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Debiasing and Corporate Performance

Loss aversion bias? Or maybe I’m just satisficing?

Over the past several years, I’ve written several articles about cognitive biases. I hope I have alerted my readers to the causes and consequences of these biases. My general approach is simple: forewarned is forearmed.

I didn’t realize that I was participating in a more general trend known as debiasing. As Wikipedia notes, “Debiasing is the reduction of bias, particularly with respect to judgment and decision making.” The basic idea is that we can change things to help people and organizations make better decisions.

What can we change? According to A User’s Guide To Debiasing, we can do two things:

  1. Modify the decision maker – we do this by “providing some combination of knowledge and tools to help [people] overcome their limitations and dispositions.”
  2. Modify the environment – we do this by “alter[ing] the setting where judgments are made in a way that … encourages better strategies.”

I’ve been using a Type 1 approach. I’ve aimed at modifying the decision maker by providing information about the source of biases and describing how they skew our perception of reality. We often aren’t aware of the nature of our own perception and judgment. I liken my approach to making the fish aware of the water they’re swimming in. (To review some of my articles in this domain, click here, here, here, and here).

What does a Type 2 approach look like? How do we modify the environment? The general domain is called choice architecture. The idea is that we change the process by which the decision is made. The book Nudge by Richard Thaler and Cass Sunstein is often cited as an exemplar of this type of work. (My article on using a courtroom process to make corporate decisions fits in the same vein).

How important is debiasing in the corporate world? In 2013, McKinsey & Company surveyed 770 corporate board members to determine the characteristics of a high-performing board. The “biggest aspiration” of high-impact boards was “reducing decision biases”. As McKinsey notes, “At the highest level, boards look inward and aspire to more ‘meta’ practices—deliberating about their own processes, for example—to remove biases from decisions.”

More recently, McKinsey has written about the business opportunity in debiasing. They note, for instance, that businesses are least likely to question their core processes. Indeed, they may not even recognize that they are making decisions. In my terminology, they’re not aware of the water they’re swimming in. As a result, McKinsey concludes “…most of the potential bottom-line impact from debiasing remains unaddressed.”

What to do? Being a teacher, I would naturally recommend training and education programs as a first step. McKinsey agrees … but only up to a point. McKinsey notes that many decision biases are so deeply embedded that managers don’t recognize them. They swim blithely along without recognizing how the water shapes and distorts their perception. Or, perhaps more frequently, they conclude, “I’m OK. You’re Biased.”

Precisely because such biases frequently operate in System 1 as opposed to System 2, McKinsey suggests a program consisting of both training and structural changes. In other words, we need to modify both the decision maker and the decision environment. I’ll write more about structural changes in the coming weeks. In the meantime, if you’d like a training program, give me a call.

Failure Is An Option

Houston, we have a problem … but we’d rather not talk about it.

The movie Apollo 13 came out in 1995 and popularized the phrase “Failure is not an option”. The flight director, Gene Kranz (played by Ed Harris), repeated the phrase to motivate engineers to find a solution immediately. It worked.

I bet that Kranz’s signature phrase caused more failures in American organizations than any other single sentence in business history. I know it caused myriad failures – and a culture of fear – in my company.

Our CEO loved to spout phrases like “Failure is not an option” and “We will not accept failure here.” It made him feel good. He seemed to believe that repeating the mantra could banish failure forever. It became a magical incantation.

Of course, we continued to have failures in our company. We built complicated software and we occasionally ran off the rails. What did we do when a failure occurred? We buried it. Better a burial than a “public hanging”.

The CEO’s mantra created a perverse incentive. He wanted to eliminate failures. We wanted to keep our jobs. To keep our jobs, we had to bury our failures. Because we buried them, we never fixed the processes that led to the failures in the first place. Our executives could easily conclude that our processes were just fine. After all, we didn’t have any failures, did we?

As we’ve learned elsewhere, design thinking is all about improving something and then improving it again and then again and again. How can we design a corporate culture that continuously improves?

