at least one of the problems, in many of the social challenges we face. You know, think of the fast food industry, the drug industry, the banking industry. You know, this is a low point in the respect for business. Business is not seen as the solution.It’s seen as the problem now, for most people. And rightly so, in many cases. There’s a lot of bad actors out there that have done the wrong thing, that actually have made the problem worse. So this perspective is perhaps justified.

How have we tended to see the solutions to these social problems, these many issues that we face in society? Well, we’ve tended to see the solutions in terms of NGOs, in terms of government, in terms of philanthropy. Indeed, the kind of unique organizational entity of this age is this tremendous rise of NGOsand social organizations. This is a unique, new organizational form that we’ve seen grown up.Enormous innovation, enormous energy, enormous talent now has been mobilized through this structure to try to deal with all of these challenges. And many of us here are deeply involved in that.

I’m a business school professor, but I’ve actually founded, I think, now, four nonprofits. Whenever I got interested and became aware of a societal problem, that was what I did, form a nonprofit. That was the way we’ve thought about how to deal with these issues. Even a business school professor has thought about it that way.

But I think at this moment, we’ve been at this for quite a while. We’ve been aware of these problems for decades. We have decades of experience with our NGOs and with our government entities, and there’s an awkward reality. The awkward reality is we’re not making fast enough progress. We’re not winning.These problems still seem very daunting and very intractable, and any solutions we’re achieving are small solutions. We’re making incremental progress.

What’s the fundamental problem we have in dealing with these social problems? If we cut all the complexity away, we have the problem of scale. We can’t scale. We can make progress. We can show benefits. We can show results. We can make things better. We’re helping. We’re doing better. We’re doing good. We can’t scale. We can’t make a large-scale impact on these problems. Why is that?Because we don’t have the resources. And that’s really clear now. And that’s clearer now than it’s been for decades. There’s simply not enough money to deal with any of these problems at scale using the current model. There’s not enough tax revenue, there’s not enough philanthropic donations, to deal with these problems the way we’re dealing with them now. We’ve got to confront that reality. And the scarcity of resources for dealing with these problems is only growing, certainly in the advanced world today, with all the fiscal problems we face.

So if it’s fundamentally a resource problem, where are the resources in society? How are those resources really created, the resources we’re going to need to deal with all these societal challenges?Well there, I think the answer is very clear: They’re in business. All wealth is actually created by business. Business creates wealth when it meets needs at a profit. That’s how all wealth is created. It’s meeting needs at a profit that leads to taxes and that leads to incomes and that leads to charitable donations. That’s where all the resources come from. Only business can actually create resources.Other institutions can utilize them to do important work, but only business can create them. And business creates them when it’s able to meet a need at a profit. The resources are overwhelminglygenerated by business. The question then is, how do we tap into this? How do we tap into this?Business generates those resources when it makes a profit. That profit is that small difference between the price and the cost it takes to produce whatever solution business has created to whatever problem they’re trying to solve. But that profit is the magic. Why? Because that profit allows whatever solutionwe’ve created to be infinitely scalable. Because if we can make a profit, we can do it for 10, 100, a million, 100 million, a billion. The solution becomes self-sustaining. That’s what business does when it makes a profit.

Now what does this all have to do with social problems? Well, one line of thinking is, let’s take this profitand redeploy it into social problems. Business should give more. Business should be more responsible.And that’s been the path that we’ve been on in business. But again, this path that we’ve been on is not getting us where we need to go.

Now, I started out as a strategy professor, and I’m still a strategy professor. I’m proud of that. But I’ve also, over the years, worked more and more on social issues. I’ve worked on healthcare, the environment, economic development, reducing poverty, and as I worked more and more in the social field, I started seeing something that had a profound impact on me and my whole life, in a way.

The conventional wisdom in economics and the view in business has historically been that actually, there’s a tradeoff between social performance and economic performance. The conventional wisdom has been that business actually makes a profit by causing a social problem. The classic example is pollution. If business pollutes, it makes more money than if it tried to reduce that pollution. Reducing pollution is expensive, therefore businesses don’t want to do it. It’s profitable to have an unsafe working environment. It’s too expensive to have a safe working environment, therefore business makes more money if they don’t have a safe working environment. That’s been the conventional wisdom. A lot of companies have fallen into that conventional wisdom. They resisted environmental improvement. They resisted workplace improvement. That thinking has led to, I think, much of the behavior that we have come to criticize in business, that I come to criticize in business.

