Scarcity: Why Having Too Little Means So Much (24 page)

Yet most firms still manage hours, not bandwidth. One group of researchers describes a thirty-seven-year-old partner at a large accounting firm, married with four children:

When we met him a year ago
, he was working 12- to 14-hour days, felt perpetually exhausted, and found it difficult to fully engage with his family in the evenings, which left him feeling guilty and dissatisfied. He slept poorly, made no time to exercise, and seldom ate healthy meals, instead grabbing a bite to eat on the run or while working at his desk. [His] experience is not uncommon. Most of us
respond to rising demands in the workplace by putting in longer hours, which inevitably take a toll on us physically, mentally, and emotionally. That leads to declining levels of engagement, increasing levels of distraction, high turnover rates, and soaring medical costs among employees.

These same researchers tried
a pilot “energy management” program
. This included breaks for walks and focusing on key factors such as sleep. In the pilot study, they found that 106 employees at twelve banks showed increased performance on several metrics. Perhaps this sounds far-fetched. But how different is this from how we manage our bodies? To prevent repetitive strain injury, frequent computer users take mandated breaks. To help with computer vision syndrome, people are advised to
look away from the screen every twenty minutes or so
for about twenty seconds to rest the eyes. Why is it counterintuitive that our cognitive system should be so different from our physical one?

The deeper lesson is the need to focus on managing and cultivating bandwidth, despite pressures to the contrary brought on by scarcity. Increasing work hours, working people harder, forgoing vacations, and so on are all tunneling responses, like borrowing at high interest. They ignore the long-term consequences. Psychiatrists report an increasing number of patients who show symptoms of acute stress “
stretched to their limits and beyond with no margin
, no room in their lives for rest, relaxation, and reflection.” There is nothing magical about working forty or fifty or sixty hours a week. But there is something important about letting your mind out for a jog—to maximize effective bandwidth rather than hours worked.

Of course, all of these mistakes—from firefighting to failing to cultivate bandwidth—are individual problems, to which any person can fall prey. But organizations can magnify the problem. When one member of a team begins to fall behind or enters a firefighting mode, this can contribute to the scarcity felt by others. When one person’s bandwidth is taxed, especially at the top, a sequence of
bad decisions can lead to further scarcity and to taxes on others’ bandwidth. Organizations can create a domino effect, with each individual member pulling the team toward firefighting and reduced bandwidth. But organizations can also be insightful, creating environments conducive to the successful management of scarcity’s challenges.

Like many American entrepreneurs,
Hiroaki (“Rocky”) Aoki
had a wild youth. As a rambunctious teenager in Japan in the 1950s, he sold pornography in school and started a rock band called Rowdy Sounds. He also showed discipline: as a flyweight wrestler his hard work earned him a spot in the 1960 Summer Olympics, an athletic scholarship to an American university, and eventually the U.S. flyweight title and a spot in the wrestling Hall of Fame. As he matured, his creativity, energy, and diligence increasingly turned to business. While competing as a wrestler, he studied for an associate’s degree in restaurant management, and in his free time he ran an ice cream truck in Harlem.

Aoki’s most successful venture started small. With $10,000 from his ice cream truck, he started a four-table Japanese steakhouse called Benihana, on West 56th Street in New York. The first few years were bumpy, but the restaurant began to draw buzz for its food and atmosphere, eventually becoming a hotspot for celebrities. (Muhammad Ali and the Beatles dined there.) Aoki capitalized on this success by expanding the restaurant into a chain, first throughout New York City and eventually to the rest of the country and the world. Today Benihana is in seventeen countries. At the time of Aoki’s death in 2008, his empire was thought to be worth over $100 million. So thorough is his stereotype that it borders on parody, complete with his name, the paternity suits, intrafamily lawsuits, a collection of antique cars, an array of eccentric hobbies, and an ethnically flavored
semi-mystical back story for the chain’s name (after a single red flower—
benihana
in Japanese—that Aoki’s father saw amid the rubble after a U.S. bombing of Tokyo in World War II).

