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How To Make Better Decisions
In 1997, executives running the debt collection division of Chase Manhattan Bank began wondering why a particular group of employees in Tampa, Florida, were so much more successful than others in convincing people to pay their credit-card bills. Chase was one of the largest credit-card issuers and, so, was also one of the largest debt collectors. It employed thousands of people, in offices all over the country who hustled, debtor after debtor, about overdue bills.
          
This was one of the toughest jobs to accomplish and Chase tried to make the work easier by giving its employees tools to help them convince debtors to pay, writes Charles Duhigg in his new bestseller, Smarter, Faster, Better, a book on how to be more productive. The debt collectors had a computer screen full of data (debtors’ age, how frequently they had paid off their balances, how many other credit cards they owned, etc) that would help in creating the appropriate pitch. This was backed by training sessions and daily meetings that discussed what was working and what was not. But there was not much improvement in their collections. 
 
So, why was this team in Tampa, led by a manager named Charlotte Fludd, an evangelical minister by training, was collecting larger-than-usual amounts? Charlotte had started out as a debt collector herself and had worked her way through the ranks, until she was overseeing a group responsible for some of the hardest accounts—debtors who were 120 to 150 days overdue. Usually, those who had fallen back that much almost never paid off their balances. However, Fludd’s group was collecting $1 million more per month than other groups. What’s more, the group was among the highest in employee satisfaction scores. Even the debtors they collected from, in follow-up surveys, said they had appreciated how they had been treated. 
 
Fludd was asked to speak at the company’s regional meeting. The unexciting title of her talk was “Optimizing the Mosaic/Voicelink Autodialer System”. The room was packed, writes Duhigg. How would the Tampa employees schedule the call, asked one manager? From 9:15am to 11:50am, she explained, the collectors called people’s home numbers because they were more likely to reach a wife taking care of the kids. Women were more likely to send in a cheque, Fludd said. “Then, from noon to one thirty, we call debtors’ work numbers,” Fludd explained, “and we get a lot more men, but you can start the conversation by saying, ‘Oh, I’m so glad I caught you on your way to lunch,’ like he’s real important and his schedule is busy, because that way, he’ll want to live up to your expectations and he’ll promise to pay. Then at dinnertime, we call people we think are unmarried because they’re more likely to be lonely and will want to talk, and then right after dinner, we call people whose balances have ballooned up and down, because if they’ve already had a glass of wine and they’re relaxed, we can remind them how good it feels to start paying the card off,” narrates Duhigg. 
 
Fludd had many such tips. “She had advice on when to use a comforting tone (if you hear soap operas in the background), when collectors should reveal personal details (if the debtor mentions kids), and when to deploy a stern approach (to anyone invoking religion),” writes Duhigg.
 
All this sounded great but the managers didn’t think their employees would be able to use them, since the average debt collector had just a high-school diploma and they were into their first full-time job. “They weren’t going to be able to pay attention to what television shows were playing in the background or listen for religious references. Simply having a phone conversation with a stranger about a sensitive issue like an overdue bill was overwhelming enough. The average collector couldn’t process additional information while conducting a call.” 
 
Why was Fludd so effective with her colleagues? She didn’t have too many convincing answers. So, Chase hired a consulting firm to examine her methods. When the consultants grilled her, Fludd wanted to show them her ‘calendar’. It wasn’t a datebook or journal. Instead, these were big binders of pages filled with numbers and scribbled notes. “One day, I came up with this idea that it would be easier to collect from younger people, because I figured they’re more eager to keep a good credit score,” she said. 
 
It was common among the staff to come up with theories. “Typically, these ideas didn’t make much sense—at least, at first. In fact, the ideas were often somewhat nonsensical, such as the suggestion that an irresponsible young person who is already behind on her debts, for some reason, would suddenly care deeply about improving her credit score. But that was okay. The point wasn’t to suggest a good idea. It was to generate an idea, any idea at all, and then test it.”
 
The next day, they started calling people between the ages of 21 and 37. There were no changes. The next morning, Fludd changed one thing: She told her employees to call people between the ages of 26 and 31. The collection rate improved slightly. The next day, they called a sub-set of that group, card-holders between 26-31 with balances between $3,000 and $6,000. Collection rates fell. The next day, they called card-holders with balances between $5,000-$8,000. Collection rates spiked. In the evenings, before everyone left, managers printed out logs and circled which calls had gone particularly well. That was Fludd’s ‘calendar’: the printouts from each day with annotations and employees’ comments, as well as notes suggesting why certain tactics had worked well. Some more testing and Fludd determined that her original theory regarding young people was no good. 
 
“But as each experiment unfolded, workers became increasingly sensitive to patterns they hadn’t noticed before. They listened more closely. They tracked how debtors would respond to various questions. And, eventually, a valuable insight would emerge—like, say, it’s better to call people’s homes between 9:15 and 11:50 in the morning because the wife will pick up and women are more likely to pay a family’s debts. Sometimes, the debt collectors would develop instincts they couldn't exactly put into words but learned to heed nonetheless. Then someone would propose a new theory or experiment and the process would start all over again,” writes Duhigg. Charlotte would only change one thing at a time. Therefore, she understood causality better. 
 
“But something else was going on, as well,” writes Duhigg. “By coming up with hypotheses and testing them, Fludd’s team was heightening their sensitivity to the information… The spreadsheets and memos that they received each morning, the data that appeared on their screens, the noises they heard in the background of their phone calls—that became the material for coming up with new theories and running various experiments. Each phone call contained tons of information that most collectors never recognised but Fludd’s employees noticed it, because they were looking for clues to prove or disprove theories. They were interacting with the data embodied in each conversation turning it into something they could use. This is how learning occurs. Information gets absorbed almost without our noticing because we are so engrossed with it.” Fascinating stories like these are replete in this book.
 
There is a wave of new books on personal productivity and how to improve performance. Unlike the self-help books of a few decades ago, the new books combine behavioural economics, fascinating anecdotes and reams of scientific research on psychology and neuroscience. A few months ago, I had reviewed the book Peak which argued that talent is not innate; parents can teach their kids to be exceptional. Duhigg himself had, earlier, written a bestseller, The Power of Habit, which explained how routines are formed and can be changed. A lot of successful people find interesting short-cuts to higher productivity. Have you noticed that Barack Obama wears only grey or blue suits? He does this to cut down the choices he has to make each day. Scientific studies have shown that you need to focus your decision-making energy for bigger things for which you need to ‘routinise’ the smaller things. 
 
This book has eight chapters, each focusing on a single idea about how to increase productivity; each chapter narrates multiple stories to illustrate the theme of the chapter. While this book is a terrific read, it could blind you to what is called a narrative bias and self-selection bias. The author has selected specific successful stories to illustrate his thesis. How do we know that the cause-and-effect embedded in the specific stories is repeatable? The great ‘story’, or the appealing narrative, blinds us to other less attractive ways the story could have ended. Duhigg ends his book with “A Reader’s Guide to Using These Ideas” which has some practical tips. A very enjoyable read. 

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SURESHWARAN PARAMESHWARAN

5 months ago

https://www.equitymaster.com/5MinWrapUp/detail.asp?date=02/06/2017&story=3&title=An-Idea-That-Snubs-Minority-Shareholders&utm_source=homepage&utm_medium=website&utm_campaign=top-articles&utm_content=link

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