Games Motorists Play

You’ve just joined the tail end of the serpentine queue of automobiles lined up on a busy road in your city. You don’t know for how long the queue stretches ahead of you and neither do you have an idea how long you’re going to be held up there. With the whole lot of time to kill you tune in FM radio and watch the rage drivers coercing others into tailgating, speeding, and weaving between lanes right under the very nose of the horde of traffic police that stands there to regulate traffic. With a constant homeostatic balance to achieve in traffic, motorists are impulsive to take care of Number One in this street war zone. Utterly non-caring, opportunistic, people weasel their way with hardly any feelings for fellow human beings. Cows and bulls that stay to the side of the road, nothing stops them from walking in it, crossing it, or taking a nap in it. There inside an auto, children are folded and packed, after careful geometric calculations, until some children in the periphery are not in contact with the vehicle at all… and then their school bags are pushed into the microscopic gaps all round so those minor collisions with other vehicles on the road cause no permanent damage.The many virtues of culture and religion, real and imagined, are no consolation for the many ugly warts and moles that people display through behavior. Many of the social ills, like the serious lack of concern for fellow human beings or the VIP culture, stem from the attitude, namely the ‘I, me and myself’ attitude to life, fairness be damned. Motorists that are lined behind their side of the road refuse to keep lined up one behind the other on their side of the road. They jump lanes to right, potentially obstructing traffic that will come from the other side. Initially, a line of vehicles starts building up on both sides of the crossing in an orderly fashion. If both the lines wait calmly in their designated lanes all the vehicles will cross on time.


The testosterone-plagued macho man joins the tail-end of the queue on one side. Too antsy to sit still he notices that the road to his right is fairly empty, though that part of the road is meant for the oncoming traffic. He can’t but steer to the right all the way to the front. His strategy is that he’ll be the first to squeeze through to the other side in no time. Strangely enough other motorists in the line don’t stop this ‘assemblage of organic algorithm’ from doing that. As he opens a new lane others join him in the line. If nobody on the other side adopts the same strategy he’s through, hassle-free. But then those on the other side are no fools. They come from the same stock as this naked ape. They follow his strategy. The resultant logjam is ruinous for all. Even if one motorist jumps the lane demonstration effect leads many others to follow suit. ‘Why should I wait longer only to let the other idiot cross over sooner?’ ‘And why should I cut my nose to spite my face?’ The strict enforcement of traffic discipline becomes the important imperative but then that isn’t the option available in our world.Being rational and selfish is more or less the same. For the queue-jumper, this is perfectly rational. So his decision is unquestionable. While he does so he doesn’t think he overestimates his rationality though it means he underestimates that of the others. If jumping the queue to minimize his time in it is the best strategy for him, it doesn’t perhaps strike his mind that it must be so for others in the queues as well who are equally selfish and rational. As he knew what was the best strategy for him so did others have the mutual knowledge of the best strategy.As if each of us thought we alone were privy to this strategy and act as if they’re unaware that all the others are also aware of the same common knowledge of the best strategy. We all have mutual knowledge that of the best strategy. We don’t have the common knowledge that the best strategy is, in fact, the common knowledge. For us to obey simple traffic rules it isn’t enough that everyone knows about the rule. Even when all the people know the rule they may not follow it if they don’t simultaneously know that all other road users are also aware of it. Everyone is aware of the rule means there is mutual knowledge of it. But everyone being aware that all others know about it too is what constitutes common knowledge. Common knowledge implies that everyone knows and everyone knows that everyone knows.


We all have the mutual knowledge about what is the best for us individually but don’t have the common knowledge that what is best for me is also best for all others and that all others know it and that all others know that all others know it. My time is more important than everybody else’s time is mutual knowledge but not common knowledge. We hardly (socially) disapprove queue jumping. Ironically enough it’s the objector that experiences social disapproval as he often finds his to be the lone dissenting voice. Queue jumpers may or may not be numerous than those objecting to them. Those that are exalted may not be questioned by lesser mortals when they jump the queue. We’re too intelligent for our own good. In effect, we use much of our intellect to figure out ways of circumventing laws, regulations, and norms in a bid to twist and turn every available opportunity to our immediate advantage. Plagued with the lack of self-regulation, we’re largely reluctant to penalize wrong conduct in others. As we don’t feel like following or implementing systems, we instead rear a kind of propensity to look holes in law. This is massaged only if we’ve got the ‘authority’ to break rules.

