It’s all about setting the right incentives

I found this story from Charlie Munger really interesting. It speaks to the power of setting the right types of incentives…

From all business, my favorite case on incentives is Federal Express. The heart and soul of their system—which creates the integrity of the product—is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can’t deliver a product full of integrity to Federal Express customers.

And it was always screwed up. They could never get it done on time. They tried everything—moral suasion, threats, you name it. And nothing worked.

Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift—and when it’s all done, they can all go home. Well, their problems cleared up overnight.

So getting the incentives right is a very, very important lesson. It was not obvious to Federal Express what the solution was. But maybe now, it will hereafter more often be obvious to you.”


P.s. You just read the second idea for a post that hatched for me today. My original post is below. After I wrote it I felt like it had a bit of a pissy tone to it, so I had planned to bag it, especially given that 99% of adults already know what I was writing about. But, what the heck, here it is as a (long) p.s.:

I have three kids, ages 8, 6, and 3. Rarely a day goes by that I don’t have to remind at least one of them that if they want me to do something for them, the way they ask makes a difference. “Daddy, will you please let me watch TV for just five more minutes?” of course works a lot better than, “That’s not FAIR!! I want to watch TV longer!!!”

They’re getting pretty good at it, to the point they know that asking nicely will generate a positive outcome more often than not. It’s really important to my wife and I that they learn this skill, so we’re happy at this point to oblige most of the time.

I was reminded of this lesson today when we received a contact form from somebody in trial right now. This person sent a rude email that was in part demanding (of a new feature) and in part patronizing. I was honestly surprised that he thought that style of communication would lead to us fulfilling his request demand.

As I tell my kids, “You choose how to communicate with people. If you are interested in improving your chances of getting what you want, ask in a nice way. It won’t always work, but the opposite approach never will.”