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Fri 28th Apr 2017 - Friday Opinion
Subjects: Developing mentally tough managers, the Veblen effect and cash is no longer king
Authors: Chris Edger, Glynn Davis and Sam Lowe

Developing mentally tough managers by Chris Edger 

During the past eight years I have taught and coached more than 700 managers and executives – many of them from hospitality organisations – on our post-graduate multi-unit leadership programmes at Birmingham City University. During that time, we have measured their levels of mental toughness using the MTQ48 psychometric test, highlighting specific areas they can focus on to improve their impact and effectiveness.
 
Two things stand out from the tests. First, the different sexes have differing development needs; poor emotional control stands out as the main issue for men, while lack of confidence is the Achilles heel for women. Second, aggregate MTQ48 scores for all candidates have slipped over time. Why? Judging by feedback in our classroom and coaching sessions the enormous stress and pressure of being in the “squeezed middle” is intensifying rather than diminishing.
 
However, during this period a number of our students have won operations and business manager of the year awards from the Association of Licensed Multiple Retailers (ALMR), with a fair proportion progressing into senior positions within the industry. Delving into their MTQ48 data, we discover their psychometric scores were higher than the mean. They possessed more resilient characteristics! So what stood out about them and how can mental toughness be developed?
 
In addition to obvious factors such as a positive mindset and surrounding themselves with like-minded people radiating energy, three things characterise mentally tough managers:
 
Battle hardened: The toughest steel is forged in the fiercest flame! Mentally tough managers have either consciously or inadvertently confronted and overcome adversity. They have been forced to operate outside their comfort zones, conquering tasks that had previously filled them with deep feelings of anxiety, apprehension and fear. This has given them confidence, making them far more courageous than their contemporaries. They have greater mental capacity to take on new challenges, coupled with an expectation and mindset that they will succeed.
 
Self-aware: These winners also possess a degree of self-awareness that enables them to recognise and defuse negative thoughts and behavioural patterns. They are able to disrupt and reframe negative “internal conversations” that threaten to immobilise and incapacitate them. This enables them to exercise far greater levels of emotional self control than their peer group, meaning they can concentrate on action and solutions rather than obsessing about setbacks, “noise” and distractions.
 
Goal-focused: The third thing that stands out about mentally tough operators is their clear sense of purpose, aspiration and direction. They know what they want and how (broadly) they are going to achieve it! That is to say, they are agile, flexible and open minded enough to learn new skills and seek out essential resources to help them get there. Their goals are rarely improbable or delusional, being usually well thought out, realistic and – compared with their contemporaries – slightly more stretching.
 
But is mental toughness a “trait” or a “state”? Is it genetic or can it be developed? Given the transformative impact our development programmes have had on individuals who have suffered from cripplingly low scores in the MTQ48 test, I am firmly of the view mental toughness is a state that can be nurtured and strengthened. But how?
 
Courageous coaching: In my next book I highlight how courageous coaching (using the “build-raise” process) enables leader-coaches to help managers to build their levels of self-awareness, stiffen their resolve and move out of their comfort zone, principally by highlighting and eliminating any “interference” they believe is inhibiting them. Often this interference is identified as lying “within” – a lack of courage, underpinned by misguided self-perceptions and perspectives – rather than “without”! Successful facilitation of the build-raise coaching process helps fragile managers build their levels of insight, confidence, courage and – most crucially – impact.
 
Reflective practice: Managers in hospitality run flat-out round the clock. They seldom have space to reflect and think about what they do, why they do it and how they could do it better. Also, because of ego, many operators are prone to apportioning blame to anybody but themselves for service breakdowns and failures. On our programmes we see managers grow as they critically reflect on their professional practice within their written work. Making sense of themselves and their environment provides a major boost to their overall effectiveness and well-being.
 
Capacity-building skills: In addition, those managers who have learnt the art and science of basic managerial skills (such as strategic delegation, stakeholder influencing, action planning, time management, prioritisation, communication) are far more likely to be more resilient. Why? Because they have built capacity to innovate and focus on achieving their superordinate goals.
 
