Boost profits with dumb stuff
Richard Thaler, author of “Nudge,” recently won the 2017 Nobel Prize in economics. He’s been uncovering and popularizing cognitive biases in his study of behavioral economics for more than 30 years. Thaler studies the human behaviors that don’t fit rational economic expectations or the dumb stuff people do.
Do you know your firm’s No. 1 dumb, unprofitable activity?
You too can use the study of dumb stuff to your advantage. First, have your C-suite independently, and perhaps anonymously, write down its top three dumb profit-draining activities within the company. What’s the consensus? Which activity is the No. 1 dumb activity?
You also can be inspired by Andy Grove, a former Intel CEO. In his book, he shares details of Intel’s turnaround. In 1984, Intel profits were $198 million. In 1985, they fell off the cliff to less than $2 million (the Japanese were dumping memory chips and the PC chip was just taking off). The author asked Intel founder Gordan Moore a pivotal question,
“If we got kicked out and the board brought in a new CEO, what would he do?”
Moore answered without hesitation, “He’d get out of memory chips.”
Grove replied: “Then why don’t we walk out the door, come back in and do it ourselves?”
That’s what they did.
Increase your courage for stopping the dumb stuff and reduce your fear of flailing.
The first step is forgiveness. Publicly forgive everyone for enabling the No. 1 dumb activity to persist. Next, take the lead from Thaler and identify the ego issues and cognitive biases, such as wishful thinking and an “others do it, too” mentality that have rationalized the behaviors that enable the No. 1 dumb activity.
Once you’ve identified the dumb activity and analyzed the human factors, use analytics to be very precise about the problem so you can take the juiciest slice of it and design a small experiment to fix it. The experiment should be designed to minimize costs and ego hits, while maximizing learning.
Perform the experiment. Reflect on the results. Learn from it. Then, try a second bigger, smarter, more confident iteration. Each iteration will help you grow your mastery and confidence for ridding your company of dumb, profit-losing activities.
Lastly, to create real change you’ll have to persistently nudge those who can pursue the cure for dumb on a wider scale.
A nudge case study
A distribution chain performed a customer profitability analysis to target the five most profitable and five most unprofitable accounts at every branch. A monthly nudge memo was sent that listed the 10 accounts and asked managers, “What are you doing to take any of these accounts to a better level?”
After seven nudges, two branches turned a huge shared losing account into a profit winner with a plus-$1.2 million profit swing.
Decide what your No. 1 dumb activity is. Measure it. Rank it.