The Spirit of Giving

Merry Christmas!

Joyeux Noël!

Sheng Dan Kuai Le! (圣诞快乐!)

Wishing you an enjoyable day, and a happy holiday season spent with good people, surplus amounts of food and drinks, and a large number of gifts!

One idea that is firmly associated with Christmas is gift giving. This is a central part of the Christian tradition, and also has an important place in broader Western culture, which retailers are obviously happy to encourage and embrace.

The festive season’s spirit of giving provides us with a nice opportunity to revisit basic notions of “value”, “price” and “cost”.

the-spirit-of-giving-2

We can think of “value” as the benefit provided by a good or service to the end user.

Economists typically interpret this as the consumer’s “willingness of pay“. That is, the maximum amount that a consumer would be willing and able to pay for a good or service. This allows them to introduce the idea of “consumer surplus“, which is the difference between willingness to pay and the actual price level. And the notion of consumer surplus leads to the idea of “gains from trade“; the idea that both consumers and producers can be made better off if they are allowed to trade freely.

Christmas gives us a chance to re-examine this mainstream interpretation of “value”.

It is evident at this time of year that a gift’s value is often totally disconnected with how much the recipient would have been willing or able to pay for it.

Factors that might affect the value of a gift include:

  1. The strength of the relationship between the giver and receiver of the gift;
  2. Whether or not the gift is a surprise;
  3. How well the gift matches the recipient’s needs and interests;
  4. The message on the card;
  5. The decorations surrounding the gift (Xmas tree, stockings, reindeer, Nativity scene);
  6. The colourfulness of the packaging;
  7. How fun or difficult the packaging is to rip open; and
  8. The atmosphere, experience and ritual of opening gifts together with family and friends.

Christmas is a time of year when people go to great lengths to maximise the value of what they give to others, so much so that it shatters mainstream Economists’ interpretation of “value” as “willingness to pay”.

Next we can consider “price” (what a firm receives from a customer (who may or may not be the end user) in exchange for a good or service) and “cost” (what the firm needs to pay for inputs that are used to produce it).

When I studied Economics as an undergraduate at Sydney University (under such luminaries as Kunal Sengupta, Tiho Ancev, and Don Wright) it was explained to me that firms aim to maximise profits. They can do this by adjusting price and quantity in order to increase the distance between total revenue and total cost. At a minimum, I was told, they will never set a price which is lower than the average cost of producing one extra unit (that is, price will never be lower than variable cost).

At Christmas, people spend significant resources (time, money, effort, imagination) to purchase or create gifts which they then give away for free. People tend to hunt for the best “value” gift that they can find within a given budget. That is, they seek to maximise the gap between “value” and “cost”, not “price” and “cost”.  Christmas shoppers will often hunt for a bargain, but if they stumble upon a remarkable gift which exceeds their budget they will often buy it anway.

“This is far too expensive! Meh, it’s Christmas! I’ll put it on my credit card!”

Your response might be that a firm is not a family, and so this Christmas analogy is invalid.

But is it?

What would the world be like if firms thought of consumers like family members?

And, more to the point, how did many of today’s most valuable technology firms become billion dollar companies? Think of Whatsapp, Twitter, WeChat, and Facebook. They did it by trying to provide value for as many end users as possible, and only afterwards did they find a business model to sustain and grow the firm.

Merry Christmas!

Joyeux Noël!

Sheng Dan Kuai Le! (圣诞快乐!)

Image: Tom Spencer

Price and Value

Price and value, there is a difference.

Price is what you pay for something; the number of dollars that you need to part with in order to obtain it. Value is what you receive; the positive feelings or practical utility that the object or the experience imparts.

I recently had my birthday, and I was delighted to receive a wonderful birthday present from my family in Sydney.

I logged onto Facebook in London, and found that my family had posted the following picture.

Price vs Value

The price of a piece of cardboard and some crayons: $1.

The value of receiving a “Happy Birthday Tom!” poster from all the family: priceless.

Value GROW Model – mobilise goal-oriented action

The Value GROW Model can be used to help people set and achieve goals

Value Grow Model

1. Background

The Value GROW Model is an adaption of the traditional “GROW Model” – a framework used widely for coaching individuals to set and achieve goals.

The traditional GROW Model has been used and popularised by various high profile coaches including Timothy Gallwey, Alan Fine and Sir John Whitmore.

2. Relevance

The Value GROW Model is a useful framework that can be used to help people set and achieve goals.

3. Importance

The traditional GROW Model is an effective coaching tool because the coach is not expected to provide any advice or direction. The coach does not act as expect but as an objective facilitator who provides a structure and asks shrewd open-ended questions to help the person being coached to solve their own problems. People have the answers within them, they just need help getting them out.

The significant innovation of the Value GROW Model is that it can be used to coach groups of people. Mobilising a group of people (like herding cats) is much more difficult than successful one-on-one coaching. You can help a group set clear goals, clarify the current situation, determine the available options, and make a specific plan of action. However, a single group member with vested interests or competing priorities can undermine progress and prevent the achievement of group goals.

4. Value GROW Model

4.1 Values

Shared values, this is the step which is missing from the traditional GROW Model.

