Archive for October, 2008

The Economist Stole My Idea!

Tuesday, October 14th, 2008

Well, not really, but the similarities are uncanny…

From my September 26 post, Climate Change and The Winner’s Curse:

…the research on the rate and reach of climate change, even if it’s all done by good scientists using sound data-collection and analysis, is likely to result in findings that fall along a distribution. But while the truth of the matter is likely found in considering the distribution as a whole, the findings on the ends are going to be the ones that stick out to journal editors as the most interesting to prospective readers….

Let’s say there’s an auction of a good with an objective but unknown value (think fields for oil drilling, not a painting that each prospective buyer will value differently). Each buyer will estimate the value differently. Maybe they’ll each hire someone to professionally survey and appraise the good. The real value is probably around the mean estimate, but it’s the buyer with the high estimate who will buy the good, thinking the others suckers for passing on such a valuable purchase. But that buyer will almost certainly have over-valued the good. In an auction like this, you don’t want to be the winner.

Similarly, science journals are buying the articles that most highly estimate the costs of climate change — but they might be overpaying.

From an article in the current issue of The Economist, Publish and be wrong:

IN ECONOMIC theory the winner’s curse refers to the idea that someone who places the winning bid in an auction may have paid too much. Consider, for example, bids to develop an oil field. Most of the offers are likely to cluster around the true value of the resource, so the highest bidder probably paid too much.

The same thing may be happening in scientific publishing, according to a new analysis. With so many scientific papers chasing so few pages in the most prestigious journals, the winners could be the ones most likely to oversell themselves—to trumpet dramatic or important results that later turn out to be false. This would produce a distorted picture of scientific knowledge, with less dramatic (but more accurate) results either relegated to obscure journals or left unpublished.

More accurate, perhaps, than saying “The Economist Stole My idea!” would be to say “The Economist reported on scientific findings that support ideas I discussed!”

Starbucks Baristas and Incentives for Store Activity

Monday, October 13th, 2008

Yesterday evening, I went into my favorite Starbucks for a drink and got to chatting with one of my favorite baristas. She was exhausted; there had been Oktoberfest festivities all day around Harvard Square, and so Starbucks was packed all day. (As my barista put it, the endless alcohol consumption was making people tired, so they’d come in for coffee then go back to their drinking.)

I was a bit puzzled and asked whether increased store activity didn’t have any upside for them — after all, it’s the baristas who have to stay cheerful and diligent while ringing up long lines of customers and making drink after drink.

Nope. Their salary stays the same no matter how busy the store is. And, though at one point an all-day rush would’ve left the baristas flush with tips, these days almost everyone pays with a credit card; there’s little change changing hands — and even less being dropped into the tip jar.

Long gone are the days when “Kristina Doran, who works behind the counter at a Starbucks in SoHo, said she has been known to take home an extra $160 a week in tips.” That was 2002, when the New York Times reported on the rising trend of ubiquitous tip jars.

And Starbucks has been having a lot of tip-related trouble recently. In March, as described by columnist Connie Schultz (no relation to Howard),

A California judge has ordered Starbucks to pay more than $100 million to its low-wage coffee servers, called “baristas,” after ruling that the company violated state law in allowing supervisors to share in the tip pool. The decision applies only to California but could influence tip jar policies across the country….

Starbucks called the decision “fundamentally unfair and beyond all common sense and reason.” Interestingly, many Starbucks employees — including baristas — agree, which is why this is more complicated than the typical management tip-skimming maneuver. Baristas insisted to journalists, including me, that their supervisors often brew coffee and wait on customers just like they do.

“I can’t hire or fire anybody,” one supervisor in the Cleveland area told me. “The only difference between me and a barista is that I count the money and I have keys.” Supervisors also reportedly make $1 to $2 more an hour. I don’t know for sure because no one at Starbucks’ corporate headquarters would talk to me.

My barista and I agreed that without substantial tips, the baristas’ incentives suggest they should want fewer customers: they’ll make the same income and won’t be overwhelmed with long lines and piles of drinks to be made.

As I sipped my mocha, I got to thinking about why this struck me as strange, and about what the possible alternatives are.

