Broken systems

In any civilisation, you’re in a system; so there are rules to follow, structures to abide by, and hence a sort of order emerges from the system. Of course the order can be disorderly but you get my drift. When however, certain realities don’t line up the way they do in a system, we think that it is broken.

I’m not too sure about that. Sometimes, we think that a system is broken because it is leading to an outcome which we don’t desire nor think is desirable. Whilst the designer or perpetrator of the system may agree with you on the outcome and results, they may not think the system is broken.

The reason being that their key objectives for the system does not align with yours. What you think as an undesirable outcome may be an unintended but necessary consequence of the system; and the results which you don’t agree with may not even be part of the consideration.

And that is the challenge when one works within a system. It is terribly difficult for a system to start paying attention to a new attribute that is worth looking at when measured against the values that inherently power the system. Effectively, the conversation goes like this:

You: ‘Hey system, you need to start looking more into the environmental damage you are causing while trying to make profits!’

System: ‘Ah, environmental damage. Does looking into it generate more profits?’

You: ‘Well, the point is thinking about we are trading-off environmental sustainability in our process of profit. Maybe we can rethink about the way we make a profit?’

System: ‘Sure! Come back to me when there’s a profitable way to reduce the environmental damage. Meanwhile, we carry on with what works.’

The reason we are facing climate change is not really because the system is broken but because the system we designed is working perfectly well – it is just trying to solve a completely different problem than the one we are facing or trying to get it to solve.

The only way is to establish new rules and new ways of doing things, of structuring our lives, our companies and our economy. This is why Enea Consulting, where I work at, has combined efforts with Isabelle Kocher de Leyritz to form Blunomy.

For now, the branding might still feel very foreign to an Asian mind, the URL quite strange (is the firm French or Malaysian?), the fonts on the website feels a tad bit too avant garde for the liking of the general masses. But the message, the intentions and planned actions are clear. We understand that the systems are not broken but they are simply not designed for the challenge that confronts us today. That is why we are not here to fix the system; we need new ones to replace them.

Just to reiterate that views presented here are entirely personal and do not represent the stance of any organisations I’m employed by or have any affiliations with.

Subscriptions

We talked about two-part pricing and some of that involves the use of subscriptions. Subscriptions are interesting because they ensure the match between the flow of services and the cashflow. This allows goods or services to be continuously supplied regardless of whether they are actually consumed or not. This gives producers the ability to invest more, produce their goods more cheaply, and leverage on the existing base of users to serve more people.

All well and good. The key is to enable those users to feel that there’s added value in subscribing instead of not. Especially in the world where there’s tonnes of free content out there, it is difficult to believe in value from subscriber content.

Despite the challenge, I’m creating a new subscription model where readers who would like to support my continued blogging, ideation and sharing to contribute through subscribing to my Kevlow Blog podcast. It allows me to offer additional value beyond the free daily blog posts to those who care about them and would like to support me while keeping my blog free for anyone and everyone. As a perk, you get an almost daily dose of audio track version of my blog posts. You’ll be hearing the voice of a (probably AI) system by Anchor.fm reading my writings but it sounds pretty smooth and comfortable in my opinion.

I think listening to them at 0.75x speed is ideal because writing text from me can be somewhat mouthful and harder to follow than very verbal writings. So once again, I hope you’d support me.

Everybody and nobody, everywhere and nowhere

When you try to please everyone, very often, you end up doing and producing things that would make nobody happy. When you try to be everywhere, as I’ve seen some of my college coursemates who tried to attend multiple parties and networking sessions on the same evening, they end up nowhere.

Fearing that you miss out inevitably means you miss out on everything because you’re not even at where you’re physically present, which is just about the only joy you really can have.

We are not capable of pleasing everyone, nor designed to be everyone, or to be everywhere. Let us enjoy these things that constrain us rather than putting our emotional selves intensely at odds with them.

Time is an ingredient

We envision an end point and we want to be there already. We think of time as a barrier. The fact that parts of the steps take time annoys us. We rather it takes less time as though it is better when it is faster.

And then on the other hand, we acknowledge that timing is everything, when to strike a ball, jump to defend one, meet your potential spouse, ask for a promotion and all. Time is an input, not just the passage of time but point along time.

So let us reconcile our views on time. Where things are taking time, let us recognise it is an ingredient that enriches and enables the outcome we are trying to move towards.

Beyond the edge of your circle

There are areas of our ignorance we are aware of, but there are also vast spaces of our ignorance we are unaware of. This area is perhaps where we would exhibit the Dunning–Kruger effect. It is really important for us to know and understand our circle of competence, and to create boundaries and rules for ourselves to navigate within, and beyond this circle.

Think of it as comparing a person who lives in a town for many years and know his way around it by his senses and strong local knowledge, against an out-of-towner who had got hold of a map and managed to navigate successfully to a few places of interest. The guy who is new in town tend to overestimate his understanding of the place and might make overly risky decisions or commitments as a result (eg. showing friends around, or bragging loudly about his knowledge of the best local foods).

One of the critical skills that we need to acquire especially as we are new to a space, and trying to grow ourselves, is to be able to develop not only the self-awareness but the toolkit to navigate a new space when one runs the risk of getting into the Dunning-Kruger effect. In fact, even as kids, we should already be conscious about what is happening and how we can deal with such struggles.

Physical networking

Been at a few business functions lately; far more than I’ve been the past two years. It’s becoming a less surreal experience as the world eases into the state where covid-19 is endemic. Restrictions have eased and culturally, people are less wary about mask-wearing. The common flu and other cold bugs are back, ordinary immunity is probably improving.

