Monday, February 29, 2016

Understanding Intuition

It’s generally been recognized that anyone who is highly effective has a keenly developed sense of intuition that they rely upon to make “judgment calls,” without a great deal of analysis.  In spite of this, there has been a trend over the course of many years to devalue human judgment in favor of a deliberate decision-making process that favors quantification and algorithms over common sense.

It can also be observed that, in spite of the most meticulous processes, bad decisions are still made – and quite often, they are made because of sophisticated decision-making apparatuses that are worshipped with a near-religious faith and obeyed even when  “common sense” would indicate that the decision is bad.  The faithful cast aside their doubts and do something they “feel” to be wrong because they believe that the decision-making mechanisms are smarter and better than their own intuition and human logic.

As such, there seems to be a movement toward returning to intuition for faster and better decisions – but there is little value to switching to the opposite extreme.   The decision-making solutions were put in place precisely because human begins are subject to ignorance and arrogance, which in tandem lead almost invariably to tragedy when a person with very little knowledge feels he is an expert at anything and that his ideas are as good as anyone else’s. 

The problem may be that the notion of “intuition” is poorly understood – thought to be a supernatural force that alights on anyone out of the blue – and those who do not understand intuition feel themselves capable of it, that “anyone can have a brilliant idea” even if they have little knowledge of a subject.  Or worse, the feeling that people without knowledge are better at coming up with new ideas because they are not burdened by the assumptions that experienced people tend to make to eliminate ideas that disagree with theory.  

Properly understood, intuition is not at all mystical or random: it comes from the recognition of a connection or a pattern in the information about a given subject.  Sometimes, this may come from recognizing that existing theory has overlooked something, or has wrongly declared something to be false or impossible.   But more often, it is simply something that has not need given adequate consideration.

However, to make connections and recognize patterns, there must be knowledge of those things among which connections and patterns can be found.  A person who knows nothing of pharmacology is unlikely to discover a miracle cure by feeding random plants to patients.   It may have been possible to do so in the eighteenth century for a dilettante to make a significant contribution because so little was known and any knowledge would be new.  Today, the field has been studied exhaustively, and anything an amateur “discovers” by his own tinkering is likely already well documented in textbooks on the subject.

As such, the greatest potential for intuition is for knowledgeable person, experienced and studied in the field, to seek out new connections – but at the same time to be willing to question the assumptions inherent in the knowledge he already possesses, particularly when they are barriers to success.   Real barriers do exist, and cannot be simply imagined or wished away – but an amateur approaching an established field does not have the ability to recognize the difference.

Tuesday, February 23, 2016

Complaining as Cost

It’s been said that for every customer who complains, there are a hundred others who are upset about the very same thing and remain silent.   That’s likely a made-up statistic, as there it does not seem possible to measure it accurately – but it’s entirely plausible, and likely to be low.   This is, or ought to be, a serious concern for customer service because the silent customer generally resolves their problem by taking their business elsewhere, if not immediately then at their earliest convenience.

To make matters worse, customer complaints are most often treated as nuisances.  In my own experience, complaining to a company about some deficiency in their service is seldom met with eagerness to resolve the situation to my satisfaction.  And even when that happens, the firm makes only a token effort.   Mostly, I get the distinct sense that they simply want me to shut up and go away so that they can carry on business as usual, even though “business as usual” has failed at achieving customer satisfaction.  So for the most part, I’ve stopped complaining in and simply take my business elsewhere.  I doubt that I am alone in this.

From the customer perspective, complaining adds to the cost of obtaining satisfaction – as “cost” includes effort in addition to the money-price of a good.  If it takes two hours to resolve a service issue and achieve the goal for which I’d purchased the product, that’s two hours of my time that’s not spent doing something more pleasant or productive with my time.    I’d be better off paying more money (whatever sum two hours is worth) to a firm that does a better job of solving the problem for which I’ve paid.

And “two hours” is likely a good estimate.  It generally takes two to three phone calls, each of which involves about ten minutes of dealing with a computerized menu and then being put on hold to speak to someone who can help.   In some instances it may involve taking an item back to a store, or packing it up and taking it to a shipping company, both of which consume a considerable amount of time.

In this sense, complaining can be seen as an economic choice: the time it takes to complain is weighed against the benefit that might be achieved by complaining – even if you ignore the sunk cost of purchasing a good or service that failed to solve the problem, this often exceeds the cost of starting over with another firm.

Take for the example of a customer who earns $40,000 per year and has problems with a $20 appliance and it arrives broken.   He may well spend 10 minutes combing the website for the customer service number, 30 minutes on the phone to get a return authorization, 30 minutes to repackage the item for shipping, 20 minutes driving (each way) to a post office, and 20 minutes waiting in line when he gets there.   In the end, he has spent $40 worth of his time* - not including travel costs.  So he takes a loss of $20 for complain as opposed to throwing it away and ordering a new one from a different supplier online.

