The Chimp Paradox The Mind Management Programme for Confidence, Success and Happiness by Dr. Steve Peters

 the chimp paradox

Summarised by Paul Arnold (Strategic Planner, Facilitator and Trainer) – paul_arnold@me.com

THE BOOK IN A NUTSHELL

Metaphorically we have three ‘operating systems’ inside of us: The Chimp (i.e. the uncontrolled, emotional child within us), The ‘Human’ (i.e. the rational adult) and the Computer (i.e. the unconscious part that runs most of our activities).
To live happier and more successful lives, we need to better manage our Chimp. We do this by 1) nurturing and negotiating with the Chimp and 2) recognising the Gremlins (i.e. our limiting beliefs) and then replacing them with more empowering beliefs.

THE BOOK

The first section is about the principles of the three parts of us (Human, Chimp and Computer). The second half explores the application of these principles to activities such as managing stress, relationships and being successful.

The author uses a metaphor of the solar system, with moons and planets. For simplicity I have left this out.

PART 1 THE INNER MIND EXPLORED

The psychological mind

The Human brain is made up of seven brains working together (Parietal, Frontal, Limbic, Occipital, Temporal, Brain stem and Cerebellum). This book focuses on just three – Parietal (The Computer), Frontal (Human), and the Limbic (Chimp). Although they try to work together they can clash (and often the Chimp will win).

The Chimp

The Chimp is the emotional machine inside of us. Emotions heavily control our decision- making (sometimes for the worse). Having a Chimp is like having a dog (or a child). You are not directly in total control of its behaviour but you are responsible for its behaviour. As such it is therefore necessary to learn how to manage your Chimp. If not, then the Chimp will run your life (and this can often lead to some poor quality of life decisions and behaviours).

The Chimp operates very differently from the Human inside.

The Chimp processes information primarily through feelings and impressions (and is irrational in its decision-making, being more driven by emotions than logic). The Chimp quickly assesses a situation, rapidly reaching (sometime false) judgements and conclusions. Chimp tends to be more adamant that it is right and so less able to be swayed from its belief. Once it’s made up its mind it searches the data to support its point of view and rejects conflicting information. The Chimp tends to be quite black or white in its opinions (so can be quite harsh and unforgiving). It is also quite blinkered in its options of response (usually jumping to some previously run default model of behaviour). The Chimp over- exaggerates things and uses highly inflated, catastrophic language. The Chimp reacts impetuously, with little regard to the longer term consequences of its actions.

The Chimp is sensitive, neurotic and paranoid. The Chimp loves external praise to validate its self esteem. Conversely it feels easily judged and hates criticism. The Chimp senses danger everywhere and so will try to protect itself. It will often protect itself by shifting responsibility and apportioning blame elsewhere. Thus the Chimp can often mis-interpret an innocent comment as being critical, leading the Chimp to ‘bite back’. Likewise, the Chimp is critical, intolerant, impatient and unforgiving in its judgements of others (leading to some quite harsh feedback).

The Chimp has powerful drives (such as sex, dominance, food, security, territory etc). The two key drivers are its need to survive and procreate (a person run by its Chimp often finds it difficult to remain monogamous). Ultimately, the Chimp is selfish and will use the troop to help support its own needs (it sees life as a constant battle of Win-Lose). The Chimp demands immediate gratification and gets angry and frustrated if thwarted.

Chimps still believe they live in the jungle and so sees (un)real threats in everyday situations. It is driven by instinct and primal desires and fears. These instincts are almost from birth so it reacts to a perceived stimulus /threat in a pre-set way (Flight/Fight/Freeze). There is typically over-reaction to an event as the Chimp always sees the worst possible outcome.

We have to accept that the Chimp in us will not change. When a Chimp does decide to act it’s difficult to control. ‘Self control’ will not work because the emotional Chimp is significantly stronger than the Human (a real chimp has 5x the strength of a real Human being). You have to learn to manage it like an emotional child. You must never forget that you always have a choice in how to behave. If the Human inside chooses to ignore the Chimp’s ‘offer’ on how to react, then the Human needs to negotiate, manage and support its frustrated Chimp. You need to find a way of addressing Chimps fundamental needs in a more ‘socially healthy’ way.

The Chimp can be managed in three ways:

Exercise: You need to help the Chimp release the emotion it is struggling to deal with. You need to find a safe way for the Chimp to healthily channel its pent up emotion rather than to be expressed through some inappropriate behaviour(beitselfdestruction suchassubstanceabuseorattackingother people). It can take as little as 10 minutes to release it. Likewise, if someone is ‘ranting’ at you realise it’s just their Chimp letting off steam (so don’t let your Chimp get hooked by his Chimp).

Box: Having exorcised the emotion, the Chimp will be tired and more open to accept a more considered, calmer conversation. If the Chimp re-fires up it just means it has not fully vented all its emotion yet. It may need a few ‘takes’ before the Chimp can be put back into its box.

Banana: The third way is to feed it bananas. There are two types: rewards (both physical and emotional) and distractions.

The Human inside

The Human is the antithesis of the Chimp (hence why they so often clash). The Human inside is evidence-based, rational in its ‘fact finding’ leading to well considered decisions. The Human draws widely in assessing the situation (thus is better able to put events into wider context). It can also handle ambiguity and accept the ‘greyness’ of most issues. The Human accepts that there are many influences on an event and as such are more prepared to reassess its perception of an issues if new information comes about (and hence be open to suggestions and personal improvements).

The Human makes slower, more considered decisions by gathering the facts (and so can be positively influenced by new information). The trouble is, by the time the Human has assessed the situation, the Chimp has already reacted (evidence suggests the Chimp reacts five times faster than the Human).

The Human inside of us masters self-control and discipline which the Chimp lacks. The Human also thinks forward through the consequences of its behaviours before making a final decision on its choice of action.

The Human is less judgemental and accusatory. It takes a balanced approach and realises we are all a mix of good and bad points (and thus we should all be equally valued). This often leads the Human to be more gracious and forgiving.

Our Human is social and wants to be part of a group that lives in peace and harmony (thus it is open to negotiate for the greater good of all). It likes order and follows the ‘laws of society’, relying upon ethics and values such as honesty, compassion, equality, conscience and self control. Sadly the Human can also get frustrated as there are many Chimps in the world who ignore such societal norms.

The Human wants to live in a world where it can flourish. It wants a driving purpose in its life to provide fulfilment, backed up with social and intellectual challenges in order to grow and develop.

The Computer

This is the part of the brain that stores information that both the Chimp and Human use as reference points to know how to respond.

This Computer runs about four times faster than the Chimp and hence 20 times faster than the Human.

The Stone of Life, Goblins and Gremlins – The Computer is essentially an empty drive when born. Over the years we start to write our programme on how to survive and thrive. Many of these become the core beliefs and values that shape our personality, behaviour and life. These are called our Stone of Life. Sadly some of the beliefs and strategies imported at an early age (often below the age of eight) may prove to be false or inappropriate later in our lives. Furthermore, potentially one-off events gets imprinted as global truths to apply to all situations. Just because one person let you down, was abusive, or abandoned you, does not mean everyone will.

The Gremlins are those beliefs that are unhelpful but can be removed whilst the Goblins are ones that cannot be removed. Gremlins and Goblins run on autopilot so we are often not aware how much they shape our daily behaviour.

Some common Gremlins:

Unhelpful and unrealistic expectations – These set you up to fail (and so trigger negative emotions of frustration, lack of self worth etc). We tend to also set too many traps such as the ‘If..then’ game. It goes like this: ‘If I….(do X or have Y) then…’ (I will be happy, successful, you will love me etc). This
game sets unnecessary conditions on our self worth and happiness.

‘Should’s’ and ‘Musts’ – These imply an order (and Chimps hate being told what to do). They become a burden. Remember you always have a choice. Merely shifting the ‘should/must’ to ‘could’ empowers you to make a freer choice (and removes guilt and a feeling of failure).

‘Be perfect’ – Many people have a misguided belief that you need to be perfect in everything you do. It is impossible to live up to this and sets you up to fail (and hence weaken your self esteem, self value and confidence). We are all fallible and make mistakes all the time. Getting things wrong is human. So instead of beating yourself up or hiding behind excuses and blame, learn to laugh at yourself.

Other Gremlin driven behaviours include over-reacting to situations, eating even when not hungry and not making decisions.

Start to notice some of these limiting beliefs and challenge their veracity. Likewise, you need to put into the Computer more empowering beliefs. Some of these could include: 1) Life is not fair 2) Goal posts move 3) There are no guarantees 4) You do not have total control over all aspect of your life and 5) Nothing lasts forever. By inputting these, then your are less surprised, less upset and more flexible in your response.

How to manage your Computer

If the Chimp senses any danger, it quickly assesses the level of risk and either reacts immediately if a major threat or if a lower threat then will look inside the Computer for advice (the speed of such reactions is less than 0.02 second). The trouble is the Human inside is often too slow to respond. Thus the quickest way is through the Computer.

We need to identify the Gremlins and replace them with more empowering autopilots to influence the Chimp’s perception of an event and hence how it chooses to react. The trouble is you can’t just expunge a Gremlin. You need to replace it with another belief. A Gremlin normally leaves a trail of negative emotion. So when you feel bad about something track it back to the belief state of the Gremlin (often Gremlins dance together, so you need to carefully unpick them).

When you have identified the area, ask yourself two questions:
1) What do you believe doing/thinking X will imply about you (Identity)? 2) What are the consequences of not doing X?

These questions start to unsettle the current belief, allowing you to input a more useful truth.

Like building muscle memory, you need to keep reinforcing it. The more often you can implant (and then act upon) the new installed belief, the greater chance it will become the new default setting.

PART 2 DAY TO DAY FUNCTIONING

How to understand and relate to other people

Remember that when talking to another person, they also have a Human, Computer and a Chimp inside them as well – so they may be responding from their Chimp (so try not to let their Chimp hook yours). We can’t change the way other people present themselves to us but you can help them manage their Chimp. Thus we need to know exactly who is in front of us at the time.

Differing mindsets – People can get stuck in their beliefs and behaviours because of the mindsets they hold. There are a number of different mindsets to notice in others (and in yourself). There are two key ones:

1) The Snow White Mindset – (more common with women). Snow white plays at being an innocent, passive victim (who ignores their responsibilities and accountabilities). They see themselves as powerless. They tend to blame others and circumstances for their misfortune (and feel misunderstood by others). If challenged, they become passively aggressive, self defensive, accusatory. and can sulk. They feel ‘hard done by’ and feel others ‘owe them’. When asked, “What’s wrong?” they will typically say, “Nothing…”

The Gremlins have disempowered them. Some of the beliefs they unconsciously hold are: ’Life is really tough’; ’I am a victim of circumstance’; ’There is nothing I can do to change things; ’Others are not helping me’; ’Others don’t understand me’; and ’The world is a harsh place’.

Some beliefs worth installing into the Computer are: ‘Nobody likes a victim’; ‘Everybody likes a positive person’; ’Nobody owes us anything’; ’Life is what
you make of it, not what it throws at you’; ’Everybody has to take responsibility for their own actions and attitudes’.

2) The Alpha Wolf Mindset – (more common with men). This is the aggressive dominant Chimp in the pack. At the extreme these people are control freaks and dictators. They have big (yet sensitive) egos. They see themselves at the centre of their world (and other people’s opinions less relevant than their own). People to them are a utility to help them achieve their aims – irrespective of the cost. They believe that getting other people to do things for them is justifiable and see compassion and admitting to mistakes as signs of weakness. If people disagree then using aggression is often the best strategy. They do not mind chewing through people, often being highly demanding and critical. Thus they tend to create unhappy and fear driven cultures. As with most wolf packs, when challenged they attack anyone who tries to stand up to them. Eventually at some point a new wolf does win out against them.

How to choose the right support network

Chimps have a powerful need to belong. They feel safer when with their troop. The paranoid Chimp sees danger everywhere and knows there is safety in numbers when in a troop. Its need to belong means the Chimp stores some Gremlins into the Computer such as: ‘I must please everybody’; ‘I need to prove myself all the time’; ’I mustn’t fail’ and ‘Everything is important’. If you have the right people around they will stabilise and help build your confidence (and vice versa if surrounded by the wrong people).

The trouble is not every person out there is in the same troop, so the Chimp can get attacked by Chimps in other competitive troops – thus the Chimp remains defensive and on alert. You need to assess who are the people whose views and opinions are important (and then ignore the rest).

How to communicate effectively

Communication is critical to any relationship. Failure to communicate properly can lead to frustrations and conflicts.

The Square of communication – There are four channels of communication: Chimp to

Chimp, Human to Human, Human to Chimp and Chimp to Human. The most productive conversations are Human to Human. The least are Chimp to Chimp where both sides get highly emotionally charged.

The key to communication is preparation (right person, right time, right place, right message, right tone). Most are pretty obvious but a few extra notes:

Right person – Beware the mistake of the ‘Wrong person syndrome’ – where take out the frustrations of one person on another (or discuss the issue about that person with everyone but the person themselves).

Right message – Be aware that two of you are entering the conversation – the Human inside and the Chimp. It’s important to recognise the Human and the Chimp will have different agenda’s – some of which could be unexpressed and hidden. The Chimps agenda will be fuelled by emotion and typically has a ‘win-lose’ mentality.

Chimps therefore interrupt a lot, intimidate (with dominating body language and noise), listen little, are intransigent, use little ‘logic’, blames others, and are insensitive to the feelings of those around them (as they are operating from a place of hurt themselves).

Right tonality – There is a difference between being assertive (making your needs be known – a Human trait) and being aggressive (where full of emotion and often accusatory – a Chimp trait).

People are often not assertive due to Gremlin beliefs such as ‘I am not as good as others’; ‘My feelings do not matter’ or ’My needs are not as important as others’.

There are three parts to assertive communications:

  1. Tell them clearly what you do not want (using the word ‘I’)
  2. Tell them clearly how it makes you feel
  3. Tell them clearly what you do want

If you trigger the Chimp it’s best to let them rant themselves out before trying to re- explain your position. Then you can say something like “I would like you to listen and not to interrupt me please. I don’t want you to shout at me. When you shout it makes me feel ……I would like you to respond in a quiet voice please. The facts as I perceive them to be are ……”

Right language – Avoid inflated language e.g. ‘hate’ (as emotionally charged words are infectious and will easily stir up the Chimp). Even words like ‘should’ and ‘must’ will create a reaction.

How to establish the right environment

Each brain sees the surrounding world very differently (and hence responds differently).

The Chimp jealously guards its territory which can lead to some disproportionate behaviour around job functions, garden fences, car parks and hence road rage.

The Chimp is often living in a place of high emotional anxiety as it perceives threats all around it. The Human needs to keep the Chimp away from high stress situations and keep reassuring it. Sadly some people live or work in environments that brings out their Chimp too often.

The Chimp feels comfortable when things are certain and in control. So some simple guides to help have a happy Chimp:

Right finances – Live within your means. Whilst the Chimp will want you to spend, it does not like the stress of money worries. It’s easier to control the spending than manage the debt.

 

Right friends – We do not always choose our friends. And some friends serve us for only some times in our lives. So if you have a friend who is constantly an emotional drain, then remember you do have a choice to walk away from that relationship and find new friends who better serve your needs now.

Right job – If you are in a job where you are constantly criticised and feel under threat then leave for one where you are rewarded and complemented (as Chimps need constant reassurance and take criticism badly – often striking out at others – and not necessarily at the right person either).

Right food – Beware the Chimp will eat emotionally.

Right time out – The Chimp needs down time.

Right health – Being healthy helps make you more resilient to life’s ups and downs.

How to deal with immediate stress

Stress to a certain level is a positive inducement. It’s the bodies warning sign that something needs to be done. We often try to deal with stress through other channels (rather than addressing the issue head on), such as over eating, over drinking, substance abuse, aggression, depression, etc. We need to find more positive ways to deal with our stress. The Chimp will quickly react to stress with no thought of the consequences of its behaviour.

The seven step process for managing instant stress:

  1. Recognition- Know the tell tale signs for you when going in to stress. What triggers you and how do you typically respond? You then need to ‘wake-up’ your Computer (e.g. by saying, “Change” or some other word which the Computer recognises as “It’s time to change the way I feel’).
  2. Press the pause button – Slowdown. Avoid the Chimp driven spontaneous response. Instead buy time.
  3. Escape – If possible, distance yourself from the situation – ideally physically remove yourself. In this free-er space try to relax and think more clearly. You have every right to be assertive and ask for time out.
  4. Get a helicopter perspective – Gain a wider perspective on the issue to make a better informed decision. Imagine your whole life on a time line. Float above it and put this event into perspective – How important is it really? Is it going to last forever? Will life go on?
  5. The plan – Work out what you can control and what you cannot. It can’t be guaranteed that you can make another person do anything as they are a free agent. So change must always start with yourself. Do not forget that how you react will influence how they react. Often it’s your own responses and unexpressed expectations that are the real issues.
  6. Reflection & activation – Keep focused on the end solution (and not get re-hooked on the problem).
  7. Smile – Try to see the lighter side of things. It helps keep things in perspective.

Diffusing stress – the AMP model. This is sometimes easier said than done if the Chimp has become very agitated. You need to calm your Chimp.

Accept – We have to accept the situation no matter how unjust or hurtful it may feel (life is unfair). To help do this you need your Chimp to vent those feelings of betrayal, hurt, rejection etc. Keeping it bottled up is wrong and more damaging to yourself in the long run. So find a safe place to vent – and then try to get it all out. The more of the ‘bile’ you extract from the wound, the greater the chance it has to heal.

Move on – Now you can ask yourself, what do you want to do now? You have two choices – to stay stuck with it and be locked inside the problem (by keeping it alive and running the old movie time and time again), or letting go and moving on. Often it’s best to just cut your losses and move on.

Plan – It’s critical that you plan how you will move on. Often just knowing the very first step is the most important to initiate action. To help remain committed, always focus on where you were and the progress made so far. Many people instead focus on where they want to be and this can become demotivating. For example if you plan to lose 20Kg, and just lost 2Kg then it looks an uphill struggle as everyday you are behind target. However if you focus on where you were then 2Kg less is a celebration.

Looking back from the future – To help devise a plan, imagine getting into a time machine and going forward in time past the event when you have achieved your goal. Then look back and creatively think of what you did to get there.

Some common examples of stress:

Decision-making – People get stressed by making the right decision. Remember, when there is no more information (even if incomplete) then make a decision with what you have. Often we focus more on the consequences of making decision A vs decision B. Our Chimp over exaggerates these consequences.

To make a good decision, first gather all the information possible to make a decision. Outline the various routes and explore the consequences of each (but keep the Chimp from painting them as too catastrophic). If there is no difference then either decision will work – so just toss a coin!

Trying to keep everything the same – Chimps want things to remain exactly the same – forever. They want their relationships to stay the same (likewise their jobs, and their health). So we need to programme into our Computer such beliefs as ‘Everything changes (on a continual basis)’; ‘Life moves on’ and ‘All things must end’.

Unrealistic expectations – Chimps hold locked down views about what should happen – but we cannot control other people/events – so we need to learn to let go of such unrealistic expectations.

Trying to control the uncontrollable – Many people want other people to do things – but they don’t. We have to be clear what is within our power to control and influence and what is not. So there is no point stressing over things you cannot effect.