One answer is the concept of the just culture. A just culture acknowledges that failures occur. Many failures result from systemic or process problems rather than from individual negligence. It’s not the person; it’s the system. A just culture aims to improve the system to 1) prevent failure wherever possible or; 2) to ameliorate failures when they do occur. In a sense, it’s a culture designed to improve itself.

According to Barbara Brunt, “A just culture recognizes that individual practitioners should not be held accountable for system failings over which they have no control.” Rather than hiding system failures, a just culture encourages employees to report them. Designers can then improve the systems and processes. As the system improves, the culture also improves. Employees realize that reporting failures leads to good outcomes, not bad ones. It’s a virtuous circle.

The concept of a just culture is not unlike appreciative inquiry. Managers recognize that most processes work pretty well. They appreciate the successes. Failure is an exception – it’s a cause for action and design thinking as opposed to retribution. We continue to appreciate the employee as we redesign the process.

The just culture concept has established a firm beachhead among hospitals in the United States. That makes sense because hospital mistakes can be especially tragic. But I wonder if the concept shouldn’t spread to a much wider swath of companies and agencies. I can certainly think of a number of software companies that could improve their quality by improving their culture. Ultimately, I suspect that every organization could benefit by adapting a simple principle of just culture: if you want to improve your outcomes, recruit your employees to help you.

I’ve learned a bit about just culture because one of my former colleagues, Kim Ross, recently joined Outcome Engenuity, the leading consulting agency in the field of just culture. You can read more about them here. You can learn more about hospital use of just culture by clicking here, here, and here.

Innovating The Innovations

It's a mashup!

It’s a mashup!

Mashup thinking is an excellent way to develop new ideas and products. Rather than thinking outside the box (always difficult), you select ideas from multiple boxes and mash them together. Sometimes, nothing special happens. Sometimes, you get a genius idea.

Let’s mash up self-driving vehicles and drones to see what we get. First, let’s look at the current paradigms:

Self-driving vehicles (SDVs) include cars and trucks equipped with special sensors that can use existing public roadways to navigate autonomously to a given destination. The vehicles navigate a two-dimensional surface and should be able to get humans or packages from Point A to Point B more safely than human-driven vehicles. Individuals may not buy SDVs the way we have traditionally bought cars and trucks. We may simply call them when needed. Though the technology is rapidly improving, the legal and ethical systems still require a great deal of work.

Drones navigate three-dimensional space and are not autonomous. Rather, specially trained pilots fly them remotely. (They are often referred to as Remotely Piloted Aircraft or RPAs). They military uses drones for several missions, including surveillance, intelligence gathering, and to attack ground targets. To date, we haven’t heard of drones attacking airborne targets, but it’s certainly possible. Increasingly, businesses are considering drones for package delivery. The general paradigm is that a small drone will pick up a package from a warehouse (perhaps an airborne warehouse) and deliver it to a home or office or to troops in the field.

So, what do we get if we mash up self-driving vehicles and drones?

The first idea that comes to mind is an autonomous drone. Navigating 3D space is actually simpler than navigating 2D space – you can fly over or under an approaching object. (As a result, train traffic controllers have a more difficult job than air traffic controllers). Why would we want self-flying drones? Conceivably they would be more efficient, less costly, and safer than the human-driven equivalents. They also have a lot more space to operate in and don’t require a lot of asphalt.

We could also change the paradigm for what drones carry. Today, we think of them as carrying packages. Why not people, just like SDVs? It shouldn’t be terribly hard to design a drone that could comfortably carry a couple from their house to the theater and back. We’ll be able to whip out our smart phones, call Uber or Lyft, and have a drone pick us up. (I hope Lyft has trademarked the term Air Lyft).

What else? How about combining self-flying drones with self-driving vehicles? Today’s paradigm for drone deliveries is that an individual drone goes to a warehouse, picks up a package, and delivers it to an individual address. Even if the warehouse is airborne and mobile, that’s horribly inefficient. Instead, let’s try this: a self-driving truck picks up hundreds of packages to be delivered along a given route. The truck also has dozens of drones on it. As the truck passes near an address, a drone picks up the right package, and flies it to the doorstep. We could only do this, of course, if drones are autonomous. The task is too complicated for a human operator.

