“GEMO”; and What it Means for Your Research

GEMO: An acronym, “Good Enough, Move On.”

I have heard this phrase more and more recently and it has the potential to become a new buzz word. The meaning? Since the value of labor hours into a research product decreases with each next input, it may not be efficient to make something better than it has to be. In other words, once something is good enough, move on.

What this means in real life? Research suppliers will be smarter about how they deploy production resources. Here are some examples as I see it:

  • Instead of spending an extra two hours making sure that the oxford comma use is consistent through a report, research suppliers might deliver a report two hours earlier.
  • Instead of correcting for weighting adjustments when stat testing, suppliers will spend more time analyzing data and providing sounder recommendations.
  • Instead of making sure all slide titles are perfectly centered, suppliers may shave a few hundred dollars off the price tag.

In short, suppliers are going to start forgoing a little quality for more value. By “value,” I mean more usefulness per dollar. Research buyers are paying the same hourly rate for an analyst regardless of what he is actually doing. He may be checking if “none” is a singular or plural subject; or he may be running a k-means cluster analysis. In either case, it’s the same rate.

On the face, this is a good thing. By reducing resources in areas unlikely to affect the conclusion of a research study, research suppliers can improve the value of their offering either by reducing price or by reallocating those resources to more valuable tasks.

GEMO: Where Marginal Cost Equals Marginal Benefit

In your Econ 101 class, you probably remember hearing a lot about MC=MB. This is the point where “stuff” should be produced. Here’s Investopedia’s pithy explanation.

Additional units of a good should be produced as long as marginal benefit exceeds marginal cost. It would be inefficient to produce goods when the marginal benefit is less than the marginal cost. Therefore an efficient level of product is achieved when marginal benefit is equal to marginal cost.

Research buyers face the same hourly for an analyst, even if he is simply copy-editing a report. At a certain point, improving the quality of a report is so costly, that it really simply isn’t worth the extra cost.

The term GEMO is abuzz in the research community because, evidently, research suppliers have been spending too much time on perfection. That is, spending too much much time where the marginal cost exceeds the marginal benefit.

When a company or team is conducting ANY part of their business where MC>MB, then this is quickly corrected (either by the company or by the market). Do not confuse MB<MC with things like “loss leaders.” Loss leaders still represent products for which MB>MC, but the company is charging less than MC. The social benefit still exists because the production cost is less than the benefit realized; the only difference is that the company is not making a direct profit. If a company systematically produces such that MB<MC, then there is a mis-allocation of resources.

Personally, I think it’s true. Sure, I have thought for a while that my resources were being applied to useless endeavors. But that might be my “millennial” attitude. More objectively though, I really do observe others putting time towards bids that probably won’t be won, for example. I observe painstaking committee-like editing over client emails. Or conference calls to discuss the merits of various weighting schemes that do not substantively impact the outcome of study results.

When Is “Good Enough” Good Enough?

The problem, of course, is determining when is something actually “good enough.” Maybe catching a spelling mistake really does make a difference in the research buyer’s confidence in the rest of the report. Can you really trust someone who mixes up “their” with “there”?

An efficient market has a very good mechanism to force research suppliers to produce things just at the point of good enough, but no better. As an example, Imagine two real estate developers are building condos in an up and coming neighborhood.

Luxor Properties specializes in high end, luxury condos for $50k each (cost)

Econo Development produces less expensive properties for $25k each (cost)

Now, imagine that the neighborhood is attracting young, college graduates with low income. Both developers put their properties up for sale.

Luxor condos sell for $45k

Econo condos sell for $30k

Luxor can set and will get a higher price for their condos than will Econo. They have a better product, so it certainly won’t sell for less than Econo condos. But the question is whether or not building a nicer condo was worth it — or did they “overbuild.” At the selling prices above, I’ve implied that the extra $25k. This is an example where Luxor Properties did not effectively implement “GEMO.” Things were “good enough” when the condo could have sold for $30k. But the additional quality cost $25k, but the buyers were only willing to pay an additional $15k.

Though real estate may take some time to come into equilibrium, we can see how a market incentivizes producers to produce at the point of just good enough.

But it is difficult for firms to determine the just good enough point because many firms’ operations are conducted outside of “traditional” markets.

Why Employee Specialization and Firms Make “GEMO” Difficult?

The connection between GEMO and firms is not immediately obvious. In part, this is because the concept of a firm is a surprisingly subtle concept.

