Do you remember the old days, when we lived by hunting and gathering, when death by sabre-toothed tiger was an occupational hazard, and we used to get very excited about the new season's fashions in bearskin wraps? No, neither do I. But parts of our brain do. Life in the Stone Age may well have been nasty, brutish and short, but it was simple. Risks and opportunities were few in number, easy to spot and it wasn't hard to work out what to do about them.
And although we've made enormous progress in many areas of life since those caveman days, and changed our world out of all recognition in so many ways, how we think has not kept pace and remains largely the same. Often we seem to be stuck in the Stone Age, applying caveman thinking to information age issues.
So we need to upgrade our thinking, but our inner caveman isn't going to go away. He occupies a very old, primitive part of the mind. There are some fairly predictable ways in which our caveman brain not only conditions the way we think, but prevents us acting on our conclusions even when we get it right. These are the thinking traps to avoid.
Alastair Dryburgh's first MT book, Everything You Know About Business is Wrong, is published by Headline. To order your copy at the MT special price of £8.99 (rrp £13.99), including postage and packing, visit www.pressoffers.co.uk/hod280 or call 0845 302 2900 and quote order ref HOD280. Or, send a cheque payable to Arterie Ltd to Arterie, Suite 102, 33 Greyfriars Avenue, Hereford, HR4 9DB.
1. Magical Thinking
This is very popular these days. Go into any bookshop and head for the 'self-help' section. Here are shelves full of guaranteed recipes for success, wealth, love ...
The cynic (and in this area, I am a cynic) might ask why, if it's all so easy, so many people are clearly unfulfilled to the point where they need to keep buying these books. But, leave aside the question of efficacy and what are these books telling us? There seem to be two main strands:
- Firstly, if you want it enough, visualise it enough, and it will come to you. The best example of this is Rhonda Byrne's The Secret.
- Secondly, if that seems a bit flaky, you might enjoy the willpower school more. Here it is just a question of will; if you aren't getting what you want, it's because you have chosen not to get it. Want it enough, work hard enough, and you will have what you want.
Magical thinking crops up surprisingly often in business. For example:
- We need a new mission statement to get us moving again.
Mission statements are based on the power of visualisation and often lack any evidence that the mission is attainable, or an idea of what's got to be done, or changed, to bring it about.
- Stronger incentives (things like bigger carrots for top management or bigger sticks for the workers).
This is part of the willpower school - want it enough and you can make it happen.
The appeal of magical thinking is that it relieves us of a lot of thought and a lot of uncertainty. Willpower trumps cunning. You don't need to plan - just set off with enough energy and optimism and it will all come right. If it doesn't, you clearly didn't believe enough, or try hard enough.
It's not hard to see how this sort of thinking appeals to the caveman brain. In the absence of science and any logic to examine cause and effect, primitive people took refuge in superstition and ritual.
But things have moved on and it's time for a reality-based approach to our aspirations. Any time you feel yourself drawn to a 'guaranteed recipe' or 'six points that cannot fail' you are succumbing to the charms of magical thinking. Practise spotting it, in yourself and others, and avoid at all costs.
2. Status Quo Bias
This isn't an irrational liking for a perennial rock band, but a systematic flaw in the way we think about risk. To have any chance of dealing with risk effectively we need to distinguish two different types:
Risk arising from doing something
'Doing something' could be anything from asking someone for a date to using advanced technology to drill for oil in the Gulf of Mexico. Type 1 risk feels risky. Whatever it is, when we decide to do something, we are conscious of the risk involved, even if we aren't particularly good at assessing its severity or planning how to manage it.
Risk arising from not doing something
We might not ask for that date and miss the chance of a wonderful relationship, or we might not develop that new product or approach and doom our company to failure. The strange thing is that type 2 risk often feels safe. However hard we might try to conjure up a vision of the regret and lost opportunity arising from our decision not to take action, that vision seems so much less vivid and compelling than the visions of failure which present themselves when we do act.
Thanks to our bearskin-clad ancestors, we have a very strong bias towards the first of those types, with its implicit assumption that the status quo is always an option.
For the caveman, this makes perfect sense. 'The future, unless I do something to change it, will remain like the past. I have survived the past, so that is fine.' But in business today, the status quo is no longer an option because your present, comfortable, familiar platform is probably already being eroded by technological progress, demographic changes, globalisation or the efforts of your com- petitors.
A perennial risk when taking decisions is to focus too narrowly and exclude the bigger picture. It seems mobile phone firm Nokia recently fell victim to isolated thinking. It had for many years been hugely successful making handsets based on the Symbian operating system. Then the market changed fundamentally. The advent of the smartphone, whether Apple or Android, meant that the handset was no longer a discrete piece of equipment but the centre of an 'ecosystem' of applications and other services produced or supplied by a huge range of third parties. Symbian just couldn't support this, and Nokia was slow to recognise the problem. In the end, to obtain a viable operating system, it had to do a deal with Microsoft, a distant third in the market.
4. General Risk Aversion
Our inner caveman is very risk averse, and with good reason. Think of him as someone who was always up to his chin in water. There was no safety margin in his life. One false move, one bad decision, one poor harvest or hard winter and he's had it.
Of course the world has changed. Most of the time now we do have a safety margin - we can and should experiment, because experiments lead to progress and we can absorb the costs of a few unsuccessful attempts.
5. The Fundamental Attribution Error
This one is so common that social psychologists have invented a special name for it. It is defined on Wikipedia as 'the tendency to overvalue dispositional or personality-based explanations for the observed behaviours of others while undervaluing situational explanations for those behaviours'.