Anyone who has been to a Benihana restaurant knows why it’s unique: The chef cooks the meal right in front of you; in fact, “cooking” does not do justice to the performance. The chef is a virtuoso: he juggles his knives, tosses food from the spatula directly onto your plate, and creates onion ring volcanoes! Only at Benihana do meals end with a round of applause. Search for “Benihana” (or, better yet, “hibachi chef”) on YouTube and you’ll see hundreds of videos, with tens of thousands of hits, showing the theatrics. All this contributes to Benihana’s success in a roundabout way. Aoki did more than create a bit of entertainment. He understood at a deep level the scarcity restaurants faced. And he solved it.

People think restaurants are about food, décor, and service. After all, this is what we experience as customers. Yet we all know wonderful restaurants that have shut down. Getting customers in the door does not ensure success in the restaurant business. Dry logistical and operational decisions drive profitability. The problem restaurants face is that much of their costs are fixed. Sure, they spend money on the food, but the ingredients do not cost as much as the overhead: salaries, rent, electricity, insurance, and so on. Whether you serve many customers or only a few, most of these costs must still be covered. As a result the business is all about “cream.” After your revenues rise to a level that covers the fixed costs, a large percentage of the remainder goes directly to profits. This creates interesting math. Three seatings on a busy Saturday night is not just 50 percent more profitable than two seatings. If the first two cover your fixed costs and leave you with a small profit, then the third is “cream,” mostly all profits.

What Aoki (and others) recognized is that the restaurant business is really about seating scarcity. How many seatings can you fit in? You get more seatings if you can squeeze in more tables. You get
more seatings if you fit more people per table. You get more seatings if you can turn tables over faster, if you get four sets of customers out of a table each evening rather than three.

What appears to be theater at Benihana was really a very clever solution to scarcity. The chef’s production involves people sitting at communal tables. And communal tables of eight mean a much more efficient packing of customers. No more waiting for two tables of two to open up side by side so you can seat a party of four. At communal tables you simply fill up the tables as people come in. A table of four merely means four chairs at the table. But even better, the tables turn over much faster. The chef cooks theatrically—and quickly—in front of you. You sit, the chef is there, the menu is small, and the time to order is limited. The chef then festively paces the meal for you. The food is tossed onto your plate, and you eat quickly because you can see the following course is about to be tossed next. Even the dessert—ice cream, which near the hibachi melts quickly—is designed for speed. And when the show ends, the chef bows and you applaud and it’s over. What are you going to do, sit around and chew on your chopstick? It is hard to loiter when the chef is standing there, all done, the table has been cleared, and others are leaving. All this means that Benihana earns much more per table per night; some estimates suggest Benihana earns
ten cents more in profit per dollar of revenue
than other restaurants, making it far more profitable.

Besides well-orchestrated meals, Benihana provides an important lesson for many organizations. Even when businesses are insightful enough to identify their true scarce resource, they often underappreciate the complexity of managing scarcity and the benefits that come from doing it just a little bit better.

Sheryl Kimes
, an operations researcher at Cornell University, discovered this when she was hired by Chevys, a Mexican restaurant
chain, to see if she could improve its profits. She started by talking to the staff to get a better feel for the challenges, and one problem was clear: long lines. In a way, this had to be good—the restaurant was popular. But it can also be a bad thing. Long lines can make you proud, but they bring in no money. You need people inside and eating, not outside and waiting. Customers can get disgruntled and not come back. You don’t want it said of you, “
Nobody goes there anymore; it’s too crowded
,” as Yogi Berra put it. To understand what might be done—raise prices? expand?—Kimes conducted a thorough statistical analysis, which gave her a snapshot more precise than the staff’s impressions: What was the income per table? Which tables were most occupied? What was the turnover? And so on.

