30/3/2014

Why businesses fail to experiment (hint: because they are made up of people!)

Dan Ariely on the irrational behaviour and the reasons behind it (H/T Jorge Barba):

Companies pay amazing amounts of money to get answers from consultants with overdeveloped confidence in their own intuition. Managers rely on focus groups—a dozen people riffing on something they know little about—to set strategies. And yet, companies won’t experiment to find evidence of the right way forward.

I think this irrational behavior stems from two sources. One is the nature of experiments themselves. As the people at the consumer goods firm pointed out, experiments require short-term losses for long-term gains. Companies (and people) are notoriously bad at making those trade-offs. Second, there’s the false sense of security that heeding experts provides. When we pay consultants, we get an answer from them and not a list of experiments to conduct. We tend to value answers over questions because answers allow us to take action, while questions mean that we need to keep thinking. Never mind that asking good questions and gathering evidence usually guides us to better answers.

In our innovation work, we do not go ahead and provide answers. We believe that you need to understand the needs of people, you need to prototype the solutions, experiment and then find the right way to create value. We sell a process, a methodology and our ability to use that. That is hard because it is abstract, it is unpredictable in its outcome and generally transformational. This is one of the reasons the sales process is hard. However, most people struggle with that kind of thinking.

What Dan Ariely suggests is powerful. The key learning is that organisations (business, not for profits, universities, government) are actually made up of people. In end, to get anything done, we need to understand people and their biases. How we tackle these biases are the key to enabling innovation in any kind of organisation.


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