Strategic Planning With Implementation in Mind

Plans come in all shapes and sizes, but the sorts of plans that I have in mind are those whose effective implementation is vital to the organisation’s continued well-being. The plan might be a marketing plan involving the development of new markets and products; it might be a restructuring to enhance flexibility and customer focus or the adoption of a concept such as lean thinking. It might be all of these which, together, form the elements of a strategic business plan. The common denominators are that the effective implementation of the plan involves many more people than were involved in the plan’s formulation and the price of failure to execute is high.

The three fundamental reasons for poor strategy implementation are:

  1. Planning and implementation are seen as two entirely separate activities whereas the reality is that the seeds of success or failure are sown the moment the planners sit down to plan.
  2. Planners spend a disproportionate amount of time deciding what they are going to do rather than dividing their time equally between that and planning how they are going to do it.
  3. Too few people are involved in the “how” process – assessing the plan’s feasibility and its impact on all the organisation’s resources.

These are further broken down into the following 13 barriers to good planning:

Planning Barrier No.1 – “The plan did not take into account the new environment we were operating in”.

If the plan ignores the present or fails to predict the future environment that the organisation will be operating in, it is doomed to failure from the start.

Planning Barrier No.2 – “The rationale behind the plan was never incorporated into the written document”

It is said that 70% of people will change, given a good enough reason to do so. Since almost by definition these days plans involve change, the rationale behind the proposed changes must be explained and justified. It is not sufficient to state that “this is what we are going to do”. Management has to articulate the debate that resulted in a particular course of action being proposed.

Planning Barrier No.3 – “There was no overall goal that everyone could relate to”

My company conducts Customer Satisfaction Surveys and one of the key outcomes is a weighted Customer Satisfaction Index (CSI). A division of a large public company recorded an average CSI that was satisfactory but which masked a significant problem – inconsistency. The 24% of clients who rated the supplier very highly was offset by the 27% of clients who were dissatisfied with the supplier’s performance. The supplier decided to set an overall goal of a certain CSI to replace the contribution margin that they had previously used. Although the staff found the new measure of performance much easier to relate to than the old one, it would have been even better if the revised goal was to eliminate any customer ratings below an agreed figure in an agreed time frame.

Planning Barrier No.4 – “The plan was just a series of activities – there were no clear results to aim for”

If you were trying to lose weight, you might decide to exercise more, drink less alcohol and eat more green vegetables. These are activities. I’m sure your campaign would be far more successful if you set a goal weight to be achieved at the end of 12 months together with intermediate monthly targets. Corporate plans are no different.

Planning Barrier No.5 – “Those responsible for the plan’s execution were not sufficiently involved at the planning stage”

There is an old adage that says that the more people who plan the battle, the less there are to battle the plan. Not only does this strategy begin the transfer of ownership from the “planners” to the “implementers” but it also results in a better quality of planning.

Planning Barrier No.6 – “The planners failed to integrate the plan with the current circumstances facing the organisation”

Very few planners start with the luxury of a clean sheet of paper. As a consequence any plan needs to address the present as well as the future. Womack & Jones in their book “Lean Thinking” recount the story of a company that decided to embrace the concept of “Just-in-Time” – reducing inventories and manufacturing batch sizes. Unfortunately for them, they made no fundamental changes to their production system that remained as inflexible as before. Manufacturing costs and freight costs skyrocketed due to increased machine downtime and the need to airfreight customer orders to meet delivery times.

These six barriers are connected to the first component of any plan which is deciding “this is what we are going to do”. The next stage is to think through the implications of stage 1 of the plan on every function that makes up the organisation.

Planning Barrier No.7 – “The implications of the plan were not sufficiently worked through by the planners”

For example, what if the plan calls for the development of six new products a year? Such a target has implications for Development, Production, Marketing, Sales, Distribution, Supply, HR and Finance. To minimise this problem, you need to involve the people with detailed knowledge of these functions at the planning stage.

Planning Barrier No.8 – “Insufficient time was spent planning before moving to implementation”

You would think that with all their experience, Boeing could design and bring into service a new airliner in the timeframe originally envisaged. This certainly wasn’t the case with the 787 “Dreamliner”. It was four years late into service mainly because of the problems encountered by not only out-sourcing the production of many components using new technology but in some cases also out-sourcing design. As one senior Boeing executive admitted – “… we put a global supply chain together without thinking through some of the consequences”.

