Effort is Precious

by

There's a big bias towards skill in our culture -- smart and creative trumps hard work and grinding it out day after day.

We come to rely on our skills and often think too much of them. Studies have shown that most successful people over-rate the part that skill and creativity play in their success.

As for me, it's been all about being the right place at the right time. Sheer luck and accident.

But what about effort? What about the joy of working hard, grinding it out? It can be very valuable. Especially when no one can -- or is willing -- to match that effort.

A few weeks ago, Malcolm Gladwell wrote about a basketball team with no skill to speak of. They won big with sheer effort alone. The kind of effort that drives skilled opponents mad. The kind of effort that no sane person is willing put himself through.

Remind you of outsourcing? The hundreds of thousands in India who can and are willing to grind it out while you spend your time reading the New Yorker? Well, they're just a commodity -- but a very precious one!

In his article "How David Beats Goliath" (New Yorker, May 8, 2009), Gladwell writes:

"We tell ourselves that skill is the precious resource and effort is the commodity. It's the other way around. Effort can trump ability because relentless effort is in fact something rarer than the ability to engage in some finely tuned act of motor coordination."

So what makes a commodity a commodity? What are the attributes that separate a commodity from a non-commodity?

  1. Ease of Access (easy to procure vs. very hard to procure)
  2. Concentration of Supply (single source vs. large number of sources)
  3. Variability
    1. Outcome Variability: If the item is a process, then repeatability of the process (high variance vs. zero variance). Commodities have low outcome variability.
    2. Compositional Variability: If the item is a thing, then the level of purity (pure vs. lots of processing needed to make it pure). Commodities have low compositional variability.
    3. Pricing Variability: How readily can it be componentized (and hence, priced)? (easy to componentize vs. impossible to componentize). Commodities have low pricing variability (not necessarily low price, but low pricing variability)
  4. Marginal Cost of Production (connection of cost to amount): cost of making one more is virtually zero. Small change in production costs for large changes in output. Commodities have low marginal production cost.
  5. Marginal Cost of Labor: labor can be added at virtually zero cost. (E.g. a delivery person gets paid the same amount even when time taken to deliver varies.)

Some Observations

Of these attributes, the central one is 3.3 -- how well can it be componentized. Most often, 3.3, is closely related to 3.2 and 3.1. It is likely that if 3.3, then (3.1 or 3.2), i.e. the latter are necessary for 3.1.

4 and 5 could serve as core criteria as well.

1 and 2 are red herrings -- if you plot a commodity along these dimensions, you'll get a scatter plot; so 1 and 2 don't have any segmentation power.

There is a difference between having a well defined surface structure and being a commodity. Commodities will have a well defined surface structure AND a well defined deep structure. It's the absence of a well-defined deep structure that makes the work of advertising agencies, lawyers, management consultants, and industry analysts non-commodities. For example, take company/industry analyst reports. These are componentizable (it's a specific form factor with particular sections, etc.) and hence have a surface structure, but there's a huge amount of outcome and compositional variability which indicates a lack of deep structure.

The world is such that most segmentation problems have to be tackled this way -- create the net of distinct attributes and then see how much of the right stuff it will catch and how much of the wrong stuff it will let through.

Related issue: segmenting and aligning demand with supply.

If this analysis is right, then a few things follow:

a) a commodity can be expensive

b) a commodity can be rare

c) a commodity need not be easy to procure

d) 5 might indicate that when laborers are readily available and (perhaps, consequently) have no pricing power commodity, the work they do becomes a commodity. There might be a more widespread confusion of commodities with a lack of pricing power. A branding company works to a well-defined goal but has lots of pricing power; a laborer in a South African diamond mine does the same but has no pricing power.

e) commodities are not to be confused with well-defined objectives or end products that result from combining labor and capital. That's why the crux of the definition is 3.3. To call any individual item or thing (or SKU) a commodity is to destroy the distinction.

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