The existence of large companies was an economic puzzle for quite a while. Economists had long assumed that most markets were efficient enough so that transactions ought to take place in a free market setting. Instead, we observed people coordinating with each other, agreeing only to work with one another. We observed entrepreneurs hiring people to conduct work instead of contracting out tasks.

On its face, it seems inefficient. Why not just contract someone to do the one thing you needed instead of hiring someone long-term and putting the entrepreneur at the risk of paying for their employee’s time when there is no work to be done?

This question was eventually answered in a seminal paper by Ronald Coase called The Nature of the Firm. Here  he describes the puzzle.

Outside the firm, price movements direct production, which is coordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-coordinator, who directs production. It is clear that these are alternative methods of coordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?

And is answer.

The main reason it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious of “organising” production through the price mechanism is that of discovering what the relevant prices are… The costs of negotiating and concluding a separate contract for each exchange … must also be taken into account…

[T]he operation of a market costs something and by forming an organisation and allowing some authority to direct the resources, certain marketing costs are saved.

For example:

If you think a business owner will need to contract a graphic designer for 100 projects throughout the year, then she may decide to just hire a graphic designer. Sure, the designer may have some downtime here and there, but the business owner will save money in the long run by engaging in just one transaction (the hire) instead of 100 transactions.

There are several other factors involved: risk preferences (someone risk averse may be willing to accept a lower-than-market rate for the safety of long-term work), individual management preferences (some people don’t like the market — selling, negotiating — and prefer long-term contracts), search costs (it takes time to find good contractors), and many others. But the general idea is that there are gains to coordination when transaction costs are sufficiently high.

What does this all have to do with GEMO? Well, in a coordinated environment, employees are specialists. A company might hire a data scientist to be … well … scientific. Science usually means “peer-reviewable” quality — a level of quality that is often above the just good enough threshold. But the data scientist is not incentivized to operate under the GEMO paradigm. Maybe in the free market, the data scientist would know at what point her effort to improve the quality of her product was greater than the value added; but in a firm environment, there is no such feedback mechanism other than her manager, who may not be familiar enough with the incremental costs of her work or the consequences of alternative approaches.

And this is just one example. As companies continue to afford employees more autonomy and encourage entrepreneurial culture, it is imperative that the incentives keep up so that employees do not misdirect their resources.

What Does GEMO Mean for Employees?

For an employee, GEMO can mean two things.

Interpretation 1:

Continue to work on a particular product until her own time could be better employed elsewhere.

In this case, a researcher decides to forgo copy-editing a report because she is aware that her salary warrants more valuable work than copy-editing. She chooses to deploy her resources to another task.

Interpretation 2:

Continue to work on a particular product until the incremental benefit to the client is less than the incremental cost to the client.

Here, the researcher is aware that the client will be billed, say, $150 per hour. She chooses not to spend an hour copy-editing a report because she suspects the client would not be willing to spend $150 for a few spelling corrections.

Note that Interpretation 2 is different than Interpretation 1 because in Interpretation 1, the client may still be willing to “purchase” copy-editing for $150 per hour. The copy-editing should still be done, but it should not be done by an employee who can direct their time towards more profitable tasks.

Considering many companies are encouraging their employees to be more entrepreneurial, my suspicion is that the GEMO directive is likely a combination of both interpretations.

Successful entrepreneurs consistently offer advice on delegating, often citing effective delegation as the grounds for their success. In this sense, they are acutely aware of the value of their own time (a la Interpretation 1).

And successful entrepreneurs, of course, are aware of the cost-benefit split of their products. No successful entrepreneur would sell something for which MB<MC.

What Managers Can Do to Help Employees with GEMO?

Employees aren’t entrepreneurs. So asking and employee to think like one subtly violates an implicit contract. For the employee, working for a company vs. going on their own is like saying, “I agree to work for a slightly below market rate, as long as my employer gives me a safe position and tells me what to do.”

But the days of centralized entrepreneurialism are quickly fading. As I explained above, firms exist when transaction costs are prohibitively high. But many online platforms have created marketplaces where buyers of specialized human labor can find specialized labor producers with low transactions costs. In other words, the “linear” production model is being supplanted by a platform model. Networks like Upwork and M-Turk have greatly reduced the cost in transacting contracts. Today, it is much easier for would-be employees to employ a little bit of entrepreneurial spirit (i.e., joining a freelance platform and marketing themselves) and make a decent living.