Once the issue of “how we are going to do it” has been thought through, the next step is to look at the implications for human resources and finance. These are the two key Enabling Functions. Without people and money, no plan can be implemented.

Armed with the knowledge of “this is what we want to do” and “this is how we are going to do it”, the next set of questions to be asked is whether the organisation has the right number of staff with the right expertise in the right places to effectively implement the plan.

Planning Barrier No.9 – “The implementation of the plan required changes in the current organisational structure that management was not prepared to make”

Furthermore, is the organisational structure suitable to implement the planned changes? Under the direction of Lou Gerstner IBM underwent massive organisational changes in the 90′s as it moved from a technology driven hardware company to a market driven services company. The “old guard” resisted such changes to the status quo and the reorganisation would not have succeeded, had not Gerstner redistributed the “levers of power”.

Planning Barrier No.10 – “The planners underestimated the cost of implementation”

By this stage of the planning process, you will have built up a shopping list of the requirements necessary to bring your plan to reality. New infrastructure, new equipment, new IT systems… to say nothing of new people for new roles. If you cannot afford to implement the plan in its present guise, then maybe you can stagger investment or extend the period for implementation – or maybe you have to reduce the scope of the plan so it is within your means to execute. Far better that you come to the realisation now that you cannot afford the costs of the strategy implementation than discover it six months down the track.

Planning Barrier No.11 – “There were no clear subsidiary objectives”

It was the Chinese philosopher Lao-tzu who said that a journey of a thousand miles begins with a single step. Similarly, the achievement of the goal will be dependent on a large number of subsidiary objectives and the strategies to achieve them. It is so important that these objectives are related to “how we are going to do it” rather than “this is what we want to do”. In effect, we plan from the top down but execute from the bottom up.

Every plan should conclude with an initial Action Plan. “Initial” is emphasised because action planning is a rolling exercise. As some actions are completed, others take their place. The final two barriers relate to the transitional phase where the focus on strategic planning gives way to one on execution.

Planning Barrier No.12 – “There was no Action program that set out the objective of each action, who was to be responsible for it and its completion date”

There is one action that is frequently overlooked and that is to communicate the totality of the plan to everyone who will play a part in its execution. If you want to engage your staff – and who doesn’t – you have to explain where the organisation is now, where it’s going and why and each person’s role in getting there.

Planning Barrier No.13 – “Management underestimated the time required for implementation – we simply did not have enough hours in the day to complete the actions that we were responsible for by the date indicated and do our “normal jobs” at the same time”

This very real barrier needs to be addressed at the planning stage – not when the execution of the plan starts to flounder. Before agreeing to completion dates with those responsible for completing actions, talk with them, make sure you understand what is involved in carrying out the action and arrange for them to receive assistance if necessary.

The quality of execution is dependent on the quality of the strategic planning. The good news is that as you successfully tackle each barrier in sequence the next barrier, and the one after that become less daunting.

Choosing A Retirement Plan For Your Small Business

A qualified retirement plan can be beneficial to employers and employees alike, yet for a small business owner who is busy with daily operations, the time and effort involved in choosing a plan can seem daunting. It does not have to be.

Retirement plans come in two flavors: qualified and non-qualified. A qualified plan is desirable because it provides a vehicle for tax-deferred retirement savings for both the business’ employees and its owner, with allowable contributions in excess of those permitted for IRAs. A qualified plan also provides the employer an immediate deduction for the contributions made. Depending on the plan, it can encourage employees to maximize the business’ profits and to remain with the employer. Plans can be customized with optional features.

Non-qualified plans do not have to meet many of the requirements imposed on qualified plans, and have a wider range of features and provisions as a result. However, in most cases the employer does not get an immediate tax deduction for a non-qualified plan. Such arrangements also have to avoid “constructive receipt” by the employee in order to defer the employee’s taxes until the money is actually distributed. This usually exposes the employee to credit risk if the business fails before the deferred compensation is paid out. Non-qualified plans are sometimes useful, but most small businesses will prefer one of the qualified plan arrangements described in this article.

