Reframe your strategy to avoid hidden biases

The last ten years has seen increasing appreciation of how understanding behavioral economics can improve the practice of management.  Daniel Kahneman was awarded a Nobel Prize for his contributions to the development of behavioral economics; and with Dan Lovallo and Olivier Sibony he contributed an article for the June 2011 edition of HBR.  This describes the 12 most prevalent cognitive biases – including falling in love with ideas, doctor self-interest, medic confirmation bias, anchoring, groupthink, etc. – and outlines the questions that a decision-maker should ask before making strategic bets to uncover whether the recommendation being made has been unduly influenced by any of them.

This article embodies the prevailing consensus of how behavioral science augments management science – it is a means of reviewing decisions made using traditional approaches.  Accepting such a role appears a little inconsistent given one of the most common biases described is anchoring – the first estimate, no matter how flawed, anchors all subsequent ones with the result that the adjustment made is never typically enough.

But more importantly such an approach does little to reveal the biases embedded in the assumptions held by management teams and reflected in the frameworks they choose to use.  These biases arise from what Kahneman and his long time research partner Amos Tversky called framing.

Framing defines the way we approach problems or seek to achieve objectives.  Typically we seek to address challenges in the way they are presented, thereby limiting our ability to generate a range of options and arrive at a better decision.  Compounding this acquiescence is a tendency to segregate the challenge from its wider context – it becomes our exclusive focus, resulting in objectives and targets that distort behavior because they are too narrow.

One example is casting the challenge for strategy as defeating competitors – the perennial use of warfare, martial arts and chess analogies being one expression.  Such analogies are dangerous for a number of reasons:

  • Firstly as Ron Ashkenas has recently highlighted often collaboration with competitors is required
  • Also multiple competitors typically exist (not just one as is the case in the analogies described above)
  • Furthermore, competition is indirect, manifested in how customers are served rather than head-to-head combat.

The result of the above is the confusion of an outcome with an objective – any ‘defeat’ of competitors is an outcome of achieving an objective of creating superior value for customers.  But most damagingly of all, this framing of strategy appeals to the testosterone-fueled relativism that characterizes driven people – those that rise to the top of large companies – and in so doing accentuates the economic irrationality imbued therein.

Studies show that the most competitive among us would prefer to have a low income that is higher than that of our peers than a high income (and higher standard of living) that is lower than our than that of our friends and associates.  Such thinking makes sense biologically (increasing the chances of finding a mate) but not economically.  Focusing on trying to damage a competitor increases the tolerance for self-harm – e.g. engaging in a price war or over-paying for an acquisition.

The second example is marketing’s pre-occupation with branding. Branding appeals to our inherent egocentricity, thereby once again accentuating some natural inclinations:

  • Firstly, our tendency towards pre-Copernicanism –  viewing the world as if it revolves around us or our brand (not vice versa)
  • Secondly, the related preference for talking over listening

But focusing on an internal construct (brand) rather an external constituency (customers) reinforces the inside-out perspective that debilitates much marketing activity.  As a result, too often propositions are based around what the company wants to offer rather than what customers genuinely need and value.

Fans of both competitive strategy and branding will argue that when developed and executed rationally, such problems do not exist; and they will be able to cite case studies supporting their point.  But such case studies are not a scientific justification.  By definition they are outliers while those taking the same approach but generating average or poor performance are disregarded.  And if we have learnt one thing from behavioral science, it is that rationality should not be our starting premise.

In good part, support for these approaches stems from the psychological appeal they hold for those responsible for strategy and marketing.  But this psychological appeal just accentuates natural inclinations – we need frameworks that mitigate rather than compound inherent biases.  These will often be the ones that appeal less.

For me, both competitive advantage and brand value are best achieved indirectly through delivering superior value to customers.  But then like everyone else I am biased, which is why we need more understanding of the biases baked into the approaches we frequently use.  Until then, we will continue to be blind to our own blindness, to use another expression of Kahneman’s.  Identifying and alleviating embedded bias will hopefully be behavioral science’s next contribution to management science.

Also available at hbr.org

Jack Springman is a consultant specializing in growth strategies and the author of Elusive Growth: Why Prevailing Practices in Strategy, Marketing and Management Education are the Problem, Not the Solution (2011)

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About Jack Springman

I am a consultant with experience in business strategy and customer strategy development, customer management and customer service transformation.

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