Admittedly, it’s doubtful that customers do the calculations and many do not consider the value of their time – they simply think that complaining to the supplier is not worth the hassle.   Essentially, it’s the very same thing, as the emotional assessment of “hassle” is a consideration of the amount of time that must be spent doing unpleasant things in order to effect a solution.   And multiply that by the estimated chance that complaining will actually result in a satisfactory income, and the value of complaining seems even less.


* Using income to monetize leisure time is problematic, but I’m using that here to avoid a long diversion to consider the value of leisure time.

Thursday, February 18, 2016

Brand and Social Identity

Consider conspicuous consumerism: people not only have expectations of a brand, but they associate specific qualities to a person who consumes a given brand.   We assume that a person who consumes luxury brands is successful and wealthy.  We assume that a person who consumes budget brands is smart and thrifty.   Or at least the person who consumes this brand in a conspicuous way expects and hopes that others will think of them.   This is fairly obvious.

What is less obvious is the degree to which these qualities are internalized: when it is advertised that “choosy moms choose” a given brand of peanut butter, mothers are meant to feel that if they choose a different brand, that they are bad mothers to their children.  It is not that anyone outside of the household is aware of what brand she uses – but the way she feels about herself is highly influenced by her choice of brands.   If she wants to feel like an attentive and concerned mother, she must choose this specific brand.

The consumption of a given brand also leads to a sense of belonging to a social group of people who use the same brand, or distinction from those people who use other brands.   This can be seen even among young children that there is a desire to use specific brands to “fit in” with a desirable group and distinguish oneself from the members of an undesirable group.   It’s not good enough to have a warm coat for the winter, but they must have the right brand of coat, or others may shun or deride them.

In the present day, consumers have many more choices and far less time than ever before.  Even those inclined to consider purchases carefully cannot do so for every purchase, because the mind is constantly bombarded by commercial messaging and exposed to thousands of brands a day, such that people are overwhelmed and are no longer able to carefully consider all the information they receive.  

And since we know that advertising is biased and even critics have their own agendas, we increasingly turn to other consumers as a guide – not their words, which are unreliable, but their actions:  we are attentive to what they do, what they buy, what we use, as their best and most genuine endorsement. We often make decisions and honestly believe we have acted on our own judgment, not recognizing the degree to which we have been influenced by other sources. 

And of course there is rationalization: we act on impulse, emotions, and blind faith - then rationalize an irrational choice after the fact to assure ourselves we are in control.   A consumer is loath to admit that they have purchased a brand to bolster their self-image or to have a sense of social belonging, but instead insists that it was a choice made by rational and objective criteria – generally those given to them by advertising rather than anything they have reasoned out for themselves.

Friday, February 12, 2016

Failure and Innovation

Innovation requires risk-tolerance, which is to say that it requires an individual or a firm to accept the inevitability that the trial-and-error process of attempting to do things differently involves making a lot of errors and learning from them.   And sometimes, what we learn is “that was a terrible mistake.”   Any individual who boasts about how innovative they are should immediately be asked about the mistakes he has made.  If he cannot name any, then he has not been innovative.

The potential for failure is an anathema in most firms.  An executive who went outside established procedures to attempt to make improvements but failed would likely not be given the opportunity to try again, but instead would be replaced with a new executive who plays by the established rules and never attempts to innovate.  A company led by individuals who “play it safe” and avoid risking failure is a conservative and non-innovative firm.

Of particular importance is that there is much to be learned from failure – to simply dismiss and refuse to give further consideration to a plan that did not work is to overlook the potential that adjusting the plan may have resulted in success or mitigated the negative side effects.   To learn nothing from failure and to retreat to conventional operations is a form of organizational cowardice.  

A firm with a culture of innovation embraces the following principles:
  • It embraces failure as a possible outcome, and does not shrink from a plan because there is no guarantee of success.
  • It has a high tolerance for failure, regarding it as a learning opportunity rather than a sign of incompetence.
  • It plans for failure, allocating budget to risky projects and developing contingency plans so that an innovation can be adapted rather than abandoned
  • Projects are undertaken with an understanding that they will not succeed immediately, and are given some latitude to adjust and continue – they are not killed or discontinued immediately if projections are not achieved.
  • There is no hesitation to talk about undertakings that failed, and the discussion of any failure does not castigate individuals for taking risks but attempts to appreciate the lessons learned in the attempt.
Espousing these principles enable a firm to embrace failures as learning opportunity, to take a “try, try again” approach, and to be truly innovative.   Chances are that behavior aligned to these principles is already evident in any innovative firm, and behavior contrary to them is evident at firms that fail to innovate.

Tuesday, February 9, 2016

Why Innovation Loses

Innovation requires a deviation from familiar practices, which are vigilantly defended.  The guardians of the status quo have the benefit of the doubt: what has been done for years is easier to trust than something that has never done before.   There is no performance data to back an innovative suggestion, and a great deal of fear that making a change will bring about worse results than are currently being achieved.  So it is safer, easier, and more comfortable to engage in “strategic” planning that merely seeks to make efficiency improvements in the current operations.