 

How to deal with chronic (i.e. long-standing) stress

People are very adaptable and can learn to live with long term stress in their life. However, it can pay a big price on our health and happiness. Some of the tell tale signs are: always feeling tired, being short tempered, lacking a sense of humour, feelings of anxiety over nothing, inability to relax, paranoia, a sense of urgency with everything, tearful, depressed, unable to face friends or work, small tasks seem large and inability to sleep properly.

The root cause needs to be identified to effectively resolve the issue (and often it’s linked to the Gremlins we have).

A number of common scenarios:

Creating our own misery – Our actions create the situation – yet are blind that we are doing it (e.g. a person is lonely but is not aware his behaviour to others pushes people away).

Red herrings – We blame others or circumstances rather than taking responsibility. As long as we blame others we disempower ourselves and become victims.

The mushroom syndrome – Once you have sorted out one problem, another grows in its place. A lot of it is to do with seeing problems all around them rather than focusing on the positives that are also there. These people (Chimps) live in a place of constant agitation and become victims. People quickly tire of these types as they sap energy from others. These people need to realise that many worries are small in the grand scheme of life (and often resolve themselves).

Conflicting drives within us – The classic is the working mother syndrome. The Human need to store into the computing better belief systems such as ’It’s unrealistic to be perfect in all areas of our lives’.

Chronic stresses from circumstances or events – There is no value in stressing about things that are out of your control as this will achieve nothing. Instead focus on what you can do. Any bridge can only support so much ‘load’ so ensure you take off of your bridge stuff that does not need to be there.

Chronic stresses from others – This often stems from unrealistic/unexpressed expectation of others. We must become more transparent (to ourselves and others) of these expectations.

Stop beating yourself up – We also hold unrealistic expectations about ourselves. We are all trying to do the best we can (with the resources we have around us at the time). Of course we could do better but focus on what we did achieve rather than what we did not. It’s more energising and motivating to help us move on and tackle more of the problem.

Try asking yourself ‘How?’ rather than ‘Why?’ – ‘Why?’ is focused on the past. ‘How?’ is about the future. ‘Why?’ disempowers us. ‘How?’ helps us focus on solutions.

Talk – Not only does talking to others help release the tensions, it often leads to finding solutions.

Some other constructive ways to diffuse chronic stress: Relaxation techniques, delegate/share issues; ask for help, look beyond the problems at solutions, remind yourself that you are in charge of how you feel about anything and discuss your feelings with someone who cares

How to trap a Chimp: A Chimp can outrun, out climb and out swing you. Instead put a stone in a narrow necked vase that has been anchored down. The monkey will reach inside and try to grab the useless stone. However, the Chimps hand with the stone means the hand is now too fat to extract itself from the neck of the vase. Because the Chimp does not want to lose the (useless) stone it traps itself.

The moral for this is to fully assess the true worth of something. Be careful not to hold onto something that has relatively little real value in the long term – as by holding onto it, it traps you, preventing you from going after something more valuable in your life. So have the courage to let go of those ‘worthless stones’ in your life.

PART 3 – YOUR HEALTH, SUCCESS AND HAPPINESS

How to look after you health

The author creates two distinctions: Malfunction and Dysfunction. When the body is malfunctioning it is properly ill and that needs specialists to help repair and heal the body. When we are in dysfunction, we are not working at our optimum.

Keeping in shape physically – Chimp is driven by immediate gratification and dismisses the long term consequences. We also need to learn to relax and recuperate through taking time out and having proper amounts of sleep.

Don’t wade through treacle – Staying with problems all the time will sap you of your energy. Instead of spending your time locked in your problems, start with a blank slate and define exactly what you want, then you can define how you will get there.

Be proactive – Successful people tend to be proactive. They take action. And if their first steps do not work, then they respond again and again and again.

Being in shape mentally – We also need to keep our minds active through intellectual stimulation, challenges and laughter.

The foundations for success

The Human inside defines success differently from the Chimp. For the Chimp it’s often about external symbols such as material possessions, achievements etc. For the Human is more internal such as personal qualities (e.g. happiness) and working towards their purpose. So work out what each part of you defines as success.

Teams – There are a number of key principles that help a team perform well. These are the CORE principles:

C = Commitment – People need to identify/be committed to the cause/ purpose of the team. Motivation is temporary (a Chimp trait) and will not be sustained when the going gets tough, whilst commitment (Human) endures. Tangible plans helps people believe in the ambitions of the team (and so can commit).

O = Ownership – When you feel a sense of real ownership of a project you are much more likely to work tirelessly for that cause.

R = Responsibility – Responsibility introduces accountability. If you feel real ownership then you also hold a sense of responsibility for the outcome of the team or project. If you hold responsibility, you feel accountable for the outcomes and so will do whatever it takes to ensure the project gets delivered.

E = Excellence – It’s about setting (and holding to) high standards that are achievable.

Carrots and no stick – Humans and Chimps do not like sticks but do like carrots (and Chimps only respond to big carrots). We need to make sure we get (and give) more carrots. There are lots of types of carrots: material rewards, celebrations, recognition, encouragement and support (we should not be afraid to ask for support as well as to give it).

There is no place for the stick in society. The paranoid Chimp may try to run the workplace through aggression and fear. A Human driven manager instead provides support, and encourages development.

Likewise there are a number of sticks such as guilt, blame and regret (many of these can be about self punishment and hence can be very long lasting, preventing you from long term happiness).

How to be successful

The dream machine – a model for success – There is no guarantee for success. You can be lucky or unlucky. There are seven stages to the dream machine. You must remember that you have the Human and Chimp to deal with when planning your success. Think of your Chimp as a child: short attention span, undisciplined, disorganised, wants frequent rewards and is easily upset.

Cog 1 – The dream – A dream is something you want (but is not totally within your control e.g. to win a race). Goals are specific achievable objectives to help you reach your dreams that you are more in control of – e.g. training 3x a week. Goals have measures associated with it to check progress.

Cog 2 – Foundation stones – These are the components that drive the dream. Each foundation stone has a goal. It’s best to focus on one or two foundation stones at a time.

Cog 3 – Commitment screen – There are two key questions you need to ask to pass the commitment screen: 1) What do I need to get the task achieved? 2) How will I deal with the difficulties we will face?

Cog 4 – The plan – Lincoln once said, “If you have eight hours to chop down a tree, spend six hours sharpening your axe”. Thus success is all about developing a clear workable plan (and your plan works best in smaller manageable chunks).

Cog 5 – Oiling the wheels – You need to focus on what’s already been achieved (rather than what you have still to do) – and chart your success. Like climbing a mountain, celebrate when you reach each stage.

Cog 6 – Audit – Review the progress made against the key metrics and then reshape your strategies where off-target. When deciding how to resolve the blocks, explore options through three lenses:

  1. What are the circumstances/source of the issue?
  2. What have I done to contribute to the problem (be it a belief or a behaviour?) and
  3. What have others done to contribute to the problem.
    Chimps are into blame and will rarely look to themselves as the source of the problem (but conversely will take the tributes when things go well).

Cog 7 – Outcomes – You need to plan for three different kinds of outcome: Success/Partial success/Failure

Success – Beware of complacency. It can also lead to fear (of your ability to repeat the success) or depression (at having achieved your purpose and now feel empty).

Partial success – The Chimp will focus on what did not work, whilst the Human will be more sanguine and celebrate what did go right. Its important to remember that you are in control of how your choose to feel.

Failure – Try to see failure as a temporary setback and not the end of the road. Failure is just a signal for future change and improvement. Again the Chimp will overplay it and see it as a catastrophic disaster. Remember that something is only as important as you choose to make it. We often look back on past failures and respect the learnings we gainedfromit(ashelpsusliftto ahigherlevelofperformance).

The Chimp goes through a cycle of grief when things fail: Denial -> Yearning -> Bargaining (if only….) -> Anger -> Disorganisation -> Acceptance and Reorganisation. This process can take 3-12 months. It’s important to allow the natural grieving stages to be fully expressed.

Plug into your Computer statements such as: ‘We all have failures in our lives and ’It’s part of the way we learn and grow’.

How to be happy (and have successful relationships)

Like any emotional state it is a choice. You can choose right now to focus on the things that can make you happy or focus on the things that make you sad. That said, being happy all the time is unrealistic.

What makes one person happy differs from another. So the first step is to start to work out what makes you happy (and conversely what makes you sad/anxious) – then do more of the one and try to reduce the other. Your ‘happy list’ should also include immediate gratifications like ‘cup of tea’, ‘walking the dog’, and not just the longer term items. One suggestion is to keep a diary.

Likewise, what makes the Human happy is different from what makes the Chimp happy. Often the Chimp’s happiness stem from transient, material things (such as food, sex, power, territory, stimulants) which often have longer term negative impacts – so make sure you are more focused on the deeper intrinsic drivers of happiness that the Human focuses on (such as purpose, relationships, personal growth etc). The more you can build up the strength of these ‘inner core’ aspects that make you happy, the better able you will be to be less influenced by the negative situations in our lives. When we are not feeling strong about ourselves, then we are like a tree with no roots that can easily be blown over.

‘Having’ and ‘Being’ – There are two aspects to happiness. ‘Having’ is a Chimp trait (and ‘Being’ is more Human). ‘Having’ includes achievements, awards, material possessions. Research has shown happiness from possessions is short lived. The Chimp quickly accepts the gains and then wants more (Chimps are never satisfied).

‘Having’ the right partner – Again, the Chimp looks for different things in a relationship (e.g. sex) than the Human inside (e.g. a soul mate). Sadly most people enter a relationship with either Chimp or Human in control.

All relationships need to be worked on to keep them flourishing. Any relationship should make the other person feel good about who they are, help them develop as a person and bring out the best in them (and vice versa). You need to be clear what both sides want from the relationship (and not expect one person to be able to meet all of your Human and Chimp needs). Likewise, since we are all imperfect we will occasionally let the other person down. Either we forgive and move on, or hold onto it and keep ‘tormenting’ the other person. In which case you are as guilty in helping to destroy that relationship.

In arguments the Chimp will be unwilling to accept criticism, often finding excuses and blaming others/events. When pushed, their aggressive side will quickly flare.

Avoiding ‘conditional relationships’ – If you want to build a relationship with another person, then you must expect to do all the running. Any respectful relationship does not put preconditions or unrealistic expectations on it as often these are where things go wrong as they are often not made clear to the other person. You cannot blame or criticise a person for not doing something they did not realise was expected of them – yet we do this all the time. Therefore, if you are frustrated or annoyed by a person, first assess what was your expectation you had of them and whether this had been communicated to them. You can’t expect other people to live to your own standards – not do things that they are not naturally gifted at (so don’t ask a car mechanic to paint you a picture and vice versa). Thus it’s not a case of them having the problem – it’s you who has the problem.

When it comes to relationships, it’s best to import some of these truths into your Computer, for example: ‘Not all be people are going to be friendly’; ‘Not everyone is going to agree with everything you say’; ’Some people are not going to like you’; ’Some people never change’; ’Some people never understand’; ’We all vary from day to day’; ’No one is all bad’ and ’No-one is all good’.

‘Being’ – Being is about who you are. It’s about our self-image (i.e. the way we see ourselves), our self-worth (i.e. the value we put upon ourselves), our self-esteem (i.e. how we compare versus others) and our self-confidence (i.e. what we believe we are capable of).

The Human is more focused on values and personal goals than material gains. It also recognises the Chimp’s obsession with trying-to-be-liked to be fool’s gold.

Self-image – The Chimp looks at physical appearance and achievement to define self-image. Sadly it can rapidly change its mind so basing your self- image on what your Chimp thinks will make for a rocky road.

Self-worth – Depending upon the way you see yourself will ultimately affect the value you put upon yourself. And because your Chimp sees you differently from your Human, we can get some very different value ratings. Your real sense of self-worth needs to come from your Stone of Life.

Self-esteem – The Chimp creates a pecking order (much like in the jungle). Thus depending where you see yourself versus others can have some major limiting affects on who you spend time with, along with the quality and impact of your relationships with others (there is a great model from Transactional Analysis called the OK Corral which is worth referencing – Ed).

Self-confidence – The above factors will all influence your self-confidence – i.e. your belief in what you can (or cannot do). If this is misjudged then it can stop you doing things that are in reality within your ability.

Ways to happiness
You choose to be happy (or unhappy) by what you focus on.

Spend your time thinking about solutions rather than wallowing in the problem.

You choose how important an issue is. Take a macro view and see a
problem in the grand scheme of your whole life. This way you don’t get upset by small things that are not important.

Let go and move on (or forever be stuck).

Learn to laugh at yourself.

Be proactive in all things (especially relationships).

Beware the snowball Gremlin – Chimp likes to overdramatise issues. When it looks into the future all it sees are problems. The Gremlin pushes a snowball downhill that grows and grows and before long you never risk doing anything! You need to input into your Computer that ‘Few things in life turn out to be as bad as you first think’; ’You have the skills and capabilities to deal with most problems as they come along’; and ‘Only worry about real issues you can control – the rest is just wasted energy.’

Take you hand out of the fire – You would not leave your hand in the flame, so why stay in jobs and relationships that burn you?

Stop being your own biggest critic – Be light on yourself. Accept all of you, including the bits of you do not like.

How to develop security

Feeling secure makes your Chimp happy (and the best way to make a Chimp feel secure is to be within a group). The Chimp wants everything to stay the same (it loves routine and rituals) and will resist (consciously or unconsciously) any changes. The Chimp needs to accept that change is inevitable and that feeling vulnerable and insecure is normal in life for everyone.

It helps to store some beliefs into the Human Computer such as ‘There is always constant change’; ‘There is risk in everything we do (and sometimes staying safe is the riskiest thing we can do’) and‘We cannot control all risks’.

SUGGESTED EXERCISES:

Keep a diary to work out how much of your day is spent being Chimp versus Human. Take time out to reflect on how well you are managing your Chimp.

Live ‘NEAT’: N = Normal; E = Expect; A = Accept; T = Take care. It’s normal for the Chimp to have outbursts. Therefore you should expect it. Accept you are not perfect and take care of these outbursts in appropriate ways.

If you become upset by something, look to see if you have unhelpful/unrealistic expectations set. Start to work out your real values and beliefs and start to record these down as your stone of life.

Write down the qualities of the person you would ideally like to be. Then write down the list of who you think you are. The gaps highlight the areas the Gremlins and Chimp are affecting you (as the ideal list is the personality of your Human inside).

To discover what your key values are for your Stone of Life, imagine you are on your death bed, with one minute left to live and your great grandchild asks, “Tell me what should I do with my life?” Your answer will help you identify what is important for you.

What effect are you having on others? Are you building them up or knocking them down? Are you inspiring them or sapping energy away from them?

Define your troop and what roles they play in supporting you. Identify the gaps that are missing in your troop. Think about how you help them.

Human’s like a clear purpose – both a longer term one and immediate goals. So at the start of each day ask yourself what you want to achieve by the end of the day.

Write down anything that is causing you stress. Then divide each up into three perspectives: 1) Your own perception of the issue 2) The circumstances and settings of the issue 3) Other people involved in the issue. These help you identify the reasons that caused the issue and so help you find relevant solutions.

In deciding on a long term partner, make a list of their good points, their not-so-good points that you can put up with (NB it’s highly unlikely you will be able to change these), and their bad points that you cannot put up with. If there are any in the last column then chances are the relationship is doomed.

Imagine you are handing your partner over to another person. State the honest truth about your partner – good and bad points – warts and all. Sometimes it makes you question whether the relationship is still serving you.

Imagine you have an identical twin who really wants to look out for you. What advice would s/he give you? Sometimes this can be some quite tough home truths. Remember that often what you want is not what you need (and vice versa).

CRITIQUE

The Chimp/Human analogy helps us understand why we do what we do. It is of course a model and not reality. It is fundamentally flawed as we are one holistic being. As such we should not try to demonise parts of us and suggest ‘Chimp’ is bad and Human is ‘good’. The Chimp is not a separate being from us – it is us and we need to accept all of us.

In reality, there is little in this book that is new. It’s another take on the Triune brain, System1 vs System 2 thinking and draws heavily on Emotional intelligence and Transactional Analysis.

This book tries to be the magic elixir to life. The underlying principles I find useful but then its constant application to almost everything else becomes tiresome, worthy and frankly a bit incredible.

There is a saying that it’s easier to plan than to do, and for me his key strategies for managing your Chimp fall into this truism. Loading new beliefs is much easier said than done as it calming and convincing your irrational, emotional Chimp – we know with children that providing a rational explanation why they can’t have an ice-cream rarely works!

Furthermore there is a presumption that these areas are quick to fix. Psychotherapists have many long term patients who are still trying to manage their Chimps!

_________________

Would your next meeting be enhanced by using an experienced facilitator ?

If you are looking for an enjoyable, yet effective away-day (be it brainstorming, vision & values, strategic brand building or teambuilding) maybe I can help?

Paul Arnold Consulting PLANNING – FACILITATION – TRAINING  paul_arnold@me.com

Posted in Behaviour change, Leadership, Personal Development, The power of great relationships | 1 Comment

Think like a freak. How to think smarter about almost anything By Steven Levitt & Stephen Dubner

think-like-a-freak

Summarised by Paul Arnold  (Strategic Planner, Facilitator and Trainer)  paul_arnold@me.com

THE BOOK IN A NUTSHELL

To think like a freak you need to see things differently and not be clouded by societal or emotional pressures. The book suggests a number of techniques to help you see new angles (and hence solutions) on problems. These include: Be okay to say, “I don’t know”, Start asking different questions, Think like a child, Being prepared to quit, Dig deep into the underlying causes of an event, and Explore the incentives (and dis-incentives) that drive behaviour.

THE BOOK

What does it mean to think like a freak? – The truth is solving problems is difficult (that’s why they are ‘problems’). Big problems have complex solutions, so often impossible to solve in one elegant, simple solution. You have to nibble away at parts of it.

Taking a penalty kick. – Analysis of World cup games shows that roughly 75% of penalty kicks are successful. The ball moves at 80mph so the keeper has to second-guess the kicker. If they dive the wrong way the odds increase to 90%. Statistically, the greatest chance lies at shooting directly at the goalie (keepers jump to the left 57% of the time and to the right 41% – i.e. 98% of the time they go either left or right), but only 17% aim at the centre. The reason is the ignominy of a failed shot (whilst a shot to the top corner was at least a brave attempt).

Thinking like a freak is to challenge and ignore conventions. It instead relies on data – and interpreting it as ‘cleanly’ as possible. The problem is most people have many unconscious biases, which means they interpret the data through the lens of their own beliefs (we tend to see what we believe rather than believe what we see). New information rarely makes us see things differently. Furthermore, we feel more comfortable ‘accepting’ the wisdom of the crowd, and fitting in, than daring to challenge the status quo on things. Finally emotion also gets in the way and clouds our rational thought. Thus we rarely think cleanly or freely. Thinking like a freak means doing just that.

