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.

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.

Consumer Behavior: Insufficiency to Hoarding

Marketing metrics such as share-of-market and share-of-wallet attempt to gauge the success of a firm on serving the demand that exists in a given marketplace – but they are often based on specious assumptions about consumption, and as such are often grossly underestimated or overestimated due to an erroneous supposition about how much of a given product the market can reasonably be expected to demand.   This leads to serious flaws in strategic planning, and as such merits some consideration.

Basis of Demand

It is act of consumption that defines an individual as a consumer, and the aggregated consumption of all consumers that constitutes demand in a marketplace.  While seemingly obvious, it is very often overlooked by those who propose models that consider supply to be the basis of demand.  This is the primary flaw in accepting the current level of consumption as an indication of market demand, as consumers can only consume as much as suppliers provide, and are only willing to consume a certain amount at the prices demanded by suppliers.

A secondary flaw, less fatal but still quite debilitating, is that accepting the current level of consumption as market demand assumes that consumption is fixed and inflexible, which leads to competitive strategies (struggling for a greater share of fixed demand) and virtually eliminates innovative strategies (finding ways to increase the amount of demand).  A sustainable business can be built upon this faulty premise, but its potential for growth (and eventually survival) is significantly diminished.

Physiological Range of Consumption

The primary source of demand for goods and services deemed to be necessities is the health and welfare of the consumer.   It can be shown that under- or overconsumption of any product has negative consequences to the consumer.   Deprivation of a survival good such as water leads to thirst, dehydration, and eventually death – but at the same time overconsumption has been shown to have detrimental and deadly effects.   There is only a certain range in which consumption has necessary and positive effects.

However, two factors prevent the physiological range of consumption from being a broad and reliable basis for determining market demand.   First, the vast majority of goods in the present-day market are luxury items rather than physical necessities, so their consumption is not necessary for the sustenance of life, and whose overconsumption does not pose a physiological threat.   Second, this assumes just-in-time acquisition, whereas the majority of goods are accumulated for future use – hence while damage may be done if the goods are consumed immediately, there is no harm done in acquiring them for use at a future time.

Psychological Range of Consumption

Taking those factors into account, consumption of most goods (in terms of their purchase, whether the actual consumption is immediate or delayed) is subject to largely psychological factors. Specifically, the determinant of the behavior of consuming and accumulating goods is driven by an individual’s perception of his security needs, the second level of Maslow’s hierarchy.  At this level, an individual’s immediate survival requirements are met, but he still feels an urge to accumulate goods for future consumption.  This can be extended to include all products (services as well as goods) by the use of money, whose accumulation is functionally infinite.

This begs the question: how much does a person need to accumulate in order to feel adequately secure?   But because perception of need is individual, there can be no universal answer.  The topic becomes politicized when individuals presume to judge for others and seek to deliver benefits to the “poor” who do not have enough or forcibly take from the “rich” who have too much, or to defend themselves when they disagree with the estimation of others whom they perceive to be a threat to their own security.  But this is imposing one’s own will upon others, often by force, and does not reflect the natural behavior of consumers.

There can still be made a plausible case for the extremes.  A person can be said to have “not enough” when they suffer adverse effects as a result of exhausting their inventory and doing without some necessary good. A person can be said to have too much when their inventory goes to waste before it is used or when the amount they have accumulated exceeds the lifetime consumption of their household.  

But psychologically, it’s all about the way a person feels, which is highly subjective: the amount that gives one person a sense of security and comfort may seem insufficient to a second person and superfluous to a third.   It may be based upon a rational estimation of survival needs, consumption and replenishment rates, but it is in fact an entirely emotional matter that is often more rationalized than rational.

There is a neurological basis, derived from studies into the phenomenon of hoarding in which subjects were asked to sort through a variety of items to decide what should be kept or thrown away.  The experiment correlated the level of hesitation a subject showed in deciding to throw something away to activity in the anterior cingulate cortex – an area of the brain associated to emotional discomfort.  Curiously, it is the same region of the brain that shows activity when religious individuals are asked to seriously contemplate that god may not exist, which further underscores the poignancy of the comfort people achieve by accumulating products.  However, the assessment of what level cortex activity is dysfunctional is based upon a largely arbitrary assessment of what level of attachment is functional.