The sooner managers can help employees understand that this platform model is the new model, the sooner employees will embrace it. Indeed, employees may have no choice.

More tactically, it will be imperative for the manager to communicate what types of work is valuable enough to warrant her employees’ time (GEMO Interpretation 1), as well as communicate the end-clients’ expectations of the work being done (GEMO Interpretation 2).

In short, somebody needs to be making the decision of what work is MB>MC and what work is not. Of course, this sounds like a trivial conclusion; but the fact that GEMO is a word suggests that there is a complacency trap in overly specialized firms.

For example, an analyst may have high autonomy in writing a report. Once completed, he delivers the report to the client manager/consultant, who reviews and sends to the client. But nowhere in that process did someone really ensure that the analyst was deploying his resources efficiently.

By encouraging more entrepreneurial tendencies in their employees, firms will inadvertently encourage them to consider the value of their own time more strategically.

So What Does This Mean for Research?

In the short term, I suspect research buyers will not notice much of a difference in their end-reports. Perhaps a misspelling or two might slip through, maybe data visualizations may appear more hastily developed, but substantive differences won’t be noticed until later.

In the longer term, the industry may start to see differences in how research is conducted. Here, I give two examples of potential long-term implications of GEMO. I do not claim that these examples apply to all research suppliers, but rather, I describe two cases where I believe “GEMO” will provide the impetus for supplier employees to redirect their resources.

How Necessary is a Truly Representative Sample?

Research panels are costly to maintain. The benefit of using a large panel to source sample for research studies is the confidence researcher suppliers have in the projectability of their samples.

But competing sample suppliers (Google surveys, M-Turk, Twitter) are becoming extremely inexpensive. This means that the marginal cost  of using panels (that is, the difference in the cost of using a panel vs. the cost of using the next best option) is increasing. And while these “next best” sources may not claim to have the same projectability as carefully curated panels, researchers may soon realize that their clients don’t need the level of projectability that a panel provides … especially with alternative methods falling in price.

Are Research Suppliers Consulting at the Right Times?

Here is a story: I have heard a consultant tell a client, “Listen. Whether I give you my advice or not, you’re still paying me to consult.” This was after the client was less than enthusiastic about listening to the consultant discuss the data.

Although I don’t have experience on the client side of the research engagement, I suspect clients are often just looking for data, and less analysis and consultative work. This suspicion is very acute when I am forced to awkwardly request 30 minutes of my client’s time to discuss the findings.

I don’t doubt the value of consultation in research, but I do believe the consultation is more valuable in the design phase than it is in the reporting phase. So, in this sense, “GEMO” may discourage employees from overanalyzing research findings and redeploying those resources in design and execution.

These are just a handful of examples that seem to apply to the work I am most familiar with. The point here, however, is not to make sweeping generalizations about the ways in which “GEMO” may disrupt the research industry, rather just provide possible examples.

A Good or A Bad Thing?

The predictions in the previous section are, of course, speculative. I don’t think representative panels will go away; so buyers looking for that level of representativeness need not worry.

At the end of the day, GEMO will be a good thing for research buyers if deployed correctly. By giving all employees the latitude to determine what is valuable and what is not, employees will be better equipped to use their time in the most efficient way possible. These are the same employees who (1) have deep relationships with their clients and are the best at answering what their clients see as valuable and (2) are typically the best people to assess the value of their time.

Managers operating under the old-time principle that “their employees work for them” must either adopt the new paradigm — the manager works for his employees — or else find themselves with fewer and fewer employees to manage.

At the same time, employees unwilling to take responsibility for managing their own time and ensuring the value of their work will quickly be usurped by employees who can.

Ultimately, GEMO is likely the first in several steps firms will take to decentralize decision-making authority, and empower their employees with the same. Firms that are faced with low-cost competition due to the advent of marketplaces for specialized labor may be forced to start considering their business as more of a platform that matches researchers (employees) and research buyers.

At the same time, research firms with large assets (e.g., panels, a reputation for high quality) will need employees to maintain those assets. For example, the management of a panel is something that ought to have centralized leadership since one employee’s work on one aspect will impact many others. So, I do not think that “GEMO” is the start of a major disruption. I do, however, believe that employees of research firms will soon find themselves responsible for things that they were once not responsible for. And just as importantly, research firms will need to offer incentive structures that reflect this increased decentralization of power.

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