Saturday, December 28, 2013

Scarcity by Sendhil Mullainathan & Eldar Shafir


The Title reads “Scarcity: why having too little means so much?”, It is amazing so much can be written about one single word!. I would say it is moderately researched since it is a new domain. The episodes are carefully chosen. A few new terms like bandwidth scarcity, focus dividend are introduced to drive certain concepts. There are some inevitable repetitions, but I surmise, it would have to happen when you try to explain a new frontier.

Let me summarize the points that strike me well: It may sound far too obvious, not even in retrospect but right away – yet, the value comes from understanding them all over again from Scarcity standpoint with poignant examples they give along the way with some empirical data.

Before embarking on the task,let me cite one case study (not from this book). APSRTC (Andhra Pradesh State Road Transport Corporation) had some of the highest fatal accidents. APSRTC at the time of case study had 23000 buses, 12 million Passengers, and 820Kms/day average. They did one simple thing that resulted in the accident rate dropping from 0.13/Km to 0.09/Km – not a small improvement for such a scale. All they did was to mandate the driver to place the photograph of the driver’s family above the dash board. Come to think of it - It is not that driver is completely oblivious of his/her family. Yet, a gentle reminder at the right time seems to instill a much better and safer driving habit. Authors’ examples would be on similar lines – obvious after it has been told.  I liked all of them!
Now on to some specific points.

1.When a deadline approaches, you concentrate so much at the expense of other priorities and get it done/accomplished. This is called focus dividend. Of course, there is a perverse outcome too – you tend to ignore something that matters to you over the long run.

2.  Carefully crafted incentives can yield disproportionate returns. They cite rural poor who were willing to show up for vaccinations just for free lentils, where absenteeism otherwise was very high.

3. Bad news: You cannot fake scarcity. So if you have lot of time before the deadline, you tend to waste a lot of time before you hit the red button and make it happen. Early abundance encourages waste. 

4. Buffers are extremely critical be it time or money or any other resource. Lack of buffers almost always results in less than optimal and even rational behavior. Buffers are the bulwarks against such risks.

5. Except poverty of real poor, most of the scarcity can be well managed. It is because one cannot simply wish away or take vacation from poverty.

6. Scarcity reduces the bandwidth which in turn can affect the quality of decisions and hence the outcomes

  Note:Point 3 and 4 may seem like a contradiction, but when you read the book fully you can appreciate the contexts better.

Now on to some examples in a very short version - hopefully it has not drained the magic.

1.   St John Hospital was perpetually running over time in operation theaters. Staff were over worked and frequent rescheduling of non-emergency operations owing to sudden inflow of emergencies created havoc. It caused a lot of heart burn and disappointments.When an Operations Research specialist analyzed the problem, he recommended a simple solution. Leave one operating room always free for emergencies.This may fly in face of the apparent load, But it worked very well. Emergencies are broadly predictable and having a buffer to accommodate made improving efficiency very easy.

2.  US military was troubled by “Wheels up” crashes. After landing, pilots would retreat the wheels instead of flaps! To solve this problem, Lt Alfonse, Psychologist by training was brought in. Thankfully, he decided to look inside cockpits before looking inside pilots’ heads. Firstly, this problem was confined only to B-17 and B-25 bombers where the wheel controls and flap controls that are identical were side by side. Hence, it was too easy to make that mistake. Once the design flaw was detected it was easily resolved.

3.  MARS Orbiter Project: Well, it was not meant to make  major discoveries  but was designed to be a spearhead to collect data about MARS at a cost of $125 Million. It was designed to enter the stable orbit of MARS and collect data. Entering the orbit is an intricate business – you have to do it with extremely precise speed and angle. Enter too slow, gravity catches up and there would be a crash. Enter too fast, you will skate away from the orbit forever. Orbiter did not make it to the stable orbitL. Aftermath, scrutiny followed and it turned out the subcontractor for the module assumed the British system of units whereas rest of the system was in SI units. Owing to the last minute rush (time scarcity because you cannot change any celestial schedules!)  and so testing was overlooked), the whole project failed.

There are other good business examples related to Benihana Hotel Chains, Chevy’s restaurants and about FORD’s insight on productivity. My favorite is “Poor bees and rich wasps ”.

American Philosopher, Eric Hoffer observed, “The most gifted are at their creative best where they cannot have their way”. Not necessarily only the gifted. When pushed to the corner, most of us also can become creative provided scarcity is transient (poverty not included). Sometimes one has to evaluate by being resourceful rather than full of resources.

Thanks for reading this far…..

Regards,
madhu

14 comments:

balaji rengabashyam said...

Madhu,
Thought Provoking analysis of a Book on an aspect Covering all walks of Life.
I am able to relate so many of the Activities of a small Operation like mine (engaged in Custom made Products) to effective utilization of Scarce Resources - Manpower,Money Power & Machine Power.
With wildly swinging, unpredictable Business Flow(Varies up to +/-40% from average) making the right Choice of the above Resources has been Paramount for Survival. To Optimise Resources has never been simple leading to "Fire Fighting" situations most often.
Balaji Rengabashyam,
Coimbatore.

பகலவன் கிருஷ்ணமூர்த்தி said...

Thanks Madhu for sharing the essence of the book. Great examples, though some of them remind me of "Outliers by Malcom Gladwell". Interesting concepts on scarcity management. Will check it out for a holiday reading sometime. Thanks again.!!

Ramki Krishnan said...

Good write-up Madhu. Especially the examples you have cited are really interesting, and made me want to read the book :)
Wonder if they included the (possibly apocryphal) story of how the Russians solved the problem of capillary flow in outer space, by simply using a pencil?!

