The Challenge Dividend

The Benefit of Pessimism

Like left-brain vs. right-brain and introverted vs. extroverted, one of the popular ways to categorize personalities has been optimistic vs. pessimistic.  In today's workplace, the optimistic point of view has been gaining serious ground.  Today's managers are increasingly taught to act more like "coaches" who encourage their teams to succeed.  We grade employees on their ability to help their direct reports "Envision" what a successful future looks like.  And those who bring up the negatives or kill ideas are increasingly scorned in board rooms and brainstorming sessions.

But the Wall St. Journal published an interesting article last week that suggests pessimists may have something going for them after all.  New research by Edward Chang, psychology professor at the University of Michigan, shows the following:

• "Relative pessimists are more accurate at gauging success and failure rates at a simple laboratory task than optimists, who undercounted failures and overcounted successes."
• "Evidence shows that pessimism can be highly motivational, as what's called 'defensive pessimism' drives people to achieve their goals."

While optimists may prefer to ignore the downsides and risks that like in waiting, pessimists tend to prepare for the negatives.  For example, they tend to create contingency plans and succession plans - which can help them handle the difficulties that eventually arise. 

I think this highlights another example of the Challenge Dividend (of course).  A dash of pessimism is like a challenge that forces us to prepare and prevail.  If we challenge our optimistic dreams and plans with some scenario planning and insurance, we end up in a better place.

I personally follow a philosophy that I call "Optimistic Realism."  As an Optimistic Realist, I truly believe that my organization, family and I will be successful in the future.  When in doubt about what will happen, I tend to assume a positive outcome.  For example, I always believe the weather will be pleasant - after all, I cannot control it, so I might was well think happy thoughts. 

On the other hand, I'm a realist who has lived through enough trials and tribulations to know that nothing in life comes easy.  I've always got the worst case scenario in the back of my mind and take steps to ensure any damage is limited.  And to prepare for bad weather, I've got umbrellas scattered around my desk, car trunk, and home closet.

I think each person has some combination of personality traits like this.  What's your life perspective?

Best Managers in U.S. - Thanks to Challenge

In its November 26 issue, BusinessWeek includes a small but interesting piece about the world's best managers.

Stanford, McKinsey and the London School of Economics combined to study the management practices of 4,000 midsize companies in 12 nations.  They found that the U.S. companies had the highest average score for people management.  A key reason for the U.S. lead, cited by the study is simple:

• "Because a mobile labor market makes such a skill necessary."

In other words, the low unemployment rate (low supply) and relatively high growth rate (high demand) is a challenge that forces U.S. companies to manage their people well.  Compared to other nations, managers in the U.S. must manage well, or fail in the free market.

Challenge leads to improvement.  U.S. companies grow and its employees benefit from better management. 

Cheaper Turkeys, Thanks to Competition

Thanksgiving is happier in Central Ohio today because of the Challenge Dividend.  According to a study in the Columbus Dispatch, grocery chains around the city are charging on average $.39/pound for frozen turkey, versus $.49 in northeast Ohio.  A spokesman for Kroger suggested that the difference is due to the "competitive nature" of the grocery business around Columbus. 

Whether the savings are plowed into bank accounts or bigger birds, a cheaper turkey is an improvement for consumers that directly results from competition in the market.  This is a good thing.

I wish a very happy Thanksgiving to all readers.  If you need a good post-meal conversation topic, feel free to bring up The Challenge Dividend concept - and let me know what feedback friends and family provide!

Bob

A Black Mark for Power Competition

In this blog I mainly share examples of how challenge - especially competition - leads to improvement.  However in the spirit of learning, I feel compelled to share the bad news as well.  Last week the New York Times reported that "retail electricity prices have risen much more in states that adopted competitive pricing than in those that have retained rates set by the government."

New studies show that power prices in states with regulated monopolies (where the government sets rates) are significantly lower than in states with electricity competition.  In 2006 alone, "industrial customers paid $7.2 billion more for electricity in market states than if they had paid the average prices in regulated states." 