I could go on … but let’s also investigate the knock-on effects. If what I’ve described comes to pass, what else will happen? Here are some challenges that will probably come up:

  • If drones can carry people as well as packages, we’ll need fewer roadways. What will we do with obsolete roads? We’ll probably need fewer airports, too. What will we do with them?
  • If people no longer buy personal vehicles but call transportation on demand:
    • We’ll need far fewer parking lots. How can cities use the space to revitalize themselves?
    • Automobile companies will implode. How do we retrain automobile executives and workers?
    • We’ll burn far less fossil fuel. This will be good for the environment but bad for, say, oil companies and oil workers. How do we share the burden?
  • If combined vehicles – drones and SDVs – deliver packages, millions of warehouse workers and drivers will lose their jobs. Again, how do we share the burden?
  • If autonomous drones can attack airborne targets, do we really need expensive, human-piloted fighter jets?

These are intriguing predictions as well as troublesome challenges. But the thought process for generating these ideas is quite simple – you simply mash up good ideas from multiple boxes. You, too, can predict the future.

Us Versus Them

"The school bus broke down!"

“The school bus broke down!”

How easy is it for an us-versus-them situation to arise? How often do we define our group as different from – and therefore better than – another group? The short answers: It’s surprisingly easy and it happens all the time.

In my professional life, I often saw us-versus-them attitudes arise between headquarters and the field. Staffers at head-quarters thought they were in a good position to direct field activities. People in the field thought the folks at headquarters just didn’t have a clue about the real world.

Headquarters and the field are typically separated by many factors, including geography, planning horizons, rank, age, academic experience, and tenure. Each side has plenty of reasons to feel different from – and superior to – the other side. But how many reasons does it take to generate us-versus-them attitudes?

In the early 1970s, the social psychologist Henri Tajfel tried to work out the minimum requirements for one group to discriminate against another group. It turns out that it doesn’t take much. People who are separated into groups based on their shirt color develop us-versus-them attitudes. People who are separated based on the flip of a coin do the same. Tajfel’s minimal group paradigm is quite simple: The minimum requirement to create us-versus-them attitudes is the existence of two groups.

Us-versus-them attitudes are completely natural. They arise without provocation. There’s no conspiracy. All we need is two groups. I sometimes hear managers say, “Let’s not develop us-versus-them attitudes here.” But that’s completely unnatural. Something about our human nature requires us to develop such attitudes when two groups exist. It can’t not happen.

We can’t avoid us-versus-them attitudes but we can dissolve them. We can’t stop them from starting but we can stop them once they have started.

The pioneering research on this was the Robbers Cave Experiment conducted in 1954. Muzafer and Carolyn Sherif, professors at the University of Oklahoma, selected two dozen 12-year-old boys from suburban Oklahoma City and sent them off to summer camp at Robbers Cave State Park. The boys were quite similar in terms of ethnicity and socioeconomic status. None of the boys knew each other at the beginning of the experiment.

The boys were randomly divided into two groups and housed in different areas of the campground. Initially, the groups didn’t know of each other’s existence. They discovered each other only when they began to compete for camp resources, like playing fields or dining halls. Once they discovered each other, they quickly named their groups: Rattlers and Eagles.

So far, the boys’ behavior was entirely predictable. The research question was: How do you change such behavior to reduce us-versus-them attitudes?

The researchers first measured the impact of mere contact. The researchers thought that by getting the boys to mingle – in dining halls or on camp buses, for example – they could overcome negative attitudes and build relationships. The finding: mere contact did not change attitudes for the better. Indeed, when contact was coupled with competition for resources, it increased friction rather than reducing it.

The researchers then moved on to superordinate goals. The two groups had to cooperate to achieve a goal that neither group could achieve on its own. For example, the researchers arranged for the camp bus to “break down”. They also arranged for the water supply to go dry. Rattlers and Eagles had to work together to fix the problems. The finding: cooperation on a larger goal reduced friction and the two groups began to integrate. Rattlers and Eagles actually started to like each other.