When coaching an individual or group of people, the first step is to establish trust-based relationships. This can be done by building rapport, fostering mutual respect, finding common ground or by eliciting and embracing shared values. Trust is important because it promotes open communication. Without trust it will be difficult to speak openly about goals, motivations, desires and how to achieve them. You will also be less likely to admit a mistake, correct other people’s mistakes, or stick your neck out to help if things get tough (read: when things get tough).

In a one-on-one coaching situation establishing trust often happens naturally as the coach and the person being coached attempt to build a healthy working relationship. Don’t be fooled though, the relative ease of establishing trust between two people does not make the step less important – just more inevitable. The traditional GROW Model does not focus on trust building probably because it takes this step for granted.

By contrast, when mobilising a group of people, establishing trust-based relationships between members of the group cannot be left to chance. Rapport building, fostering mutual respect and finding common ground are techniques that work well for one-on-one coaching, but are less useful for group situations because of the potentially huge number of unique one-on-one relationships involved. You can build rapport with one or two people, but probably not with 15 people and definitely not with 50.

Side note: The number of unique one-on-one relationships in a group is proportional to the square of the number of people in that group. To get a feel for what that means, if you have two people then there can be only one relationship, fifteen people can make 105 unique one-on-one connections, and fifty people can make 1225 connections (for more on this, see Metcalfe’s law).

A proven way to establish trust-based relationships for groups is to elicit and embrace shared values. What do we believe which unites us? What are our shared values?

Establishing shared values is important for 3 reasons:

  1. Trust – establishing shared values builds trust. Lack of trust is a normal starting position (if this were not the case, we wouldn’t need so many lawyers) but lack of trust can completely undermine the process of setting and achieving goals. If you don’t trust the people you’re dealing with then your energies will be wasted on political correctness and horse trading;
  2. Openness – if you don’t trust the people you are dealing with, you wont be open with them. You need to be able to speak frankly because the focus should be on setting and achieving goals. You need to be willing to put forward untested ideas, ask clarifying questions and make suggestions. Lack of openness will be fatal;
  3. Group identity and personal ownership – setting group goals and deciding what actions need to be taken does not ensure success. Each individual needs to own the stated goals if they are going to exert real efforts towards achieving them. When mobilising a group, you need to help the group answer the question “who are we?” before moving on to the questions “where are we going?” and “how do we get there?”. Establishing shared values unites a group by creating a shared identity. Religions do this well, and a handful of exceptional companies have succeeded in establishing shared values (think Zappos). With shared values in hand, the group is no longer a collection of disparate individuals with competing interests but a unified entity with an existence of its own. Individual members, united by their shared values, can each take ownership of group goals.

Digression: The step of establishing trust based relationships is often overlooked. Why is this? One reason may be that fortune favours the brave. This sounds like a glib statement but what it means is that our societies are run by those who have the confidence (money and connections) to push themselves forwards. Having fought their way to the top, our brave and impetuous leaders may not feel compelled to ask the question: “what do we have in common?”. The idea of “working together based on shared values” probably sounds like pinko tree-hugging kumbaya-singing nonsense to many of the super elite Ivy League graduate masters of the universe. After all, they have more pressing concerns: Gulfstream G550 or Boeing BBJ?  But I digress.

If you want to coach people to set and achieve goals then establish trust-based relationships first.

If you skipped step one, stop, go directly to jail, do not pass go, do not collect $200.

4.2 Goals – what do you want to achieve?

Define one or more SMART Goals that the individual or group would like to achieve.

“A goal properly set is halfway reached.”
~ Zig Ziglar

4.3 Reality – what is the current situation?

Consider the current situation and the assets that are available to reach the stated goals.

This is an important step because you need to understand where you are before you can plot a path to some place else. Think of it as orientating a map. If you know where you want to get to but don’t know where you are then you will have no idea how to get where you want to go, even though you have the map.

Examples of questions to ask include:

  1. Where are you now?
  2. If you asked your [suppliers/customers/husband/wife/boss], what are 3 things that they would say about you?
  3. What assets are available to achieve the stated goals? Assets might include number of people, skills, training, technology, time available, cash, equipment, real property, intellectual property, you get the idea.

Reality check: After considering the current situation, the individual or group being coached should be able to answer the question: “do I/we possess the assets that will allow me/us to achieve the stated goals?”.

4.4 Options – what are the possible ways forward?

If they cannot pass the reality check then they will need to create a sub-goal “build more assets”. Consider the options for achieving that sub-goal.

If they can pass the reality check then consider the options for achieving the stated goals.

Examples of questions to ask include:

  1. What options have worked for other people in similar situations?
  2. What has already been tried? If it didn’t work, why not? What could you change?
  3. What other options are available?
  4. What if you had more of asset X, Y or Z?
  5. How should you evaluate the available options?
  6. What is the cost of doing nothing?
  7. Are there any foreseeable roadblocks? How could you bypass them?

4.5 Way forward – what’s the next step?

Commit to a specific plan of action, and describe the next steps.

Examples of questions to ask include:

  1. On a scale of 1–10, how committed are you to the stated goal(s)?
  2. What actions will you take, and by when? Who will be involved? What resources do you need?
  3. What are 3 actions you can take this week?
  4. What is the next step?
  5. On a scale of 1–10, how excited are you about the next step? Is there anything you could do to improve that score?

[For more information on consulting concepts and frameworks, please download “The Little Blue Consulting Handbook“.]