“Are people who travel in town cars and on corporate jets different—on a psychological level—from you and me? Does the availability of luxury goods ‘prime’ individuals to be less concerned about or considerate toward others?”
The answer to these questions seems to be yes, based on research conducted by Roy Y.J. Chua of Harvard Business School and Xi Zou of London Business School. Sarah Jane Gilbert interviews Chua in a recent article titled “The Luxury Prime: How Luxury Changes People” (Working Knowledge, Harvard Business School, February 1, 2010). According to Chua, “people who were made to think about luxury prior to a decision-making task have a higher tendency to endorse self-interested decisions that might potentially harm others.”
Other questions posed by Chua and Zou: “Will the same business meeting reach different decisions when it is held at a luxury resort as opposed to a modest conference room? Will CEOs who bequeath themselves expensive office facilities and luxurious corporate jets make different business decisions than those who do not?”
What does this mean for logistics and supply chain executives that need to decide which supply chain software solution to buy or which logistics service provider (3PL) to work with?
If I was selecting a 3PL, I’d want to see a command and control center that tracks the location of trucks, the status of shipments, and provides visibility to exceptions. This would be far more impressive than touring a gleaming headquarters facility. The same logic applies to a software company. I’d want to see where the software engineers work, get a sense for how well their working environment lends itself to innovation, and see the type of tools they use. I’d also like to visit a demonstration room that would allow me to use the software and test its capabilities. And instead of a glitzy building at a prime real estate location, I’d rather see a more utilitarian building at a less fashionable address. As a buyer, I’d prefer my money to go towards product innovation than paying for high rents.
I frequently read the annual financial reports (10Ks) of the technology companies that I cover. I pay close attention to revenue growth, profitability, R&D spend, and segment reports (e.g., revenues by region and by product types). But I’ve never paid any attention to executive compensation. This research suggests that if I was a software buyer, perhaps I should.
Chua and Zou’s research is in the same school of behavioral research that is outlined in the business bestseller “Nudge: Improving Decisions About Health, Wealth, and Happiness” by Richard Thaller and Cass Sunstein. When I was in business school I took some logic classes to help me improve the way I went about making decisions. Since those days, a whole body of research has emerged that shows the conditions under which people make predictably bad decisions. If you have not been exposed to this research, it is worth taking a look at.