What she found surprised her. The visuals showed long waits; the data showed low usage. Only during five hours each week were more than half the seats occupied. But there were many more hours with lines outside. What was going on? Two clues in the data helped crack the problem. First, there was enormous variability in usage time, and the biggest variation occurred after one meal ended and before the next one began. Even in busy times, there were long lulls between consecutive parties at a table. Second, even though restaurants like Chevys are considered places for friends and coworkers, the data told another story: 70 percent of parties were just one or two people. The restaurant didn’t seem to have the right tables for the parties it was hosting. To see if this was right, Kimes took the data on parties coming to eat and ran it through an algorithm to look for efficient packing for Chevys, particularly for what tables ought to be used. This yielded a clear suggestion: more tables for two. Management implemented it, and the result was a financial windfall—a more than 5 percent increase in sales, approximately $120,000 a year in just one branch. Of course, purchasing new tables, remodeling the restaurant, and making other changes were not without cost, but after all the accounting, the profits exceeded the costs in the first year and turned into pure profits in the ensuing years. The investment on managing scarcity earned a high rate of return.

Until
Kimes showed up, Chevys was failing to manage its scarcity because it was undervaluing scarcity’s challenges. And those challenges were not trivial: serious computer analyses were needed for just one restaurant’s problem. And restaurants are not alone. Businesses often succeed and fail as a function of how they manage scarcity.

Doctors and the cable
guy have one thing in common. An appointment scheduled for three o’clock rarely happens at three o’clock. Staying on schedule can be hard. A slipup early on—perhaps a bit of procrastinating or something that has run unexpectedly long—gets magnified when there is no slack to absorb this shock. What first seemed like manageable tightness becomes a cascade of lateness. Every appointment becomes rushed. You tunnel on getting through this appointment. Predictably, you borrow from future ones. A time-debt trap forms. A tight calendar leaves you on the edge of being late to every meeting. And on most days you go over that edge early. (Why customers put up with it is another question.)

A colleague of ours—the president of a foundation—is no stranger to tight calendars. He has the distinct pleasure of spending most of his days in back-to-back meetings. He could easily fall perpetually behind like the doctor or the cable guy, every meeting more delayed than the previous one. And since people are coming to ask him for money, they would put up with it! But he does not run late.
About five minutes before a meeting is scheduled to end, his assistant shows up and announces, “Five minutes left.” And at the end of the meeting, his assistant shows up again. This fairly obvious intervention—used by many executives lucky enough to have a skilled and dedicated assistant—prevents the cascade and the scarcity trap.

The assistant knocking at the door is not a particularly innovative intervention, but it illustrates something profound. Small changes to one’s circumstances can short-circuit the consequences of scarcity. The psychology of scarcity is primitive, and changing it “from within” can be hard. But you don’t need to change the psychology in order to get the right outcome. The foundation president is not tunneling any less. His trick is to change the environment to counteract the psychology. And not even drastically: the assistant does not create additional slack. Meetings are still scheduled back to back, and the president still tunnels during these meetings. All the assistant does is stand in the way, preventing the psychology of scarcity from doing harm. You can think of it as akin to a rumble strip on the side of a highway. It’s a small change, yet it protects drivers against their wandering minds and fatigue; it’s much easier than getting them to focus or to sleep more.

In the same way, we can “scarcity-proof” our environment. We can introduce the equivalent of rumble strips and helpful assistants, using our insights into why things go badly to build better outcomes. What matters is the logic of the enterprise—the appreciation of how understanding scarcity can help us think differently and manage enduring problems.

A simple yet often underappreciated tool for managing scarcity is to influence what’s in the tunnel. This is one thing the assistant does well: she forcefully brings in the next meeting while the executive is still tunneling on this one. In work with the economists Dean Karlan, Margaret McConnell, and Jonathan Zinman, we tried to bring
savings into the tunnel for poor individuals in
Bolivia, Peru, and the Philippines
. We built upon the insight that the poor fail to save partly because of tunneling. Saving is an important but not urgent task, the kind that nearly always falls outside the tunnel. At any point in time, there are more pressing things to do than save. So we brought savings back into the tunnel for a moment by making it top of mind. Having asked people what they were saving for and how much, we would send them, at the end of each month, a quick reminder—a text message or a letter. This benign reminder alone increased savings by 6 percent, a strikingly large effect given how infrequent and nonintrusive this was. (Messages, after all, are much less salient or vivid than an assistant standing in your doorway.) We were able to increase savings not through education or by steeling people’s willpower but merely by reminding them of something important that they tend to overlook when they tunnel.

