a ton of thought. We think that if we are successful in large markets, that's a win in and by itself.’”
Sammy sighed. “That's when the floodgates opened. Antonio then weighed in. ‘Molly makes a good point. It's probably not a bad idea to put some thinking behind this.’ And then came Paula. ‘I agree, it can't hurt.’ Joe then sealed the deal. ‘Sammy, why don't we give you a few weeks to think this through, and then we can see your analysis.’”
It was at this point that Sammy picked up the phone and called Geoff. He was at his wits’ end and ready to quit.
“Honestly: we have to make a move here or we'll be stuck trying to play catch-up. Why is it that herd mentality tends to favor caution and incrementalism instead of being bold?!”
We expect that the story depicted in the “training video” is recognizable to most of you. It happens just about every day in organizations around the world. A combination of basic human biases – what we call fatal flaws – and organizational dysfunction mean that most businesses systematically miss the opportunity to take early action against emerging trends – whether they are still in the “if” stage or the early stages of “when.” They wait until the only choice is one of adaptation.
We call these cognitive biases “fatal flaws” only somewhat in jest. People aren't literally dying from them, but they can make the difference between an organization failing or thriving. Successfully spotting subtle – or not-so-subtle – trends that meaningfully impact the prospects for businesses is a fundamentally important capability that impacts every business, big or small, old economy or new economy, virtual or physical.
When businesses are faced with fundamental changes to the environment in which they operate, leaders have a choice – but only if they can effectively identify the meaningful trends. Those choices involve either riding the trend downwards, adjusting the business model to fit the emerging trend, or shaping the trend to create advantage. None of these is a “wrong” choice, by the way. Riding a trend downwards can be a very profitable choice. Many diversified companies that had tobacco divisions have spun them into singular entities that have no other businesses, and they pay massive dividends, despite having an addressable market that shrinks every year. The problem is, most companies that end up in wind-down mode do so accidentally … missing any opportunity to create advantage along the way.
Choosing not to adjust your business model means the company is effectively choosing to be a wind-down firm – one that has a finite life, a business that is terminal. They're winding down, even if executives in the industry fail to recognize this fact. Print publishing companies that choose not to migrate to a digital platform in the face of shrinking paper readership or traditional department stores that do not adjust their core value proposition (i.e., everything under one roof) in the face of intense online competition are examples of this. The question that will most likely impact the amount of value created during the wind-down is whether the move is executed as a purposeful choice, or inadvertently because all other options have dried up.
At the end of Detonate we pondered the value of being a pop-up firm: one that is formed and launched with a planned extinction date. Temporary retail stores – ones for limited edition goods in Japan or Halloween costumes in the United States – are great examples of this. Vaccine sites (we hope, at the time of writing) could be another. These entities have taken the ultimate step in embracing impermanence as a way to create advantage for themselves. Bringing some of the pop-up mindset to the wind-down world, whether you end up there with foresight or by accident, is a critical tool for any company operating in an uncertain market. Based on our experience, though, we think most management teams want to avoid being wind-down firms. Unfortunately, they don't make the logic clear with the other members of the management team. We believe that having an explicit conversation about whether to ride a falling trend or make the necessary investment to evolve a business model is critical – and most organizations never have this conversation as a result of the fatal flaws.
There's nothing fundamentally wrong with either strategic path. Winding down a company over a period of time can be very profitable. And adaptation can be really hard. However, one recipe for failure is to try to operate as if you're going to last forever when the external conditions dictate winding down. Here's the crux of the reason that cognitive biases and organizational dysfunction are so detrimental. Many management teams don't identify the trends, they don't have the conversation, and then they fall into predictable patterns that avoid putting critical issues on the table to decide whether to adapt to the emerging trend or wind down the company.
The first step in adapting is seeing change in the external environment, and the second is choosing to respond. If you can't even see the changes coming, you can't get to a point where you can effectively debate how you'll respond and, even at that point, other biases prevent action. Companies must be aware of the human biases that create the precondition for systematic organizational blindness and inaction. Let's explore several of the cognitive biases, starting with those that make it hard to see trends.
Availability bias. If we had a nickel for every time someone, when challenging market research, cited preference of a family member to discredit or support the research, we'd have a lot of nickels. You've probably been in a meeting like this, too, where someone would say something like, “I gave a sample to my daughter and she hated it.” Although it's unfortunate that his daughter disliked the product, it certainly does not imply that the research is faulty. It's also clear that, in addition to not appreciating the relevance of sampling size, the person in question might be suffering from the availability bias – that is, the tendency to rely on examples that are easy to access mentally. It was challenging for our friend in Chapter 1 to see the possibility of cord cutting because the concept simply wasn't mentally accessible to him at that point.
We would be remiss if we didn't note that the availability bias is certainly contributing to the current divided state of American politics. Social media has become an echo chamber and we are no longer exposed to other ideas or concepts and, as a result, find other points of view “wacky” or disproportionately “out of step.” It's too easy not to stretch to find new information or to try to adopt a different point of view when information that supports your preconceptions is so readily available.
Egocentric bias. Whereas the availability bias is about what information is more proximate to an individual, the egocentric bias is the tendency to overweight data that is consistent with one's previous point of view. Why is this important? The world is a muddy place and there is often lots of data that is unclear. If you are more likely to select and use data that conforms to your view of the world, then it makes it harder for you to incorporate different views into your overall perspective. Interestingly, there is data that shows that people who are bilingual are less subject to egocentric bias because they have grown up paying attention to others' points of view. When there are new trends that don't conform to your worldview, it's harder to see them – and even harder to incorporate them into your decision-making about how to respond. (The egocentric bias also tends to result in people overestimating their contributions to a group and underweighting the contributions of others, but, from the point of view of what causes people to miss trends, we are less interested in that aspect of the bias.1)
The egocentric bias may have developed because the human brain is better at coding things into memory when individuals believe that information will have an impact on them. At some point in our evolutionary history, this may have had advantages to our survival. Now, it challenges our ability to succeed if humans are less able to incorporate data that is not obviously connected to our current worldview.
Affect heuristic bias. This bias suggests that people base their judgments on their perceived affect