What that means is that when people do things we don't like we tend to explain it by saying: 'That's just how they are,' rather than: 'That's what you would expect given the situation they are in.'
It's clear that getting to grips with this one could make a huge difference to your effectiveness as a manager. Fortunately the social psychologists offer some techniques for doing just that:
- Take a 'consensus' view. If most people in a given situation behave in a particular way, assume that it is the result of the situation, not the individuals' dispositions.
- Ask yourself how you would behave in the situation.
- Look for hidden causes, like the effect of incentive structures and organisational structure.
Knowing the pitfalls to avoid is only half the story, we also need to improve the quality of our thinking and that means understanding how we think and when it's appropriate to change our thinking methods. Let's distinguish three levels of thinking.
1. The Reflex Action
Also known as the conditioned reflex or less charitably as the 'knee-jerk reaction'. There is a stimulus - something we see, or hear, or smell - which produces a response. The same stimulus, experienced 100 times will, regardless of context, always produce the same result.
The advantage of the reflex reaction is speed and the fact that it feels right. Business abounds in questionable reflex reactions:
- Departmental performance is slipping -Somebody is not up to the job. Either get them some training or fire them.
- Profits are down - Costs need to be reduced.
- Sales are slipping - Our prices are too high.
These are at best highly questionable responses. Most of the time, they are just plain wrong.
2. The Algorithm or Checklist
Unlike the reflex reaction, this works on the conscious level. Something happens and you run through a decision making process:
- It's a sabre-toothed tiger.
- Is it a very big one? If yes, run.
- If no, do I have my spear with me? If yes, fight it. If no, run.
Checklists are much used by engineers, technicians and professionals. For example, by airline pilots: has the engine just stopped or is it on fire? Am I within reach of an airport, or am I over the middle of the ocean?
This type of thinking is more sophisticated than the reflex action. Firstly, it examines the precise nature of the stimulus (big sabre-toothed tiger or small one, engine stopped or engine in flames?). Secondly, it looks at the context (do I have a spear with me, am I within reach of an airport?).
It allows for different responses depending on the first two points, and we are aware we're taking a decision as we work through the algorithm.
The disadvantages of the algorithm are twofold. Firstly, it is much slower than the reflex and in certain situations you may not have time to evaluate the exact nature of the stimulus. Sometimes there may simply may not be time get the data, or to think it through.
Secondly, it requires the situation to be relatively clear cut. The choices of action need to be well defined and few in number. This is feasible for a pilot flying from London to New York, but less so for a chief executive piloting a complex business through a recession.
Nonetheless, there are many useful algorithms around to help with business decision making. For example, Michael Porter's famous Five Forces model is a very useful algorithm for thinking about strategy.
The two methods discussed so far, the reflex and the algorithm, will deal with most common decisions. There are some cases, however, which need something much more powerful.
3. Creative or 'Messy' Thinking
With creative thinking, you have an initial question and a range of ways of proceeding. In the middle is a cloud, or fog, of uncertainty. Somehow you have to move through the fog towards an answer.
This sort of thinking is ideal for those loosely defined questions such as 'What should this business look like in five years' time?' It's powerful but hard to pin down, so for many people in business there's quite a lot not to like about creative thinking:
What's in the fog? How do I navigate it? Will I get lost in it, possibly travelling in a circle?
You don't know how long it's going to take, so you can't tell when you are 25%, 50% or 75% of the way through the process. If others are relying on you to solve a problem this way, it's going to be difficult to reassure them. 'We are in the fog of uncertainty and hope to emerge from it some time' isn't very comforting.
The good news is that, for most situations, creative thinking isn't necessary. You can reap the benefit of past experience, or the experience of others, by using an algorithm. The bad news is that for some questions, creative thinking is the only solution, And these tend to be the most important issues, the ones that make or break your business.
Deciding how to decide
All three types of thinking have their uses. The point is to make sure that you choose the right one for the right purpose. So, how do you decide how to decide?
- Reflex action works when it doesn't matter what is causing the effect you see.
- The algorithm is better if you need to investigate causes. I observe X. If it's caused by A, then I need to do Y. If the cause is B, then I must do Z.
Suppose profits are down. A reflex action is to cut costs. An algorithm might lead you to consider two causes. Maybe it's because costs are too high, in which case you do indeed need to cut them. On the other hand, maybe it's because prices are declining as a result of competition from the Far East. If that's the case, then cost cutting probably isn't the answer.
Creative thinking is a last resort, a powerful but unpredictable technique for use when the issue isn't sufficiently clear cut for either of the other two methods. It tends to apply to the big open-ended questions, such as: 'What is our business really for?' or 'Should we still be making these products at all?'
Test your own thinking
Observe yourself thinking for a week. How many decisions do you take as a reflex, moving straight from problem to solution? How many decisions do you take using some sort of algorithm? You may not consciously move through a series of questions, but if you ask yourself what could be the possible causes of what you observe, or what could be alternative courses of action, that is what you are doing. And how many decisions do you take using the creative thinking process?
Now ask yourself a few questions
Where did I take a reflex decision when I could have, or should have, gone through an algorithm? Conversely, were there cases where I went through an algorithm when I didn't need to? Are there types of decisions where I think the decision through in stages, but always arrive at exactly the same answer? Could I stop thinking in these cases and just react?
Where have I applied the creative thinking process? Did I need to? Could I reduce the decision to an algorithm? If I didn't use the creative thinking process at all, why was this?
By taking all this together, and recognising that every form of thinking has its value, you should be able to decide if you are applying the right thinking method in the right situation.