Does Goal Setting work?

I like Brian Tracy. I think that he is a great speaker and his collection of feel-good anecdotes and homilies are inspiring and uplifting.

I think the problem is that they are probably not true.

Let’s take one very simple message. Goal Setting.

In Brian Tracy’s book “Goals” he says “Success is goals and all else is commentary”…”With goals, you fly like an arrow, straight and true to your target”.

The evidence for the efficacy of goal setting often goes back to a Harvard study that was done between 1979 and 1989 where MBA graduates were asked whether they had written goals and plans for their future. 3% said they did, and ten years later that 3% were earning more than the other 97% of graduates all together. The only difference between them was that one group had goals and the other didn’t.

It’s a persuasive argument. There’s just one problem – it’s not true. There is no evidence the study actually took place.

But perhaps that doesn’t matter. It sounds so obviously true that perhaps we don’t need any evidence – it is a self evident statement that goal setting works, surely?

Brian thinks so. In fact, if writing down goals is so good, perhaps we should do it every day. A technique in “Goals” is to get a spiral notebook and write down a list of 10-15 of your most important goals every day. After around 30 days, you will find yourself writing the same goals again and again.

Brian says that once you do this, your life will take off. Everything changes for the positive.

A simpler version of this is where Brian asks audiences to make a list of goals and put it away for a year. After 12 months, when they look at it “it will be as though a magic trick has been performed. In almost every case, eight out of their ten goals will have been accomplished, sometimes in the most remarkable ways.”

It turns out that I kept such a list after reading this advice. From the 3rd of August 2015 to the 10th of September 2015, a little over 30 days, I kept a daily goals list.

I came across this list again in 2017, around a year and a half later. In my case, 2 out of the 10 goals have been achieved. Not quite the promised 80%.

Now, I accept, this is a single data point and not evidence and does not prove anything either way. My personal belief in the efficacy of goal setting as a rational method of operating, however, is ebbing away.

What does appear to work better and is more supported by the evidence is probabilistic reasoning. At any point, we have a range of options we can choose between.

The goal setting method is a PLAN-DO method. We decide what we want and then the universe, in a slightly mysterious sort of way, is obliging enough to move things around so we get it.

The probabilistic approach sets out the various options we have and helps us make choices on the next steps open to us, based to a greater or lesser extent on what we know about how things tend to work out. This is a TEST-AND-LEARN approach.

More on this in another post, but my experience is that this kind of approach seems to be gaining increasing recognition and acceptance. It also appears to result in better and more predictable outcomes.

Circle of competence

James Carville, a one-time strategist for Bill Clinton, said “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.”

The financial markets are an interesting cultural phenomenon. Few people understand what they are and it is easy to resent them.

The markets have an attraction of their own, similar to professional sports. There are players, statistics and activity. There are participants, observers and commentators. There are facilitators, advisors and con-artists.

Out of all this activity – of people doing their own thing – emerges a river of transactions, deals between people trading commodities, stocks, currencies, bonds, derivatives and increasingly complex products.

All this activity is supposed to make things better, to make us all better off.

Benjamin Graham, the father of value investing, used to say that in the short run a market is like a voting machine, telling you which companies are popular and which ones unpopular on a daily basis.

In the long run, however, the market is a weighing machine, telling you whether a company is good or bad.

Some people say that the market price has all the information you need to know in it, so there is no need to know anything else. In other words, markets are efficient.

Others such as Warren Buffet say that while markets are frequently efficient, it does not follow that they are always efficient. They can sometimes act in a manic-depressive way, pushing down the value of perfectly good companies and sending the values of bad ones sky high.

So how do you make a good decision when faced with markets?

Your options depend on how much you know about the subject you are making a decision about. What is your circle of competence?

If you are inside that circle, then you can take certain risks. If you are outside, perhaps you should protect yourself.

They key to better decision making in financial markets is knowing yourself, knowing the limits of what you know and making decisions about things that lie inside your circle of competence.

The IF-THEN Implementation Plan

We know that we have two brains – two systems. These are (variously) referred to as Hot / Cold or System 1 / System 2.

The Hot system is the limbic system, operated in the amygdala which sits just on top of the brain stem. It is activated by stress and results in your body taking flight or getting ready to fight.

The Cool part of the brain is sited in the pre-frontal cortex. Its stimuli is information and it has the ability for rational, reflective and strategic behaviour. It also has the ability to attenuate stress.

The ability to attenuate stress – to pay attention to the signs of stress and take action to cool it down is an important skill and needs to be learned as early in life as possible.

IF-THEN implementation plans are a way of linking cues to the Hot system and taking attenuating action.

The cue, or trigger has two parts:

  1. A situation
  2. A feeling

A situation can be

  • The time is 5 pm and work has just finished.
  • I’m at the garage and the car needs fuel.
  • I’m at the supermarket doing the weekly shop.