Considerations

Thus considered, it does not seem reasonable to attempt to draw a firm conclusion for determining market demand, even if the consideration is limited to current practices, but there are clearly a few factors to be taken into account:

1. Whether the product in question is a necessity or convenience
2. The durability of the product (for physical accumulation)
3. The degree of attachment customers feel to its possession
4. The economic trade-offs of accumulating one good rather than others 

In all, it remains a far more complex matter than merely considering current levels of consumption or unfounded speculation about the “right” or “normal” level of consumption.

Romance to Break-Up

It’s been suggested that you learn more about someone at the end of a relationship than at the beginning.   This is because when forming relationships, people tend to act in a manner that accommodates the perceived preferences of the other party.  In time, they stop acting and settle into their normal patterns of behavior.  And at the end, they are often at their worst because they no longer care about making a favorable impression.

Commercial relationships follow much the same pattern: companies put on their best face to appeal to prospects and convert them into first-time buyers.   Once a purchase is made, the company settles into “business as usual” and expects the customer to attend to their needs and preferences.  And when a customer calls to cancel service, things get ugly.  

It would be pessimistic to say that this is their “true” character, as character considers behavior as a whole rather than in specific situations – but it is certainly fair to say that it is their natural behavior, in that it reflects the way they are inclined to act when there is not an external motivator (profit).

This pattern is evident even in organizations that are applauded for their customer relations.   They are very accommodating when attempting to win business, indifferent once the contract is signed, and very difficult to work with when a customer wishes to end the relationship.  

And while it is fair to state that businesses should be motivated by profit, as profit is often the sole reason for the formation of a commercial organization (though ideally it should be regarded as a by product of successful operations rather than the primary motive), it remains entirely short-sighted: it is the difference between a former customer who might return in future, and one who certainly never will – hence it is in the financial interest of a firm to maintain its values in every interaction, even interactions that are financially unfavorable.

Nobody Likes an Attention Whore

Social interaction is a form of exchange, but rather than currency and goods, the coin of the social realm is admiration.  Most brands (and some people) fail to recognize this: their desire is to be popular, to amass followers and have many people like, comment upon, and pass along what they post in social media – but they refuse to pay in kind.   They wish to collect admiration, but give no affection back to their admirers.   And this is a violation of the unwritten rules of social interaction.

Reciprocation is the very basis of society.  People form alliances for practical reasons: they get something from interacting with others.   A one-sided relationship, in which one person acts as a parasite upon another by constantly taking from them while giving nothing in return, is highly undesirable – at least to the party who acts as host to an ungrateful parasite.   Such people are disliked and, when the host has had their fill, they become actively disliked and even shunned.

Yet this is the behavior of most brands in social media: they are shameless self-promoters who want attention, and the celebrity status of being adored by millions while remaining aloof and disdainful of their followers.   They do seem to pay general lip-service – “we thank our customers” and “we appreciate our fans” – but in terms of their behavior in general, it certainly doesn’t show.   In this sense, it’s fair to say that most brands are attention whores, who demand admiration and affection while giving none in return – and yet they wonder why their social media campaigning has such poor results.

Reciprocity is one of the most powerful weapons of influence, so powerful that it is a common tactic used by con artists: they pretend to like someone, do them a small favor, and then ask for a much larger favor in return.  And quite often, they get it.   Normal people are fair in their dealings with others, and this can be easily exploited – if someone likes them, they feel they must like them back; if someone does them a favor, they feel they owe a favor in return.   They feel uneasy, like the scales of justice are out of balance until they take action to even things out.   But to leverage this propensity, one must take the initiative – to give before asking for something in return.

This can be seen in social media: if you follow a person on Twitter, chances are they will follow you back; if you view someone’s profile on LinkedIn, chances are they will view yours; if you “like” someone’s post on Facebook, chances are they will “like” one of your posts in a relatively short amount of time.   Show interest in someone, and they will reciprocate by showing interest in you.   But you must make the first move if you want to initiate a relationship with another person.

Granted, this is not universally true: there is the concept of the creep/stalker who follows people around on social media.  Psychologically, men are more likely than women to welcome the affection of a stranger (women take it as a threat) – and it does depend on what kind of person is showing affection.   There are some individuals who are distrusted, whether for superficial reasons (their appearance or reputation) or practical concerns (their behavior).  But for the most part, people respond warmly to those who warm to them.

But back on point: the behavior of most brands in social media is entirely parasitic: they want to be “liked” and even abjectly beg people to follow them, but they do not like or follow others in return.   It’s rare, almost unheard of, for a brand to “like” a post by one of their customers or prospects – and it seems to me that if a brand wishes to make successful use of social media, it should consider what it is willing to give in exchange for what it wishes to get.