Ramki.

ananth said...

madhu,
the apsrtc idea of putting a family foto in front of the driver can backfire badly.what if the thought/sight of the wife sends the driver into a rage,he is likely to push the accelerator pedal to the floor.god save the oncoming traffic.
regards.

Madhu Parthasarathy said...

Hi Ramki
Thanks for your response. There were no apocryphal stories. all examples are real life stuff. It also includes author's experience at Chennai - koyammedu to be specific
regards
madhu

Madhu Parthasarathy said...

Hi Ananth:
That is an interesting thought. It so happens that the experiment worked out well and hence I chose to cite it.
I surmise, over a period, your theory might have happened because when I checked a few buses recently they did not follow this process.

You seem to have a good prescience.
Congrats!

regards
madhu

Mukund Srinivasan said...

Good post, to round off the year, given it's the cyclical window of introspection! The first thought that came to mind was the supply vs. demand equation be it in any walk of technology, or life in general. If Supply exceeds demand, it results in abundance and possible devaluation whereas the other side of the equation has a far bigger connotation in the form of "scarcity", with far reaching impact. Such is the law of nature, I guess.

padmini ranganathan said...

The supply/demand nature cited in a comment hits home. Many studies around scarcity has been done when the JIT concept got widespread in the '80s. Earliest notes on scarcity - of course around food/agriculture and the micro-economy of rural living - was done by Sir Edmund Burke back in 1795. You should read his Thoughts and Details on Scarcity http://www.econlib.org/library/LFBooks/Burke/brkSWv4c4.html My personal view is that living with scarcity is better than living with excesses...

Madhu Parthasarathy said...

Hi Padmini
Thanks for your comments.

Would read the link and get back.

I like your parting personal view on scarcity.It reminds me Spike Milligan remark "All I ask is a chance to prove that money cannot make me happy!"

Cheerz
madhu

P.Varadarajan (Varad) said...

Madhu, without cocking a snook at the book or its authors, I must say `scarcity' must be one of the easiest subjects to write about, simply because it is probably as old as Noah's ark (remember he had to choose for lack of space?). In my opinion, the focus contextually has always been on `solutions' born out of the inventiveness of those involved and the examples cited by you from the book just prove the presence or absence of that inventiveness, I guess. I think there should be a clear distinction between the life-searing scarcity of resources (poverty) and all other scarcity faced for instance by corporate managers (time, people and the like). At the end, though, whoever succeeds and flourishes, using his skills and spirit becomes the ultimate hero!

Varad

Suresh S said...

Nice writeup Madhu.

As with all anecdotal evidence we can argue for or against it. Projects have been successful where there is a scarcity and they have been successful when there is abundance. Infact lot of projects need abundance to succeed. While we can understand why scarcity will force us to innovate we must also remember that scarcity is not mandatory for innovation :)

Ramesh N Raghavan said...

Thanks for the good summary Madhu.
I probably have to read the entire book to get the context of the examples you have quoted. If the main message of the authors is that scarcity is good to have, I am not able to connect the example of the Mars mission as time scarcity seems to have led to the failure of the mission. The jet bomber example also seems to more belong to a design issue instead of scarcity on the face of it. Probably time scarcity led to poor review of the design, but that again does not support the argument that scarcity is a good thing. St. John's hospital is more about scheduling higher priority activities and not really scarcity I thought..
I also think the term focus dividend is another way of expressing what we used to call as the milestone effect in our project management training and how intermediate milestones are essential to ensure project progress. I remember phrases like "work expands to fill all available time" etc which is what the authors are stating in a different manner.
Also, I feel scarcity is artificial in many contexts, especially corporate contexts, like the intermediate milestones to push project progress. These are often not hard ones and get negotiated. But real time scarcity as in the. Mars mission due to celestial constraints seem to create problems.
I agree some amount of scarcity may induce resourcefulness and may be good from that perspective. If abundance leads to wastage inevitably then probably creating some artificial scarcity may be useful. As you and other readers have pointed out, real absolute scarcity like abject poverty is of a different kind altogether.

Mohanakrishnan said...

Madhu,

Thanks for the write-up.
In the context of NRR's comments, here is what I understood. It is not about scarcity being good or bad. Where scarcity is managed well, it will work for you. Where it is not managed, it can turn out very unpleasant surprises.
It definitely provides a new way to look at your plan, and some insight in to the new lifecycle models where you encourage daily targets and commitments.

ESR said...

It is one of those books that tell you what you know in such a compelling fashion that you feel you are realizing it for the first time; laced of course with very interesting and quotable anecdotes. You are right when you say that most of us become very creative when pushed to the corner. I have had an interesting experience to share in this context.

We had a major technical problem once, which defied solutions at the hands of some of the best Designers in the Industry. Unfortunately, as the CEO of the Unit I did not have the option of accepting this failure as it involved commissioning of a major Project. The meet on this was winding through the day with no apparent result. Towards the evening I realized that the team needed a shock. I told them that they will continue with the meet uninterrupted until a solution is found- no time limits and no going home. I promised them that all necessary arrangements will be made to take care of their personal needs- food, beds and even a TV. They can however go home only when the mission is accomplished. It was really an experience watching the interaction of the team under this unprecedented stress. It took them a couple of hours for them to realize the gravity of the situation. By 7PM, they started coming round to really ‘out of the box’ solutions; the workable one was finally found by mid-night. This shows that even the best do not know what they are capable of producing until they are pushed to face ‘real scarcity’, as this book calls it.

I found parts of the book so useful in our present line of work, that I ordered another copy and have had it circulated. That should sum up my opinion of it more effectively. Incidentally, I found your blog to be as good as the book in some ways ☺ Hats off…
Ramamurthy