Posts Tagged Economics
Service Charge Built Into Your Restaurant Bill in Singapore - No More, Please!!
I have been in Singapore for close to three months now. It’s a nice place to live, work, eat and travel and that is enough to make me stay here. But, the thing that fascinates me the most about the place is the “design of incentives and disincentives.” Once you start noticing the minute details about how they have built the nation and systems, you feel amazed at the power of incentives. There is an incentive here for all the “right” behaviours and disincentives for all the “wrong” ones. Let me pick up some common examples. Singapore, for most parts of the 20th century, was a dirty country. To discourage littering, the government enacted heavy fines and followed it up with superb enforcement. Fines for littering can be as high as $5000 and repeat offenders might be sent for “behaviour - correction” activities like cleaning of public parks! I know it sounds like an overbearing idea, but it has worked for the country. And then, there is the much-admired Electronic Road Pricing system and taxes on automobiles, which disincentivizes people to own cars and drive downtown during peak hours. The pricing of parking lots, roads and cars themselves, coupled with a super efficient public transport system, incentivizes people to take public transport instead of driving around, adding to the congestion and polluting the environment. There could even be an incentive for taking early morning trains to town and easing off the peak hours. Every action or inaction has a price to it. Since it needs talented people for the economy, there are incentives to take up Permanent Residence in the country and enjoy several benefits. There are strong disincentives for smoking as it is a major cause of health problems and puts a burden on government spends. Heavy taxes make cigarettes quite expensive and there is no way you can legally get cigarettes from other countries without paying the hefty duties.
While I frantically look for such incentives, I have been disappointed with one particular system - the system of service charge or tipping at restaurants. Most eating places have the service charge of 10% included in the bill. Tipping is discouraged in most eateries and even prohibited at the airport and other places. Now, I eat out a lot and try many restaurants and whenever I fork out the dollars, I expect reasonable service. But, I find that missing in so many of these places. Having a fixed, pre-determined service charge could act as a disincentive for providing great customer service and lead to complacency or indifference in the minds of the men and women who work in these restaurants. They are effectively guaranteed the tip, irrespective of how they treat the customers! I simply fail to understand this in a place like Singapore, which goes all out to encourage the right behaviours.
Here is the link to a nice read (slightly dated) on this topic http://www.singaporeangle.com/2006/11/service-charges-replace-with-tipping.html
1 comment November 11, 2008
Managing Differently in Challenging Times
As everybody talks feverishly about the world economy slipping into a recession and people draw numerous parallels between previous depressions and the current situation, I thought about putting down 5 broad management principles that we can adopt and do things differently this time around:
- In most downturns, managers typically tend to narrow their focus on operational efficiency and cost-optimization alone. A better way to manage will be to be “ambi-dexterous” and maintain focus on both topline and bottomline.
- In most cases, downturns have trigerred the tendency to source talent from low-cost talent pools with a view to minimize costs and at the same time ensuring ‘adequate’ staffing. Instead, organizations should be looking at tapping diverse talent pools to build up a diverse work-force which ideates using different perspectives. This enriches the problem-solving processes with alternative thinking. Some cues can be found in the Creative Class.
- Most downturns are accompanied with a free-fall of the “axe” or downsizing. Instead, forward-looking leaders need to focus their existing people assets on most “high-yield” activities and maximize gains.
- Economic slowdowns tend to create a general environment of gloom and employee morale takes a big hit. It is critical to keep employees motivated and engaged during these trying times. And, who is better placed to drive engagement than the “people managers”. From “employee engagement” being a HR responsibility, leaders need to ask their managers to be accountable for employee engagement.
- Finally, like most situations in life, we tend to take a short term view in times of a slowdown. From a short-term focus on protecting margins and pleasing the stock markets as much as possible, leaders and managers need to take a long term view towards balanced and sustainable growth. We need to remember that equity, as an asset class, has a tendency to trend upwards. So, we just need to be doing the right things and in due time, value will be realized.
1 comment October 21, 2008
Infosys - Reporting the Intangibles
I finished reading Infosys’ Annual Report 2008 last evening. The report was far more professional and comprehensive than anything I have seen from Indian organizations. The first thing that struck me was that the reports begins with the company’s main assets - “people” and a nice quote from Mr. Murthy - ”Every evening our core assets walk out of the gates. We need to have a way to bring them back every morning.” A good twenty pages, right upfront, is dedicated to employees and what Infosys has been doing about them. The report talks at great length about training, development, organization restructuring, learning programs, employee well-being etc. This is in stark contrast to something like Reliance Industries’ annual report, where “Employee Activities” is a mere 3 paragraph lip-service.
More interesting pages follow after the key financial data - on the intangibles. The company presents a simple, easy to understand brand valuation, a score-sheet for intangible assets and many more. The focus on the intangibles is a welcome phenomenon to corporate reporting, which relies overly on business numbers.
5 comments May 27, 2008
The Economics of Incentives
As per economics, an incentive is any factor that provides a motive for a particular course of action. It is simply a means to encourage people to do more of good things and less of bad things. Incentives can be remunerative, moral, coercive, social etc.
I have recently been reflecting on how different countries digest incentives or disincentives. India, of course, has a law or rule (on paper), for just about everything. There are penalties for smoking in trains/airports, fine for jumping a traffic signal, underage driving etc. More often than not, we feel that these rules are not implemented properly. The other side of this is that citizens do not adhere to these rules. The simple explanation is that of inadequate incentives/disincentives. Fine for caught smoking in a train - Rs.100 (who cares!). Fine for jumping a signal - maybe Rs.50….and so on. Low value of penalties coupled with weak implementation - leads to very low probability of an average citizen feeling encouraged to adhere to the law.
Move on to Singapore & Dubai, and you find very high disincentives attached with the ‘wrong’ things. Smoking inside an MRT station - fine S$20000!! Jumping a signal in Dubai - something like AED 2000! You make the disincentive so penalizing that an average citizen doesn’t break the rules + put in healthy levels of implementation.
Let’s go West for a change and you find that the USA, where most incentives/disincentives of these kinds have become moral incentives. Smoking in a prohibited area, jumping a traffic signal etc. have moral connotations (atleast in the sane hours of the day!). On a recent trip, I didn’t see sign-boards informing people about the penalties associated with such an act; instead the sign-board just said - no smoking. Cross-roads had surveillance cameras, but nothing to inform people about the rules. It appears that punitive incentives have been internalized to a large extent in that country.
So, these countries represent the continuum through which incentives are designed, implemented, redesigned, re-implemented and finally yield the desired outcomes.
3 comments September 20, 2007