Additionally, the planning process in many instances supports efficiency rather than innovation – there is simply no room on the agenda to discuss new items, nor any serious consideration.   Consider some of the following qualities of business plans:

  1. They are operational rather than strategic.   An operation plan consists of following established practices and merely adjusting for capacity – just because a plan affects the enterprise does not make it strategic
  2. Plans are too inflexible.  A plan is an inspirational statement about an uncertain future, and if it has no tolerance for change or adaptation, it is doomed to failure.  Inflexibility is seen as a way to mitigate risk – in effect, by making sure that nothing risky is planned.
  3. Plans are unrealistic.  A plan based on past results is based on the premise that the future will be exactly the same as the past, which in the present day is almost never the case.   Stagnant industries will continue along the same trend lines, but if there is competitive innovation, patterns will shift dramatically.

It is also expressed that innovation cannot be planned – that it consists of wild ideas that arise unpredictably, out of the blue.   This is a valid characteristic of the first stage of innovation (brainstorming), but once an idea is struck upon, there is a longer and more laborious process of detailing and validating it that lends itself well to traditional planning processes.   Properly executed, innovation involves a deliberate process (identifying the problem, exploring alternatives, evaluating them, etc.).  It is only when it is misunderstood to imply a spontaneous and random process, without structure or a sense of direction, that it becomes unpredictable.

Finally, innovation is often relegated to tactical maneuvers: the strategic plan is based on efficiency and optimization of existing operations, and innovation is only done when the strategy hits a snag.   In fact, innovation is often a scapegoat for bad strategy: given insufficient resources to complete an assignment, a manager is told to “be innovative” in finding a solution to a problem that was created by bad planning.   This only serves to further discredit the concept of innovation in stagnant companies – which is likely exactly what the defenders of the status quo hope to do.

Thursday, February 4, 2016

Operant Conditioning and Consumer Behavior

I’m generally unenthusiastic, and even a bit offended, at the comparison of human behavior to that of animals – it shows a level of contempt for the customer that is not only inappropriate, but also counterproductive in any competitive market.   However, it cannot be denied that there are some correlations.  The human mind is more sophisticated than the primitive brains of Pavlov’s dogs and Skinner’s pigeons, but all our sophistication is a like a cognitive system that runs on top of a kernel that remains extremely primitive in its abilities and functions.

The basic mechanism of operant conditioning is to provide rewards to encourage behavior and punishments to discourage behavior.   The rat quickly learns that pressing one button will dispense food and pressing another will administer an electric shock – so he presses the first and avoids the second.  It’s further been shown that, aside of the physical results of food and shock, that the brain releases various hormones that accentuate pleasure or pain, and that brain activity in the pleasure/pain centers becomes associated to the memory – such that even the sight of the color red stimulates a pain response.  

And while the human mind is more sophisticated than the animal, we are still largely driven by the desire to obtain pleasure and avoid pain, and often follow our initial emotional responses.   Laboratory experimentation has yet to discover a flawlessly reliable way to associate stimulus to response, but it does show that reward and punishment influence the likelihood of behavioral changes in subjects to a statistically significant degree.

In terms of consumer behavior, brands can readily leverage these mechanisms – in fact, they cannot avoid doing so.  The practical result of purchasing a brand and using a product leads to satisfaction or dissatisfaction with the result.  So without even trying, the brand is conditioning customers to seek or avoid it.

The core of a business activity (providing a product) is an attempt to offer a benefit to the customer that will serve as a reward.  Advertising attempts to leverage them by suggesting there will be pleasure associated with acquiring the brand and displeasure associated with refusing to acquire it.   Customer experience often grafts a level of pleasure/pain onto the experience of interacting with the firm.   Again, it’s far more complex than this, but the basic principle applies across many disciplines and practices.

The impreciseness of stimulus-response in human subjects is attributable to cognition, man’s ability to consider the signal and decide whether it is associated to the stimulus.   Ideally, the subject would accurately identify the cause of a given outcome and make the correct association – but in reality, human beings are far from accurate and often choose to believe that a different signal is the cause and to ignore the signal that actually has a causal connection to the outcome.

This is the way in which mysticism and superstition function: an individual associates the presence of a black cat with some misfortune, and therefore concludes that the cat was the cause of their “bad luck” while ignoring any other factor that might have a more plausible connection.   This can work for or against creating a positive impression of a brand – in that the individual may ascribe positive or negative qualities to it, or associate its positive or negative qualities to some other stimulus.   And apparently, it takes far less cognitive effort to establish a specious association than to dismiss one: hence individuals cling to their superstitions even in the face of overwhelming evidence that they are incorrect and that a different cause than they have come to accept is linked to the outcome.