All of this can leave your head swimming, especially if personal finance is not your area of expertise. To simplify the exercise, think of finding a retirement plan that fits your small business like buying a new car. You should consider what retirement plan vehicle will fit your business’ size, needs and budget, as well as offering any special features you want. The more “tricked out” your retirement plan, the more costly it will be to establish and maintain.

The SEP (Simplified Employee Pension) IRA is the bare-bones model that gets you from point A to point B. It is easy to adopt, and typically custodians like Schwab or T. Rowe Price offer a basic form to start one. A SEP can be established as late as the employer’s income tax filing deadline, including extensions. After the initial set-up, the employer has no further filing requirements.

With a SEP, the employer makes contributions for all eligible employees. The common threshold for eligibility is an employee who is at least age 21 and who has been employed by the employer for three of the last five years, with compensation of at least $550 during the year. Eligibility standards can be less strict than this if the employer chooses. Contributions are an equal percentage for each employee’s income. The maximum contribution for 2013 is 25 percent of compensation, but no more than $51,000 total ($52,000 in 2014). (The same limits on contributions made to employees’ SEP-IRAs also apply to contributions if you are self-employed. However, special rules apply when figuring the maximum deductible contribution.) In a year where cash is limited, an employer does not have to make a contribution. SEP contributions are due by the employer’s tax filing deadline, including extensions.

A SEP is a great choice for a sole proprietor or a small business with a few employees, where the employer would like to have a retirement savings vehicle that allows larger, tax deductible contributions than does a traditional IRA with minimal fuss and maximum flexibility.

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is also easy to establish and has no ongoing filing requirements for employers. SIMPLE IRAs are only available to businesses with fewer than 100 employees and no other retirement plan in place. These plans operate on a calendar-year basis and can be established as late as October 1.

While only the employer can contribute to a SEP IRA plan, a SIMPLE IRA allows employees to contribute to their own accounts, up to $12,000 in 2013 and 2014. Also, participants age 50 and older can make additional contributions, up to $2,500. The employer can either match employee contributions up to 3 percent of compensation (not limited by an annual compensation limit) or make a 2 percent of compensation nonelective contribution for each eligible employee (limited to an annual compensation limit of $255,000). The employer’s matching contribution can go as low as 1 percent when cash is constrained; however, the employer can use this option no more than 2 years out of a 5-year period. Unlike a SEP, a SIMPLE plan requires that the employer contribute each year.

An employer must deposit employees’ salary reduction contributions within 30 days of the end of the month in which the money is withheld from employee paychecks. The matching or nonelective contributions are due by the due date of the employer’s federal income tax return, including extensions.

All employees who have earned income of at least $5,000 in any prior 2 years and are reasonably expected to earn at least $5,000 in the current year must be eligible to participate in a SIMPLE IRA.

A SIMPLE can be a good choice for a small employer who would like to benefit from the tax deduction for employer contributions while encouraging his or her employees to save for retirement. Many employees will find this sort of plan attractive because it allows for higher contributions than a traditional IRA and requires employer contributions. It entails a greater administrative burden than a SEP, although this burden is still relatively small, and offers less flexibility. If cash flow is not an issue, a SIMPLE plan might be for you.

Once an employer makes a contribution to a SEP or SIMPLE plan, the employee is 100 percent vested in that contribution. Employees can take their contributions with them, even if they quit the next day. If employee retention is a concern, a plan that allows for deferred vesting, such as a Money Purchase Plan (MPP) or Profit Sharing Plan (PSP), may be a better fit. Vesting can either be graduated over a period of years of service or take effect all at once after a certain period of years. These plans are the middle-of-the-line models that provide more features than the most basic plans.

Similar to a SEP, a PSP allows for discretionary contributions by the employer. This is a beneficial feature if the business’ cash flow is a concern. The employer contributes what he or she can and the contributions are divided among employees based on a formula set by the plan. This is commonly based on an individual employee’s compensation relative to total compensation. Employer contributions are limited to the lesser of 100 percent of the employee’s compensation or $51,000 for 2013 ($52,000 for 2014). An employer can deduct amounts that do not exceed 25 percent of aggregate compensation for participants. A plan must be established by the last day of the business’ fiscal year. Contributions are due by the business’ tax filing deadline, including extensions.

A PSP is a good choice if cash flow is variable. It can motivate workers to increase profits and the likelihood of receiving a contribution. However, many employees might not find it as beneficial as a plan with guaranteed contributions. These employees may prefer a Money Purchase Plan (MPP).