But the more deeply I got into all these social issues, one after another, and actually, the more I tried to address them myself, personally, in a few cases, through nonprofits that I was involved with, the more I found actually that the reality is the opposite. Business does not profit from causing social problems,actually not in any fundamental sense. That’s a very simplistic view. The deeper we get into these issues, the more we start to understand that actually business profits from solving from social problems.That’s where the real profit comes. Let’s take pollution. We’ve learned today that actually reducing pollution and emissions is generating profit. It saves money. It makes the business more productive and efficient. It doesn’t waste resources. Having a safer working environment actually, and avoiding accidents, it makes the business more profitable, because it’s a sign of good processes. Accidents are expensive and costly. Issue by issue by issue, we start to learn that actually there’s no trade-offbetween social progress and economic efficiency in any fundamental sense. Another issue is health. I mean, what we’ve found is actually health of employees is something that business should treasure,because that health allows those employees to be more productive and come to work and not be absent. The deeper work, the new work, the new thinking on the interface between business and social problems is actually showing that there’s a fundamental, deep synergy, particularly if you’re not thinking in the very short run. In the very short run, you can sometimes fool yourself into thinking that there’s fundamentally opposing goals, but in the long run, ultimately, we’re learning in field after field that this is simply not true.

So how could we tap into the power of business to address the fundamental problems that we face?Imagine if we could do that, because if we could do it, we could scale. We could tap into this enormous resource pool and this organizational capacity.

And guess what? That’s happening now, finally, partly because of people like you who have raised these issues now for year after year and decade after decade. We see organizations like Dow Chemical leading the revolution away from trans fat and saturated fat with innovative new products.This is an example of Jain Irrigation. This is a company that’s brought drip irrigation technology to thousands and millions of farmers, reducing substantially the use of water. We see companies like the Brazilian forestry company Fibria that’s figured out how to avoid tearing down old growth forest and using eucalyptus and getting much more yield per hectare of pulp and making much more paper than you could make by cutting down those old trees. You see companies like Cisco that are training so far four million people in I.T. skills to actually, yes, be responsible, but help expand the opportunity to disseminate I.T. technology and grow the whole business. There’s a fundamental opportunity for business today to impact and address these social problems, and this opportunity is the largest business opportunity we see in business.

And the question is, how can we get business thinking to adapt this issue of shared value? This is what I call shared value: addressing a social issue with a business model. That’s shared value. Shared value is capitalism, but it’s a higher kind of capitalism. It’s capitalism as it was ultimately meant to be, meeting important needs, not incrementally competing for trivial differences in product attributes and market share. Shared value is when we can create social value and economic value simultaneously. It’s finding those opportunities that will unleash the greatest possibility we have to actually address these social problems because we can scale. We can address shared value at multiple levels. It’s real. It’s happening.

But in order to get this solution working, we have to now change how business sees itself, and this is thankfully underway. Businesses got trapped into the conventional wisdom that they shouldn’t worry about social problems, that this was sort of something on the side, that somebody else was doing it.We’re now seeing companies embrace this idea. But we also have to recognize business is not going to do this as effectively as if we have NGOs and government working in partnership with business. The new NGOs that are really moving the needle are the ones that have found these partnerships, that have found these ways to collaborate. The governments that are making the most progress are the governments that have found ways to enable shared value in business rather than see government as the only player that has to call the shots. And government has many ways in which it could impact the willingness and the ability of companies to compete in this way.

I think if we can get business seeing itself differently, and if we can get others seeing business differently, we can change the world. I know it. I’m seeing it. I’m feeling it. Young people, I think, my Harvard Business School students, are getting it. If we can break down this sort of divide, this unease, this tension, this sense that we’re not fundamentally collaborating here in driving these social problems,we can break this down, and we finally, I think, can have solutions.

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