Recently, prime minister Theresa May acknowledged mental health issues were becoming a serious problem in UK society and spoke about how they needed to be addressed more openly and effectively. Businesses are not isolated from this phenomenon. Helping individuals to become more resilient and mentally tough is overlooked by most organisations, but paying heed to it can pay dividends in terms of productivity, creativity and energy.
 
It is doubly important in the hospitality sector, where a long-hours culture, coupled with a notoriously poor reputation for safeguarding employee well-being, prevails. So, while learning the lessons from those who are mentally tough – experiencing and conquering adversity, having high levels of self-awareness and clear goals – we need to apply more of the developmental techniques that help managers increase their resilience and mental toughness.
 
Organisations would benefit from training their leaders in courageous coaching techniques, encouraging more reflective practice, and inculcating basic managerial skills so their people have more capacity to cope. Having a mentally tough cadre of managers is more important than ever in today’s competitive environment. Those who choose to focus on it will be surprised by its positive effect on the bottom line!
Professor Chris Edger is a multiple author on retail leadership. Together with Tony Hughes, he is running an Inspirational Leadership Masterclass in partnership with Propel, in June. Click here to see the full speaker schedule and details 
 

The Veblen effect by Glynn Davis

In the city of Norwich on a trip judging pubs for a national competition I’d made a detour to the Rib of Beef and ordered a pint of extremely tasty bitter from local brewery Grain. The low cost of this had taken me slightly aback, especially having become used to London prices over the previous 20 years. But what almost had me falling off my bar stool came a few moments later when a student wandered in and paid almost double what I’d paid – for a pint of Stella.
 
The reason for his largesse was partly down to an unwillingness to be seen to be a cheapskate ordering the lowest-priced beer on the bar. I find this rather tough to write but in the context of the scenario in Norwich the pint of Stella was adhering to Veblen’s theory of conspicuous consumption, where extravagant social symbols signify wealth.
 
Ultimately this leads to the theory of Veblen goods. This is when the demand for goods is proportional to its high price, which is a contradiction of the law of demand. Such goods are in demand because of their high price. Being overpriced is their chief attribute. This is the thing that makes them desirable. It’s about conspicuous consumption. Stella Artois and its “reassuringly expensive” ad campaign plays into the Veblen goods effect very neatly. A reduction in the price of Veblen goods would result in a lower level of demand, according to the theory of US economist Thorstein Veblen.
 
The Veblen effect is very much in evidence with wine. The prices of the output from the premier chateaus reach stratospheric levels. The price clearly has some connection with the quality of the product in the bottle but there is absolutely plenty of the Veblen effect at play. The wealthiest individuals are comforted, and can maintain their perceived status, by simply ordering the most expensive bottles on the list. This is very easy, takes no thought, and suggests knowledge without actually necessarily having any. Veblen goods are a fine solution for the affluent.
 
This has been particularly prevalent in China and rather notoriously with Chateau Lafite. For some mysterious, long forgotten reason (an unverifiable theory is that it was because it is easy to pronounce) Lafite became regarded as the most superior of the Bordeaux first growth wines. For centuries they had all been regarded as roughly similar and their prices largely matched this. But in China the mixture of “face”, gift-giving in business and a massive population led to Lafite being about three-times more expensive than the others as it succumbed to the Veblen goods effect.
 
Wine seems to have it pretty easy in terms of Veblen goods in contrast to beer. Stella in Norwich aside, no brewer has managed to really stretch the price elasticity of the category and command really rich prices and push beer into the Veblen goods domain. Even with superior ingredients, limited editions, barrel ageing, and smart branding and packaging there is still no evidence of Veblen goods coming into play.
 
Veblen is often associated with the “snob effect”, which clearly explains how wine slots in rather neatly but beer fails. It has never managed to gain any snob value. There are craft beer geeks who prize getting their hands on hard to get beers but the reality is, undoubtedly to the chagrin of some brewers, this does not translate into them being able to attach high prices to their products.
 