A feeling might be

  • I’m anxious.
  • I’m tired.
  • I’m stressed.

A cue leads eventually to an outcome – It’s five pm and I’m stressed and I walk past a pub so I have a drink that turns into several that then leads to whatever happens when I get drunk.

If you want to interrupt this process, then knowing what you are going to do by default in that situation has been shown to help.

The IF-THEN implementation works like this.

IF (something happens)

THEN (I will do something to distract myself)

In the example above

IF it’s time to go home,

THEN I will take the bus from the stop before the pub so I don’t go past it at all.

This method helps put the Cool system back in charge and override the HOT system, helping you make better choices.

The productivity problem

I was listening to an interview with Seth Godin and he brought up some interesting points about productivity.

First, he defined productivity as:

Productivity is an economic measure of how much you output per hour for the amount of time and resources you put in.

The UK has been talking about a “productivity puzzle” for a number of years. In 2014, the Bank of England said that labour productivity was very weak, around 16% below where it should be.

There are two main hypotheses on why this is the case:

  1. Companies are holding off on firing people because they believe that demand will return, but as there is less demand right now, they are making less per person as a result.
  2. Companies are investing less money into their businesses, meaning that workers are working with old tools and so can do less.

But, I wonder, is this missing the way in which work is changing.

A lot of the work we do now is knowledge work. We can’t build better machines to think better. We just have to start learning how to become more effective at doing the thinking work we need to do.

For many people in the workforce still getting used to digital technology the changes are overwhelming. There is a torrent of stuff coming at them, emails, twitter, video – all kinds of things that just take up time.

We still try and manage the complex work involved in businesses that do knowledge work by having meetings, talking to each other, spending hours moving around in cars to meet people face to face.

How is that productive? While you are doing all that talking and moving, nothing is actually being done that is of any use to anyone.

One company is doing things differently. Automattic runs its billion dollar company with no offices.

From the Business Insider interview with Matt Mullenweg, its CEO and the creator, by the way, of WordPress.

Automattic is a totally distributed company, so everyone works from wherever they are in the world. It could be a coffee shop, it could be their home, it could be a co-working space. We hire people regardless of where they are.

And also

The “Automattic creed” states that communication is the “oxygen” for a distributed company.

Matt’s view is that skill in writing represents clear thinking. If I can become a better writer, perhaps I can become a better thinker.

Perhaps the Automattic way of working is one more companies can learn from.

How to use non-traditional business models in the energy industry.

The world of energy and business are going through interesting transitions.

The growth in renewable energy generation has caused problems for operators of traditional generation such as coal, who have struggled to compete. Nuclear power, on the other hand, has been either faced with policy challenges, such as Germany’s decision to phase out its fleet, or Japan’s decision to turn off its generators following the Fukushima disaster.

Almost every business needs electricity. It is hard to imagine what one could do without any form of power.

And power is the operative word here. For a long time, control of the electricity system was control of power, and the institutions that delivered power had power over the businesses that relied on them. This reality is shifting, especially in the UK, where we are moving from a single source of power to multiple sources. This means that power is shifting from generators to consumers.

The energy industry is becoming customer-centric

Customer centric.png

Previously, you were supplied grid power by the local network and billed by your supplier. There was only one source of power, and it came through the wires connecting you to the local grid.

Now, you have more options. For example, you could generate some of your own power using solar panels. Or you could have a wind turbine. Alternatively, you could still get your power through the grid, but instead of having to negotiate a price with your supplier, you could agree a price with another generator and pay that price instead. Finally, if you are able to control the way in which you use power, then you could benefit from selling that flexibility to people who need it.

Because you have more options, suppliers have to compete for your business as never before. The result of this is that business models in the world of energy are going from linear models, where you have one contract with a supplier, to a customer-centric model, where many suppliers compete to give you multiple options for how you get your energy.

In this scenario, you move from being a consumer of electricity to a consumer of a bundle of power related benefits. It’s a more complicated set of choices, but there is more power in your hands than there was previously.

Suppliers recognise this and are changing the way in which they work. In 2016 E.ON announced that it would split its business into two. 40 GW of fossil-fuel fired and hydro generating assets would be moved to a new company called Uniper, while E.ON would build its business around renewables, energy efficiency and network services. It’s rival, Npower, also announced similar plans.

The energy industry is talking about the need for new business models

People in the industry talk about the need for new ways in which energy businesses need to operate – so called Non Traditional Business Models or NTBMs.

In 2015 Ofgem published a discussion paper to ask how NTBMs could impact the energy system. The responses to this paper suggested that NTBMs could achieve outcomes like:

  • Increase competition.
  • Give more value to consumers.
  • Engage consumers more.
  • Make the system more resilient.
  • Result in lower bills.
  • Reduce environmental impact.
  • Improve the quality of service.

