Friday, August 07, 2009

Cash For Clunkers

Several days ago, the administration reported on the cash for clunkers program. They indicated that many small, energy efficient cars made the list of the top-selling cars in this program. Today, however, I read a surprising story on CNN's website. Peter Valdes-Dapena writes about an analysis conducted by Edmunds.com, which challenged the results communicated by the administration. Edmunds found that pick-up trucks such as the Chevy Silverado and Ford F-150 actually made their version of the top 10 list. How could that be? What explains the discrepancy between Edmunds' findings and the goverment's reporting? Edmunds.com discovered that the government "subdivides models according to engine and transmission types, counting them as separate models." Edmunds counted all variations of a particular car as one automobile in their analysis. As it turns out, trucks and SUVs tend to come in many more variations. Therefore, by counting each variation as a separate vehicle, the government found that no truck or SUV made their top 10 list.

What's the lesson from this story? First and foremost, we have to be careful how we measure the outcomes of any program or initiative. One always has to question the means by which a program has been evaluated or measured. Secondly, these results demonstrate once again the law of unintended consequences. The administration hoped that the program would mean that consumers would trade in their clunkers for small, energy efficient cars. Now, what has happened is that people have improved the energy efficiency of the cars they own, but perhaps not by as much as the administration had hoped. They may have traded an old gas guzzler for a reasonably efficient truck, but it's still a truck, not a Prius! The real question is: Did the administration and the Congress anticipate the results that have been achieved? If not, why did they miss seeing these unintended consequences?

In your own companies, you always have to ask: Are we seeing unintended consequences of a particular initiative? If so, why didn't we anticipate these results? Could we have enhanced our decision-making process so as to better anticipate unintended consequences?

6 comments:

Michael Ling said...

We can always try to minimize unintended consequences.. however, no matter how hard we try, how passionate we're, there's always a loophole. Nothing is watertight in this world. Nothing can be sure except death and taxes.

I'd rather evaluate how good an organization or a government is in risk mitigation and intervention. How good are they in responding to unanticipated situations that would have grave consequences?

Michael Roberto said...

I've actually done research on this very issue of how organizations respond to unanticipated situations. You are right that this is a critical element of effective organizations, though I would not ignore the other side of the equation - which is prevention.

dyana said...

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S. Slack said...

Hi Michael -- Do you have any ideas on how that administration could have better vetted this initiative to incorporate feedback before implementing the program? I would think that they could have incorporated some learning before recommitting additional funds to a very popular initiative.

Michael Roberto said...

I think they could have run a small pilot and used that controlled experiment to learn about how the program could work more effectively. They could have tested the technology, examined the unintended effects, and studied consumer behavior. It need not have taken a long period of time, but it would have been a great way to insure a successul and smooth launch more broadly across the United States.

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