It is obviously a black eye for us free market believers, and it begs the question: Why are market forces failing here while they have driven lower prices in nearly every other market imaginable?

I'm not sure what the answer is, but I believe the key issue is that electricity has many barriers to competitive entry.  High fixed costs of power lines and coal burning plants, for example, mean that few can play ball.  Barriers to entry mean companies can price much higher.  Other industries with similar barriers are also slow to see significant competition and innovation.  For example, airlines and cable TV.

The only solution may be something like a government-owned or regulated electricity transmission system, with competition for electricity generation.  This would be a little like the government running the interstates, but allowing each gas station and restaurant to compete at the exit ramps.

This is yet another market where we're probably too early to call success or failure.  Competition is not pretty and takes time to take hold, especially after a century of government regulation. 

Shun Safety to Get Creative

As someone who works in advertising - a highly creative environment - I continually see the value of the Challenge Dividend in our work.  While some find that creative efforts - and business overall today - should be non-judgmental and allow box-less thinking, I'm a firm believer that the best work comes from a challenging brief and tough feedback. 

A few months ago, I shared a post from fellow ad-guy, Todd Copilevitz, who wrote of the need for "full contact brainstorming" in which ideas are flayed alive if they fail to deliver.  Last week I discovered another smart piece of thinking from ad-blogger, Todd Henry, at the Accidental Creative site.  Todd argues that, "great creating requires risk, and a part of that risk is the fear of failure." He continues:

"Call me crazy, but I think it's a good thing if in the back of someone's mind is the possibility of losing their job if they drop the ball. I think it's a good thing if there's just a tinge of fire under someone's pants as they are driving toward a deadline...As I've often said - safety is not an option. Eventually, all creating requires risk - be it organizational or personal."

I think many people inside and outside of the creative industry would agree that pressure like deadlines and keeping your paycheck can lead to the best thinking and results.

On the other hand, negative challenges are not the only drivers of success.  I find that many people in our office are motivated by achievements.  For example, the chance to win a new business pitch, to win an award in a creative competition, or to have clients bragging about our work in their hallways.  All of these can be just as motivating - if not more motivating - than dangers and threats. 

Our Generation Ruins Fun

In case you haven't noticed, parents and schools today have done such a great job educating our children that they are now free to eliminate each small source of stress that could damage them for life.  As written in the Wall St. Journal last week, various schools have eliminated the following dangers:

• Hugging
• Tag and touch football on the playground
• Saying "Swing, batter, swing" during Little League games
• Swing sets, crawl tubes, teeter-totters and merry-go-rounds
• College pranks - unless you have a permission slip

I wrote about another example in April, where parents at a baseball game had the scoreboard turned off because one team was beating the other too badly.  Feelings might be hurt, of course.

Some years ago a generation of parents decided that the world was too dangerous and unkind a place for children.  Safety helmets became mandatory, playground equipment was ripped out, peanut butter was banned, and neighborhood play was replaced by a fleet of minivans shuttling kids to structured fun. 

Nearly every parent today has stories of the fun they used to have that would be impossible today.  I remember biking a mile to a creek where we played for hours - the only rule was "be home by dark."  We made bike ramps on construction sites.  We played tackle football.  We burned leaves with magnifying glasses.  We even played dodgeball at school on Fridays.  At college, we had kegs in our dorms. 

I'm not sure why childhood innocence was lost.  Maybe parents are more caring today on average; birth control allows parents to choose to have children, and people have fewer children, later in life.  Maybe society is more advanced; we have a lower tolerance for suffering, whether it is in African genocide or backyard bullying.  Maybe sophisticated marketing is to blame; the insurance companies push safety to reduce their costs, and special interests are better at building national attention around a single tragedy.

Whatever the reason for our extreme parental protectionism, I believe it is already weakening our society and threatening our future.  Helicopter parents are shielding their children from the harsh lessons of life that will strengthen them later.  Challenge leads to improvement, but today's kids are kept away from competition and failure.