First off, it’s plain odd, with Starbucks refocusing its corporate energies on the quality of their coffee and of each drink made — with promises that if your drink isn’t perfect, your barista should gladly make it again — that its payment structure shouldn’t align with this goal.

Think about it: when making a drink, the barista has an incentive to make it satisfactory, so that the customer doesn’t ask him to make it again. But, unless he has an incentive to make sure his location is packed with customers, he doesn’t have any extrinsically-motivated reason to make the drink great enough that the customer will definitely keep coming back.

The same is true for the customer’s general experience. A barista has an incentive not to make the customer have an unpleasant experience, because that could reflect negatively on her job performance and could lead to disciplinary action; but, she doesn’t have an incentive to make the customer experience so positive that people flood the store. (I’m assuming, as my barista suggested, that tips won’t increase markedly enough to justify this extra effort.)

(Sidenote: I’m talking pure economic incentives. I know firsthand that most baristas are wonderful people who want to make each customer thrilled with being at Starbucks even though they don’t necessarily benefit financially from that extra effort.)

The bottom line is that the corporation does nothing to make baristas excited rather than grumbly about a crowded store. That can’t be good for business.

As I reached the middle of my mocha, I started to wonder about how this payment scheme jibed (or didn’t) with similar service industries — a thought experiment that served to highlight how unique the Starbucks barista job description is.

On one hand, we could compare being a barista to being a cashier at a grocery store, perhaps someone who also walks the floor restocking shelves. There’s no incentive for this person to have a busy store, but his actions generally don’t reflect powerfully on the customer experience. And it doesn’t take much skill or training to ring up customers.

At Starbucks, the customer experience is almost completely determined by the baristas: how friendly they are, how well they make the drinks, how much they make you want to come back. This importance is reflected in the training baristas get and in their being called “partners” by the company — I don’t think Food Emporium feels so strongly about its employees.

It makes sense for the former that their pay isn’t tied to store activity, but it doesn’t make sense for Starbucks baristas.

On the other hand, we could compare being a barista to working at a clothing store. They spend some time simply ringing up customers, but they also spend time doing more skill-and-time intensive work: finding clothes for customers, ensuring that sure store is in order, making the customer happy and ready to purchase. This extra effort — akin, it seems, to the skill and time needed to make drinks to customer satisfaction — is rewarded with a commission on clothing sales for which there is no analogue in the Starbucks world.

Moreover, Food Emporium can see when it’s going to be busiest and simply employ more cashiers during those shifts. Same for Banana Republic and its staff. But there’s only so much room behind the counter and at the espresso machines at a Starbucks, and so the variance in employees from shift to shift is necessarily small. When the store is especially busy, then, the brunt of the extra work falls directly on those baristas’ shoulders.

It seems pretty obvious that given the kind of work baristas are doing and the close relationship of that work to customer experience — and thus to store activity — the baristas should be incentivized to want the store busy by more than the skimpy possibility of tips.

As I reached the last few sips of my mocha, I wondered: how can this be done?

Above the base rate salary for baristas, there should be performance bonuses that come with increased store activity. If Starbucks has data on the revenue from each location, it can presumably see when a given location sees its activity increasing (perhaps above predictable seasonal changes in activity) and then reward the baristas accordingly.

And workers on shifts that face especially overwhelming crowds should be compensated for bearing that burden with grace and discipline. This salary bump would show that the corporation really does care about the effort of its partners.

In general, Starbucks is a good employer. As Shultz wrote in March:

Starbucks was the first major U.S. company to offer health care coverage to some part-timers. It also offers tuition reimbursements and a 401(k) program. That’s a high standard I wish more companies would meet.

But Starbucks has its problems with workers, too. Earlier this month, the company agreed to pay an undisclosed benefit to about 350 managers in Texas who claimed they were forced to work off the clock.

And now there’s this business with the tip jars.

Starbucks supervisors work hard, and they should be paid for their efforts. The company should stop relying on customers’ generosity to compensate them adequately. (emphasis mine)

No matter how uniform and involved corporate policies are, the personality of each Starbucks location is resolutely in the hands of its baristas.

As such, baristas should be rewarded financially for making their locations especially fun, welcoming, delicious places to be.