A MPP is similar to a PSP, but it requires an annual contribution of a specific percentage of employee compensation, up to 25 percent. This creates a liability for the business, and thus may not be a good choice if cash flow is uncertain. An MPP must be established by the last day of the business’ fiscal year. Contributions must be made by the due date of the employer’s tax return, including extensions.

Standard eligibility requirements for both a PSP and an MPP are employees over age 21 and who have at least one to two years of service with the employer. If two years of service are required for participation, contributions vest immediately.

MPPs and PSPs also may allow loans to participants, a feature that employees often find attractive. Loans are usually limited to either (1) the greater of $10,000 or 50 percent of the vested balance or (2) $50,000, whichever is less. Loans must be repaid, with interest, over 5 years, unless they are used to purchase the employee’s principal residence.

The vesting and loan features make MPPs and PSPs more difficult to establish and maintain than SEP or SIMPLE plans. Both types of plan require employers to file Form 5500 with the IRS annually. These plans also both require testing to ensure that benefits do not discriminate in favor of highly compensated employees. Employers may also find the administration of plan loans to be burdensome. The added features of MPPs and PSPs make them more costly and complicated than the standard model SEP and SIMPLE plans.

You may choose an MPP or PSP if you would like a plan that encourages employee retention and you can handle the extra paperwork. Whether you choose an MPP or a PSP depends mainly on your cash flow.

The fully loaded model retirement plan is the traditional 401(k). These plans allow employee and employer contributions, vesting of employer contributions (employee contributions are always fully vested), and other options such as loans. These plans can be as basic or as complex as the employer wants. However, with complexity comes cost.

Annual employee contributions for a 401(k) are limited to $17,500 for 2013 and 2014. Participants age 50 and older can contribute an additional $5,500. Combined, the employer and employee contributions can be up to the lesser of either 100 percent of compensation or $51,000 for 2013 ($52,000 for 2014). Employers can deduct contributions up to 25 percent of aggregate compensation for participants and all salary reduction contributions. A 401(k) must be adopted by the end of the business’ fiscal year, and contributions are due by the business’s tax filing deadline, plus extensions.

An employer’s contribution to a traditional 401(k) plan can be flexible. Contributions can be a percentage of compensation, a match for employee contributions, both or neither. However, the plan must be tested annually to determine that it does not discriminate against rank-and-file employees in favor or owners and managers. A Safe Harbor 401(k) does not require discrimination testing but does require the employer to make either a specified matching contribution or a 3 percent contribution to all participants.

Commonly, 401(k) plans must be offered to all employees over age 21 who have worked at least 1,000 hours in the previous year.

A 401(k) is a good option for an employer who would like a plan with salary deferral, like a SIMPLE IRA, but also allows for vesting of employer contributions. An employer considering this sort of plan should be able to afford the contributions and the additional administrative work required. A 401(k) is a good option for larger businesses, where the maintenance of such a plan is less burdensome.

The plans I have described in this article are all defined contribution plans. This mean that the plan determines the contributions made, not the ultimate benefits received. Once the contribution is made, the employee invests it however he or she sees fit. At retirement, the amount the employee can withdraw is dictated by the performance of those investments. Poor investments lead to smaller retirement savings.

Defined benefit plans, in contrast, are the Rolls Royces of the retirement plan world. These plans include traditional pension plans, which pay out a set amount to an employee in retirement. The employer, not the employee, takes on the investment risk and will have to make up most shortfalls if the money originally set aside does not cover the ultimate expense.

While in theory an employee could do better with a defined contribution plan, depending on investment results, the certainty of a set payout in retirement makes defined benefit plans highly attractive to participants. However, such plans are costly and administratively complex. On top of annual filings, the plan needs to be tested by an actuary. The required future payments become a liability of the company. The burdens of these plans have made them unattractive for many businesses, and they have become much less common in recent years. In most cases, especially for small businesses with employees, it is not economical to adopt a defined benefit plan.

Adopting a qualified plan for your small business need not be a hassle, even if you want to adopt one for the 2013 tax year. However, be prepared for the administrative complexity, and cost, to grow in step with the plan’s features. In general, though, the benefits of tax-deferred savings and contribution deductions for employers make setting up and maintaining one of these vehicles worth the price tag.