Any change must happen one parent at a time.  For me, I continue to encourage my kids to engage in free play in our backyard, I put a band-aid on their knee when they fall rather than banning the monkey bars, and I teach them how to deal with a bully on their own versus calling the school to complain.  I hope they someday appreciate their Dad's choices and the dividends of the challenges they faced, and teach their children the same lessons.

Free Market Attitudes May Impact GDP

You can't beat alumni magazines for giving you a taste of information and articles that the popular business press doesn't have space for.  This weekend I read an interesting study in my NYU/Stern magazine, called "Comparative Capitalism" by Augustin Landier, David Thesmar, and Mathias Thoenig. 

Their study presents an analysis of various developed nations' citizen attitudes on some of the key tenants of capitalism and free markets.  Key insights of the study focused on how historic government structures seem to be correlated to today's opinion on free markets.  For example:

"French legal origin was strongly related to competition aversion, and British common law was related to a strong preference for owner control.  These findings suggest that long-run institutional determinants rooted in the history and culture of a country dominate more recent developments in the organization of its economy."

There are several interesting implications of this analysis.  It helps us understand why some countries' governments and citizens react differently to a move to global free markets.  Cultural beliefs are difficult to modify, even after hundreds of years.

But the article failed to make an analysis of historic GDP trends.  I decided to compare the country rankings for these two questions, alongside the ranking of GDP growth over the past ten years.  The results are in the Excel chart above.

Unfortunately, I've lost my statistics brain and number crunching software to be able to gauge the significance and correlation here.  However some general trends come out.  The nations that embrace pro-market attitudes tend to fall higher on the GDP ranking (U.S. Canada, Australia).  Meanwhile, those that look down on competition tend to be looking at lower GDP increases (Japan, Germany, Denmark).  There are a few surprises and inconsistencies as well.  For example, France is last on a combined attitude ranking, but fares mid-level in GDP growth; while Switzerland is high on competitive attitudes but low on GDP.

If I was a business professor, I would spend a good deal of time digging further on this link between competitive attitudes and GDP.  It could be a rich area of study.  But for this blogger, Dad and full-time business guy, I'll just stop now and claim enough of a link to declare yet more empirical evidence of The Challenge Dividend.

Exposing the Weak PR-formers - UPDATE

I've wrote too many times to link that one of the best things about the Internet is that is gives people a platform to expose excellence and awfulness.  For the business world, great products and services get open, honest reviews and lots of links; while poor service and quality are quickly exposed.  These rewards and punishments in the market of Internet public opinion are serving as a driver of improvement.

An interesting example this week comes from The Long Tail blog.  Author Chris Anderson, who is also an Editor at Wired magazine, blogged about his anger at Public Relations people who "spam" him with irrelevant and unpersonalized story pitches.  In his blog he takes the extreme step of listing the actual emails of people who have given him crappy pitches over the past 30 days.  Anderson then writes: "If their address gets harvested by spammers by being published here, so be it--turnabout is fair play."

The interesting thing to me is that "being harvested by spammers" is the least negative impact that this post lead to.  I believe the real damage is that this post is exposing a list of PR people who are doing a poor job.  If you look at the list, it's not a bunch of fake emails from spammers, but actually several real names from brand-name PR agencies.  This post will be noticed by their bosses, and will be out there for Google to find whenever they are looking for a job.

Anderson's punishment might be a tad too harsh.  Maybe he should have issued a warning first.  On the other hand, if people are free to spam him with press releases, they should know that there always could be a negative reaction.   There is no free lunch or pitch.

I'm sure that those of us in PR or marketing who read this post will think about this story before we reach out to editors and/or bloggers again.  And the folks on the list may have gotten feedback that will make them more effective going forward.  Challenge leads to improvement once again.

UPDATE: Chris Anderson's post has something like 300 comments at this point.  And there's a bit of a PR agency "war" going on.  An agency not on the list targeted an agency with several people on the list.  You can read it all here.  Seth Godin also has a nice point or two.