The first two books on Freakonomics were based on a few simple principles:

  1. Incentives are the cornerstone of modern life (in that we will do things that we are rewarded for). If there is a problem (where for example people are doing the wrong thing), look at the underlying motivations in place (as sometimes there are unseen consequences of certain actions).
  2. Knowing what to measure (and when to measure it) can simplify a complex situation
  3. Conventional wisdom is often flawed – so don’t always follow ‘accepted wisdom’.
  4. Correlation ≠ Causation – Just because two events correlate, does not mean that one is the cause of the other.

    Married people are more likely to be happier. However, it is wrong to assume that it was marriage that caused the happiness. For example looking at other data shows that happy people are more likely to get married (after all, who wants to marry a grumpy person?)

There are some key steps to think like a freak:

1) Be okay to say “I don’t know”

2) Start asking different questions

3) Think like a child

4) Have fun

5) Think small

6) Don’t be afraid of the obvious

7) Dig deep to find the underlying causes

8) Investigate the incentives (and dis-incentives) that are in play

9) Be okay with failing/quitting

Be okay to say, “I don’t know” – Until you can admit that you don’t know, you can’t be open to learn the stuff you need to know (the trouble is culturally it’s unacceptable to admit to not knowing). Facts sit above beliefs which sit above opinion. Facts are irrefutable. Beliefs are (in theory) formed from facts – but you can chose some facts and ignore others to form beliefs, and opinions may be based (loosely) on very few (if any) facts. Everyone is entitled to their own opinion but not to their own facts. Thus when we base our beliefs and opinions on only a few facts we can jump to false conclusions. Surprisingly, it is often difficult to convince a person by offering then more facts to counter their belief or opinion.

Only 20% of Indonesians, 11% of Kuwaitis and 4% of Pakistanis believe that Arabs carried out the 9/11 attacks.

Often things are more complex and there is rarely all the information necessary to make a perfectly informed decision. Furthermore the ability to predict the future is even more difficult (yet there are plenty of ‘pundits’ out there prepared to spin their view of the future)!

Philip Tetlock enlisted 300 experts and asked them to make lots of predictions over a 20- year period. On analysis of their predictions versus what actually happened, they were not much better than dart throwing monkeys! These experts tend to be too dogmatic because they believe in their own ‘knowledge & expertise’ – and hence were not prepared to accept they do not know!

It’s not just experts – we all over-estimate our abilities (80% of people think their driving skills are better than average). Just because we are good at one thing does not mean we are good at other things.

One of the best ways to solve a problem is to put away your moral compass (as ‘rightness and wrongness’ cloud judgment).

There are 38,000 suicides in USA every year – more than 2x the number of murders. It’s one of the top ten causes of death yet is rarely talked about because it is too sensitive a subject. Analysing the data shows suicide is more prevalent in people with a better quality of life (as got nothing else to blame – people in more difficult circumstances have something to focus on for their cause of depression. For example, suicide rates rise amongst blind people who have had their sight restored.

One of the keys to learning is feedback. We try things. It does not work, so we try something different. However complex problems we cannot learn as much from this approach. So you need to create experiments (as can control variables and hence reduce complexity). Inherent in the setting up of experiments is the recognition of ‘not knowing’. Occasionally life throws up some natural experiments (such as the different laws on abortion in different states across America has allowed people to analyse some social issues).

Start asking different questions – If you ask the wrong question, you get the wrong answer. To think like a freak requires you to often ask a different question. Instead we tend to ‘go with the flow’ and ask the same questions media and society have always asked.

Furthermore we can focus on the wrong area (e.g. an area that bothers us). So be careful you are not just tackling the ‘noisy’ part of the problem.

In education, there is a lot of investigation into what leads to great teaching – be it class size, teacher skills, etc. However, evidence suggests that teacher skill has less influence on a student’s learning than what they have learned from their parents.

Kobayashi became the world champion of speed eating by looking at the problem from a new angle and breaking the paradigms of conventional eating. Rather than seeing it as eating food in the conventional way, he saw it as a sport. He experimented with different techniques, to work out what was faster, meticulously recording his results. He would wet the bread to help it slide down faster and do a jiggle and dance to help the food go down. He also was not limited by the past world record. In the end he smashed the record by eating 53 hot dogs in 12 minutes (the record was 25).

Dig deep to find the underlying causes – It takes an original thinker to look at an old problem and find a new angle. That’s because we are pre-conditioned to jump towards the most common angles/solutions that have been previously suggested (we can’t seem to get them out of the mind to think of new ones cf Don’t think of an elephant).

One of the ways to help is to dig beyond the presenting symptoms of an issue and go further upstream to find the underlying causes.

In Freakonomics, the authors looked at the rise in US gun crime. Only when they investigated into the underlying causes did they discover that one of contributing factors was the legalisation of abortion in the 1970s (as before then, too many unwanted kids roamed the streets with little parental guidance).

In Germany, different areas have prospered better than others. This traces back to 1517, and the establishment of the Protestant Reform movement under Martin Luther. Protestants really do have a greater work ethic than Catholics. Since regions tend to either be Catholic or Protestants, there are regional differences in wealth.

The Medical and Pharmaceutical industry were deeply resistant to the idea put forward by Barry Marshall & Robin Warren that a gastric ulcer could be solved by antibiotics (as common knowledge at the time thought no bacteria – H.pyroli to be precise – could live in such an acidic environment as the stomach).

Research found that educational standards were affected by eyesight. The World Bank helped fund sight tests and glasses in Gansu (a poor and remote province in China). They discovered only 59% of those who needed glasses had any. In tests, they found the group that was given $15 glasses increased their test scores by 25-50%.

Think like a child – Kids have an openness and curiosity that we lose as we get older. Anything is possible. They are not limited by past dogma and culture. They are prepared to ask the questions and suggest solutions adults unconsciously self-censor.

Whilst many a ‘child-like’ idea may be wrong, it may lead to a new angle of approach. The authors suggest never to react too quickly to an idea (pro or against) until at least 24 hours has passed.

One of the ways to think like a freak is to think small not big. Too many problems are too massive and complex to try to tackle all of it. Instead its best to take one small part of it and just focus on addressing that. Sir Isaac Newton once wrote, “Tis much better to do a little with certainty and leave the rest for others that come after.” Thus it’s better to ask small questions as often they are less asked.

Don’t be afraid of the obvious – Sometimes the right answers are staring us in the face. We often need a naive outsider to spot what has become invisible to us. Likewise, do not be afraid to ask the stupid questions (“Why?” can often reveal a lot of underlying paradigms). If we stop seeing the complexity of things, but instead see the simplicity of things, it can open up new avenues of thinking.

When Marshall was exploring gastric ulcers, he saw the body as just another machine (his father was an engineer). Thus he saw the problem through the eyes of simplicity rather than complexity.

Have fun – Like a child, freaks enjoy the puzzle of solving a problem. They see learning as fun and are constantly excited by new things. Being playful in these areas is critical to keep ourselves open. Being too serious can constrain creativity (as become very left brain focused).

Many people like to gamble. We all know the odds are against you. How about if the ‘winner’ was charities and not some organisation? Hence the birth of the idea ‘Spin-for-Good’. If one were too serious on how to raise funds, such an idea would never have been allowed to be voiced.

Investigate the incentives (and dis-incentives) that are in play – A freak lives by the mantra ‘People respond to incentives’. Thus understanding the incentives (and dis- incentives) currently in play that leads to the current behaviour (and hence the incentives required to lead to a new form of behaviour) is critical to solving many problems.

There are different types of incentives: financial, social, moral, legal, etc. To become a great freak you need to become an expert in incentives. These differ for people, times and situations. To do this, you need to ‘climb inside their heads’ to understand what is important for them (to identify the point of leverage). There is often little point asking them outright as often not say (or not know). In economics it’s called ‘declared preferences’ and ‘revealed preferences.’ So don’t listen to what they say – instead observe their actions.

The average American weighs 25lbs more than a generation ago. Food on average is cheaper now than before (In 1971 the US spent 13.4% of disposable income on food in 2014 it was 6.5%). Conversely, not all foods are cheaper – the healthier foods like fruit and vegetables have risen in price (a pure high nutrition diet can cost up to 10x as much as a junk diet).

When given four reasons on why they should conserve energy (environmental, societal, financial, or ‘herd’ instinct), everyone voted in a rational way. However, when Cialdini gave them a postcard with one of these four claims on, they saw a drop in power usage primarily in the houses that were told ‘Join your neighbours in conserving energy – 77% of local residents often use fans instead of air conditioning’.

Smile train, a charity to help perform cataract operations in the third world looked at the key reasons people give to charity. They uncovered that people feel ‘bullied’ into giving under social pressure. From this Brian Mullaney developed his ‘Once-and-done’ mailing strategy – i.e. give to us once and then you are done – we will not pester you ever again. Interestingly, on the bottom of the form was an ‘opt in’ (i.e. can we contact you again?) – Only 1/3rd opted out of any future communications.

Whenever you interact with anyone there is one of five levels of relationship:

  1. Transactional relationships (i.e. buy & sell; give vs receive)
  2. ‘Us’ versus ‘them’ relationships – e.g. some competitive stance is taken such as in games, politics, war etc.
  3. ‘Loved one’ relationships – e.g. family and friends
  4. Collaborative relationships-i.e. How we work together with team mates in a game or work type situation
  5. Authority relationships – i.e. boss vs employee; Teacher vs student etc.

Everything is fine when we all know the relationship, but when we cross it, we can get into trouble (e.g. ‘Authority’ mixing with ‘Loved one’). But sometimes, shifting to a new level can lead to a breakthrough (cf The Ping-Pong diplomacy between US and China in the 70’s where the US Ping-Pong team were invited to play in China, thus allowing diplomatic discussions to open up thereafter).

Zappos changed their relationship from a transactional one to a ‘loved one’. There is no script, no time limit set. They offer a 365-day return policy (with shipping paid). They are authorised to settle problems without referencing to a supervisor. In a job that pays just $11 an hour, they had over 250,000 applications for just 250 jobs (loyalty rate is higher than other call centres).

You must also be aware of the ‘unexpected consequences’ of some incentives.

In their attempt to reduce pollution, Mexico City actually raised it! By only allowing odd or even number plates to drive into the city on different days, commuter bought an extra car to get around the ban (and these cars were usually older and more polluting).

The UN, in their attempt to curtail HFC-23 (a super greenhouse gas – a bi product from refrigeration) started to incentivise the destroying of it. The trouble was this led to people actively developing HFC-23 just to cash in! (Up to $20m a year). When the UN realised this, they stopped the incentive. The result – those producing it let the HFC-23 out into the environment – thus creating more pollution than the initiative saved! The ‘cobra effect’ as it is called, has also been found with feral pigs in Georgia, and rats in South Africa.

In designing the right incentives, there are 6 guidelines:

  1. Find out what people really care about
  2. Incentivise them on what is valuable to them (and relatively cheap for you to supply)
  3. Look at the behaviour generated by the incentive. Change if need to.
  4. Create incentives that change the relationship from adversarial to co-operative.
  5. Don’t think people will do ‘the right thing’
  6. Some people will always try to ‘game’ the system

A person who is lying or cheating will respond differently to an incentive.

Two women came before King Solomon both claiming to be the mother of a child. Solomon ruled that the living child be cut in half and given to both. The first woman pleaded not to hurt the child. The second acceded to the King’s decision. The King now knew who was the real mother.

Thus we can use incentives to ‘weed’ people out. An example is to make applications for companies particularly onerous to ‘weed’ out the chancers.

When Van Halen went on tour one of the ‘diva’ type instructions given was to have a bowl of M&M’s in their room but NO brown ones! It was not vanity but a hidden test. The reason was they had incredibly complex set designs that needed careful scrutiny to ensure everything was safe and worked efficiently. This meant at each venue, a detailed 53-page instruction manual was issued. Buried deep in there was the clause about the M&M’s. When they arrived on set, they checked the M&M’s as a sign that the local crews have followed their instructions to the letter.

Zappo’s offer people a $2000 bonus to quit after their first few weeks. Those who ‘care’ more about the money and less about the job will weed themselves out earlier. Only 1% accepts ‘The offer’.

Those emails from Nigeria asking you to look after $10m always seem so badly written no- one would fool for them. But actually they are deliberately written like that as they help weed out the cynical, leaving just the gullible to follow through with (otherwise these ‘blanket emails’ would swamp the fraudsters as they so not have enough manpower to deal with everyone).

In SuperFreakonomics the authors talked about having identified some key characteristic behaviours of potential terrorists. One of the facts they revealed was that they never bought life insurance from a bank. At the time the authors were condemned in the press for revealing these facts. But in reality it was a deliberate ploy to further weed out the terrorists (as they would now deliberately take out insurance to avoid the gaze of the Police). In fact very few people buy insurance from banks.

Be okay with failing/quitting – Sometimes it is better to cut your losses and move on (rather than the Churchillian doggedness of “never, never, never”). Sunk costs often keep us ‘in the game’ – the time and money invested in a project makes people want to get a return from it (cf the Concorde fallacy). However people forget about the unforeseen consequences of such actions. We tend to be blind to the lost opportunity costs – i.e. what else we could be doing with that money or time (since both are finite resources).

Thus there are social, emotional and psychological pressures that are keeping us doing the wrong thing. Here are some ways to help make ‘The Big Quit’:

  1. Change your mindset from ‘Quitting is failing’ to ‘Quitting is success’. We should push to ‘fail fast – hence learn fast’. That way we save a lot of money. In this way it reframes failure as a victory (as allows you to quickly move on).
  2. Celebrate the ‘closing down’ of a project. Ensure there is a culture that celebrates letting go. ’Demonising quitting’ will make people avoid it at all costs.

    A huge multinational retail chain was planning to open its first store in China. When all the senior leaders were asked to rate the likelihood of success that the store would open on time they all gave it a green light. However, when all employees were offered to chance to register an anonymous vote 92% said it would fail to hit the date (which in reality it did miss!)

    On January 28th 1986, NASA planned to launch the space shuttle Challenger. The launch had been delayed a number of times which was bringing pressure onto all parties. Unfortunately the weather took a turn for the worse, being unusually cold for Florida (with temperatures predicted overnight to drop as low as 18°). The night before the launch, NASA held a long telecom with the engineers from Morton Thiokol, the people who built the rocket motors. MT recommended to postpone the launch again as the ‘O’ rings (that keep hot gasses escaping the shuttle boosters) had never been subjected to such low temperatures (the lowest temperature it had been tested at was 53°). On the call NASA pushed back. The senior leaders at MT left the call for 30 minutes and came back and agreed to the launch. The next day, just 73 seconds into the flight, Challenger exploded, killing everyone on board.

  3. Hold a ‘Pre-mortem’ (Developed by Gary Klein) – Hindsight is a wonderful thing. So get the team together and tell them to imagine the project (that is yet to be launched) has failed. Then explore all the reasons that could have caused the failure of the project. Ideally make the answers all be anonymous – this helps flush out the flaws and doubts that culturally are rarely allowed to be expressed publicly.
  4. Realise that quitting has real physical and psychological benefits. Whenever you have quit something in the past, you feel a real sense of relief. Research by Wrosch has shown that people have less depressive symptoms, lower cortisol levels and lower levels of systemic inflammation.

    Freakonomics set up flipping a coin website experiment where people would hand over decisions in life to the flip of a coin (e.g. Should I leave my partner? Should I date my boss? Should I leave my job? etc). 40% of coin flips people followed through on. It seems many people find making decisions difficult and want other people to make them of their behalf.

Part of the problem is people fear the consequences of making the (wrong) decision. This tends to lead people to adopt the status-quo bias – i.e. staying put and NOT making a decision.

How to persuade people who do not want to be persuaded – The trouble with thinking like a freak is how to convince people later on of your point of view. Typically it will cut across what they already believe so will be resistant to your new ideas. So how do you persuade a person who does not want to be persuaded? The short answer is you can’t.

Facts alone rarely converts (as data is always cut and can be shaped to suit either person’s argument).

The more convinced you are of something, the less easy it is to shift (especially if you are identified closely with that position).

Ironically, people who have little facts to back up their beliefs can be equally hard to convince.

Need to accept that people’s opinions are often less based on fact than on ideology and herd thinking.

Furthermore, people are unconscious of the biases that drive them.

It seems the better way is not to attack the belief/attitude/opinion head on but instead ‘nudge’ behaviour via other strategies (cf the fly on the urinals).

Some suggestions:

  1. Remember it’s all about them – No matter how good your argument is, it’s about what

    they believe first and foremost. So need to start with acknowledging their point of view. Also acknowledge the strength of their argument (i.e. don’t make them look like a fool).

  2. Don’t pretend your argument is flawless – People will not believe it is so perfect! As soon as they find a hole in your argument they will discount the whole thing. Better for you to highlight it as this then takes the ‘wind out of the sails’ on that issue.
  3. Keep the insults to yourself – Personal attacks never ever help. You are dealing with an ego not a Spock like character. Criticising a person weighs heavier on the brain than any positive comments. Net: be careful not to attack their opinion, but instead focus on your own pov.
  4. Tell stories – People hear and take-in ‘facts’ wrapped in story that they normally reject. Stories capture our attention, entertain and create a deep emotional resonance. By story, the authors do not mean personal anecdote (as do not see these as convincing – “The plural of anecdotes is not data”). Instead find the story in the data.

5. Follow the data chain to highlight the underlying causes and the resultant consequences.

Steve Epstein, a lawyer at the US Department of Defence had to brief various government departments on the sorts of things employees were not allowed to do. He realised this could be a very dry presentation, so instead he created a storybook called ‘The Encyclopedia of Ethical Failure’ where he cataloged epic screw-ups (e.g. a military officer who faked his death to end an affair). This has become one of the most celebrated US government publications of all time.

Only 14% of Americans can recall all Ten Commandments. 71% could name only one of them. However, the stories (parables) in the bible people do remember.

CRITIQUE

This is an easy and quick book to read with lots of interesting anecdotes (although very few are as surprising as in their first two books). Its lessons about how to think like a freak are the many of the same ones we know about creativity and general problem solving.

Net: Some good useful content but nothing like as good as their first two books.

Paul Arnold Consulting PLANNING – FACILITATION – TRAINING paul_arnold@me.com

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Why Leadership ‘punch’ made the difference

Oh what a night! Not what we all had predicted. But we have greater clarity than we anticipated. We have a clear leader – but an equally clear statement for Scotland.

The next few weeks we will all pick over the reasons why we saw a collapse of the Lib Dems and the disappointment of the Labour vote. One of the factors I wish to suggest is their respective leadership qualities. The strong leaders won – the weak leaders were crushed. Cameron (whether you like his policies or not) has led the country out of economic gloom, whilst Miliband has looked and sounded weak against him. Likewise, Clegg has demonstrated his weakness over the past five year in the face of Conservative domination in the coalition. Whilst the spoils goes to David Cameron, the real victor of the night was Nicola Sturgeon. She has surprised and impressed everyone since taking over from Alec Salmond in November 2014. When she spoke at the hustings she came across as forceful and clear. Her leadership has created the most dramatic swings in British political history.

Whether we like it or not, the general public are as often voting on personalities as principles and policies (and frankly when all the policies are either unexplained or so close together personalities become the difference that makes the difference). But before we write off ‘leadership’ as just a personality trait, let’s look into this in a bit more depth.