One beer that has managed to get a following in the UK for each new release is Cloudwater Brewery’s DIPA. The beer quickly sells out each month but there is no way that anybody, certainly at this stage in beer’s cycle, is going to start paying big money for the beer. There is undoubtedly a bandwagon effect here but it does not translate into an increased price. It is priced the same as any other 9.5% craft beer. The reality is beer has only got so much price elasticity right now. Certainly it’s insufficient for it to be deemed Veblen goods. I think I’ll have another pint.
Glynn Davis is a leading commentator on retail trends

Cash is no longer king by Sam Lowe

Cashless payment took off 70 years ago with the Diners Club card, and plastic and notes have co-existed since. Not for much longer though and hospitality businesses must think in terms of “ecosystems” to seize new opportunities.

Many European governments are placing limits on the size of large cash purchases and contactless “tap and pay” technology continues to gain ground for smaller ones. Consultant AT Kearney estimates within five years cashless payments will overtake those made with notes and coins. The Economist notes in Sweden, four out of five transactions by value are already cashless. 

In the Harvard Business Review article “Right Tech, Wrong Time”, Ron Adner and Raul Kapoor explain the rate of adoption of new technology depends on the broader “ecosystem” that supports it. The classic example is HD television, developed in the 1980s. It was 30 years before production and broadcasting techniques caught up sufficiently to support it. New light bulb technology however, which integrates with the existing ecosystem, was embraced immediately.

There are clear operational advantages for entirely cashless businesses. No banking trips for takings and change, no cashing up, much simpler tills and no cash theft. However, there were also problems with the existing ecosystem. Communications made card payments slow and only efficient for high value, low turnover hospitality such as quality restaurants. Consumers distrusted credit cards and worried about overspending between monthly statements.

But the established payment ecosystem has finally caught up – tap and pay, ApplePay and faster connection speeds have now made cashless payment the fastest alternative. Mobile banking apps have improved trust and allow people to monitor their spending daily. Large “volume transaction” players are quickly moving into the cashless space. McDonald’s traditionally never accepted cards, now in-restaurant cashless payment screens are the quickest way to order. London Transport now accepts ApplePay.

Adner and Kapoor go on to say as people start to appreciate the benefits of a new technology, adoption gathers pace and a whole new ecosystem starts to emerge. The continuing success of PayPal is due to its growing role as a cashless facilitator. In the past, many taxis required cash payment, now the reverse is true and cashless technology makes hailing a ride with Uber cheaper, quicker and more convenient. As has happened in the taxi market place, there is an exciting opportunity for hospitality to reinvent business models. 

Trust is the lifeblood energising this new emergent ecosystem, allowing variations on the traditional point-of-payment model. Wary consumers wanted their meal before payment, now they order online and pay immediately. Late-night taxi drivers demanded cash up front, Uber drivers trust passengers to pay electronically. Without the restrictions of the old accepted point of payment, many new business model innovations are possible.

Trust and cashless payment have driven the trend for pre-ordering fast food. Customers often also browse casual/fine dining restaurant menus before attending, pre-ordering could be a game changer. An establishment that knows exactly what dishes are required each day could buy incredibly fresh ingredients. It could also be zero waste, great for credentials and margins. If customers could also be enticed to prepay it could mean a whole new cash flow model.

Different point-of-payment models could also be used to improve customer retention and interaction. Monthly bar/restaurant tabs at single venues or even across chains or groups of chains are now feasible. Customers could be offered significant discounts to make a periodic membership/entertainment prepayment. An Instagram upload serves as proxy for a good review – “check-ins” and online interaction with a restaurant brand could be incentivised with immediate discounts.

Growing trust in cashless payment could also facilitate bundling and cross-selling. Similar to the airline alliances One-World and Star Alliance, providers could band together with cashless payment apps that give loyalty bonuses and discounts redeemable across multiple brands.

Adner and Kapoor use the term “creative destruction” for the point where “new technology’s ability to create value is not held back by bottlenecks elsewhere in the ecosystem, and the old technology has limited potential to improve in response to the threat”. This point has been reached and forward-thinking hospitality players must consider the wider implications. 
Sam Lowe is an economist and hospitality strategist. He is currently focused on understanding today, how hospitality will look tomorrow. Always excited about new opportunities. For insights built on foresight, email samuelilowe@gmail.com

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