Saturday, April 18, 2009

Strategic Planning Analogy #254: Irratationality

When I was growing up, my grandfather lived with us (from my mother’s side). Well, from a political standpoint, my grandfather was about as conservative as humanly possible—a real extremist. On the other hand, my father was about as liberal as humanly possible—a real extremist. This made dinner table conversations very explosive.

Nearly every night, the two would argue about something. They could never convince the other one to change their mind. And they both thought the other one was irrational and “didn’t get it.”

I found it fascinating. I knew that neither one was crazy. I could easily follow the logic of both of them. This was not a matter of one being a genius and the other being an irrational idiot. They were both smart people.

The problem was that they had completely different sets of core beliefs about things like people and society. Their posititions sensibly and rationally flowed out of those core beliefs. But since their core beliefs were so different, their logic led to different conclusions. And since they always argued about their conclusions rather than their core beliefs, they could never persuade the other to change their mind.

Strategic planning deals a lot with interpretation. First, one needs to take observations and statistics about what is going on in the marketplace and interpret them in a manner that allows the strategist to detect business opportunities. Second, once a strategy has been chosen, one needs to be able to communicate them to the “troops” in a manner that allows them to properly interpret what they need to do to succeed.

As we saw in the story, my father and grandfather had difficulty interpreting what the other was saying, because their core beliefs came from radically different perspectives. It was as if they were talking gibberish to each other. Their arguments were an exercise in futility (although I got a little entertainment value out of them).

For our strategies to avoid that same fate of futility, we need accurate interpretations. And that requires us to dig deeper into core beliefs.

The principle here is about rationality. I’ve heard people complain that there is too much irrational behavior in this world, be that as it relates to the price of oil, the stock market, terrorism, or a host of other things. This can be used as an excuse to avoid rigorous strategic planning, since it is nearly impossible to plan in an irrational world.

However, I firmly believe that VIRTUALLY NO BEHAVIOR IS IRRATIONAL. Unless one is on drugs or mentally unstable, ALL ACTIONS ARE RATIONAL. The problem is not actions, but core beliefs.

Take, for example, a little girl who believes that there are monsters living under her bed who will eat her if she falls asleep. With those core beliefs, it is entirely rational to stay awake all night in fear. Even though a parent may see fear of sleep as an irrational behavior, it is entirely rational behavior for the girl. For a frustrated parent to just tell her to go to sleep anyway is not a convincing argument. If you want to get her to sleep, you first need to convince her that her core beliefs are incorrect—that there are no monsters under the bed. It is only with new core beliefs that you can get different behavior patterns.

So what are the implications for businesses?

1. Irrationality cannot be used as an excuse to not plan
The actions out there in the world are rational. If you cannot see the rationality, then you must be misinterpreting the core beliefs behind those actions. Get to understand those core beliefs and then the world will make sense. And once the world makes sense, you can create a viable strategic plan for that world.

Don’t use your inability to see the rationality as an excuse not to plan. Instead, look for the rationality via core beliefs so that you can make plans.

2. Understanding Core Beliefs Must Be a Core Part of Understanding the Marketplace.
Reams of facts on what is happening in the world can only take you so far. Knowing “what” is going on is only half the story. The other half is knowing “why” it is happening. It is only in knowing the “why” behind the “what” that you can fully understand and then exploit the situation.

The “whys” are hidden in the core beliefs. Therefore, core belief discovery should be fully integrated into your strategic planning process.

Don’t assume that everyone has the same core beliefs as you do or thinks like you think. What appears illogical to your core beliefs may be perfectly rational behavior under a different set of beliefs. Assume first that people are acting rationally, and then discover what core beliefs would make it so. If my father and grandfather had done that, they would have had more productive conversations.

3. Successful Strategies Find Ways to Satisfy Core Beliefs Better Than the Alternatives.
When looking for strategic alternatives, a core belief focus can be superior to a product-centered focus. Take, for example the fashion clothing business. Sales have been relatively stagnant for quite awhile. What’s the problem? Well, let’s look at the core beliefs. A large segment of those who traditionally have been motivated to buy a lot of fashion apparel have a core belief that their status/coolness and sense of self worth is enhanced when others think more highly of them. And they believe that others will think more highly of them if people see they are associated with the cool/status fashion labels.

What has happened over time is that coolness and status has been shifting from apparel to electronic gadgets like the iPod or the iPhone. Therefore, based on their core beliefs, it is entirely rational for these people to divert money previously spent on apparel and to spend it on electronic gadgets. In other words, Apple has created a superior way to satisfy a core belief that used to belong to apparel brands. For apparel brands to get that spending back, they need to either become cooler than Apple or start associating their labels with cool gadgets.

Focusing on superior apparel is not going to get the spending back. Instead, it is a focus on superior status transfer, since that is what the customer truly wants. Therefore, planning requires first discovering the core beliefs and then focusing on looking for ways to satisfy them better than the alternatives (and the alternatives can be entirely different types of products).

4. When Behavior is Against You, Attack the Core Beliefs
Back in the 1960s, Volkswagen was trying to penetrate the United States. People were reluctant to buy those Volkswagen Beetles because they were small. The core belief in the US at the time was that “Bigger is Better.” Therefore, if Volkswagen was going to make any headway in the US, it would first have to attack that core belief. Volkswagen did, by starting an ad campaign with phrases like “Think Small” and “Small is Beautiful.” It worked. Even to this day, that campaign is considered one of the best ad campaigns of all time. Moral of the story: switch behavior to your favor by first changing core beliefs to accept that behavior.

5. If Your Company is Having A Hard Time Implementing Its Plan, Then Look to the Core Beliefs of Your Employees.
Many strategies fail because the companies fail to adequately execute the plan. If employees are not motivated to make it a reality, it probably is not because the employees are lazy or stupid. Instead, it is probably because you have not adequately connected strategic success with your employee’s core beliefs. Employees like to feel that what they are doing is important and meaningful. This is particularly true among Gen-X employees.

That is why I like business missions which tap into a higher purpose. Rather than just being in the business to sell stuff, have a noble purpose where selling that stuff makes the world a better place. This taps into the core beliefs of the employees and will make them more motivated to make the plan a reality. I’ve talked about this in greater detail in another blog.

Although the actions of the world may appear irrational, they really are rational once you understand the core beliefs behind the actions. Understanding and taking advantage of these core beliefs will make your strategic planning more successful.

If you look at a lot of political blogs these days, there is plenty of nasty, hateful name-calling of people who are on the other side of the political spectrum. That’s no way to create meaningful dialog. Remember, each side’s point of view is entirely logical if you just peel things back to the underlying core beliefs. That’s where the dialog should be. And if you want to be persuasive with your business arguments, that’s where the dialog should be as well.

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