Without doubt, a leader can make a supreme difference to the fortunes of an organisation (just look at Football Managers to see the testament of this). Almost every Management textbook quotes leadership skills as one of the key drivers of success. But it’s not just theory. A lot of empirical research has shown that strong leadership skills do play a key role. For example, in the McKinsey book, Beyond Performance, they have calculated that organisations with strong leadership and clear direction will have greater earnings (EBITDA) than those companies run by weaker leaders. Daniel Goleman likewise has shown that organisations led by a person with high ‘Emotional Intelligence’ on average reports 20% higher earnings than companies run by other types of leaders (e.g based on skill set).

So where is it going wrong? Miliband, Clegg, Bennett and Wood (even Farage) have many of the typical ‘tick’ list qualities of leadership that are widely espoused in all the many books on leadership.  For me the element that I do not see in all these lists is something I term ‘Punch’ (and we are not talking the Prescott type of punch!). It’s that personal power – that strength you feel from a person. It’s a force that influences. It’s an energy that is contagious and is difficult to ignore. When they speak you have greater belief in them as the words resonate from a deeper core of conviction.  Whether you agree with her policies or not, Thatcher had it (Major didn’t). Of all the current crop of leaders, the one I suggest has the most ‘punch’ is Nicola Sturgeon.

So where does it come from? It’s an inner sense of drive, backed up with a real strength of confidence of their own abilities.  They have a grit, a determination that goes beyond what most others push for. When they get set backs it just fuels them to keep on pushing. These people see their aim to achieve their goal – and accept they will not always be liked (unlike most Politicians these days who seem more prepared to be flexible on strategies beliefs and values just to be liked).

This may sound simplistic, but ultimately, to be a leader, you need people to follow you. People will only follow someone who they have the faith and belief will take them to where they want to go. That’s why we have a united Scotland and now a divided ‘United’ Kingdom.Nicola sturgeon

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Summary of The one thing you need to know – The SCQuARE way to better business planning and decision making By Ross Lovelock

The one thing you need to know – The SCQuARE way to better business planning and decision-making By Ross Lovelock

(Summarised by Paul Arnold – Strategic planner, Facilitator and Trainer – paul_arnold@me.com)

 ScQuARE

IN A NUTSHELL

The best ideas are useless if they cannot be sold-in. Successful people tend to be more successful than others in their ability to persuade. The SCQuARE model helps you put together a compelling argument to get everyone to ‘Yes’.

The SCQuARE model:

S = Setting

C = Consequence

Qu = Pivotal Question

A = Answer

RE = Recommendations and Evidence

THE BOOK

1) The underlying principles of SCQuARE

The 7 principles of SCQuARE:

If you want to get your boss to say yes then you must….

1. Share the same big picture and the same corrective actions.

2. Define the scope (including only relevant information to lead to the right decision).

3. Focus on the consequences.

4. Continue the analysis until you have defined the right question.

5. Sell the problem first (until they see the issue the same way).

6. Present your ‘What?’ and ‘How?’ before your ‘Reasons Why?’

7. Plan your story

Cutting through the corporate Maze Every minute great ideas are lost and careers crushed due to poor selling-in. The best ideas can easily fail if you cannot  persuade others of your ideas. You succeed when you align expectations and goals – and fail when you don’t. One of the key issues is over-complexity – you need to keep things simple so people understand the idea.

The SCQaRE model helps develop a proven way of selling-in your ideas. It’s a bit like building a jigsaw – at the start there is a muddle of confusing pieces that do not sit together. At the end, you create a clear picture. You first start by creating the frame. You then collate together similar bits of information whilst all the time trying to see how they fit together and what is the overall ‘bigger picture’. At some point a route through (i.e. the strategy) becomes clearer.

Analysis leads to insight – Lack of analysis can lead to poor insights, a weak presentation and inappropriate decision-making. Analysis also helps to simplify complexity.

Focus on the consequences – To properly assess the situation, you need to dig deeper into the underlying causes – and then identify the consequences. If you don’t understand the consequences then you don’t really understand the issue.

Define the principal question – Every issue tends to pivot around one key question that condenses all the analysis.

First sell the problem – SCQuARE drives focus on the core problem. Once this has been identified, then it keeps the presentation on-track by demanding a clear strategy to resolve the problem. To sell a solution you need to first sell a problem. This is achieved through the development of a crystallised ‘key question’.

Ask ‘How?’ before the ‘Why?’ – To fully test your strategy before exposing it, you need to ask ‘How?’ and ‘Why?’ This will help you uncover any weaknesses. Likewise when presenting, tell the ‘How?’ before the ‘Reasons Why?’ otherwise they may come up with their own ‘Hows’.  The more you focus on the ‘Why?’ the greater the chance of people rejecting your ‘How?’

Build your case on data – The case gains credibility when the structure is framed around irrefutable data. Each stage prompts the search for certain data/information. For example defining the situation demands certain data and the consequences another set of data. It’s also possible that as you populate each stage, it forces a re-evaluation of the key issue or strategy. What is key is to start with the aim of the presentation – otherwise you run the risk of drifting aimlessly through a sea of data.

2) The SCQuARE model

S – The setting

The first thing to do is to define the entity – i.e. the subject, scope and time frame of your plan. This forces a focus on what is important and prevents you from getting distracted.

Once the entity has been defined then you need to give it focus by defining the aim – i.e the aspirational (yet achievable) vision of the project. It often helps to state this as ‘To be…’. It is important that all stakeholder are aligned around the vision/aim as this becomes the ‘North star’ that gains buy-in at a higher level (even if there are some disagreements at the lower executional levels). Often there will be some pre-set objectives already in play and these need to be taken into account as any activity must be aligned with these.

First start with the ‘setting’ – i.e. the context of how things are right now.  This stage focuses on the positives as helps keep people aligned – i.e. what is going right e.g. strengths, assets, skills and successes.

Below is a checklist of potential factors to explore:

-Factors about setting: performance, political, historical, organisational etc

-Factors about successes: organisational, product, individual, significant results etc

-Factors about strengths: resource, skill, brand, marketing etc

To keep on-track, you must check these are all relevant and important to the aim of the project.

C- Understanding the consequences

The C of SCQuARE is all about what has changed, the resulting complications and critically its consequences (including the consequences if nothing is done about it). If the last section was positive, this is more negative.

The consequences often takes hard facts and extrapolate them into the future. If you do not fully understand the consequences then you have not grasped the real issue.  To do this you need to create a logical causal chain as this helps identify the underlying issue (which then drives your strategy for resolution). At the root of the change and resulting consequence will be some underlying cause that you need to identify – e.g. Change = Sales are falling. The Consequences = Profit drop. The underlying cause is the Product is at the end of its life cycle. Thus the solution will be around New Product Development.

If you do not identify the real underlying cause then your strategy will fail. Often there are a number of interlinking factors that need to be taken into account. Furthermore there may be hierarchical levels of causes. Stop when it starts to move outside your immediate locus of control – stopping government legislation is not really possible!

Focus first on what has changed, then what could change. For each factor, identify the complications for the change and finally the consequences of the change.

Clearly there may be some positive changes as well (which should be exploited – but if not seized upon could lead to a loss of competitiveness etc).

Like with the first section, it’s good to test your logic by asking the question, ‘So What?’

Ensure you add-in only those factors that are directly relevant and important. Resist the temptation to add in more stuff as this only leads to further confusion that could de-rail your overall proposal.

Qu – Defining the pivotal question

This is arguably the most important stage as it defines the key issue that your strategy intends to resolve. If this is not sold-in, then the strategy will be irrelevant. It lies at the very heart of your presentation. It creates focus and structure for the whole presentation. Every element leads up to it and away from it (if an element doesn’t then cut it out). Thus the question needs to be both critically important and demand an answer – i.e. it creates the vacuum that your strategy will fill. Clearly the question needs to be succinct yet capture the wholeness of the situation and consequence, Getting to the right question often takes time and a number of iterations – rarely will you get it right first time. The Situation and Consequences will be your primary source of defining the question. Thereafter it is about honing it down to create simplicity out of complexity.

A suggested exercise is to try to fill in this template:

How can I take …………….(main action) to ………(overcome any issue) and ……… (exploit an opportunity) so that I will meet ………..(pre-set objectives) and I will achieve my ………(stated aims)

The example the author uses is:

How can The Family Grocers Division combine the best of alternative distribution options in order to: 1) overcome the loss of product availability from ceasing direct deliveries, 2) the threat of negative PR from main competitors, 3) the need to save £15m costs over three years, 4) the loss of in-store control and 5) slow market growth and exploit:  1) alternative third-party distributors & 2) some reinvestment of the £15m cost savings to achieve 1) annual volume growth of 8% to 65m cases, 2) grow PBT by 10% to £22m and 3) £15m cost savings to continue to be the brand leader in all its market segments.

This was then simplified into :

How can we combine the strengths of the alternate distribution options to retain our 80% market coverage and current in-store control, counter the threat of negative PR whilst exploiting our cost savings, ensure we meet our preset objectives and achieve our aim to continue to be the brand leader in all market segments?

A = Finding the Right Answer

The right answer essentially answers the pivotal question. It is the core strategy that resolves the issue and/or exploits the opportunity. Your answer needs to be clear, concise and without ambiguity. At this stage you only provide the key building blocks of your strategy (without the ‘How?’ or ‘Why?’) rather than a detailed exposition of every stage (as too much detail will confuse).

In providing the right answer, you need to address all sections of the pivotal question, such as the aim, the pre-set objectives, the issue and/or opportunity.

Rarely will there be only one line of strategy as often it takes a number of actions to address an issue/opportunity.

In developing your strategies you need to ruthlessly interrogate each option against consequences, complications and the pivotal question.

RE = Recommendations & Evidence

In the Recommendations and Evidence section, you flesh-out the strategy outlined in the Answer. This is the point where the plan becomes very specific so people know exactly how the strategy will be actioned. It also reinforces the credibility of your plan.

Critically, this is the section where you answer the two key questions – the ’How?’ and the ‘Why?’.

Continually ask the ‘How?’ question at each level helps to dig down into the implementation plan and provides the detail of the recommendation. Each answer to ‘How?’ leads you into greater detail of exactly how the strategy will deliver against the aim and pre-set objectives.

Also keep asking ‘Why?’ at each level as this provides the rationale behind your strategy (that helps convince people to support your plans). It builds the foundation of the rationale.

By asking ‘How?’and ‘Why?’ you test your strategy so it can withstand not only the test of interrogation but that it will actually deliver.

Before presenting, ensure you play ‘Devil’s advocate’ as these test your strategy against some ‘fatal flaws’.

Some questions to ask:

-Are the strategies clear and succinct?

-Are the objectives well-defined and clear?

-Are the priorities well-defined and clear?

-Have you considered all the critical factors?

-What are the risks if problems arise?

-Do you have adequate resources for the task?

-Are your financial expectations realistic?

-Will your plan meet investment and cash objectives?

-Have you identified all the important constraints?

-Could a constraint become a limiting factor?

-Could a constraint become a down-size risk?

-Do you have the right team?

-Does your team have the right skills?

-Is your team committed to the objectives and strategy?

-Have you considered all important stakeholders?

-Do you have a communication plan?

-What are your plans for managing change?

-What are your plans for involving all affected?

-What problems can you foresee at this stage?

-Are there matters ahead that are critical?

-What are your contingency plans?

Telling a powerful story

The SCQuARE process helps develop the basic logical structure of your presentation – but you need to bring it alive in a compelling way. You now need to wrap a compelling story around it.

Your presentation needs to hold onto their attention step by step. In building your presentation you need to bear in mind three things:

  1. Information overload – a person only has a limited amount of ‘bandwidth’ (cf George Miller principle that a person can only hold onto only on average seven bits of information – too much information and you confuse/switch them off. Hence the need to keep it short, clear and with a logical flow. Each slide should have no more than three points on it.
  1. Present it inductively not deductively – A deductive argument presents the data then deduces a conclusion. This can lead people to deducting a different conclusion. You are more likely to hold onto your audience if you present your conclusions first and then use the data to support it.
  1. Use the headlines to tell the overall story – The headlines are key as they focus attention. The headings themselves should help tell the overarching story. Ideally headlines should be pithy – six words or less.

An outline shape of your presentation

(These may take more than one chart each):

1: Set up: Introduces the hook – the dramatic point of the document – often a benefit – and the agenda

2:  Situation (1): Overview of the entity, aim and pre-set objectives.

3: Situation (2): The meat of the analysis – these should be factually positive

4: Consequences: Addressing the complications, consequences and issues/opportunities. 5: The pivotal question

6: The Answer to the pivotal question – top line only

7: The Recommendation – this fleshes out the strategy in more detail. This answers the ‘How?’ question.

8: This provides the evidence to support the’Why?’ questions.  You also need to address the preemptive equations.

9: Final slide: This summarise the core of the presentation and reinforces the main benefits.

3) The Breaker Process

The sell can often be let down by a weak ‘Right Answer’ or an idea that has been tried before. Thus it is important to use creativity to generate a wider range of alternatives. The Breaker Process helps leads to braver, more imaginative solutions.

There are five stages: Focus, Chunking, Generating, Landing and Activating:

Focus – As Einstein once said, “The mere formulation of a problem is far more essential than its solution”. The pivotal question helps drive this process as it is about identifying a tightly defined area to focus your creative solutions on.

Chunking – Chunking helps further focus attention. Often a problem is too big so needs to be chucked down (or chunked up). For example ‘Internal communications could be chunked up to ‘Corporate communications’, chunked down to ‘Departmental communication’ or even chunked across to ‘Consumer communications’. It’s recommended to give it a fun name to the chunk as this also helps stimulate creativity.

Generating – Four techniques can be used to help develop fresh ideas:

-Play with words – You start with a word linked to your chunk, then think of another word that is linked to that word. Then do the same again, and again and again. This word association helps break through to new ideas.

-Play with facts – This process questions the facts associated with the area of focus and contradicts (or challenges) it. For example, What happens if I modify it? What happens if I put it to another use? etc. This ‘constructive disruption’ also helps break through our normal constraints of thinking.

-Play with the context – Look at where the same problem has been solved in a different area. Another way is to express the issue through a different medium (e.g. drawing, a sculpture, a song etc) to see if this helps unlock new insights.

-Play with stimulus – Select random objects and force associations.

Landing Landing is about visualising and bringing to life the ideas (as this helps you more fully assess them).

Activating – Assess the ideas with the ‘Brutal’ selection criteria:

B = Is the idea big and brave?

R = Is the idea relevant?

U = Is the idea unexpected?

T = Is the idea transformational?

A = Is the idea ambitious?

L = Is the idea liberating?

SUGGESTED EXERCISES

Throughout the book the author encourages the reader to embed the learning by running through a real exercise. Here are the key stages:

SITUATION

  1. Think of a real project you have to undertake. Define the entity – i.e. Its subject, scope and time-frame. Ensure it is within your decision-making accountability.
  2. Take the entity that you have identified above. Define the aim (e.g. To be…. – What is the aspirational end-point?), the key metrics (i.e. how will know you are getting there?) and time frame.
  3. List out the pre-set objectives of the project (likely to have been agreed with your boss and stated using SMART).
  4. Create the context by stating the facts. Try to group the facts together. What are the positive factors? Check the facts are directly relevant to the aim.
  5. Test your ‘context’ by asking the question ‘So What?’ at each stage.

CONSEQUENCE

  1. What has changed? What caused the change? When did it change? Is it a positive or negative change? what are the consequences of the change? What happens if nothing is done about it?
  2. What could change? (and ask similar questions to those above)
  3. What are the complications of these changes?

PIVOTAL QUESTION

  1. Bring together onto one page, your entity, aim and any pre-set objectives.
  2. Review all the factors in your project and identify the main negative factors that will impede the progress towards your aim.
  3. Review all the factors in your project and identify the main positive factors that can be exploited in order to progress towards your aim.
  4. Refer back to the causal diagram and clarify the main actions.
  5. Use the template to build (from the bottom up) your first attempt at the pivotal question.
  6. When finalised, simplify it into a motivating pivotal question.

RECOMMENDATIONS AND EVIDENCE

  1. Evaluate the strategic options developed against a number of criteria:

-Does it address the aim?

-Does it address the pre-set objectives?

-Does it address the key issues identified?

-Does it exploit the key opportunities identified?

-What are the complications of each strategy?

-What are the consequences of each strategy?

-Is the strategy compelling and believable?

-Is the strategy achievable?

-Does the strategy have clear benefits?

-Is the strategy clear and succinct?

For each level ask ‘How?’ and ‘Why?’

Address the pre-emptive questions (see the main body of the text)

Outline the timings and responsibilities

CRITICISMS

This summary lacks the case history (that is in the book). This really helps bring this conceptual framework to life.

The book’s great strength is how it has been boiled down to a simple easy to remember (and execute) methodology that keeps you on track.  I have often used this process myself in my own presentations.

That said, from when I was first introduced to this model many years ago, it has become more complex (no doubt to handle the many different scenarios the model has been used for). I personally feel the pivotal question needs to be kept shorter (almost single-minded) as then it is more likely to lodge into the audience’s mind.

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Strategic Digital Marketing – Edited by Eric Greenberg & Alexander Kates

Strategic Digital Marketing

Top digital experts share the formula for tangible returns on your marketing investment – Edited by Eric Greenberg & Alexander Kates (Published 2014)

strategic_digital_marketing_top_digital_experts_share_the_formula_for_tangible_returns_on_your_marketing_investment_by_eric_greenberg_alexander_kates_2370005032831

 

 

The book in a nutshell

The Greek philosopher Heraclitus said, “The only thing that is constant is change.” But change is not constant – it’s exponential because change is accelerating. Consumers are accessing information at the critical point of purchase, which is profoundly affecting their decision-making.

Organisations need to put digital at the epicentre of their business as it impacts almost every department in the way we service and meet the evolving needs of our customers.

Brands need to co-ordinate its media synergistically, using them to support each other (whilst having discreet roles in their own rights). Organisation should adopt a constant stream of rapid test and learn in order to drive improved ROI. They also need to identify and build relationships with the key influencers in social media networks (as well as addressing the concerns publicly of those critics of the brand s quickly as possible).

THE BOOK

There are three sections to the book: Part one focuses on the changing new digital world. Part two is about the different new digital media choices and Part three focuses on how to shift an organisation to become more digitally focused.

Part 1 – Our new digital world

How digital has changed the game

The marketing world has changed – Many companies are still just ‘playing’ with their digital activity and instead need to apply greater strategic rigour. If companies want to properly seize the full power of digital universe it requires structural, cultural and logistical shifts inside the organisation.

When advertising ruled – In the old days advertising just worked. Familiarity drove sales, as there was a limited amount of information available to make decisions. The old paradigm was about pushing your message to consumers (and the more money you had the greater the push).

Information anywhere, anytime – The environment has radically changed. Almost every person has nearly unlimited information anywhere, anytime. They now can know everything about a brand – the good and the bad (delivered even at point of sale). There is also extra competition, often from completely new sources. It’s no longer just a ‘push’ model but one where we try to find advocates who will spread the message to others (i.e. it’s less about who we reach and more about who they reach). Furthermore, it was a one-way path of communication and now the transparency is meaning there is a two-way flow of communication. Brand image and meaning is now co-created. The marketeer may seed the positioning, using media channels to help amplify the message but consumers will ultimately decide based on their own unique experiences. Fortunately there is also a positive for brand owners – the opportunity to create deeper, more meaningful connections with their customers. The transparency of the medium means brands need greater honesty and authenticity.

