Monday, July 28, 2008

Analogy #195: This Logic Smarts!

When I was younger, I loved to listen to political and social debates. Over time, I noticed that many debaters used the tactic of “Knowledge” in their debate. The tactic goes something like this. “The reason someone disagrees with my position is because they have not yet become fully informed of all the facts. Once they hear all of the facts, they will see the obvious correctness of my position.”

At first, this sounded logical to me…the more knowledgeable a person, the better their decision. But then I thought, “Wait a minute!! This logic is horribly flawed!”

I soon realized that:

1) What the person was really saying was that anyone who disagreed with them was either stupid or ill informed. I knew this was a lie. There are almost always smart and stupid people on both sides of an issue. In addition, there are almost always well informed and ill informed people on both sides of an issue. If you don’t believe me, go to any political discussion site on the web. There’s plenty of craziness (and a rare bit of factual lucidity) on both sides. Rather than using facts to form an opinion, it seems that people first form opinions, and then selectively look for facts to support the opinion.

2) By claiming the “knowledge” tactic, one no longer had to logically prove one’s point. Rather than try to persuade you with logic, they would just say that you need to learn more. They would dismiss your points as coming from the ill-informed and expect you to believe them at face value because they were the so-called “expert.” This is not debate. This is slander.

The idea that, if we could just provide people with a little more knowledge, we could eliminate poverty, war, disease and any other political/social/economic ill no longer works on me.

If you still like the “knowledge” tactic, then I have a proposition for you. I think that everyone on the planet should send me $100. If you had all the facts on the issue, you would come to the conclusion that giving me $100 is the right thing to do. If you still do not agree with me, then you need to spend more time learning the true issues. Or better yet, just trust the people “in the know” (like me) and just hand over the money.

Strategic debates in a business can often be similar to political debates. Just as there can be opposing points of view in politics, there can be opposing points of view in strategy. Different parts of your organization may have radically different visions of where the company should be heading (or how to get there).

How these debates are handled in your organization can have a large impact on the success of your strategic process (and ultimately the success of your business). The logic in political debates is often flawed. Don’t let those flaws creep into your strategic debates.

The principle here is to not fall victim to sloppy reasoning. Sloppy reasoning can lead to half-baked or incorrect conclusions. Flawless execution of an incorrect strategy just means that you destroy your company in a faster, more efficient manner. Attention to the logic behind your conclusions, then, deserves at least as much attention as the rest of the strategic process.

Although there are many ways in which a company can fall victim to sloppy reasoning, we will focus on just one of them—the knowledge flaw. The knowledge flaw is similar to the knowledge tactic mentioned in the story. In strategic reasoning, the flow usually goes something like this.

1. Management believes that they have a great offering for the consumer.

2. Objective data, such as sales, market share and consumer research show that the consumer is not giving you the credit you think you deserve for your great offering.

3. Therefore, management concludes that the problem with the company is that the consumer just doesn’t understand how great the offering is. If we can just educate the consumer to how great we are, all our problems will be solved.

This logic can also be applied to the stock price. I’ve rarely ever met a CEO who thought their stock was overpriced. Invariably, CEOs truly believe that their company is superior in value to the price where the stock is trading. Therefore, they conclude that the problem is that stock traders and analysts are ignorant about how great the company truly is. If we can just educate them and give them our knowledge, the stock price would skyrocket.

In a few cases, it is indeed true that giving the customer or the stock analyst more information will be beneficial to you. My experience, however, is that this is rarely the bulk of the problem.

The flaws with this line of reasoning tend to be as follows:

1. Thinking too highly of your own offering.
We tend to have a natural bias towards our own brand. We take pride in our company and see it in its most favorable light, overlooking its flaws. After all, the company is a reflection of us, so if there is something wrong with the company, it can feel like there is something wrong with us. Hence, we tend to exaggerate how good our offering truly is.

Well guess what…the customer has none of that prideful bias towards us. They are a lot more skeptical. They will probably not see the offer as glowingly as you do.

2. Not thinking highly enough of the competitor’s offering
Just as we tend to see ourselves too favorably, we tend to see our competitors in an exaggerated negative light. To us, they are the enemy, and we tend to develop an emotional hatred towards our enemy (even if not rationally justified).

Well, to our customers, the competitor is not an enemy…it is just an alternative option. They will see the same thing we see in the competitor, but probably not classify it in such a negative light.

As a result of these first two points, we may see ourselves as far superior to competition, but our customers may see us as equals…or maybe as inferior. Giving them more knowledge probably won’t change their mind, because they are not seeing it in the biased manner as we see it. It will be just more of the same which formed their earlier opinion.

3. Mistaking greatness with superiority
Just because you have a great offering does not mean that others will flock to your door. In most mature industries, all of the competitors are very, very good and most are pretty great.

A great offer may only give you parity with others, not superiority. People rarely change their purchase patterns just to achieve parity with what they had before. If you want people to switch to you, you need a point of differentiation where you can claim superiority. Mere greatness is not good enough.

4. Ignoring the law of entrenchment
Even if you can achieve a small level of superiority, it may not be enough if you are the challenger to the leader. Entrenched leaders have a strong brand image. They also benefit from having habitual behavior patterns in their favor. Customers tend not to switch their comfortable and satisfied behavior away from the leader unless the superiority you offer is extremely compelling. It must be a large differential.

Think of the “King of the Hill” game. If you are on top of the hill, you can usually still defend your position against people who are slightly stronger than you because of the leverage advantage from being on top. That same advantage applies to market leaders. So even if you are a little better, it might not be enough.

5. Thinking too lowly of your customers
You may think you can trick customers into preferring you. You may be able to fool them once, but after that, look out. They will take revenge. Blogs and web pages will blast away against your trickery. You will end up worse than where you started.

6. Expecting too much from your customers
Customers lead busy lives. Their minds are focused on the all the little crises in their daily lives. You’re lucky if you can get them to think about you for a few nano-seconds each day. If it takes long, serious contemplation to ascertain why they should prefer you, then you have probably lost them. They will not take the time to find those little nuances that make you special.

They may be obvious to you, but you think about them for most of the day. Your superiority needs to be immediately apparent and quick to grasp. Why is the Prius the leading hybrid car? It is because its distinctive shape makes it easy to quickly determine that it is a different kind of car. Putting a hybrid engine in a regular-looking vehicle is too subtle…not enough bragging rights for the owner.

7. Ignoring the full realm influences on behavior
We may see ourselves favorably based only on rational attributes directly related to the offering at hand. Our customers evaluate us both rationally and emotionally, and use factors which transcend just the offer at hand. They may not like us because of our carbon footprint, the nation where we come from, a bad experience their uncle had 15 years ago, or whatever. Carrefour is having difficulties in China…not because of what they have done, but mainly because many Chinese are mad at the French and this is the one way they can get back at them.

It is easy to think that everything is fine with your strategy, even if results are a little disappointing. You rationalize that the customer just doesn’t have all the facts yet. To fix the situation, all you think necessary is to help the customer learn why you are so wonderful. In reality, if you are having problems, it probably means that there are problems with your strategy. As we have seen, many things can blind you to your true position in the marketplace. Your strategy may not be as compelling as you think. Take off the rose-colored glasses and truly discern your strength as the customer sees it. Their opinion is more important than yours.

I’ve seen many leaders of companies blindly use only the products they produce. They stop buying competitor products out of principle, or a sense of loyalty, or to set an example. Unfortunately, they moment people do this, they cease to have any semblance of normalcy as a consumer. If you never experience the competition, then how do you know well you compare to them?

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