Tunneling gives us a new way to think about financial products. Some financial decisions naturally appear in the tunnel. Someone has an incentive to ensure that you repay your loan or pay your rent. That person or institution, like the assistant, will bring it into your tunnel no matter how tunneled you are. Savings, on the other hand, has no dedicated assistants to care for it, and—absent a behaviorally informed intervention like ours—will end up outside the tunnel most of the time.

Of course, insights about tunneling can also be used to exploit. You might set high late fees and then not remind people of the impending charges. Many of these effects, from reminders to the impact of late fees, will disproportionately affect the poor, since they are the ones who are tunneling—and suffering the consequences—the most.

Reminders, of course, are not limited to money. A busy person will too readily neglect the gym, which is important but never urgent. Signing up for a personal trainer reduces this problem. Now the trainer’s calls bring fitness back into the tunnel. Now going to the gym becomes something that cannot be neglected: a trainer, intruding into your tunnel, is asking when you would like to come work
out this week. The trainer is a constant presence, ensuring that the gym is top of mind.

Impulses, rather than reminders, are also easy to bring to the tunnel. Supermarkets have long understood this. They saw an easy way to make money: place candy bars at checkout counters. The candy intrudes into the tunnel in the form of an immediate urge:
I want chocolate
. Many urges are like this; however important or desirable they may be, they may be out of mind when they are out of sight because they are not pressing. But when they’re in sight, they assert themselves, pushing other impulses—in this case your weight-watching impulses—out of the tunnel.

Given this observation, why not do the same for savings? We did this in another project, with a product we call
“impulse savings.”
Much like candy bars, impulse savings cards are left to hang at prominent locations, such as next to cash registers. They have pictures on them that portray people’s savings goals—such as college, a home, or a car—designed, like a candy bar, to create an urge. Except that when they “buy” these cards, people are actually saving: the dollars they pay get transferred into their savings accounts.

The cards not only combat tunneling by bringing a person’s latent goal to the forefront; they also provide an easy way to act on it—“buy this card”—before the goal fades. In a small pilot program with IFMR Trust (a large provider of financial services to the poor), we found a surprising number of people eager to save in this way. A photo of one’s family occasionally emerging on a busy person’s desktop (irregularly enough to capture attention rather than becoming part of the background) may also work: make something top of mind that might otherwise be neglected.

Reminders can be powerful, yet they are often underappreciated, perhaps because they are so obvious. In 2008,
the Massachusetts Registry of Motor Vehicles
thought of a way to reduce costs. All the letters they were sending to remind people about their soon-to-expire car registrations were costly. So they got rid of these reminders. In a way this made perfect sense, but in light of our analysis, you
can see why it might be foolish. Registrations expire at a fairly random time, solely a function of the last time you registered. Without a reminder, it is hard to remember the date. For the poorest and the most hurried, these reminders were likely the only thing that kept the registration from expiring and risking a ticket for the car owner. In effect, with this simple policy change the state had (inadvertently?) imposed a regressive tax.

Reminders are deceptively simple yet are often overlooked. Policy makers can spend millions of dollars in shaping attitudes toward savings but then fail to incorporate reminders urging people to save. We can spend hefty sums on gym membership yet never stop to consider what to do to ensure that the gym stays within the confines of our tunnel.

Last year, we neglected our savings. In fact, it has been quite some time since either of us has thought about it. What causes this reckless behavior? (One of us even has kids!) Well, it’s actually not terribly reckless. Our savings accounts—from retirement savings to college savings for the kids—have been growing quite comfortably. How did we save without actively saving? The same way most people do. Each of us enrolled a long time ago in a plan that automatically deducts 10 percent from our paycheck. Our savings balances show that we saved a lot, even though our daily behavior suggests total neglect: we spend our paychecks without ever thinking about saving. Automatic deduction allows us to save with full neglect.

