The Power of Incentive:

The Serengeti Equilibrium

In Malaysia, an ATM machine will charge RM 1 from a non bank cardholder should they withdraw; granted that RM1 is a relatively cheap price to pay, we find ourselves scouting for our respective bank’s ATM machine. From a time where we could withdraw from any ATM machine for free, this tiny amount of money seems to have changed behaviour. If everyone, in response to this policy, chooses to do business with the bank which has the most amount of ATM machine in a particular area, the said bank would inevitably gain an upper hand. Convenience became the advantage of a company because of RM 1.

This is the power of incentives. Through its subtle policy changes, it could manipulate behaviour into conformity. Incentives could be the wages that we earn, the tax deductions that we get from the federal government, the cheaper petrol price we pay to fuel our tanks, etc. Incentives could also exist indirectly in the culture of our upbringing, the dictation of what is accepted and what is not, the subtle influence of governmental policies and so on. Incentives, therefore, is the single most powerful driving force that affects our every day decisions.

At a macro scale, the government determines the path of a nation, and then designs a policy package that contains incentives that motivates its people towards goal congruence. What happens if it is not well thought out?

1. The Serengeti Wild

“The Serengeti Wildlife Reserves is located at north east of Tanzania, Africa. Spanning over 30,000 , it is the home to approximately 70 larger mammal and some 500 avifauna species. The reason for this high diversity in terms of species is a function of diverse habitats ranging from riverine forests, swamps, kopjes, grassland and woodland. Around October, nearly two million herbivores migrate from the northern hill toward the southern plains, crossing the Mara River in pursuit of the rains. In April, they then return to the north through the west, once again crossing the Mara River. This phenomenon is known as the circular migration, happens to be the largest mammal migration in the world. Around 250,000 wildebeest (aka Gnu) die during the journey from Tanzania to Maasai Mara Reserve in lower Kenya, a total of 800 kilometres. Death is usually from thirst, hunger, exhaustion or predation.” –Wikipedia

11 years ago, a family living in a low cost flat in suburban Malaysia had subscribed for the local satellite television network, Astro. Prior to the subscription, there were only four channels that were available on the Malaysia national television network; with most of it airing local drama production. It was dull not only for the children, but for the parents as well.

The family’s eldest son, who was only 12 at that period of time, was excited at the prospect of a wide selection of television programmes...which of course is a lie, because at 12, all he cared about was the channel that has cartoons on it. But as the 12 year old channel-surfed, he became fixated at the programme which showcases wildlife documentary-the National Geographic Channel.

That kid was me.

On the flickering television screen, a pack of lions coordinate and camouflage among the tall grass of the savannah. The ambush is set in the path where a herd of wildebeest are travelling across the Serengeti plains towards the Mara River. The herd of wildebeest passes by, and the lions wait for an opportunity to strike.

Here is the matchup: A lion is capable of running up to 57kmph while a wildebeest is capable of running up to 64kmph. Both animals weigh approximately 200kg. The primary defensive tactic for the wildebeest is herding, where the young animals are protected by the older larger ones while the herd runs as a group. A gnu also has considerable strength; a blow from its hind legs towards a lion’s jaw could effectively break it, resulting in starvation if it doesn’t heals properly. Therefore, the tactic that the big cats adopt is simple-single out the weakest link among the herd, separate them and attack.

Back to the television screen, a lion emerge at the back of the running herd; the wildebeests notice the presence of the lion and picks up speed. From the corner of the television, three lions flank the running herd; they panicked and tilted their running trajectory toward the other direction. The diagonal run against the lion’s straight line meant that the top speed advantage the herd held is reduced. At the back of the herd, a single wildebeest could not keep up and became dinner, while the remaining escaped unscratched.

The hunt was over in the span of minutes.

At that age, I could not fathom why the herd not turn back and save the poor beast that was killed and feasted upon. It only dawned on me later in life the work of Charles Darwin, the Origin of Species which states that out in the wild, it is the survival of the fittest. The herd was not only protecting its young while it travel, it was also competing against each other to run the fastest. Hence, the fastest wildebeest would survive and pass down its gene to the next generation, and a better gene pool meant fitter and stronger wildebeests through natural selection.

From the lion’s perspective, the pride of lions only has to be as fast as the slowest of the targeted group, and whichever pride of lions that could not keep up, would cease to exist. This creates a rather interesting symbiotic relationship between predator and prey, where through predation; both species actually improves over the long term.

2. Got Game?

Instead of a huge population of animals to be our sample, let us simplify into three wildebeest and a single lion; let us also remove the remote factors such as terrain, overall health of both predator and prey and lastly, eliminate the fact that the lions ambushed the gnus in the first place. Thus, we would be left with only a chase.