Digital is influencing the consumer journey – Whilst some high street retailers may be lagging behind, the digital retailers like Amazon and Zappos are redefining customer service standards. Technology is now dramatically influencing the journey to purchase.

The following scenario could be played out today:

A man, Jo walks into a store. He is identified through his ID chip on his smartphone. The store data identifies that he spend on average $93 within this store each month, 43% on clothing, 23% on sporting goods and 33% on personal care. All the retail staff have this information on their tablets so can help him. Earlier in the week, Jo received a 15% off dental products e-coupon (as his purchases in this area has dropped off recently). When he walks in, the e-coupon automatically pops up on his phone along with awarding him some loyalty points for merely entering the store. He looks at the Oral-B electric toothbrushes. He vaguely recalls a TV ad. He scans the barcode with his phone that brings up 253 reviews from Amazon customers. The reviews average score is just 3.2/5. The site recommends several higher rated products including the Phillips Sonicare that received 4.4/5 from 942 reviews. Joe puts the Oral-B back and moves over to Sonicare. He inspects the packaging then returns to his phone. Using his social shopping app he discovers that 355,000 have liked Sonicare on Facebook (including several of his friends). Joe then does a voice search for The best electric toothbrushes and finds the Sonicare website is the first link on Google. He notices a paid search ad that shows that Sonicare is running a coupon promotion for a free set of brush heads. His social shopping app shows its $12 cheaper on Amazon and $16 less on eBay. Even though he can place the order with one click now (and get it in one-two days time), Jo decides he wants it now so puts it into his trolley. As he walks down the aisle, his smart shopping trolley recognises the item via its RFID tag. It automatically flashes on the screen of his trolley a number of complementary items (including his most frequently purchased toothpaste with an extra 10% off coupon), which he also adds to his trolley. At the checkout he scans the items out with his phone and thus earning more loyalty points.

The Zero Moment Of Truth – The new consumer journey was re-mapped by McKinsey in 2009. A consumer begins with a perceived need to purchase a product. They may start with some preconceived ideas on brands or criteria. From there they research (much more thoroughly these days than in the past). This then leads to selection and purchase. If they have a positive experience of that purchase then they will often repurchase again. If not then the evaluation cycle starts again. One of the key trends of late has been a reduction in loyalty and repeat purchase (interestingly, it has been increasing in developing markets). Access to information is helping people make more informed decisions and not just rely blindly on ‘brand image’. This greater knowledge (especially how others have voted) is making the average shopper more confident in their choices. An unknown brand that has rave reviews is more likely to be chosen today than in the past – and vice versa. Thus it is necessary for brands to further focus on product performance that deliver enhanced experiences to ensure positive reviews. As a result of this there is increasing pressure to help influence that ‘zero moment of truth’ (as termed by Google) – i.e. the final point that influences the purchase decision. So all the power of a great advertising campaign can be lost by a tactical price promotion coupon delivered at point of purchase. Thus it’s critical that brands have a fully functional digital offering – to be there at the critical point when consumers most need you. Those brands that can influence at the ZMOT will win out in the next decade.

Marketing strategies for a digital world

The distinctive but interconnected roles of the different digital channels – Marketing organisations are trying to ‘do digital’ through the old lens of marketing comms, merely adding it on as an extra media choice. The advanced marketeers know the specific role each different digital media plays and uses them in a holistic, synergistic manner with their other media (/marketing activities). Digital media is not replacing mainstream broadcast media – it is supporting and complementing it, providing a greater all round experience. Search, social and other digital platforms should help maximise the effectiveness of the paid for big budget TV work (and vice versa). Many TV programmes are building interactivity via tweets/SMS/Phone voting and their own Facebook sites (cf X-Factor and The Voice) etc.

A brand needs to be where its target customers already are (and then provide useful content to justify its position there). The key to maximise the effectiveness of each digital medium is to replicate and respect the way people are using it. For example Facebook is used when people are relaxing and catching up with friends. So do not use it as a serious selling space.

Thus any brand must have ruthless clarity about the defined roles for each medium (and how they help support each other)

Nike was not an official sponsor of the 2012 Olympic games, yet pipped Adidas the official sponsor for coverage. Nike ran a campaign called #Findthegreatness. Nike generated over 16,000 mentions on twitter and added 166,000 new Facebook fans (double the level achieved by Adidas). 

Liquid marketing – The brand is now co-created with its user universe. The role of marketing has shifted from being absolute controllers to cultivators, sewing the seeds of brand image, cultivating them but then allowing the consumers to run with them and add their own personal stories that make up a richer tapestry of the brands meaning. Marketers in the digital age need to be like the great Bruce Lee quote, “Be like water…” It needs to adapt and flow according to the constant changing environment (as some things will work and some things will not). Digital marketing needs to try things and then drop them and then try different things, constantly iterating its messaging. It’s not about being fixed. Pre-planning exact strategies is often a mistake – Planning needs to be looser. Instead it’s a case of testing constantly and adapting constantly. Testing lies at the heart of liquid marketing.

Coca Cola was the first to embrace liquid content that is all about discovering viral activity (https://www.youtube.com/watch?v=LerdMmWjU_E). These pieces of content in the different places and spaces should all coalesce to help to build towards a consistent positioning of the brand.

Digital is not just about marketing – Technology & digital can transcend and transform a whole organisation. Companies need to adopt digital principles at the very core of the organisation. The foresighted companies these days develop competitive competences in data (collection & analysis), testing & refinement and adaptability.

How to get it wrong: FedEx wanted to show its support for American Expresss Small Business Saturday. They offered $25 AmEx gift cards to the first 30,000 who liked FedExs Facebook site. The offer spread like a virus across the net, which meant on the launch day over 300,000 people tried to access their Facebook site but it crashed. Instead of creating positive goodwill towards the brand, it backfired (yet still cost them $1m). Perhaps a better idea would have been to invite people to submit stories of how FedEx helps small business. Then based on votes from the public the best stories receive a prize – that way the FedEx website gets flooded with positive stories that help build the brand.

Digital silos – One of the issues facing the industry is the growing silo’d specialisation – yet our consumers free flow across all channels – thus the greater imperative to ensure greater holistic activities.

A framework for digital success – 1- Create stories for your brand 2- Feed and curate digital channels (i.e. perpetuate the stories in several channels and have a mix of longer term strategic planned campaigns alongside tactical/topical feeds. 3 -Determine your ROI 4- Test, measure, learn and refine.

Part 2 – Achieving success in the digital marketing channels 

Managing content

Paid <-> owned <-> earned has become the default way of looking at the interconnection between the different media choices.

Nike US reduced its TV & Print advertising by 40% in three years, whilst increasing its overall investment levels. Much of their investment was spent on creating owned assets to develop stronger ongoing relationships with their customers.

The importance of content marketing – Content sits at the epicentre of digital. Brands need to provide content that is useful, relevant, informative, interesting and engaging to its chosen target audience (with the long term goal of attracting and holding onto its customers for profitable growth). In a survey of 1300 marketers in late 2012 75% believed that brands were becoming ‘publishers’ (yet 2/3rds had no budget for it).

The three pillars of content creation – With the explosion in content, how can you make sure yours cuts through and gets seen? There are three ways:

  • Algorithmic curation – where our preferences are curated and then relevant content is served back to people based on their search queries. Facebook Edgerank analyses which content posted by our connections is most important. Amazon’s recommendations likewise are based on data it already holds about a person’s purchase history. Zite (for iPads) also uses algorithm curation to feed relevant content based on your connections, tastes etc. Percolate in US and Idio in the UK help brands curate content on a large scale by mapping content to brand profiles from big data streams.
  • Professional curation – Use of skilled editors who use their skills and insight to determine what they feel the audience would find relevant. This replicates the age-old skills that newspaper editors have applied for years.
  • Social curation – The stuff our friends and colleagues pass onto us because they think it would be relevant for ourselves. This takes other forms than just copying across a link – such as social voting, tagging, Twitter lists, Google + circles etc. etc.

 Distributed and Destination thinking – Destination thinking is the ‘old school’ way of planning comms. We create content, then attract or drive people to its destination (usually the brands website or microsite). Distributed thinking assumes the best place to be is where the customers currently are.

Google Adsense is a good example of Distributed thinking. Rather than people having to go to Googles main web page, it runs a search box on many sites. Likewise, YouTube allow its videos to be embedded onto other sites and Facebook likes icon can also be found in many places around the internet. The Guardian has also allowed people to place its content within other their sites as well so that Guardian content can be woven into the fabric of the internet. ASOS has turned this concept around (becoming a cross between distributed and destination) by creating a marketplace for lots of small clothing brands to display their products.

 70/20/10 content planning model – A brand (as Coke does) should have 70% of its content be low risk, standard marketing; 20% to be work that innovates off of what works and 10% should be higher risk ideas (that maybe becomes tomorrows 70%). McKinsey similarly recommended that 20% of marketing budgets should be invested into test and learn scenarios. 

Search (If they cant find it they cant buy it)

The power of search – Rather than pushing messages to people who may not be interested, it’s about people seeking out information who actively want to be sold to. Not only do we know who is interested we can also work out where they are in the buying cycle based on the search queries they enter. These are the hottest leads and brands that are at the top of the search list get the richest pickings (being the #1 site can yield 10-20% of total clicks).

The ubiquity of search – In USA alone there are more than 20 billion searches in a month. Estimates suggest there are 175bn searches around the world per month. 78% of B2B buyers also started with a search engine. So people are searching – the key issue is, are they finding your brand? Interestingly, search volume data (along with web site visits) is now one of the commonly used metrics to judge the effectiveness of a brand’s marketing activity.

Search is changing – Search is no longer just limited to a few big websites like Google and Yahoo. Now people are increasingly searching via their mobile apps and search boxes are appearing on many sites. Furthermore, the replies to our search are becoming more multi-dimensional – with videos, maps, photos, blog posts, geo-focused results etc.

Personalised search – Our searches are increasingly being influenced by our social network (as the theory goes what our friends clicked on may well be suitable for us as well cf Google+ and the tie-up between Bing & Facebook). Thus there is often no longer one Number one site as the listing has become more personalised.

Search outside of search engines – There are other ways for people to find your brand – for example YouTube is the #2 search engine and Amazon accounts for 1/4 of all search queries. Likewise Facebook etc. are increasingly becoming major search tools in their own right.

The key drivers of the search

  1. Links (i.e. there is an assumption that the most linked pages are more likely to be good sites).
  2. Social media activity (e.g. Facebook likes on a page are also assumed to suggest a quality element).
  3. Human rating (Google tracks characteristics of content)

 Beating the system – Google and the other search engines are always developing their algorithms to better meet the needs of their customers, to stay ahead of the competition (as well as to out smart those trying to artificially ‘game’ the system). It’s recommended instead that a brand focuses on developing really engaging & useful content that is easy to use (so that people naturally favour you and recommend you to others).

Paid for search (or pay per click) – The principle is a brand buys a number of search terms which when typed in, your ‘ad’ appears in the sponsored section of the search page (either just under the search term or to the right). If a person clicks on that ‘ad’ then the brand pays. If no one clicks, then no money is paid. It’s best to buy words that are more specific for your customers. So buying a generic term may end up costing you a lot of money as you get a lot of waste. Likewise it’s key to set your bidding at a price that fits your business model and keep refining it.

BA improved its ROI on search by 10% by evaluating the search terms used.

Search optimisation – It’s best to analyse what are the words people typically use when searching for your products (and also what your competition are buying). Then you need to write your 2-3 sentences that will appear to attract the right people (/put off the wrong people). Thereafter you need to be constantly testing, learning and refining.

Entrepreneur magazine improved their revenue by $2m a month by search engine optimisation.

Mobile

Mobile is not mobile – The definition of mobile means using a mobile device – i.e. it could be a laptop, phone or iPad being used in the living room.

Mobile – the biggest growth area – Internet access via mobile devices has now overtaken desk/office bound computers. In a world of 7bn people, there are now more than 6.4bn active mobile subscriptions – this exceeds the penetration level of even TVs and home phones. The average smartphone gets looked at 150 times a day.

Mobile search – Not only has it changed where we access, but what we access. 27% of all Google searches in 2012 were run on mobile devices (In 2013, it became the dominant search device). 40% of all YouTube searches are also made on mobile devices.

M-commerce – Mobile purchases totaled $25bn in 2012 (11% of all purchases). This figure is expected to mushroom to $85bn by 2016 – especially as the phone becomes a mobile payment system.

Starbucks processed 2m mobile phone payments in 2011.

Increased personalisation – Mobile devices allow us to also plot a person’s geographic position, allowing brand to serve up more relevant content (by both time and space).

Its lunchtime, and a person is on the street looking for food. Up on his phone pops a voucher at a local sandwich shop with directions of how to get there. When this was run by Quiznos, they saw a 20% uplift in coupon redemptions.

Mobile is profoundly influencing the ZMOT – When in store, we can access information about customer reviews, competitive pricing – even discount vouchers. The mobile Internet provides them with ALL the information they want to make a well-informed decision. And it’s proving to be highly effective. A study by Google and Nielsen in March 2013 shoed that 28% of ALL mobile searches leads to a conversion (with 55% of conversions happening within the same hour – with in-store searches creating saw higher conversion rates).

Email – Email is not dead and continues to deliver high levels of effectiveness and ROI compared to many other marketing channels (but young people are increasing using new forms as their primary communication medium).

SMS (Simple Message Service) – Whilst SMS has been around for a long time, it is still the most widely used data application in the world. 95% of people will open a text message making it a very effective reach mechanism. The issue is of course not to overload people, as there is a big kickback on receiving too much spam.

Mobile Apps – Mobile apps provide focused applicability (so operates more efficiently as they do not need to cover as wide a range of functionality). Being specifically designed for smart phones or tablets means they can make better use of their hardware (such as camera, GPS accelerometer/gyroscope, vibration and near field communication). They can also access and feedback personal data (allowing greater personalisation of the user experience). Furthermore, brand specific apps make the customers experience better than just accessing through the Internet, so encourages greater usage. In designing a mobile app it must have a clear customer relevant purpose – it needs to improve the customer experience (be it through functionality, speed, ease, entertainment or rewards).

 Gamefication of apps – Some of the techniques to make a game ‘sticky’ are being applied to other digital forms. For example giving of ‘badges’ after achieving certain milestones.

Nike+ built gaming through competitive social sharing of their exercise levels at the core of its product offering.

QR codes – A short cut way of getting your mobile to do something – such as access a website, play a video, download a file or app etc.

Tescos in Korea placed posters in subways of life-size version of stocked supermarket shelves with QR codes on. Busy commuters could scan the QR codes in, and then have the products delivered to their homes.

Augmented reality – i.e. a real situation enhanced – often overlaid with more information. For example holding up a mobile phone in a street could reveal ATM’s, Restaurants (and their reviews). 

The city of Hong Kong developed an AR app for tourists that displayed virtual signs to recommended places to see, eat, drink or stay.

NFC (Near field communication) – Where your mobile device ‘connects’ with another device close-by to feed you relevant information. This could be between two phones, a poster site etc. Its application will soon extend into m-commerce, as this is likely to be the technology that powers our mobile to become cashless credit devices.

Other new technologies – AR and NFC are just the tip of the iceberg. Technologists are developing 8 core processors, flexible displays, eye tracking, facial recognition, and fingerprint reading (to name just a few). As these develop, foresighted marketeers will find ways of applying these. The key as always is to find relevant, meaningful applications of new technologies and not just use them for the sake of gimmickry.

Device convergence – The past 10 years saw more innovation than throughout all of previous history. It is not impossible that the PC as we know it will become a relic of the past. As Tablets become more powerful, items become wearable (cf Google Glass) and we integrate computers/internet capability into other spaces and technologies (cf the internet of things and YouTube video by Corning called A day made of glass). Marketeers are still slow in maximising the use of these new innovations. Those who do find a real role for them will gain significant competitive advantage.

Video marketing

Show not just tell – Video is more ‘digestible’ than text based media. It also allows a brand to communicate in a more accessible way, as well as credibly demonstrating its abilities.

The Rokenbok toy company used YouTube to demonstrate their toys, eventually developing the Mr. Rokenbok channel.

 Sticky videos – More than 1bn people visit YouTube every month, with people tuning in whilst commuting, waiting for something or when the ad breaks are on TV. The top videos watched are often entertainment – be it music or amusing stunts (such as TNT’s A dramatic surprise on a quiet street). The key categories also include community, culture, gaming, holidays, local, movies, newsroom, politics, sport, weather etc. Often the key is to generate a highly emotional response to help make a video sticky. Furthermore you need to ensure people keep watching (so the first 10 seconds need to capture and hold them). This does not mean they all need to be short – the average length of the top 10 shared video ads of all time is 4 minute 11 seconds.

Channels – We are seeing a growth of ‘Channels’ – i.e. where people/institutions/brands regularly post new content. The two most popular personal channels in 2012 were Ray William Johnson (343 videos, 6.3m subscribers) and Ryan Higa (135 videos and 6.2m subscribers). Red Bull is now as much of a publisher as it is a manufacturer of energy drinks.

Promoting your videos – Since more than 100 hours of video gets loaded onto YouTube every minute, you need to think how to get your video seen (the first 45 characters are critical). Like the previous section on search, you need to optimise your search wording on the thumbnails that are attached to the video for all the various search engines to help find you. Furthermore you need to ‘feed’ the news of a new video to your list of key influencers/followers -especially if they can be linked to big cultural events that increases its saliency (often called ‘Tent pole events’).

Build your community – Find out what the people you want to attract are linked into and try to tie up with them – especially if similar/relevant. It is recommend that a brand keep a tab of who is sharing their videos and build these into their core circle of influencers.

The music video OK Go – Needing/Getting – Official video was developed in partnership with Chevrolet.

Social Media Marketing

The democratisation of brands – The Internet now allows us to express our point of view on anything – anytime, with the potential of the world to hear us. With such a large proportion of the world connected into major social networks (be it Facebook, Twitter, LinkedIn, Snapchat etc. etc.), there has been a shift in power towards the consumer. This has meant that business have needed to reorganise themselves to listening, being in dialogue and creating longer term relationships. Those brands that harness this potential will thrive with relatively little marketing investment (e.g. AirBnB, & Red Bull).

 

Social listening – Social media must be treated differently from other digital channels. The art of social media is to listen rather than blindly shouting out your message (cf at a party where there is the loud person telling people about himself, rather than listening and taking part in a conversation). You can also learn from them, as they will talk about what matters to them (rather than what you think matters).

 

Consumer reviews – The most influence form of communication, as always been personal recommendation. Social media is just word of mouth amplified. People can now tell many more people of their positive experiences of a brand (such as Publix reopening a store) or negative stories (e.g. United Airline broke my guitar). Whilst not in control of this it’s important to learn how to ride the wave of social approval/disapproval. If negative comments are posted these must be quickly responded to. It also puts extra pressure on ensuring the brand delivers a quality experience at every single one of its touch points.

When Apple launched the iPhone 5 they had problems with their own mapping system. The first thing they did was to create a team to solve the problem immediately. Then he tried to communicate with the public (through a full page ad in Wall Street Journal), Third, the CEO, Tim Cook publicly apologised (We screwed up. Thats the fact) and finally they followed up on their promises.

