If
you dissect failed strategies, you will come across many cases where a little
more objective analysis could have gone a long way.
Chunka Mui, managing director of the Devil's
Advocate Group, a consulting firm that helps companies stress test their innovation
strategies, analyzed 750 failures and found that risks had been clearly evident
in 46% of them and failure could have been avoided with a little more
discretion in the remaining 54%.
So why do business executives fail to make
objective analyses and rational judgments when it comes to important strategic
decisions? According to evolutionary psychology, a field recently thrust into
the limelight, “primitive psychology” is to blame. Since mankind emerged 2
million years ago, hunting and gathering has dominated his daily behavior for
99% of that time. The human brain evolved accordingly and influences our
decision making to this day.
The most representative example of primitive
psychology at work is “emotions first, reasoning later.” People instinctively
decide what is good or bad, pleasant or unpleasant, and then check it against
acquired knowledge and standards to decide whether to accept, reject or modify.
This acting on emotions was the basis for survival in prehistoric times.
Immediate emotion-based responses to possible danger such as a predatory animal
allowed humans to survive and reproduce. It is said that rational thinking only
formed later as a tool for persuasion.
Such emotion-based behavior leads us to things
that give us pleasure. When deciding on a strategy, mangers often fail to make
the right decision because they filter out everything but the information that
feels most beneficial. For example, Kodak, the longtime US standard bearer of
photographic material and equipment, tripped badly in the 1990s when it
misinterpreted the future of digital cameras. It concluded that consumers would
continue to prefer film cameras, maintaining the demand for Kodak products.
Thus, Kodak failed to correctly analyze because it only gravitated toward observations
that bolstered its future outlook.
Another aspect of primitive psychology is
thinking that “what is right in front of me is most important.” People tend to
try and anchor in their present status and maintain the status quo. Most people
would spend the time and effort to find a missing penny but won't make the same
effort to earn one. Simply put, people are more sensitive to what is lost
rather than what is to be gained and place more value on the little benefits
that can be gained in the present rather than the big benefits in the future.
Wanting to maintain the status quo and
preferring the present reflects the thought process of the prehistoric times
when day-to-day survival was uncertain. To avoid starvation, man had to find
food on a daily basis and protect it from others. There was no need to think
about the weeks and months ahead because he could not assume he would be alive.
In management, such tendencies lead to
shortsightedness and an inclination to avoid losses at all cost. In particular,
when there is a significant amount of sunk costs involved, giving up is not
considered an option. In the development of supersonic Concorde jetliner, the
expected returns were found to be much lower than the cost to produce them.
However, due to their obsession over the sunk costs, developers were unable to
give up halfway and the airplane was put into operation. After nearly three
decades of substantial losses, Concorde flights finally ended in 2003.
“It's safer to follow others,” is yet another
side of primitive psychology. People have a tendency to unconsciously follow a
leader or the majority. In an experiment, subjects were shown a shape and were
then given the easy task of selecting the same shape from three placed before
them. When deciding alone, the test subjects did not have any difficulty.
However, when they put together with other people and could see what they were
selecting, they followed suit even though the chosen shape was incorrect.
The tendency to imitate is the result of the
brain developing in order for man to maintain solidarity and safely live in a
group. This is based on the basic notion that those who do not conform are
banished or become more exposed to the dangers. This trait is also evident in
the strategic decision making of today's firms. Motorola's satellite
communications company Iridium is a case in point. Many consortiums, including
mobile satellite companies Inmarsat plc., Globalstar inc. and Odyssey
Telecommunications inc., invested heavily into the industry believing that Motorola's
entrance proved the hidden potential of satellite communications. However, many
others that blindly followed Iridium, as well as Iridium itself, ended up
failing.
So, what can we do to avoid being dominated by
our primitive psychology?
Firstly, rationality must be given due
diligence during the decision making process. Specifically, a safety net must
be cast to preserve the firm's long-term visions and rational analyses,
including increasing the autonomy of the senior managers who will have to execute
the CEO's decisions and listening to outside advice. Also, in order to correct
biases and mistakes, a system that allows people to freely express differing
opinions must be established. Finally, it is vital to provide organization
members with a sense of stability to keep behavior linked to primitive
psychology at bay, especially in the face of danger and uncertainty.
KIM Chang-Wook
SERIWorld.org
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