This example highlights a simple insight. When there’s neglect, it is often more effective to alter the outcome it leads to rather than fight it. Here is an example with retirement savings. When people in the United States start a new job, they need to fill out a form regarding their participation in a 401(k) plan. Typically, if they fail to fill out the form, they are not enrolled, which can be a recipe for disaster
later in life. But when you have just been hired, with all the turmoil and anxiety that brings, you will often tunnel, and the form will get neglected. In one insightful study,
researchers changed the consequences of neglecting the form
. New employees received a revised form that said something along the lines of: “You are enrolled in a 401(k) at 3 percent. Turn this form in if you prefer not to enroll or to enroll at a different level.” Now, when people neglected the form, they were saving. And better yet, for all those who thought about it and wanted to save, everything was set—there was nothing at risk by forgetting. The results were striking. Even three years later, there was a dramatic difference in enrollment rates. At those companies where new employees had to opt out, more than 80 percent had enrolled in the 401(k) plan. At those companies where new employees had to opt in, only 45 percent had enrolled. Changing the default—what happens when a decision is neglected—can have strikingly large effects.

Of course, there are a lot of tricky policy issues with
someone else
setting your defaults. But in many cases you can set the defaults on your own. Automatic bill pay is a prime example. A busy person who enrolls for automatic bill pay no longer runs the risk—in the tunnel of work—of forgetting to pay her bills. Or, rather, she is free to ignore her bills, but when she does, those bills still get paid. As a result, some of the most persistent tunneling problems for the busy these days—at least for those who have access to modern technology—are those tasks that cannot be automated, like a car registration, a driver’s license renewal, or taxes. Worse yet are those that are not automated and do not have a natural deadline or reminder, like writing a will or getting a medical checkup.

This thinking applies more broadly, to things that are repetitive and predictable. Picture someone working at home and tunneled on a deadline. We know that they will neglect the quality of their eating; they will eat whatever they can find near at hand. In fact, distracted and depleted, they will tend to prefer the less healthy options, those most immediately tempting. With a pantry full of assorted options,
this busy person will end up gaining a few pounds. In contrast, a pantry stocked with only healthy options can insulate the waistline from the deadline.

A recent Bank of America program called
Keep the Change
illustrates a constructive use of turning neglect to good purposes. As the bank explains:

With the Keep the Change program, you can grow your savings automatically. After your enrollment, we’ll round up all your Bank of America debit card purchases to the nearest dollar amount and transfer the difference from your checking account to your savings account. Every cup of coffee, tank of gas, and bag of groceries you buy adds up to more savings for you. What could be easier?

Keep the Change (which has been criticized on other grounds, including low interest and high fees) does one thing very well: it gets people to save
not by trying to curb their impulses to spend
but by harnessing these impulses. People do neglect to save, so this program gets them to save while doing what comes most naturally, namely, consuming.

For a busy professional, going to the gym with some regularity is much harder than signing up for a gym membership. One reason for this is obvious. The pain of signing up does not compare to the pain of stomach crunches or a half hour on the elliptical machine. But there is another reason. You only need to sign up for the gym once, whereas going regularly requires vigilance—doing the right thing again and again. We can think of choices as coming in one of two varieties: vigilance and one-off. Vigilance choices require that we continuously repeat the choice, like going to the gym, saving for a rainy day, eating the right foods, or spending quality time with our family.
Some even require hypervigilance. Miss a visit to the gym and you undo only a tiny bit of your hard work, but skip a dose of certain medications, and things quickly get a lot more serious. Slipping up just once and using your savings to buy a leather jacket can also undo many months of hard work. One-off choices only need to be done once (or at least very infrequently) to get the desired outcome: enroll in automatic bill payment and you are done with worrying about paying bills, buy a washer/dryer and you save a trip to the laundromat for years, enroll in some discount feature with your telephone provider and you take advantage of the savings until further notice.

Especially when you tunnel, it is much easier to do the right thing once than to have to repeat it. Yet so many good behaviors require vigilance: being a good parent, saving money, or eating right. To make matters worse, so many bad behaviors need be done just once to cause the pain: borrowing, taking on an ill-advised commitment, making an unwise purchase. You splurge or take a loan just once, and you have dug yourself a hole for the extended future, a hole that will require vigilance to climb out of.