Archive for September, 2009

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The Power of Conspicuous Consumption

September 8, 2009

The most obvious, and most common, way to think about spending money is that this is an individual decision. Within this broad framework individuals receive pay for the work they have done and then decide how much money should be spent on housing, on clothes, and on discretionary items. Some people spend carefully. Some spend less carefully. And some spend in ways that guarantee financial problems for themselves.

This simple and compact world view has been the basis of many editorials about thrift and forms the philosphical underpinning for many of the questions I get when I occasionally do media interviews on the subject. And this particular narrative does contain some truth.  No less than The Pope has repeatedly warned against the moral dangers of materialism.  And while thrift and materialism are not perfect opposites, my life experience suggests that those who spend their leisure hours emersed in activities other than shopping or plotting how to acquire their next posession are far more likely to handle their money responsibly — to spend and save in ways that are in line with their long-term economic well-being.  It doesn’t always work this way, but often it does.

But this view also has an important ommission that has practical implications for the way we think about spending decisions.  Consumption, and particularly conspicuous consumption, takes on added social meaning when an individual feels powerless relative to others in society.  A Hispanic woman, who speaks English with a Spanish accent, may believe that others who meet her for the first time will assume that she is poor and less educated. How might she compensate for this? She may choose to purchase a Louis Vuitton  handbag or drive a BMW even if she cannot really afford to do so. Expensive luxury brands tell the world “I am not as powerless as you think I am” and they appeal to some segments of the population who can least afford to purchase them.  Look in the mirror. Will people meeting you for the first time assume by your appearance and speech that you are likely to be reasonably successful at life? If the honest answer is “yes” it is easier for you to handle your money responsibly.

Is there evidence of this effect? Yes. A recently published paper,  Desire to Acquire: Powerlessness and Compensatory Consumption, provides some experimental evidence that feelings of powerlessness and the willingness to spend more money to compensate for that feeling are related. 

As we move forward with efforts to teach responsible spending and saving, to understand why some people are better at it than others, we need supplement the common moral narrative with the understanding that the psychological value of conspicuous consumption varies across individuals in accordance with their own self-perceptions of power and position. Lifting up those who feel powerless is more likely to change self-defeating spending behavior than recriminations that make them feel worse than they already do.

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Management by Muddling Through

September 1, 2009

I never sleep very well the night before teaching a case. New cases are particularly hard, but even well-worn cases can wake me up for the day at 4 AM.

Lecturing causes me no such problem. My sleep is sound.

The unsettling issue is one of control. Lecturing allows me to do two things that make my life comfortable. One is to pick material that aligns with my interests, experiences and graduate training. The second is that, relative to a case discussion, I have a much higher degree of control over the flow of the class. It is harder for a student to divert the conversation into an area which might have a great degree of practical importance, but in which my own knowledge is thin. Cases are wide open, messy, and the direction of class conversations can defy even my best attempts at prediction.

When I walk into a class in which I’m going to discuss the analytical technique conjoint analysis I  know that my knowledge of that particular technique is a hundred times better than anyone in the room. When I am going to lead a case where a manager is struggling with a large strategic issue for which there is no neat solution am far less sure of my knowledge.

Control is a warm blanket in the uncomfortable world of the teaching pit. 

Henry Mintzberg has blasted the top graduate business schools for being overly technique-focused at the expense of educating students to muddle through the ambiguity of complex business problems by drawing lessons from their own experiences.  Mintzberg is right, but these problems in business education persist not because of some deeply held belief on the part of the professoriate that management can be turned into a science. They persist because the alternative is hard for professors, expanded preparation time for classes and the occasional sleep-deprived night.

Recently, I had lunch with the CEO of one of the world’s leading civil engineering firms. This company has built some of the world’s most notable and known bridges and tunnels.  They were considering an executive education program at Darden for their top engineers who would be entering senior management positions. I asked the CEO if there was one skill set he wanted to see his people get out of the program. Without hesitation he replied, “dealing with ambiguous situations.”  “My people are smart. If the problem has a solution they will find it. If the problem does not have a solution they are a disaster….and it is killing us.”

They are coming to Darden. They’ll enjoy it, but they’ll find class uncomfortable —- as will I.