The NTBMs that were suggested, however, were not new. They have been around in some form for a long time. Key issues included more flexible capacity from generation, storage and demand side response and more local generation. The other issues raised around diversity, innovation are a little fuzzy and good consumer protection and service is simply good business.

Ofgem’s definition of a NTBM is:

“Business models offering new products or services, or new ways of delivering these, that are different to those traditionally provided in the existing energy market. Those offering such services have diverse motivations (technological, financial, social and environmental) and ownership arrangements, and operate at various scales.”

This, slightly counter-intuitively, defines a non-traditional business model as one that is not traditionally provided in the existing market. So, it’s not that the model is not well known, it’s just that it hasn’t been tried yet – perhaps because the regulations make it hard or the structure is not understood by consumers yet.

How many business models are out there?

A business is a system. In its simplest form, you can represent a system as something that takes things in, transforms them, puts things out and changes how it does things based on feedback,

System model.png

If a business does this then a business model tries to figure out how to get value from this activity.

There are three key players in this ecosystem: producers, middlemen and consumers. Perhaps the second lot should be called middlepeople if one wants to be politically correct…

Consumers pay for everything. The way in which they pay is the business model. This article in the Harvard Business Review goes into the idea of a business model in more detail and has a number of different definitions.

It seems to me, however, that the way in which consumers pay for something is the essence of a business model.

The same article has a list taken from a book by Mark Johnson called “Seizing the White Space”, where he lists a number of forms of basic business model. This list is shown in the picture below, adapted slightly.

I think you could argue that there is a difference between how you pay and what you pay. The first is more like a model and the second more like a strategy or tactic.

That may be a little pedantic, but the picture shows the first kind in red and the second in green.

Readers may disagree – but the point is that these are some of the standard, and hence traditional models that one can identify in businesses now.

Business models.png

The models are based around the idea of the three players: producers, middlemen and consumers. The main models (in my opinion) then are:

  1. Freemium: Where you get some things for free and have to upgrade for others, like with LinkedIn.
  2. Advertising: Google has possible created this category online but this started a long time ago with newspapers that carried adverts to lower costs to consumers.
  3. Direct sales: Selling direct to consumers – the model that Dell pioneered with computers.
  4. Pay as you go: Pay for what you use based on a rate and metered usage – the standard energy company charging structure.
  5. Product to service: There are terms now like software as a service, data as a service, infrastructure as a service.
  6. Subscription: A popular model for content – magazines have done it this way for a long time.
  7. Royalties: Paying a fee to someone for what they have or for access to who they know.
  8. Brokers: Facilitating transactions between two parties.
  9. Auction: One of the oldest models around – from cattle auctions to Ebay.
  10. Fractionalization: Timeshares to NetJets – making it possible to have shared use of something.
  11. Leasing: Making it possible to use something for a time and then move on without ongoing commitment.
  12. Bartering: Exchanging something of value – for example permission to email you in exchange for useful content or a sample product.

The price strategies on the other hand have to do with trying to work with the costs of the operation. The razor / Kindle strategy used by Gillette and Amazon is to sell products such as a Razor cheaply in order to make money on large numbers of low margin products, such as razor blades or sell products such as the Kindle cheaply to make money on higher margin products such as books. Benefiting from lower costs through economies of scale, standardising products to reduce operating costs and getting paid by consumers before you have to pay suppliers are cash flow and pricing strategies – but are they business models?

Summary – more models that could be used in the energy business

Going back to the HBR article, the one that most applies to the energy business is the Pay as you go model, where you pay for what you use. There is already a lot of innovation in how much you pay, as there is a traded market in the UK and the price you get depends on how you manage your portfolio.

The idea of flexible energy systems through the use of generation, storage, demand side response and more local generation are all technological innovations rather than business models. Batteries have only recently become good enough to consider for grid scale applications. Demand side has become possible through cheaper interconnected equipment and falling networking costs. Local generation is possible through falling costs due to a push globally to create a low carbon economy.

Which means there could actually be a huge amount of potential to apply real NTBMs to the industry.

Take bartering for example. Let’s say you have a site that runs a process that generates waste heat and a site nearby that needs heat but also produces excess electricity. Perhaps there could be a trade there.

Auctions have been used in the energy business before, but perhaps they could become more innovative. Traders already trade energy, but perhaps it might be possible to make it easier for end users to put in bids for energy at certain times.

The response to Ofgem’s paper publishes a number of ideas that came back from energy market participants. They do seem, however, to be relatively traditional still, driven either by technology or a rearrangement of responsibilities between parties. Could any of the models listed above be useful as well?