 

Sharing discoveries – There is great social currency in being the person who finds something new and tells other people about it – be it for shows, clubs, bands, destinations etc. Finding these ‘mavens’ and ‘connectors’ are key to spreadability of your product/service.

 

Building reach – One of the issues about many digital channels (Inc. social media) is the level of reach that can be achieved. You can’t market by shouting in an empty room. You have to find where your audience is active on the net, and go join them there. But as with everything else, you must create content that people want to engage with and share.

 

The future of social media

  • Social storytelling – we are seeing a move away from persuasion based messaging through major interruptive budgets to a more subtle approach of storytelling. The first story it needs to tell its own (Its history, purpose and values). This story then becomes enriched by everyday anecdotes that support these three key pillars of the brand – be it stories of customer experience, crises, founders, employees, activity in the community etc.).
  • Customers as Rock stars – Some consumers have become powerful influencers. Analytics is allowing brands to more closely target the ‘Mavens’ and ‘Connectors’ and create closer relationships with them (giving them for example unprecedented access to new product ideas and manufacturing processes.

 

 

Measurement and ROI

 

Analytics = the heart of digital – “If you can’t measure it you can’t manage it” said Peter Drucker. The attraction of digital is on the surface it is highly measurable.

 

The power of data – Analytics should help to make better quality decisions (as no longer need to rely on judgment).

 

Hertz collect customer satisfaction data from 8300 locations in 146 countries. By using analytics it cut down its analysis time by a half, allowing faster response (and happier customers). For example they found the speed of returns was slower in Philadelphia that led them to add more staff during peak times.

Google used data to devise and launch products like Google+, Gmail and Google Apps. 

Hollywood spends fortunes on many films, many of which never break even. But how do you know if a film will take off or not? Analysis of view rates and pass on rates of previews posted on YouTube revealed a high correlation with in-screen success. This allowed movie executives to more closely match investment to potential success.

T-Mobile used big data to more accurately assess the tell tale criteria that lead people to defect – allowing them to target these people before they leave.

US Express collect data on fuel usage, tyre conditions, key engine functions and GPS data to optimise the efficiency of their fleet. This includes changing items before they lead to a breakdown.

 

The myth of data – Whilst there is seemingly an inexhaustible supply of data from digital the reality is it does not tell us everything. We therefore need to rely on other intermediary metrics to help (but beware that some of these can be misleading and sometimes irrelevant).

 

 

The myopia of data – More data does not necessarily mean better data or better quality decisions. The key is to first select the key metrics (KPIs) that are relevant. Whilst computers can be used to do a lot of analysis it still needs people to define and create meaning out of the data.

 

Attribution – With the increasing use of multi channel campaigns, we need to gauge the relative strengths of each media within the mix. However, one of the big issues facing marketeers is that it is difficult in many cases to weed out the precise impact (and hence ROI) of a particular media (especially constantly running ones like social content), which will help justify this expenditure at board level. No medium works in isolation, as consumers are voracious users of all media. Many media channels help support and interact with each other so we must be careful in assuming the success of say a YouTube video in isolation as it may well have been other activity that drove them there (i.e. was it the ad, the experiential event, the social media comments or the website?). Econometric modeling helps but is not perfect.

 

The focus on ROI – Return on investment is the ultimate goal of Digital Marketing – Does a $1 invested generate more than a $ in incremental profit? ROI needs to be measured to not only help a brand refine its digital activity but also to help justify increased future budgets (research by Columbia University shows that just 43% of large organisations base their marketing budgets on ROI.

 

ROI = (investment gain – Investment cost)/(Investment cost) x100

 

Planning ROI from the start – Metrics/ROI estimates should be set at the start of the campaign planning. This should include estimates of ROI as keeps the campaign focused on the real end goals of any campaign – to drive profitable return from the investment (rather than being seduced by less relevant intermediary metrics like number of ‘Facebook likes’).

 

Identifying the ROI of each medium – Where possible it is useful to isolate the ROI of each of the different elements (bearing in mind the issues over attribution, interactivity and offline activity).

 

Measuring the ROI of social – ‘How do I measure ROI’ is consistently the number 1 question of 3500 marketers according to Social Media Examiners Annual Survey. Just because it’s difficult to put a value on it does not mean it is not valuable – as one person commented as an analogy, ‘What is the ROI of your mum?’ Marketing overall is an investment in that its activities help build revenues (through increased purchases and increased pricing). Top companies like Coca Cola, SouthWest airlines and Virgin see it as the cost of doing business rather than as an asset to be squeezed for ever higher returns. The advantage of social media is it’s relatively lower costs (than say paid for TV) to reach potentially large audiences. However the key issue is one of control and certainty. Money invested in TV guarantees a set level of reach and exposure, whilst no-one yet knows what creates the tipping point.

 

 

Measurement of mobile – Measurement of all mobile activity is critical (Inc. estimation of its ROI). Continuous testing, learning and refinement are key to all digital activity. Most digital metrics are similar, but mobile also adds the dimensions of geo-location data. Analytic feedback needs to be built into every app to help hone and refine its use. One of the downsides to the use of mobile is that the transaction can then easily be placed via a phone call or purchase in store -neither of which will show up on your diagnostics (unless a coupon was redeemed from the phone). One new device used to help further track the activity is ‘click to call’.

Devising the measurement plan – Every strategy need to develop alongside it a measurement plan in order to ensure the strategy delivers against the agreed objectives.

 

Some of the metrics available – There are innumerable metrics that digital can deliver. The key question is which ones are relevant to the objectives? Some of these include: Number of Unique visitors, Bounce rate (% people who only view one page and then leave), Traffic sources (i.e. where they came from and where they go), Key search words used, Content (i.e. key pages visited including average number of pages visited, time spent on site/per page etc.), Conversion rate (be it a download, purchase, sign up, pass on etc.), Average shopper value, Abandonment rate (% who start to buy but fail to complete), Cost per click (number of times a visitor clicks onto a paid for ad/banner/search), Click Through Rate, Cost per acquisition (i.e. Total media costs divided by number of leads delivered), Keyword rank (i.e. which words get most used). Some key social metrics include Number People talking about you, Followers, Retweets, Comments, Pingbacks, Video views, and Audience retention during a video (i.e. drop out rate).

 

Some of the measurement tools (most measuring a few specific areas) – Google Analytics, Sysomos, Salesforce Radian6, Google Trends, Google Adwords, Trellian Keyword Discovery tool, Word tracker, Alexa, Quantcast, Compete, IBM Digital Analytics, Facebook Insights, Technorati, Topsy, YouTube analytics, Salesforce Apache Hadoop, Cloudera, Tableau Public, WordPress, Tumblr, Hootsuite and Crowdbooster.

 

A/B testing – The key for all areas of marketing these days is to learn quickly and then adapt to improve effectiveness. A common method used to hone performance is A/B testing. A brand runs a number of different alternatives – be it a headline change, a different visual or offer etc. and then sees which generates the better results. The test can then be repeated for many other variants (as you need to alter only one variable at a time).

 

The future of measurement

  • Big data is a big deal – According to IBM, 90% of the worlds data has been created in the past two years.
  • Digital is heading into the cloud.
  • Search marketing is helped by social metrics – what your friends click-on will help decide which sites are present back to you. Also search is becoming more integrated into other websites (so no longer do we just use search engine sites).
  • Mobile search drives mobile marketing – as mobile takes over as the dominant vehicle, so. Search is the #1 Internet activity on mobile devices – which will eventually lead to increased purchase via mobile.

3) Completing the digital transformation

 

Designing Organisations for digital success

Digital at the heart – Digital is no longer a silo’d arm of a company – it now sits at the epicentre of any organisation as it touches everything from customer, product, logistics, finance etc. etc. Thus every organisation needs to change the way it operates to maximise their potential in an increasingly competitive and digital market place.

 

6 habits for digital success – Amazon, Google, Facebook, and Apple have tripled in market value over the last five years. They have put digital technology at the heart of their business. This has been driven by 6 practices:

  • Platform convergence, not product conformity – It’s difficult to define exactly what space Amazon, Google Facebook and Apple operate in these days. They each started in one area but have expanded their offering to meet their customers need – i.e. don’t get stuck in product but focus on delivering your customers needs.
  • Big data – not blind deductions – They are all heavily reliant on objective data to make quality decisions. They use data to understand their customers and to test new products against them. They do analytics better than other companies and it has become a key competitive edge for them.
  • Customer experience, not conventional expectations – Most innovative companies are fiercely focused on their customers. They are constantly trying to improve their products to deliver superior more personalised customer/user experiences (UX). For example Apple technology seamlessly interconnects. Google’s Now mobile platform provides results tailored by the customers past searches and current location. Amazon gives recommendations based on personal and aggregated data.
  • Networks not Bulwarks – These big brands understand the power of their key influencers and so invest time and resources in identifying managing and rewarding them. Such is the power of these consumer ecosystems, that a brands image can be developed without a brands involvement. However these strong brands play their part in the ecosystem, responding quickly and appropriately to help guide the image of the brand.
  • Top talent not hired hands – These successful firms understand that their people are a key competitive edge so invest in attracting the best people, developing them and keeping them. They know that one very good person at $200,000 is worth more than two average people at $100,000 each. To help keep their staff motivated Google apply the 70/20/10 model where 70% of their time is spent on core business tasks, 20% on the employees core business and 10% on personal projects that are unrelated to the core business.
  • Innovation, not immediate gratification – To compete against the best requires a long term attitude, involving investing in the future today. Both Google and Apple applied for over 1,000 patents each in 2012. Some projects work and some fail, whilst others never get launched (e.g. Google shoes that connect to a smartphone).

 

Inspiring change – It’s difficult for any organisation to embrace change. The author suggests a three phase, 11 stage process:

 

Phase 1 – Digital Planning

1.1 – A desire to change (i.e. creating a sense of urgency)

 

1.2 – Digital leadership (i.e. Identify and cultivate key drivers/Innovators/supporters (as they will change things).). Also identify the resistor and detractors (these ‘Antibodies’ will defend the past at all costs). They easily hide behind excuses (such as lack of resources or someone else’s responsibility) to not do things. Why are senior managers so resistant to change? Often down to three things: 1) Too busy 2) They are so focused on delivering todays numbers they don’t want to jeopardise them and 3) they are looking after their own personal interests (the future is someone else’s problem and responsibility)

 

1.3 – Digital vision (i.e. What should our organisation look like in the future? – then bring it to life). You need clarity of purpose – When employees (customer and stakeholders as well) understand the logic of why you do what you do, then they are more likely to engage with you. We reject change that is forced upon us. Furthermore, set ambitious targets – Companies need to be brave and step up to challenging standards.

 

At Dell a project was set up to respond to customer issues. The initial team agreed a response rate of 24 hours. Michael Dell demanded it was cut to 2.4 hours.

 

1.4 – Organisational Assessment (i.e. Where are we now? – benchmarked versus your category. This to include:

– Capabilities (What are we excellent at doing – and what differentiates us from the  competition?)

– Structure (i.e. the culture, behaviours and performance – e.g. How are we organised?  What are the key roles? How is work managed? Who has power and autonomy?)

– Processes (i.e. how are decisions made, what are the mechanisms for collaboration and information flow?)

– Metrics & Rewards (i.e. How do we assess performance? How is behaviour guided?)

– People practices (i.e. What talent is needed? (The move towards ’T-shaped’ people) How do we make the best use of the talent we have?). With the explosion of digital opportunities comes with it a new level of skills and expertise. Whilst it’s often easier to ‘buy-in’ than train up, there is a dearth of talent. Estimates suggest we will need 1.5m managers and analysts by 2018.

 

1.5 – Change Roadmap (i.e. How are we going to deliver our vision? Include setting of milestone metrics). Tap into the ideas of the organisation – be prepared to hear ideas on how to make it better from people inside the organisation (maybe even get the company to vote on them).

 

Phase 2 – Implementation

2.1 – Digital education (i.e. to lift the competency, belief and importance of digital) – Training can also help drive the cultural changes as well.

 

2.2 – Resource Allocation (Inc. budget, time, people and decision making ability).

 

2.3 – Digital pilots (to help test & learn as well as provide some early wins. needs to be backed up with regular communication to the organisation of progress).

 

Phase 3 – Digital culture

The key is how to build digital not just structurally but into the mindset and cultural thinking of the whole organisation:

 

3.1 – Culture of bravery (i.e. Need to publicly reward risk taking and the acceptance of failure when people have taken a calculated risk. Culture it in via setting of KPI’s, bonuses and promotions)

 

3.2 – Culture of data

 

3.3 – Unified Organisation (i.e. focus on the unified whole rather than the silo’d activities of one department against another. Use cross-functional teams/employees.

 

Ways to improve your leadership in digital innovation

-Transform your company – not just a department (as digital lies at the heart of a company – and not just in one department).

-Centralise strategy, decentralise execution.

-Learn how to fail fast.

-Focus on ROI from the start.

-Call people on being ‘antibodies’.

-Set your team (and self) up to always be open.

-Sponsor small inexpensive pilots to test new concepts.

-Succeed fast (of fail fast) – Great basketball players get out 7 times out of 10. If you have not failed recently, you haven’t pushed hard enough.

-Be forward thinking – Need to spot the trends before they become mainstream. The speed of change in the market means managers need to speed up their decision-making and flexibility of response. What is right today could well be wrong in 6 months time.

-Be customer focused – Starbucks, Amazon etc. have all built their business by really trying to understand and responding to customer needs.

-Be open to learn and change – As the market is shifting fast. Current models are now outdated – you need to ditch old methods and embrace new ways (some of which you will have to make up).

-Never guess – Precision is available.

-Walk the talk (and talk the talk).

 

The emergence of the CTO – Whilst Marketeers will not need to become technologists they need to understand enough to be able to brief specialists on the strategic direction. There will increasing be a CTO (Chief Technology Officer – a mix of marketing, product development and technology) sitting alongside the CMO, advising him/her what is now possible in this ever changing world of technology. Technology must become a central hub of Marketing.

 

 

Future trends

-Storytelling will replace advertising as the key for media communications (as it delivers the entire brands story).

-Analytics will lead to a forensic understanding of our customers (as we get greater access to more data – we are swimming in a world of clues).

-Social CRM will become more important than data bases – as the internet will allow us to find those who like what we have to offer (and to then provide them with relevant information – usually well away from the brands own website).

 

 

CRITICISM

 

It’s easy to criticise all digital books because they become out of date the day they are published. Sure the numbers for usage quoted are for 2012 but it still suggest a trend. But the reality is 1) they are still more up to date than most of us and 2) A lot of the base content still remains the same.

 

This is a book written by different experts for each chapter so there is a bit of overlap. As a book it straddles that difficult line between trying to cater for the digital novices whilst still providing enough quality content for the more experienced practitioner.

 

As always I have some criticisms:

 

Their suggestion that Digital is ‘the answer’ is the typical flaw of a writer selling us their view of the world. So we do need to keep digital in perspective. Less than 10% of all conversations happen on line, and digital purchases still only account for c10% of all purchases. We also know that TV is still a critical element in most campaigns as it provides certainty of delivery (unlike many digital offerings) and drives high awareness and proven ROI – so let’s not write off TV. The Board room is still full of Digital immigrants who built their own careers on TV based brand building. They are also focused on control and certainty (a TV campaign can still deliver with greater certainty than most digital campaigns can).

 

Personally speaking, I do not want a ‘deep meaningful relationship’ with every brand out there. I may have a close affinity with some brands (that more closely reflect my values and identity or fulfill a key need) but the vast majority of brands will not have that level of emotional connection with – they perform a passing transactional function for me.

 

Furthermore, their suggestion that people make decisions purely on rational information is to be challenged, as we still know that the emotional power of brands still heavily influences decision-making and opinion.

 

Whilst ROI is a key metric it can mislead strategies (as the easiest way to increase ROI is to reduce the investment level) so it must still be about reach, engagement, outcome and business performance.

 

Furthermore I challenge the need to develop ROI at every media level as

1) Different media will have different return curves (both in terms of speed of delivery and ultimate scope of delivery) so difficult to compare ‘apples with pears’ of the overall campaign (we don’t for example ask – what is more important – the heart or the lungs?

2) Merely having an ROI on Search that is higher than say TV ignores the scaleability (i.e. search quickly runs out of effectiveness above a certain level of investment)

3) The interconnected nature means we should instead look at the holistic effect.

 

In reading all this, you may think a brand needs to be continually ‘in people’s faces’ all the time. I suggest a brand needs to be aware that over exposure can do more harm for the brand than it does good. It’s a bit like a person on the ‘outside’ of your social group constantly trying to butt in.

 

 

 

 

 

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Thinking, fast and slow by Daniel Kahnemann

 

Thinking, Fast and Slow

by Daniel Kahneman

(summarised by Paul Arnold – Strategic Planner, Facilitator & Trainer –  paul_arnold@me.com)

THE BOOK IN A NUTSHELL

We are lousy decision makers – we make faulty judgements.

The original views of humans being ‘econs’whereby we make perfect decisions through weighing up the pros and cons of each decisions has been shown to be palpably wrong. Instead we make decisions upon limited information (What you see is all there is – WYSIATI). Furthermore we can easily be seduced by emotion and seemingly irrelevant information in our decision-making. 

THE BOOK

In the previous millennia, social scientists and economists assumed that people were generally rational in their thinking and that most of the time our thinking was sound. However, recent work by neuroscientists and behavioural economists have shown that we don’t think logically. Instead we are unconsciously biased in our thinking which means many times our decisions are flawed. Some of the key reasons for this are:

1) We rely on short-cuts and general rules of thumb (heuristics) which are sometimes inaccurate for the situation at hand.

2) We are heavily influenced by what we can immediately recall when making decisions – and only what is ‘in field’at the time is used to make decisions (A concept we will return to called WYSIATI – What you see is all there is).

3) Emotions and cognition (i.e. perception) easily derail our rational decision making.

4) We often answer an easier question than the difficult question posed (e.g. Should I invest in Ford? gets answered instead by the simpler question, ‘Do I like Ford cars?)

The problem is these happen unconsciously. Raising them to consciousness can help a bit but we are still prey to many of their effects (a bit like visual illusions, we know what’s going on but still get caught by it).

To help understand the weaknesses with our cognition, Kahnemen devised a metaphor of two parts of the brain – System 1 and System 2 (NB you cannot dissect the brain and find these two parts neatly divided into the different hemispheres).

System 1 & System 2 Thinking

The brain has two ways of working: System 1 and System 2.

System 1 is primitive, unconscious, runs automatically (and cannot be turned off). It’s emotional, intuitive, powerful, fast, impatient and impulsive. Itcan work on many issues/levels at the same time. It uses little energy, quickly creates meaning out of things and is easily influenced.

System 2 is linked to the Neo Cortex. It has conscious attention (normally running at a low level but then gets attuned onto specific issues). Itis rational, methodical, cautious, has small processing power, limited capacity and is single focused. It is slow, a heavy energy user, is not able to control System 1 well and is lazy. System 2 can override System 1 under normal conditions but if System 1 is highly fired up (e.g. through the power of emotions) or System 2 is tired or pre-occupied then it fails to be able to control System 1. Furthermore, System 2 is very good at making comparisons but does not perform well under pressure.

