The three flaws that hamper organizations decision making and how to overcome them:
None of us would think about launching a new product, a new campaign, or a new brand partnership without exhaustive understanding of the psychology of how consumers make the tiny decisions that can make or break these initiatives. But strategists give only anecdotal consideration to the psychology of how organizations make big decisions.
We all know how non-rational people can be in how they make decisions. But its nothing compared to how nuts organizations are. While the psychology of consumer decision making is frequently non-rational, its because most of the time things work out with these psychological short cuts. That’s not the case with organizations. Research is showing that organizations are just as prone to psychological biases in their decision making, as consumers are. But these heuristic shortcuts come with disastrous outcomes for their businesses. Most product launches and corporate mergers fail, because of psychological biases in how the biggest organizations make their most important decisions.
If organizations are going to make bigger, better bets about the future, its time strategy understands how marketing decides as much as how consumers decide. And the good news is, its really easy. There are three really big reasons why organization fail when it comes to big decisions. Being way too future focused, way too confident, while also at the same time, being way too fearful (I wasn’t lying when I said organizations were really messed up!). Understanding these biases can improve decision making by up to 40%.
Flaw #1: Too Future Focused
Its the kick off meeting to a new product launch or new campaign, everyone has shared “how excited we are to be here” the new initiative is shiny, new and full of potential. As Philip Tetlock explains in Superforecasters, too many organizations are like guests as the wedding, who upon seeing the happy couple, the supportive family, the beautiful setting, can’t imagine the possibility of the marriage ending in divorce.
One of the easiest ways for organizations to make better decisions is to be the wedding guest who first identifies what normally happens in situations like this. 50% of marriages end in divorce, what do we know about this couple that will increase or decrease their chances of success? Harsh? Totally. But a better way of making decisions is to establish a base rate of success. Its estimated that 80% of new product launches fail. 84% of advertising is either not noticed or attributed to the wrong brand. If we start off with acknowledging what normally happens in our organizations, and why, we’re better placed to understand what we need to do to avoid failure in the future. We need to stop playing up how unique and special opportunities are, and instead first take the simple step of understanding what normally happens.
Flaw #2: Too Self Confident
Your time tested process, your proprietary data set, your well paid consultant guru. All promise the same thing, confidence that you’re going to get to the right answer. And confidence is persuasive, research has shown that we’re more likely to listen to the most confident person in the room, while at the same time, overconfidence is probably the biggest flaw in most organizations decision making. The more confident we are, the less willing we are to engage with naysayers, correctly interpret real world feedback, pivot our strategy quickly. One study found that when doctors are 90% confident of a diagnosis, they’re 40% more likely to be wrong.
Instead of looking for certainty, our process, data set, participants all should be used through the filter of understanding what we don’t know. Each is an important point of view, but each is a partial view.
Even the biggest behavioral data sets have biases; Facebook data shows what I am proud off, Google data shows what I am worried about, Pinterest data shows what I’m dreaming off, Amazon data shows what I’m settling for. Every data point comes with its own implicit biases, so ironically getting to breakthrough insights starts with a reluctance to be too reliant on any one source of data, and a skepticism about any source of data (especially the newest, most expensive, most proprietary research, organizations fall in love with these and ignore everything else).
Instead breakthrough insights come from considering multiple data sources, some tried and true, some breakthrough and innovative, some behavioral data with some attitudinal data, and deep exhaustive academic studies with fast and focused scrapes of social media data. Ultimately we have to be as creative with our data sources as we are with our strategies and vision.
Flaw #3: Too Fearful
An amazing new product, marketed tested through an innovative, bleeeding edge technique. What’s not to stop a high performing organization from going straight to market launch? Irrational levels of risk aversion.
As Annie Duke explains, too many organizations, play the marketing game as if it was a game of chess. Look at the board long enough and you’ll understand where all the chess pieces are and what the best move is. But chess is the wrong analogy. Marketing is closer to poker than chess. You know what’s in your hand, but can only make educated guesses as to what other players are holding.
So what’s a marketer to do? Too many, respond by exhaustively trying to research and debate their way out of uncertainty, gathering as much data and opinions as possible. But what research has found is that all this additional information gathering has little or no impact on decision quality. What it does do however, is increase overconfidence in the decisions you make. So all that time you spent researching and debating the decision just makes you less willing to pivot, and more prone to doubling down, when the real world is telling you your assumptions were off.
Instead, Jeff Bezos’s maxim that he makes decisions when he has about 70% certainty seems about right. Gather enough information so you know broadly what is knowable, but go to market primed to pivot. Ultimately the best predictor of what will succeed in the marketplace is what is actually succeeding in the marketing place. Organizations need to plan to pivot based on what the learn in the real world
Too future focused, too overconfident, too researched to death. Few organizations are truly free of these biases. But the good news is that overcoming these biases involves simple shifts in behavior. Tracking how your organization typically performs, being as creative in your information sources as you are in your decision-making, and having a bias towards learning by doing versus learning by debate. These simple behaviors can boost organizational decision-making by upwards of 40%.
But to overcome these flaws, we need to start thinking about how organizations decide as much as how consumers decide. This means rethinking the role of strategy in big organizations.
Too many strategists think their role is to just develop a killer methodology, to do more research, have one more brainstorm. We are as much part of the irrationality as the consumers we study. Ultimately our success and our clients’ success is driven not by all the research we do, or meetings we hold, but by the two or three times a year we help organizations make a big smart bet. If we want our clients to succeed we need to study organizations as much as we study consumers.
