Incentives . Incentives. Incentives

In Charlie Munger's incisive 1995 Harvard speech on "The Psychology of Human Misjudgement," two compelling stories underscore the profound impact of incentives on organizational performance.

The Power of Incentives: Lessons from Federal Express and Xerox

In one of the most compelling examples of the power of incentives, Munger recounts a pivotal moment in the history of Federal Express. The company's operational backbone hinged on the rapid overnight sorting of packages at a central hub. Despite various motivational tactics and appeals to workers' sense of duty, the system struggled to achieve the necessary speed and efficiency. The breakthrough came when someone realized the flaw in their compensation structure: night shift workers were paid by the hour. By shifting to a pay-by-the-shift model, the company aligned the workers' incentives with the organization's need for rapid sorting. This simple change led to a dramatic improvement in efficiency almost overnight, showcasing the profound impact that well-aligned incentives can have on organizational performance.

A similar insight emerged from the early days of Xerox. Joe Wilson, who was serving in the government at the time, had to return to Xerox to address a puzzling issue: their superior new machine was underperforming in sales compared to an older, inferior model. Wilson discovered that the sales commission structure inadvertently incentivized the sales team to push the outdated product. By realigning the commissions to favor the newer machine, Xerox was able to correct this misalignment, driving sales towards the superior product and better aligning the sales team's efforts with the company's strategic goals.

Reflecting on the Underestimated Power of Incentives

These stories underscore a critical and often overlooked point: the immense power of incentives. Munger himself acknowledges, “I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it.”

This is a fantastic story on pre-investing in the outcomes of others. As you build products, you should take lessons embedded deep within this strategy.

Your twin. In the wonderful wold of AI, you now the ability to know your self better, by creating your digital twin. The process to set it up may be boring, but the possibilities (theoretically) are endless.

They're bankers, traders, investment funds executives. They forgot all about morality to make money. The entire world had to suffer the consequences of their actions. They impoverished countries, drove millions of workers into unemployment, and contributed to the rise in extremism. So who are they? And, after the 2008 crisis, were the real culprits condemned? Could there be another?

By researching and identifying ideas to build on. Here are ideas I have been thinking about this week.

Going back to basics. In a world of reoccurring monthly payments, there is a developing market for pay once apps. Heres a curated list. Perhaps time for you to consider building a pay once service? Seems like we are coming full circle.

Bonus! Thought of the week

Build a boring business. FLY under the radar print cash until some big exit opportunity comes your way. Sexy businesses inherently invite competition, which in turn drives down returns. Find a dull business with extra ordinary growth potential.

Whilst every one is online to strike it rich here are some mid week boring ideas that can scale:

1)Residential Window cleaning as a service

2)Home Veggie garden setup as a service or a podcast studio setup(capitalizing on your experience and abilities, pantry organization, meal planning the options are endless)

3)Solar panel cleaning as a service

4)Chopped veggies delivery as a service or other (task based turn around svc)

5)Home composting setup as a service

6)Paid hotline for tech queries as a subscription service any other area where you are an SME, Accounting/Finance/Tax/Industrial/Design/Drafting