The team around you

Back in 2016, footballer Oscar, then of Chelsea, was bought by Shanghai SIPT for a (then whopping) GBP 60M, with a salary of about GBP 20M a year.

Around the time the deal got announced, we were having our 10th year reunion at IIMB. During that a professor told us that one reason Shanghai had to pay Oscar so heavily was the quality (or lack thereof) of teammates he would have to deal with in Shanghai. He was then playing for Chelsea, who had won the Premier League in 2015, and would win it again that season (2016-17). And he was leaving that quality of teammates to join unknown teammates in China, and that meant he would have to be compensated heavily.

During and after last nights’ Manchester Derby, a friend and I were talking about Andre Onana, now the Manchester United goalie. Onana has been an extremely promising goalkeeper, excelling for Ajax and Inter (apart from one doping ban). He is a brilliant sweeper keeper (one reason he got chucked out of the Cameroon national team during last year’s World Cup), adept at playing with his feet and with great positioning sense.

And who does he have in front of him at ManYoo? The former Leicester defensive pair of Harry Maguire and Jonny Evans! They absolutely lack pace which means they can’t play a high line. That means Onana’s sweeping skills are grossly underutilised, and he ends up getting judged based on his shot-stopping skills, where he is nowhere in the same league as his predecessor David De Gea.

When we get into organisations, things we evaluate are the kind of work we do and what we are getting compensated for it. The thing we tend to overlook is who we need to work with, and whether they will elevate us or drag us down. Sometimes, the organisation (like Shanghai SIPT) recognises that you have to put up with suboptimal colleagues, and thus pay you a premium for your services.

Often, though, the organisation will be more like ManYoo, which doesn’t really recognise that the team around you may not be optimal for your playing style. And not everyone is willing to accept a premium in exchange for suboptimal colleagues. So, if you end up like Onana, you are not only frustrated because of the quality (or lack thereof) of your colleagues and peers, but you also end up getting judged on axes that are not your strengths (and what you have NOT been hired for).

Over the last decade, hiring at Manchester United has been curious, to say the least. There have been half-hearted attempts at changing the playing style, and almost everyone brought in to play the new style (I assume Erik Ten Haag wanted to play a more high-press style when he bought Onana) has been frustrated and unable to perform to potential.

Related to this, going back to something I’d written earlier this year, every company has an optimal rate of attrition, which is non-zero. If you end up paying too much of a premium to loyalty, you risk stagnation. If your Onana has to put up with Maguire and Evans, he won’t perform to potential. And then you go back to setting up the way it is optimal for Maguire and Evans.

A culture of thinking and differentiated services

In a very interesting Op-Ed in Mint this morning, Anurag Behar argues against vocational training at the school level, arguing that the purpose of school education is to enable children to think, and that the ability to think is paramount in offering superior services.

He gives the example of a welder who understands basic geometry and the mechanics of metals, saying such a welder can offer superior services to one who has just been trained in welding. Thus, a welder who had been through school and thus understands the basics of geometry and mechanics can do a much better job as a welder than one that has just learnt how to weld.

Now, while this culture of thinking is important, another important pre-requisite is the culture of differentiated services. The question we need to ask is if the market here is mature enough to pay a premium for the welder who knows geometry and mechanics compared to an illiterate welder.

Intuitively it makes sense – an educated welder is likely to be more careful in his work and is likely to offer much superior quality. However, what I’m not so sure of is that the market in India is currently mature enough to recognize this increase in quality and thus pay a premium for such services. And unless the market matures to pay a premium for an educated welder, an educated person will choose a career other than being a welder and we will be only left with uneducated welders offering poor quality.

Differential levels of service

On Wednesday I had to send a package to Mumbai by courier. I walked over to the nearby DTDC office and was told that I had two options – i could pay Rs. 85 for “standard courier” or Rs. 180 for “next day guaranteed delivery”.  I asked the guy at the counter when the courier would be “cleared” (i.e. leave the booking office) and he said “this evening”. Assuming that courier gets sent by flight, it would reach Mumbai the next day, so it made me wonder what would take a courier longer to  reach.

I’m reminded of this famous story of HP (or was it Xerox? Or Epson?) adding an additional component to their printer to slow it down so that they could sell it as an “economy model”. The problem with offering differential levels of service in what is essentially the same product is that you know that the service provider has an incentive to willfully offer mediocre service when you go for the cheaper option.

Let us get back to courier, and assume that it is theoretically possible for DTDC to deliver my courier to Mumbai in a day. Suppose they start delivering most “standard” (Rs. 85) packages the following day, then people will have no incentive to go for the “premium” (Rs. 180) service! Because a “premium” service exists, they actually have an incentive to provide poor service for the “standard” package.

It is a similar case with Indigo’s “fast check in” counter at airports. For Rs. 200 you can skip the lines in the airport and go to a special “fast check in” counter. There is the same conflict of interest there – if the regular check in counters were efficient and there were no long lines, there would be no incentive for anyone to go to the “fast check in” counter. So if Indigo has revenue targets for the fast check in counter, it makes sense for them to make the regular check in more inefficient and create longer lines.

Coming back to DTDC, how is the market likely to react to their premium service? Let’s say that I’m someone who regularly sends couriers (but not regularly enough for me to have a deal with DTDC). I’ve been using the “standard” package so far. Most of my letters arrive in Mumbai the next day but a small number (let’s say 10%) take two days to arrive. Now, DTDC introduces the premium package, but I continue using the standard package. What do I see now? Rather than 90% of the letters arriving the next day, only 10% do, and 90% take longer (in line with DTDC’s revised incentives). It is likely that I’ll either start using the premium service or I’ll move to another operator.

The ostensible reason for DTDC introducing an “overnight guaranteed” courier service is easy to see – earlier, 90% of the packages were arriving in a day, and now they guarantee that it is 100%. The problem, however, is that the company will soon want to target increased sales of this “premium” service, and so will start taking steps to prevent the “standard” service from “cannibalizing” the premium sales.