System 1 – the state of unconscious flow – Most of our actions happen unconsciously. Csikzentmihalyi has defined the state of ‘flow’as a place of unconscious competence, where the rest of the world melts away and you lose the sense of time and become lost in the experience. It seems that we perform our best when we move from conscious control to unconscious effortless competence.

System 1’s flawed instant response – Q: A bat and ball costs $1.10. The bat costs one dollar more than the ball. How much does the ball cost?

In cases like the above System 1 jumps to an intuitive answer ($0.1) when the real answer is $0.05. System 2, being lazy, does not intervene unless steps are taken to activate it (e.g. when told $0.1 is wrong). Even very intelligent students fail this test.

Hoodwinking the brain by distracting System 2 – If you distract the conscious System 2 brain, then it is less able to control the impulses from the System 1. When System 2 is distracted, it allows other statements of falsehood to sneak through the System 1 brain (System 1 will believe almost anything!). This is why storytelling works so well as System 2 is engaged in the logic of the story allowing the moral to sink straight into System 1. System 2’s ability to control System 1 also diminishes with tiredness, drinking or conscious mental effort. Furthermore, the trouble with self-control is it’s tiring – being ‘on guard’ needs a lot of energy.

When people are offered two desserts: a chocolate cake or a virtuous fruit salad, they are more likely to choose the chocolate cake when they have to complete some mental arithmetic.

In a study with eight parole judges, they found no prisoners were granted parole just before lunch (when their System 2 energy was low) but the rate after lunch was 65% of cases (versus an average of 35%).

Another way to increase plausibility is to wrap your statement in other known truths – a silly example is ‘A chicken has 4 legs’takes a little while longer to decipher its falseness than ‘A chicken has three legs’. Or ‘How many animals did Moses take with him on the Ark?

Also if you use high quality paper and clear print it makes it cognitively easier to read and so less likely to be judged. Also try to make the language more memorable by building rhythm, alliteration or repetition (We shall fight on the beaches etc).

Finally, quotes are more credible if it comes from a name that is easy to pronounce.

In experiments, A fault confessed is half redressed was more easily recalled and thought more meaningful than A fault admitted is half redressed.

Easily pronounced words create more favourable reactions. For the first week after floating on the stock market, Companies with easier to pronounce names do better than those with less easy to pronounce names.

 How to kick System 2 into action – System 2 is lazy and will often not get involved until triggered to – for example by making the font difficult to read.

The Criterion Referenced Tests (CRT) fool people because they suggest an intuitive System 1 answer. However when told they are wrong, System 2 jumps in and quickly finds the real answer.

Q: If it takes 5 machines 5 minutes to make 5 widgets, how long will it take 100 machines to make 100 widgets?

When the questions were set in light grey, System 2 jumped in and the respondentswrong answers dropped to 35% whilst in normal black font 90% of student made at least one mistake.

(A: 5 mins)

Some people have better developed System 2’s to control their System 1 thinking – Scientists havefound specific genes that influence attention and our ability to control our emotions. For some they have a more developed System 2. However, System 1 dominant peopleinstead tend to be more easily influenced (with little critical judgement), are impulsive, impatient and keen to receive immediate gratification (thus leading to ill-considered decisions and judgements). They are also prepared to pay twice as much for overnight delivery of a book than others!

Mischel offered four-year olds a choice between a small reward now (One Oreo) or a larger reward (two Oreos) in 15 minutes. About half the children managed the task (mainly by distraction techniques). 15 years later, they found those who resisted had greater cognitive and personal self-control (as well as having developed improved IQ scores) (http://www.youtube.com/watch?v=x3S0xS2hdi4).

Cognitive bias (WHAT YOU SEE IS ALL THERE IS)

The way our two thinking systems work can lead to a wide range of flawed perceptions and hence decision making:

WYSIATI – We often make decisions on just a small subset of information available. If we do not retrieve useful information at the time of decision-making it may as well not exist. The trouble is our brain will only use the information it has immediately available to make its decision (A concept called WYSIATI – What you see is all there is).

We do not use all the information available to us to arrive at our assessment of a situation. Research into painful medical procedures found patients assessed the overall experience of the operation by two elements – the peak level of pain experienced and the level of pain at the end of the operation (with the length of the procedure not being a key factor).

When the Valdez oil spill happened, people were approached for donations to save oil covered birds. In one sample they were told the fund was to save 2,000 birds, another 20,000 birds and the third 2m birds. The number did not dramatically affect average donations ($80, $78 and $88).

Availability – Depending how easy it is to retrieve information on a subject will influence the quality of our decision (as WYSIATI). For example we believe there is greater divorce rates amongst actors and actresses because we hear about them more often. We think dying in a plane crash is more likely than it is – especially after a much publicised one. Furthermore, we recall our own activities and effort better than other people’s (a key problem in marriage or work based disputes is we under-emphasise the activity of the other person, and feel our part has not been recognised enough by the others).

If you ask a person to list 6 times when they were assertive and then ask them how assertive they are, they will believe they are more assertive than if not primed. Interesting if you ask for 12 examples, people see themselves to be less assertive because its more difficult to recall 12 than 6. Thus its fluency of recall rather than absolute number that is the key.

Cognitive ease – The easier it is to tangibly recreate the event in our minds (especially visually) the greater the chance it will be ‘in play’. Vividness increases its saliency. We find it easier when things are more tangible and less easy when kept conceptual – for example it’s easier to answer ‘Out of 100 people how many…’than ‘What percentage…’as we get a clearer representation in our heads.

Example: A vaccine that protects children from a fatal disease carries a 0.001% riskvs One of 100,000 vaccinated children will be permanently disabled. The second statement conjures up a clearer image in your mind of a disabled child (and we choose not to picture the 99,999 healthy children). Such presentation significantly influences the decision of parents to treat.

Denominator neglect – Focusing on one thing takes our eye off other things. Thus what we focus on is in the ‘field of play’and other things are consequently pushed ‘out of play’and hence out of influence (as WYSIATI). The invisible gorilla video is a good example of how our conscious mind when focused on one thing can easily miss other things (http://www.youtube.com/watch?v=vJG698U2Mvo).

Rare events – We overestimate the likelihood of improbable but highly emotional events (and often underestimate more common events), as the intensity of emotions make us recall something more vividly. This then over-influences our decisions.

When people are asked to assess the frequency of deaths, they over-inflate events like tornadoes, lightening attacks, and under-inflate deaths from diabetes and asthma.

Conversely if an improbable event is not easily recalled then we tend to under-estimate its likelihood).

What’s on the field is in play – A further extension of WYSIATI is ‘What’s on the field is in play’i.e. seemingly irrelevant data gets used. For example, if you put things side by side System 1 will try to create a connection. If you add more detail you increase plausibility.

A mock jury were given a greater, more vivid description of the events from one side (with no extra relevant factual information) and it dramatically influenced the verdict.

Less is more -Too much information distracts us from the important – Decision-making is usually easier with less information than more because System 2 cannot cope with lots of information and easily gets confused. Evidence suggests that seemingly few criteria can account for a large degree of predictiveness. Dawes amusingly suggested that marital stability could be predicted accurately by just two factors: Frequency of lovemaking minus Frequency of quarrels – simple rules are best!

Paul Meehl demonstrated that clinical predictions based on statistical analysis of a few key metrics were more accurate than clinicians subjective impressions based on a 45 minute interview, backed up with a raft of other information. This study has been replicated in numerous other situations. In 60% of studies, algorithms have been shown to be more effective at predictions than people.

Dr Apgar develop a simple 5 test rule to assess the health of a new born child – the now famous Apgar score.

In an experiment where a mock jury was shown one side of a dispute (even though they could easily have worked out the counter argument), just hearing the one side dramatically influenced their decision-making. Furthermore there were more certain of their decision than those who heard both sides.

We know that seemingly irrelevant stimuli can influence us, whilst a computer is not distracted, and instead remains steadfastly focused on only the critical issues. Experts place too much weight on their intuitions, downgrading the importance of the key pieces of evidence – emotions steer us away from a purely rational response.

How to hire a person – select up to 6 key traits that are key to success in the role. Ideally they should be independent with little overlap. Develop some factual questions to assess each. Upon answer, convert them into a 1-5 scale. Then add up the scores and cross compare versus the other candidates. Vow to take the person with the highest score irrespective on how you feel. Resist the urge to re-evaluateto change the rankings!

The wisdom of crowds – In some tasks people are very bad at predicting but the wisdom of the crowd is better.

Get a large number of people to independently guess the number of pennies in a jar, and the average is often close to the real answer.

Priming – We can easily be nudged to think in certain ways as we draw upon our unconscious associations.

People were asked to recall a situation they were ashamed of. When asked to fill in the word S_ _ _P they typically said soap not soup.

Priming does not just happen with words – your actions and emotions can be primed as well.

Psychologist, Bargh gave students a set of words to turn into a sentence. For one group he scrambled words associated with the elderly (such as Florida, forgetful, bald, grey, and wrinkled). They then had to take their test scores down the corridor. He found they walked slower than the other test group (yet none of them were aware of the oldtheme).

Encouraging people to nod or shake their heads will prime then to agreeing or disagreeing to a statement.

Voting for improved school funding goes up when the polling station is held inside a school.

In a university kitchen, they operated an honesty boxsystem for for the teas and coffees. Over a ten week period a different image was placed above the honesty box. Alternate weeks showed either flowers or eyes. When eyes were displayed, the contribution to the honesty box was three times higher than flowers.

The symbols in a culture will unconsciously prime certain behaviour traits. So a culture full of statues of leaders prompts a different behaviour from one full of Christian images or symbols of wealth.

Decision-making by frames of comparison – We make judgements via comparisons. When buying something we find it easier to assess it alongside something else in the same category. Our world is broken into categories – and we use norms in that category to help us make decisions. However, we can easily be misguided depending upon the frame and comparative context.

What do you prefer? Apples or Peaches? Vs What do you prefer? Apples or Steak?

A man was shot in the arm in a convenience store. Consider two scenarios: 1) It was his usual store, 2) his usual store was closed for a funeral, so he went to this other shop instead.

Q: should compensation be different?

Whilst in theory the compensation should be the same, when people are given either scenario, we see a different level of compensation being awarded than if they see both.Because we live in a world of WYSIATI, not seeing the other side means we only make a decision based on that limited amount of information.

Imagine a situation where two people change to more fuel efficient cars:

A: Adam switches from a car that does 12mpg to one that does 14mpg.

B: Beth switches from a car that does 30mpg to one that does 40mpg.

We all instinctively think Beth is doing a better job for the planet, but over 10,000 miles, Adams actions has saved 119 gallons whilst Beth has just saved 83 gallons. Thus we get hoodwinked by the frame of mpg rather than the more relevant frame of gallons saved.

Context determines meaning – In the example below the image (I3) in the middle is the same, but in one we read it as a B (as it is surrounded by A and C whilst in the other we read it as 13 (as surrounded by 12 and 14). Thus we can easily jump to the (wrong) conclusions.

ABC121314

First impression bias – First impressions are the most influential and we find it much more difficult to change our minds once initially set upon a certain course of thinking. Furthermore, the mere sequencing of information can affect our perceptions.

What do you think of Alan and Ben?:

Alan: Intelligent, industrious, impulsive, critical, stubborn and envious

Ben: Envious, stubborn, critical, impulsive, industrious and intelligent.

Research shows that Alan is liked more than Ben.

When marking exam papers, if the first question the candidate answers is good, then we are more influenced to mark the rest of their questions on average higher than if their first question was poor. 

Anchors – Random information can ‘anchor’ our thinking. For example, in purchasing something (like a house), we will be heavily influenced by the first price suggested.

Half the respondents were asked Is the tallest redwood less or more than 120 feet? The other half, Is the tallest redwood less or more than 1200 feet? When asked to guess the height of the tallest redwood, those primed with a low number (120 feet) guessed on average of 282 feet and those anchored to the 1200 feet guessed 844 feet – a difference of 562 feet based on a spurious piece of data.

When an oil tanker spilled its load in the Pacific Ocean, an experiment was run asking for donations. When no primer was given the average donation was $64. But when asked, Would you be willing to donate $5 to the cause?the average offered was $20. When set a higher anchor of $400, the average sum raised was $143 – i.e. a $123 difference.

In a supermarket, Campbell’s soup was on offer with a sign above it. On some days it said, Offer limited to 12 cans per person. On other days it read, No limit per person. On the days with the limit, they sold on average 7 more cans per person – twice as many when there was no limit.

Even experts can get fooled.

Estate agents were asked to price a property. One group of agents were shown a previous much higher value – and the other group were shown a previous much lower value. This resulted in a 41% difference in the valuations.

In negotiations, it is recommended that rather than counter with an equally outlandish offer which creates often an unbridgeable gap, instead threaten to storm out unless that opening

offer is taken off the table (as need to make it clear to them and most importantly yourself that that will not be a figure the negotiations will be anchored around).

The familiarity effect – We find that familiarity makes it much easier to accept something (our critical faculties drop with familiarity – hence the power of advertising or how a politician keeps repeating a denial – after a while a repeated falsehood becomes the accepted truth).

Answering an easier question – Human beings are to independent thinking as cats are to swimming. We can do it, but we prefer not to. The brain is lazy and rather than answering the real question, will often answer the question it has the answer to. System 1 finds an easier answer so System 2 does not have to work out the real answer (and because System 2 is lazy it does not impose much scrutiny on the veracity of the answer given by System 1).

How much am I prepared to pay for this?is replaced by an (easier) emotional one such as How much do I like this?

How happy are you in your life these days? becomes What is my mood right now?

How popular will the President be in 6 months time becomes How popular is the President now?

Moods affects our cognition -What we like/dislike affects our beliefs (because we let how we feel about something influence what we think about it). When happy we are more intuitive and System 1 is in control. When distracted by negative emotion System 2 becomes more controlling.

System 1 – Making associations and meanings – System 1 creates associations to help us make sense of our world. This can lead on some occasions to making false associations.

Correlations ≠causation – In ‘Black Swan’, Nassim Taleb mentions how bond prices increased on the day of Saddam Hussein’s capture. The two events were linked (when it was not the case in reality). System 1 does not try to assess all possible information or all possible explanations but jumps at the first one that makes sense to it.

Heider & Simmel used a video of animated geometric shapes that seemingly interact. People developed a story from the movements of a bullying scenario. Interesting Autistics do not create the associative story but see it for what it is (http://www.youtube.com/watch?v=VTNmLt7QX8E).

Kidney cancer is lowest in rural communities – by presenting these two facts together we create a causal relationship such as healthier living, better quality food etc – when in reality this is not the reason.

Under normal frequent situations, when System 1 jumps to conclusions it can be accurate. However, it becomes more risky when we are in infrequent/unusual situations as we often draw upon our experiences in other situations and mistakenly try to apply it to the new situation.

Storytelling – System 1 loves storytelling as it helps makes sense of things. Storytelling is therefore not a culturally imposed phenomenon, it’s one of our basic core programs we run.

Confidence does not come from the data – it comes from the story we create around the data. The better the story ‘fits’the ‘facts’the more believable the story. Furthermore, we will then ignore data that conflicts with our story (as the story becomes the ‘truth’).

Nassim Taleb introduced the concept of narrative fallacy in his book ‘Black Swan’. A narrative fallacy is a past flawed story that still shapes current perceptions. The more concrete the story, the more believable it is (even if it’s not true). What tends to happen is a story is created around a few ‘nodes’which help explain those activities. We then chose to ignore other bits of information that do not fit the story. Furthermore we extrapolate via the halo effect (i.e. if the story is a positive one we then want to see all other aspects as positive – good people only do good things….as this helps keep the story coherent and simple). Such is the desire of System 1 to make sense of things it can too easily create causal narrative that is factually untrue. But the power of the story seduces even System 2. 

The mathematics of cognition 

Misleading by numbers – Numbers feel authentic and credible, but we can easily be misled by them. Large samples are more compelling due to their data size – but the trouble with them is they flatten out the data and create less anomalies. Thus the outliers in data gets suppressed (unlike in smaller samples). Often we ignore the impact of sampling variance on research studies (especially if the data tells a good story). System 1 suppresses doubt –

it is naive and accepts things at face value. Likewise, if it makes sense, then System 2 rarely intervenes.

We are pattern seekers, trying to find order in the world. Our love of finding causal relationships forces us to often make poor decisions. When we detect a pattern in random data (such as a gambling machine) we will believe there is an order as we find it difficult to accept the concept of randomness and no order. In reality randomness does create random order.

Research into sports people so called hot handshas been shown to be false.

Research into successful schools found a correlation with size of schools. This makes intuitive sense as we can build a strong narrative why this should be the case. This led the Gates Foundation to invest over $1.7bn into developing small schools. If the statisticians had investigated the worst performing schools they would have found that bad schools are also more likely to be smaller size as well (i.e. this is not the causal factor).

Base-line data – In an experiment people were asked to rank the likely course a student would do at university. Because they did not know anything about him, theydefaulted to the overall popularity of courses. Next theywere given a pen portrait of his personality. Drawing on this evidence they re-shiftedtheir answer according to his traits. In theory this all makes sense. However, Kahneman argues that this is a mathematical error as the likely course will still remain most determined by the popularity of the courses overall – i.e. we make a sub-optimal more emotional decision based on System 1 and not a logical System 2 decision. We fall into the stereotype heuristic trap which dominates and clouds our logical thinking (as System 1 wants to make things tidy and organised). When in doubt we should therefore make decisions based on what is called base line data – i.e. probability data (as System 1 is more than likely to lead us astray).

The film, Moneyball demonstrated how professional baseball scouts made poor decisions based on irrelevant information (such as how someone behaved off-field). Billy Beane of the Oakland A’s ignored this and instead relied on pure data of percentage to reach first base. This allowed him to buy good performing players at discounted prices (https://www.youtube.com/watch?v=PX_c7W5RNJ8).

Regression to the mean – Our performance on anything tends to aggregate around an average – i.e. sometimes we perform better and other times less well, but over a longer period of time we will level out at our average. Thus when things are going much better than expected, we often then see a dip in performance. Likewise when we see a significant underperformance against our norm, we tend to move back closer to the line of average. This phenomenon of regression to the mean has been observed in organisational performance as well (the under-performing companies do better and the over-performing companies drop). The trouble is we are bad predictors and ignore this principle. So if one golfer shoots 66 and another 77, when asked who will score better the next day, we assume a continuation of form (as we make the misguided judgement that the scores are reflective of talent – but we ignore the regression to norm). Instead the best predictor is reference to their base line – so 66 could well do worse on day 2 and 77 do better.

The Sports Illustrated jinx (that a sports person featured on the cover will under-perform the following year) is not a jinx but the reality of regression to the mean. You need to have massively over-performed to be on the front of Sports Illustrated so….

Our misguided view on Performance

Luck – Luck plays a BIG part in success. Kahneman’s model for success is‘Talent + luck’. Great success = ‘Alittle more talent’ + ‘Alot more luck’.