For identification of three wildebeest, they shall be known as Tom, Dick and Harry. Tom is a hardworking wildebeest, working hard on his speed day in day out, in hope to stay ahead of the pack and lead it one day while Dick on the other hand, trains hard but spends a little too much time with the ladies. Harry; well let’s just say he’s hopeless. In an event of predation, Harry will always be dinner and this prompts a realization that if Harry doesn’t work hard enough, he would be always tail the end of the pack, and the least he could do, is to be as fast as Dick to even out his chances.

This creates a domino effect because when competition catches up; most of us would not sit idle and watch them take over us. Think back to our schooling days and the kiasu attitudes of some; that was preparations for exams. This, is a matter of life or death. Hence, Dick will start training harder because Harry is as fast as he is, prompting Tom to train harder to keep the lead against Dick and Harry. On the flip side of the coin, the lion have to run faster to catch up with the slowest. Overall, both predator and prey inevitably improves as stated before.

Now the game changes. Through divine intervention, all wildebeest are to run as fast as the slowest of the pack. This rule will result in the deterioration of both predator and prey. Harry would not work hard, because the incentive to was removed. In fact, nobody should work hard, since the odds of surviving an attack is always 1/3; everybody should really just chomp grass and get fat. It would be the survival of the luckiest.

Above are two sides of extremes to illustrate the power of incentive, where in the first example there is an incentive to improve, and the latter without. What if, instead of eliminating the incentive, we simply reduce it?

3. Race of the Handicapped

In the previous examples, both extremes resulted in either the increased competitiveness which improve both species, or made both species regress. However, when we reduce the incentive, another different result appears.

Imagine now, instead of survival of the fittest, we give the slowest animal, Harry, an advantage. This advantage could be an increase of strength and speed, a head start against Tom and Dick during a chase, or even a superior genetic blueprint to start with; the nature of the advantage would be irrelevant but the result of an advantage would be drastically different.

However, assuming that both Tom and Dick are both strongly interested in surviving; this disadvantage towards the other two wildebeests would prompt them to work even harder than before, to sustain the advantage over Harry. The advantage therefore, is a counterproductive advantage.

To illustrate, the advantage given to Harry is a second and a half head start during a chase. Knowing that the time to make up for is 1.5 seconds, both wildebeests will have to work even harder to eliminate the head start advantage. The result would give Tom and Dick unequal characteristic in terms of speed and strength. On the possibility of not having overcome the advantage given, both wildebeests would be eliminated, leaving the inferior one to carry the mantle for the entire species.

Protectionism, might be considerate and thoughtful in the short term, may be disastrous in the long term.

4. Harry

In its website, it proudly states that it had survived over 25 Sterling Years. While it is true that Proton had dominated the market share of Malaysia for over 25 years, it had not been competitive over the international arena, which is dominated by firms like Toyota, VW, BMW, Honda, etc.

Over the years, only the Proton Waja and Persona had been produced in-house, with the Waja’s quality control begging questions. The Persona on the other hand, is but a reworked model of Proton Gen-2, which wasn’t much to look at, uninteresting and a bore.

Recently, Proton launched their latest Waja Replacement Model, Proton Inspira, with the tagline “Smart guys get it”. Apparently, I’m not smart enough because I don’t get it. Nevertheless, it is unmistakably the derivation of Evo X, Mitsubishi Lancer that was first launched in 07. After 25 sterling years, this is, without the shadow of a doubt, the best model that Proton had come up with...and it wasn’t even made by them.

To sum up, 25 years in business and Proton has not been anywhere near creative or ingenious in the car business. The business plan that they have, is mere purchase of license to produce other car manufacturers’ models. Instead of developing its core competencies in the automotive industry, Proton has relied on the government’s willingness to aid them in the market.

But despite its weakness and inferior quality compared to other carmakers, Proton had dominated the local market due to the prices of other car manufacturers’ products. It is considerably cheaper compared to other imported cars due to the import tax that was imposed before 2008, and the excise duty imposed post 08. According to regulations laid down in ASEAN Free Trade Area (AFTA), there should be no tax imposed on goods produced in South East Asia (SEA) countries. The non-compliance resulted in probable penalties that will be borne by the Malaysian Government, which effectively are its tax payers, namely, you and me.

Within these 25 years, Proton’s business strategies has remained unchanged and if the tax and duties imposed on foreign goods reduces, it would interesting to note whether Proton could sustain its market share. In many ways, Proton is the national baby with the government its babysitter, protecting it from the elements of the competitive wild.

5. The Serengeti Equilibrium

The Serengeti Equilibrium provides the understanding that any advantage that isn’t part of an entity’s core competencies or critical success factors is one that is unsustainable, unsuitable for competitive development and survival. Therefore, the externally generated artificial advantage should be used cautiously and perhaps sparingly.

As in the case of Proton, perhaps at the start, it had good intentions; but it doomed the long term prospects of the company, turning it into an international embarrassment when its products were treated as a joke on Top Gear UK.

But Proton is far from a national embarrassment. Besides, it isn’t the only entity that is being actively protected now is it?