I just finished reading Clayton M. Christensen’s New York Times best selling book, “How Will You Measure Your Life?” Clayton M. Christensen is a Harvard Business School professor and author of seven books. In 2011 he was named the world’s most influential business thinker in the biennial ranking by Thinkers50.
I enjoyed his chapter entitled, “What Job Did You Hire That Milk Shake For?” He tells the story of the incredibly successful discount furniture store IKEA, a Swedish company that has been rolling out stores all over the world for the past four decades. He expresses fascination that no one to date has copied IKEA, a company in excess of 25 billion euros. IKEA is structured around the concept that customers purchase certain goods and services to do a particular job. Their success spawned a particular theory with respect to a unique type of marketing and product development, which Clayton and his colleagues termed “the job to be done.”
Christensen suggests, “The insight behind this way of thinking is that what causes us to buy a product or service is that we actually hire products to do jobs for us. We find that some job has arisen in our lives that we need to do, and we then find some way to get it done. If a company has developed a product or service to do the job well, we buy, or “hire” it, to do the job. If there isn’t an existing product that does the job well, however, then we typically make something we already have, get it done as best we can, or develop a work-around. The mechanism that causes us to buy a product is ‘I have a job I need to get done, and this is going to help me do it.’”
Being a self reliant “do-it-yourselfer” I can relate to “the job to be done” concept. In Christensen’s book, the concept was applied to a large fast food chain desiring to increase milkshake sales. Naturally, the first thought was to improve the formula as to taste, thickness, flavors, etc… They asked customers a variety of questions of how to improve the product, implemented a range of related improvements, but found them all ineffective. In the end they were stumped.
Finally, they began to ask a different question. Positioned outside the restaurant in the early morning they began asking customers, “Excuse me, what job did you hire that milkshake to do for you this morning?” People struggled to answer the question at first so the inquiry was often rephrased until the consumer finally admitted something like, “Well, I would rather have a banana, donut or bagel, but the milkshake is my favorite.” They added, “I like bananas, but they are gone too quickly. The donut is too messy and I have a hard time putting the cream cheese on the bagel while driving with my knee.
They admitted that the milkshake was preferable because with its thin straw it lasted the longest on their long morning commute. It was also substantial enough to ward off mid morning hunger pains. One commuter noted that it was so thick that it took at least twenty minutes to suck it up. The same question was asked of customers in the afternoon and evening, but they found different jobs being sought for the milkshakes. This was a breakthrough for the fast food chain as they worked to expand the sales and profitability of this product line.
Clayton Christensen’s concept of “the job to be done” is applicable in our financial lives especially for pre-retirees in the accumulation phase of life. Consider the same related milkshake question in a variety of ways. Maybe by using this concept to understand the efficacy of our financial buying decisions, we can better evaluate the effectiveness of our choices. For example:
What job did you hire that savings account for?
What job did you hire that auto insurance for?
What job did you hire that brokerage account or annuity for?
What job did you hire that life insurance, trust or IRA for?
What job did you hire that rental house for?
Or finally, what job did you hire that 401k for?
These questions are helpful as they reframe the usefulness and purpose of some of the most common financial purchases or instruments we engage. We buy these products to do a job, but are they actually accomplishing the job and if so, how well? Unfortunately, many purchase these products without really understanding how they function. If we focus on “the job to be done” then our buying decisions can be measured by the true efficacy of the product acquired. The word “efficacy” is the power to produce a desired result or effect.
For example, we buy auto insurance to protect our assets in the event we get into an at-fault accident and get sued. Some say we should own auto insurance to repair our vehicle if we get into a crash. This is true, but the larger job is one of asset protection. Looking through the protection lens helps us set more efficient auto coverage limits, because now we realize liability coverage should be structured based on the amount of assets at risk. In short, big castle, big moat or small castle, small moat.
With respect to a 401k, what job have you hired it to do? Better put, what specific purpose, outcome or job were you hoping it would accomplish? Again, we buy financial products to do a job, don’t we? Do you know what job you are asking your pre-tax 401k, 457, 403b or IRA to do? Many reflect a blank gaze when I ask this question.
With respect to pre-tax qualified plans, many are learning that these instruments by themselves may have limitations, making them potentially an inefficient tool for producing the job American’s need accomplished most; providing a guaranteed lifetime income in retirement.
Fortunately, if pre-retirees will engage in a process of learning, these pretax plans can potentially yield significantly more retirement income (30-50%) when coupled with actuarial science. This could mean thousands of additional dollars in retirement per year. Learn more by clicking on the “Get More Retirement Income” green button on the home page of my website (www.TheEstateMD.com)
Let’s make informed choices regarding the financial products we engage by focusing on “the job to be done.” In this way, we can have a credible claim on financial peace.