I welcome the return of physical interactions as much as I discovered how many of them are actually easily substituted with online means. It is true that most of the online interactions lose out so much rich details and non-verbal dimensions of communication. In fact, especially for new connections and interactions, having that physical connection might be useful.

From just those physical functions, I discovered so many more companies I’ve never heard of. There are activities in the industry I wasn’t aware of from just reading materials online. A lot of chance encounters in the physical world are simply not possible online. In fact, I thought the online networking tools where you scroll through a list of conference attendees as poorly designed. Imagine in a real world when you try to go towards someone you want to speak to while the person is unaware and they are trying to talk to someone else. And all the responses are not exactly synchronous. Physical distances and actual visual observations in space performs a coordination function that technology has not been able to replace.

Changing the story

Insurance seemed like betting against your death or misfortune and some people don’t want to bet on your personal downfall so they don’t want to buy insurance. For years, the industry have been trying to change the story and they settled on the idea of protection, financial protection against those misfortune.

In principle, that works theoretically but the issue is that a lot of what you pay for is sales and distribution. The structure of the industry is such because insurance works well only when the risks are being pooled. That means having lots of people paying the premiums in order to support payouts during adverse events. As a business though, it means that the firm is ultimately a sales and marketing organisation. Costs will have to weigh disproportionately on the distribution side of the business.

This is a shame because the society needs insurance. Yet it is a market failure; the market system allocates resources poorly in this market. It can be better designed through a mix of regulation and making it mandatory to have certain amount of cover. The government should not think the market will help reduce cost of insurance through competition because the basis of competition in this market isn’t so much pricing. It is more sales, marketing and tactics.

But isn’t it just like many other products? For luxury products, yes. Basically for things people don’t actually need, you can allow the whims and fancies to be shaped by the market. But when it comes to insurance, you want the market to deliver an outcome so you need to design the boundaries and structure to make it work.

The story of insurance should be that of mandates, regulation, and basic necessity and right of people. We come together to live in highly urbanised environment and it should be a no brainer for us to risk-pool and mutually insure. There’s no excuse for this market to be hijacked to support high-flying salespeople.

The lottery

If someone came along and asked you for money, saying, we’re pooling little bits of money from everyone in order to get a really big pool. We’ll then pick one of those who contributed money to get the entire pool of money. Will you contribute? Well, depends on how they are doing to do the picking. It would probably be some kind of random mechanism.

Maybe it also depends on your trust in the system and what is the intention of doing this pooling. Or the known results of this pooling. What if I told you that the beneficiary of the funds-pooling routinely loses all the money and his or her life is destroyed by the sudden windfall? Would you still go ahead to contribute? To what extent would you contribute in hopes that you are the recipient of that windfall?

Well, I’m effectively describing the lottery. Millions of people are still on it around the world. For the simple narrative of buying a slice of hope. Yet if you go out there suggesting that we take micropayments from everyone to make a single person rich, no one will actually support you. It is curious how shifting the storyline works so well. And the lottery is basically a manifestation of how the right storyline sells.

Ideas to win

How do you determine what to do in a business? Is it based on what the boss decides? How do we decide when an idea is good and worth following? Is it when everyone agrees or when there is so many disagreements? What makes a good idea anyways?

In a company, especially an organisation that exists in a marketplace for talents, good ideas must win in it. This is true even for public organisations: government ministries and agencies, non-profits, and special entities that seem to have no market competition. This is because they are still in the marketplace for talents. They rely on smart and capable people to get things done. Such organisations need to structure themselves to harness the best ideas and allow them to win, in order to keep their talents, and continue producing results worthwhile of their existence.

When they allow authority and bosses to win, then they forgo the ability to attract and retain talents. No one would work for a boss or environment where the only way to win was to amass lots of power and authority. So regardless of how much you might think the bosses or those with authority have got the information and the right intentions to make the decisions, the real winning decisions are those backed by good ideas and supported by the best people with the best intentions.

Two-part tariffs

In economics, when there’s even some monopoly power, the business can set prices and still have people buy their products. There is monopoly power everywhere; local convenience stores can price the way they do because there are some customers who are unable to switch providers or move. And so the businesses can price their products and somehow structure the pricing to be two-part tariff, which mean they can charge you a fixed fee and then layer on additional charges per unit of consumption.

They can take various forms. For example, a bakery can charge you $10 annual membership and give you 10% discount off the breads that you buy from them for the entire year. This way, they charge you a fixed fee and then get you to pay for more per marginal unit of consumption. The gym charges you a single registration fee and then monthly membership. Even devices such as reMarkable which is an e-ink writing tablet is selling its tablet and then charging people for a monthly subscription that allows people to sync their notes to various platforms, have unlimited storage, etc.

Even the smart phones involves getting you to pay for the device, then charging you for apps or gaining more revenue from additional services you use on the phone. The tariff structure has an alluring quality of pricing the overall good at almost marginal cost. Or does it? That’s what economic theory suggests but it is unlikely to be the case on digital goods and services. They are probably being priced at the long run marginal cost plus a premium to support long term development and innovation. Is that an efficient outcome? It’s hard to say.

What is more interesting, is that the two part tariff structure creates more stickiness for the customer to the producer. Having already paid for the first part, the customer tries to make more use of that, averaging down his/her cost per unit of consumption. This is the use of sunk cost fallacy and faulty thinking to trap consumers.

Unfortunately, it does work.