The research that the Sherifs started has now grown into a domain known as realistic conflict theory or RCT. The theory suggests that groups will develop resentful attitudes towards other groups, especially when they compete for resources in a zero-sum situation. According to Wikipedia, RCT suggests that “…positive relations can only be restored if superordinate goals are in place.”

The moral of the story is simple: you can’t prevent us-versus-them attitudes but you can fix them. Just find a problem that requires cooperation and collaboration.

 

 

Managing The Matrix

Task: Assemble the best team.

Task: Assemble the best team.

One of my largest clients is re-engineering its organization to focus on functions rather than geographies. It’s a classic move from top-down management to matrix management. I think it’s very much the right thing to do but it’s making some of the managers nervous. How does one shift from managing a team to managing a matrix?

I went through a similar transition at Lawson, the last major software company that I worked for. We transitioned from geographies – Sweden, Western USA, Australia/New Zealand – to global teams that focused on vertical markets like healthcare, food and beverage, and fashion. We focused on industries rather than geographies and became expert advisors to our customers.

And what did I learn about managing in a matrix? Here are the key ideas that stood out for me.

Connectors succeed – in a geographic organization, a manager gets to know her team and learns how to accentuate their strengths and minimize their weaknesses. Team members are often physically close to each other. There’s no need to connect them; they’re already connected. In a matrix, the ability to connect people is the most important single skill. People who are natural connectors are often the best matrix managers.

Diplomacy counts – diplomacy is a useful skill for any manager. It’s especially important in a matrix. In a top-down organization, a manager could simply give orders without much tact or diplomacy. Not so in a matrix. A matrix manager is forever building teams – one team to address Issue X, and another to address Issue Y. A matrix manager is always recruiting and needs a positive attitude, good diplomatic skills, and a good understanding of what motivates people.

A good manager can build all-star teams – let’s say I wanted to sell Lawson software to the Swedish fashion house, Filippa K. With the right diplomatic and connecting skills, I could assemble an all-star team to sell the account. My team might include a design expert from New Zealand, a cut-and-sew expert from New York, and a retail expert from Stockholm. I pull them together and focus them intently on the task of selling to Filippa K. Once they sell the account, the team dissolves and the team members reassemble — perhaps with other teammates – to focus on a different project. The good news is that a matrix manager gets to work with all-stars all the time. The not-so-bad news is that a successful matrix manager needs to continually assemble and re-assemble teams in ever-changing patterns.

Talent spotting becomes more important– in a geographic organization, employees do multiple things in a designated area. They become jacks-of-all-trades. In a matrix organization, employees are much more likely to specialize in a given function. They can master the skill. The successful matrix manager knows how to spot the most talented employees and recruit them to her (temporary) team.

Flexibility and adaptability count – flexibility is the strongest point of matrix organization. Managers can quickly assemble and re-assemble teams based on changing needs. This only works if managers are equally flexible. Managers must be fluid; they can’t stay attached to a permanent structure. There is no permanent structure.

Managers must work effectively with each other – in a matrix, an employee often has more than one manager on a given project. For instance, that retail expert from Stockholm would report to me temporarily while working on the Filippa K account. At the same time, she would also report to the overall head of the retail team, who might be located in Melbourne. It can get confusing and roles need to be clearly defined. At the same time, managers need to work effectively with their peers cross the matrix. If I have a beef with the manager in Melbourne, things will go downhill quickly. Again, diplomacy and good communication are key ingredients for success.

The matrix changes the culture – in geographic organizations, teams may easily fall into competition with each other. I would have no incentive to lend my retail expert to another geography. That would only crimp my chances of making my number. A matrix, on the other hand, emphasizes cooperation. If a manager doesn’t make her all-stars available, she doesn’t get access to other all-stars. Sharing becomes more important than competing.

Ultimately, good managers have nothing to be afraid of in a matrix organization. Even in traditional top-down organizations, good managers are likely to be effective communicators and motivators with good diplomatic skills. Those are the same skills that are required to succeed in a matrix.

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