April 19, 2014

Mental Model: Social Loafing

Charlie Munger Mental Models

Charlie Munger recommends that you view the world through so-called "mental models" to help improve the quality of your life and the effectiveness of your endeavors, whether you are helping a charity or managing a business. My personal definition of a mental model is, "a basic psychological, mathematical or scientific truth that if understood can be harnessed for great good or evil." Today's mental model is social loafing.

If you were starting a project or business, common sense would tell you that you could produce 5x as much output if there were five people working on your goals than if there were just one person.  If you are running a counseling program, ten counselors should be able to do 10x the work as a single counselor, right?  If you are starting a candle company, twenty employees should be able to produce 4x the work as five employees, right?  If you are a mom cleaning out a garage, you should get more done with your three kids helping you, right?

Wrong.  This is one of the rare areas where common sense miserably fails because it is coming up against a powerful psychological force that is hardwired into humans after thousands of years of biological adaptation.

It turns out, that as you add people to a group, although group effort in an absolute sense increases, individual effort falls off a cliff due to a psychological phenomenon known as social loafing.  This means that a group is almost always, by default, operating at far below its maximum capacity, whether you are baking bread, manufacturing widgets or building houses for the poor.  Much organizational behavior can be understood when viewed through the lens of this particular mental model.

The good news is that there is also a solution to social loafing but it requires you to put in very specific systems in place to combat its powerful, subtle influence.

By learning to fight social loafing, you have a chance at drastically improving productivity and results for any project you manage.  This has significant ramifications for anyone who is starting a business, running a company, helping a charity, working with a church, building homes for the poor, trading commodities, running a training program or undertaking any activity that requires the cooperation of people.

The Two Keys to Social Loafing

Psychologists have proven that humans are wired for social loafing in virtually all activities.  The first, and most famous, test involved a tug-of-war contest where they were able to isolate and measure the effort of individual “tuggers” pulling a rope by themselves and then, later, with a group.  It turns out that when people were added to help tug on a rope, individual effort fell by 18% to 66%, a massive loss of productivity.  Furthermore, all of the original “tuggers” believed they were pulling just as hard with the team as they had been on their own.

These results were replicated with numerous activities including typing, brainstorming new ideas, clapping, editing, pumping water, shouting … you get the point.  This led scientists to two conclusions about social loafing:

  • The more people you put into a group, the less individual effort each person will contribute
  • When confronted with proof that they are contributing less, the individuals in the group refuse to believe it because their brains have convinced them that they are contributing just as much as they would have if they were working alone

These results aren’t surprising when you think about the role of evolutionary biology.  Work, both physical and mental, takes effort.  Effort takes energy, which requires calories to be expended.  When food was scarce, as was the case for much of human history, the people who put in less effort in a group were more likely to survive.  Also, by removing individual accountability, people don’t feel compelled to fix errors.  As Warren Buffett has said, “no one lemming ever feels responsible for walking off the cliff.”

How to Combat and Conquer Social Loafing

In a fantastic book The Millionaire in the Mirror, author and executive Gene Bedell posits that to eliminate and combat social loafing you need to follow a few, distinct steps:

  • Figure out and clearly articulate the role each individual person plays in achieving the primary goal of the organization and have everyone know their area of responsibility.
  • See to it that everyone has specific, short-term, deliverable and measurable goals that are directly tied to his or her area of responsibility.
  • Measure every person against his or her individual performance relative to these measureables.
  • Reward individual performance based upon objectively measurable criteria.

For example, say you were starting a candle company.  You have five employees: Jane, Tom, Jones, Bruce and Eric.  Instead of merely having each of them work on making candles all day, you may say:

  • Jane is responsible for buying all supplies and working within a specific budget.  The per cost unit of each candle in raw materials cannot exceed [x] price.
  • Tom is responsible for sterilizing and prepping every glass jar prior to being filled with the scented candle wax.  He is expected to get 100 jars per hour prepared and handed off to the next department.
  • Jones prepares the candle recipes and gets the consistency perfect.  He is expected to produce [x] gallons of finished, flawless scented wax each day with an error rate of no more than [y] percent, as measured by the wasted materials.
  • Bruce is responsible for filling 1,000 candle jars with wax and “setting” them for cooling.  He should have an error rate of no more than [x]% each day.
  • Eric must box all candles produced by the staff that day.  (Since everyone else has measurable objectives, it would be possible to estimate the total candles boxed per hour for Eric to measure his productivity).

Using this system would enable a manager to identify immediately and specifically where any problems originated and solve them.  If Tom isn’t sterilizing at least 100 jars per hour, everyone in the organization will know in near real time that he is failing and not being productive enough to justify his job.  (Of course, in a real-world environment, you would need some quality control safety valve to ensure that people were meeting your expectations for minimum standards of excellence, but that goes beyond the scope of this topic.)

The Compensation System or Reward System Should Be Tied to Individual Performance

The compensation system or reward system should provide significant incentives for those who exceed their productivity benchmarks and significant punishments, or disincentives, for those who fall short.  That way, personal politics doesn’t play a role in deciding whether or not someone gets a bigger paycheck.  It all comes down to how well they do their job, they know they have absolute control over their own output, and everyone realizes the system is fair.

The psychological damage caused by arbitrary reward systems can take a business down quicker than a lot of other problems because it demotivates staff.  But in a system designed to combat social loafing, with measurable results and compensation systems tied to achieving those results, the organization itself becomes productive because those who complain about their paychecks are likely to hear nothing but, “it’s your own fault!” from their coworkers.

An interesting way to make the group work as a whole is to add a “bonus pool” on top of the individual performance incentive that draws from overall organizational results.  For example, perhaps something like 10% of the company’s profits could be put into a profit sharing plan but each day the candle factory doesn’t meet its stated output goals, the profit sharing bonus pool falls by 1/10th of 1%.

In this case, if Tom isn’t sterilizing jars fast enough, the entire organization will turn against him and force him out or demand his replacement because those who are doing their job and doing it well won’t allow a slacker to lower their paycheck.

As a result, the business becomes self-regulating in a sense because you are harnessing individual desire for a better family life in a way that results in more profit for the owners, which means more jobs, more taxes, and a better economy.