Confidence bias – the myth of control – We tend to exaggerate our ability to controlevents around us and hence be overly optimistic about what we can achieve, discounting the other external factors that can slow down a project (especially competitor’s activity).Many organisations fail as they have an over-inflated beliefin their ability to control situations (luck again plays a big part in a company’s success or failure – i.e. a company is never in total control of its destiny). Likewise the CEO. Just because on paper a company has a ‘strong’CEO does not mean s/he will be successful as a large proportion of their fate (i.e. luck/no luck) is outside their control. Most of the examples of excellent companies studied in books like ‘Built to last’ and ‘In search of excellence’have receded over time (again down to the principle of regression to the mean). Thus we have consistently over-exaggerated the effect of a CEO’s leadership ability and therefore followed illusory actions to mimic their so called leadership traits and processes – ignoring the real impact of timing and luck.

Optimism – the driving force of capitalism – Optimism is good. In life optimists are more cheerful, more popular, more resilient to dealing with hardships, and less likely to become depressed, and hence tend to be healthier (to the point that they even live longer). Optimists are the achievers, the visionaries, the entrepreneurs and the leaders in life – they make things happen around them. Their self-confidence breeds faith and following in others. When there is an issue, rather than giving up, they believe it can be solved and this perseverance helps them win on through.

Most people are born optimists. Amusingly, most people genuinely believe they are superior to most others on many different traits.

90% of drivers believe they are better than average (as do teachers).

Supporters of basketball teams in the playoffs were asked to rate the probability of their team winning the playoff. As to be expected each team over-rated their chances. When all the scores were added up they came to 240%.

The trouble is optimism is a highly socially valued way of being – it is more acceptable to agree and support than to challenge and pull down an idea – leading to a ‘collective blindness’. It can also lead to bold forecasts and timid decisions.

So how to overcome this disease of overconfidence? Get the team together and start with the premise: “Imagine that we are a year in the future. We implemented the plan as it now exists. The outcome was a disaster. Now write a brief history of how and why this happened.”

The illusion of predictions – Nassim Taleb in ‘Black Swan’ points outour tendency to build and maintain a narrative that makes sense of the past. This makes it difficult for us to accept our limits of forecasting ability (i.e. because we have ‘made sense’of the past, we assume we can predict the future).

System 1 jumps to conclusions with very little evidence – and we hold to these conclusions with a staggering degree of confidence!

When assessing the soldiers in the Israeli army, Kahneman and his staff independently observed the behaviours of the soldiers and then together agreed who were the excellent soldiers. The trouble was their ability to detect who did become the excellent soldiers was little better than random luck yet they still remained locked in the process (as they believed in their personal ability to predict success).

Likewise we see this in the selling and buying of stock. In theory everyone has access to the same information, so what makes one trader think the price is under-inflated and another think it is over-inflated?Why does one investor predict that the price will go up and another that the price will go down? Again this is the illusion of belief as in theory the market works on perfect price (i.e. all there is to know has already been taken account into the prevailing price).

Odean, from UC Berkeley studied the trading records of 10,000 brokerage accounts over a 7 year period (163,000 trades). On average the shares the traders sold did better than those they bought by 3.2% per year. They found the most active traders had the worst results – i.e. doing nothing would have yielded a greater return!

It seems the illusion (especially amongst men) that they know better than the market is wrong (indeed women who are less prone to this effect tend to be on average better investors).

The evidence from more than 50 years of research in this field is that for the large majority of fund managers is no better than rolling dice – i.e. luck. Typically 2/3rds of mutual funds under-perform the overall market in any given year. Thus so called ‘experts’do not seem to have mastered the ability of future prediction.

Tetlock interviewed 284 people who made a living by being political and economic pundits. He asked them to assess the probabilities on certain future events in their specialised fields. In all he gathered 80,000 predictions. Comparing the results with what actually happened he found that the experts performed worse than chance – i.e. dart throwing monkeyswould have performed better. The reason is when a person becomes an expert(based on past experience) they assume an unrealistic level of confidence in predicting the future. The reality is the world is unpredictable and we are therefore all weak at it – especially over longer time frames and dynamic situations.

When radiographers were given the same X-rays they contradicted themselves on 20% of occasions. Overall 41 studies in different areas have drawn the same conclusions that experts are inconsistent.

Assessing risk

The power of loss – We are genetically wired/evolutionarily adapted to be more aware of risk than opportunities. Hence we do not like loss, so we also dislike risk (and are prepared to pay a premium to avoid loss).

When people are asked, how much they would need to win in order to risk losing $100, the average is $200 – i.e. we value a loss at twice that of a gain.

We also know this level of unease over risk increases dramatically the greater the amount at stake (cf the ‘Who wants to be a millionaire’effect – the greater the prize the less likely you take risks with your answers).Thus the psychological value of a gamble is not focused on the possible positive uplift but more focused on the potential loss – i.e. it’s more about what is at stake to lose than what is to gain. Thus to encourage people to ‘bet’more you need to focus more on minimising the loss rather than boosting the gain.

The threat need not be real to attract out attention.

Experiments showthat negative words are picked up quicker than other more benign words. Negativity is noticed more, influences us more and stays with us longer.

Emotions are processed rapidly and unconsciously – hence why we can have irrational fears as the conscious System 2 brain is never consulted!

Animals and humans fight harder to defend their territory than to gain new territory.

Loss aversion is a powerful holding force that drives stability and certainty in our lives, our relationships, our employment and our societies.

Gotman, a German psychologists estimated that a stable relationship needs good interactions to outnumber bad ones by a ratio of 5 to 1.

We are driven more powerfully to avoid losses than to achieve gains – the aversion of failure is stronger than the desire to excel (hence people often just hit their goals rather than strive to exceed them).

Economic theory would suggest that a taxi driver would work many hours on a rainy day and then take time-off on slower days. Instead on slower days taxi drivers stay out longer to hit their daily target and then on rainy days go home early.

Professional golfers putt more accurately for a par than for a birdie (they analysed 2.5m putts to prove this).

Prospect theory – When all options are bad, then we are more prepared to gamble. For example when offered the following: Lose $900 for sure or take a 90% chance to lose $1000, then people take the gamble. But when offered the choice: Get $900 for sure or 90% chance to get $1000, people opt for the sure reward of $900. The disadvantages looms larger than the advantages. Thus the focusing on the negative prospects influences our decision (i.e. nothing to lose versus everything to lose).

The endowment effect – What we own we value more highly than things we do not own.

Endowment effect is not universal and is more extreme on rare items.

Avid fans for a concert who have a ticket for a sell-out concert will only be prepared to sell the ticket for six times the original cost.

In a series of experiments in the buying and selling of unique, specially decorated university coffee mugs, they found the average selling price was twice the average buying price.

Finally, be aware that in negotiations, it’s often what people sense they have to ‘give-up-on’that causes the sticking points in the discussions.

Probability versus certainty – When we make a complex decisions System 1 unconsciously assigns different weights of importance to the different factors we need to take into account. Changing the weight of importance can therefore affect the final decision.

The problem is we get seduced by different levels of probability. 0% -> 5% (i.e. ‘nothing’to a possibility of ‘something’) and 95% -> 100% (i.e. ‘uncertainty’to ‘certainty’) are both more highly valued that say 5%->10% or 85% -> 95%. We therefore overweight our chance of winning when the probabilities are low but underweight our chance of winning when they are high. We are therefore prepared to pay a premium to eliminate risk altogether.

You have inherited $1m but your stepsister is contesting the will in court. Your lawyer believes you have a 95% chance of winning. The day before it goes to court, a risk adjuster contacts you to buy the case from you for $910,000 – most people take it because they fear the loss.

At 95% we fear the loss more than we do if we just have a 5% chance of winning. We will pay this premium to reduce risk.

Hence life insurance plays of these fears of loss and risk, as does plea bargaining. The lottery is a very small chance of winning but you are prepared to gamble the relatively small sum for a big win.

In an experiment they found that mothers were prepared to pay three times more for a product that eliminated risk versus a product that just had a minor level of risk.

We tend to attach values to gains and losses more than to what is at stake. This led Tversky and Kahneman to propose the four fold pattern within their Prospect theory:

GAINS LOSSES
HIGH PROBABILITY RISK AVERSE(Fear of disappointment so will accept unfavourable settlement

e.g. a 95% chance ofwinning $100,000

RISK SEEKING(Hope to avoid loss so reject a favourable settlement)

e.g. 95% chance oflosing $10,000

LOW PROBABILITY RISK SEEKING(Hope of a large gain so reject a favourable settlement)

e.g. 5% chance of winning $100,000

RISK AVERSE(Fear of a large loss so accept unfavourable settlement)

e.g. 5% chance of losing $10,000

Spreading the risk – When Paul Samuelson, a famous economist was asked if he would accept a bet on a toss of a coin in which he could win $200 or lose $100. His response was to decline on the grounds that he would ‘feel’ the loss of $100 more than the benefits of $200. However, in a perfect twist, he said he would take the bet on for 100 goes.

When we spread our exposure to risk over a greater range of activities, we will more likely come back to the expected norms. With one toss we could more easily lose $100 but over 100 we would undoubtedly win a lot of money on these odds. Thus Kahneman recommends we see these ‘little decisions’not as isolated risk events but instead see them as all part of the 100 throws. One of the reasons for this is we do not compute multiple issues well – instead we tend to focus on just one aspect and allow that to influence our decisions (a form of finding an easier question to answer).

Thus taking risks pays-off in the long run even of it does not pay-out on each event.

Day to day examples are to never pay for extended warranties (accept you will loose on some but gain in the long run by saving the premium) and not to take the add-ons when buying insurance.

When 25 top managers in one company were asked if they would be prepared to support a project that had equal chance of success or failure, with the upside if successful to double the capital. None of the executives were willing to take the risk. Interestingly, the CEO said he would accept the risk from all of them as he saw the broader frame and knew that if everyone took the risk, over the 25 projects they would win out.

Money

Mental accounting – We mentally hold money in different compartments in our brain. and so treat money differently (when in truth a $ is a $). For example we may be happy to run up credit on a card yet not take money out of the school savings account (even though we are paying higher interest on the card than we earn in the savings account).

A: A women has bought two $80 theatre tickets. When she gets there, she discovers she has lost them, Will she buy two more?

B: A women goes to the theatre with $160 in her wallet, intending to buy two tickets. When she gets there she discovers she has lost the cash. Will she still buy the tickets?

Most think A will not but B will as she treats cash differently from the purchased tickets.

Sunk costs – We are tied down by sunk costs rather than seeing that any future decisions are free of those sunk costs (as any decision made now will not bring those sunk costs back).

A company has already invested $50m in a project that is overrunning in time and costs. An additional $60m is needed to secure its completion (even though expected returns are likely to now be lower than originally expected). There is another project that requires the same level of funding that suggests larger returns. Most companies are so blinded by the sunk costs they cannot value the two projects rationally and so will usually invest more money in the failing project (as they cannot be seen to have failed).

The sunk costs fallacy keeps people in poor jobs, in bad houses, under performing investments and unhappy marriages.

Fear of financial loss – You would assume we would be more rational about financial decisions but reality suggests otherwise. We hate losing money and will try to mitigate against it – which can mean we make poor decisions. Take for example the holding of two stocks. One is over performing and has exceeded the purchase price, whilst the other you would have to sell for a loss. The logic is to hold onto the over performing share, and ‘cut your losses’and sell the under performing one. However, we get ‘anchored’to the original purchase price of the share so we hold onto the poor performing share in the hope of eventually getting our money back (and instead sell the good share). Yet again we view each share independent of each other and thus make poorer decisions than if we viewed them all from a broader frame. We see this also in the field of gambling as well where people try to win back their losses, and merely compound their losses.

Costs are not losses – Framing something as a loss creates greater emotional feelings. So when offered either a gamble that offers a 10% chance to win $95 and a 90% chance to lose $5 versus to buy a lottery ticket for $5 with a 10% chance to win $100 and a 90% chance to win nothing, most people opt for the lottery ticket as our brain reframes the same $5 as a cost not a loss.

Life

Life as a story – It seems that when making judgements on broad issues like life our assessment of the quality of our life is not based on a thorough examination but only a small section of information available.As with the peak and end rule, a life well lived is often judged using the same criteria – we tend to look at the big events and our most immediate history (as those are the key ones we can remember – WYSIATI).

In an experiment describing a persons life, one where an extra 5 years were lived, but were described as pleasant, but less so than previous years. They found that respondents judged the persons life as being less complete when the extra 5 years were added on.

Subjects were invited to fill in a questionnaire about life satisfaction. However before they began they were asked to photocopy a piece of paper. Half of them found a dime beside the copier. This small (irrelevant) bit of positive luck caused a marked improvement of their ratings of their life! 

Taking photos is increasing our modality of storing our memories – yet in many ways the stories around events (maybe triggered by the photos) is realistically the way we categorise and makes sense of our lives. The remembered life is rarely the sum of all the points in our life but rather the stories we create to make sense of it all. If we choose to tell a negative (or positive) story (irrespective of the complete facts), then that tends to imprint the overall experience as negative (or positive).

Thus we have two selves – the remembering self (who is making sense of our past through our stories we have created) and our current experiencing self (often just adding further chapters to the stories already created).

Defining happiness – The remembering self is not very accurate with the truth, so maybe it is a misguided notion to even ask people how satisfied they are with their lives. Instead it is better to focus on the here and now – i.e. How happy are you right now?Kahneman suggests a simple measure of happiness as ‘Time spent doing things we want to do’minus ‘Time spent doing things we do not want to do’.

In an experiment to map peoples happiness throughout a day they developed the Uindex (higher the percentage the greater the time spent in an unpleasant state). For American women their U index differed throughout the day: 29% for the morning commute, 27% for work, 24% for looking after the children, 18% for housework, 12% for watching TV and 5% for sex. One of the key predictors of positive feelings during a day is contact with family or friends. On Gallup’s, Ladder of life, some of the key influencers of a good life include educational attainment, and religion, whilst the key negative was ill health.

We are born with a pre-disposition for well-being. People who appear equally fortunate in life vary greatly in how happy they are. Thus we return to our base line irrespective of our ills or fortunes.

Immediately after the accident Paraplegics feel understandable low, but as life returns to a new equilibrium they focus more on the differences than their new reality and so return to a similar level of happiness they had before the accident. Likewise people who win the lottery, eventually return to close to their old state of happiness.

Setting (and then achieving) of goals appears to also be a key determinant of our happiness.

A study of 12,000 students found that those who had rated highly the statement being very well-off financiallyas essential were shown to be more likely to have achieved financial success in their lives. It also helped with their life satisfaction if they had achieved their desired goals.

That said, above a certain amount of money ($75,000 in 2011) more money does not increase happiness. Whilst money does buy better pleasures, it does not buy greater happiness as people rapidly get used to new higher standards. It also reduces our ability to enjoy the small things in life.

Likewise, a new car (or any big purchases) tends to only have a temporary lift as we quickly subsume it into our everyday life. Thus once we get used to something, it loses its ability to lift our emotions. One of the reasons cited why rich people are no happier is there is little major differential in the extra class of items they can buy.

However, joining a club or learning a new activity (be it learning the cello or playing tennis) where you constantly have new challenges or interactions is different and so is often more uplifting in the longer term as it cannot disappear easily into the backdrop tapestry of life.

A few final thoughts

Just because we are not rational in our decision making, does not mean we are irrational. We are trying our best but sadly easily misguided. Thus we often need help when making bigger decisions (e.g. though use of computers or a number of people to filter the decision making process).

Whilst unscrupulous people can take advantage of people thorough the fault lines of our decision-making, one can also use this to encourage positive actions such as pensions saving, organ donation and healthier eating (cf Nudge).

System 1 is sadly the origin of many of the errors we make. Unfortunately it’s difficult to educate and control. Furthermore just because we become more aware of these limitations does not stop us falling under their misguided spell. It’s easier with System 2 – when you become aware that you are in a cognitive minefield, slow down and ask for help.

CRITIQUE

This book is dense. It is full of great insights into human frailty of decision-making. What is so good about this book is we have the architect of the theories and the experiments rather than a third party reporter (like Gladwell or Lehrer). But that closeness to the subject comes with a few problems.

Maybe quite harshly, this book feels a bit self-indulgent in that it goes into far too much depth – It gets lost in minutiae and over-labours points repeatedly. I believe he could easily have edited out 100 pages of unnecessary detail of discussion.

I also worry that people will read this book and assume they can manipulate others. Many of the experiments are isolated events which bear little reality to life (for example in the era of ease of access to information any time anywhere, we are less likely to be as negatively influenced). Thus some of the biases may have been over played.

Posted in Behaviour change, Behavioural Economics, Decision making | Leave a comment

The lean startup – How constant innovation creates radically successful businesses By Eric Ries (Summarised by Paul Arnold – Strategic communications planner, Facilitator and Trainer – paul_arnold@me.com)

 

lean_startup

 

IN A NUTSHELL

We fall in love with our ideas and lose objectivity. The lean startup process relies on empirical evidence to more quickly optimise the product to deliver both value and growth. You need to build a minimum viable product, then run constant incremental tests with actual customers to gain valid insights from their real user experience. Comparing the research findings against pre-set benchmarks allows you to more accurately make decisions to either proceed or pivot.

THE BOOK

Blinded – The harsh reality is most startups fail. Startups don’t starve – they drown (in having too many ideas). People fall in love with their ideas and can’t see their flaws. Furthermore, they do not know their audiences really well and critically how they relate to their product. In many cases the fundamental product concept was flawed – people were not wowed enough to want it. Rarely is the original eureka moment of product innovation the final product. It takes a lot of optimising to take-off in a competitive market. Startups need to be disciplined to succeed. Thus at the heart of The Lean Startup (TLS) is data and metrics.

The author was the chief technical officer at IMVU (http://www.imvu.com). They broke all the rules: they built a minimum viable product that was full of bugs; they charged money for it, and they kept changing it. They talked to their customers but did not do what they said. This approach of continuous innovation is now known as The Lean Startup (TLS) . By 2011, IMVU had created more than 60m avatars with annual revenues of $50m.

Key principles of The Lean Startup – Lean manufacturing is a process originated at Toyota to aid manufacturing. There are a number of key elements:

1) Validated learning – The heart of TLS is the principle of running frequent experiments to test each element of your concept until it has been honed to market success. All testing is aimed to rapidly learn what works/not works so to maximise the effectiveness of an organisation’s scarce resources.

2) Build-Measure-Learn – TLS encourages a rapid movement to a prototype (via a minimum viable product). Benchmarks are developed, then the product is put into market. The result either makes you persevere (continuing with incremental improvements) or pivot (i.e. make seismic changes).

3) UX – User experience is key as the way the customer uses your product could be very different from how you think they will. No amount of cross transference of learnings from other markets or brands will be valid – only by going out and doing real research on your market with your real consumers experiencing your product will you learn what is necessary for success in your specific market.

At IMVU, feedback from users said they wanted their Avatars to move around. This was a heavy technological ask so as an interim they gave them a limited functionality to just click where they wanted their avatar to go and it would ‘teleport’ itself there. Surprisingly, users preferred this ‘magic’.

4) Innovation accounting – TLS focuses on metrics – to remove as much subjectivity as possible to lead to empirically based decision-making.

5) Small Batch sizes – as small batch sizes allows more rapid learning and adaptation.

When IMVU entered the instant messaging market they had a clear hypothesis about what led to success in the market. And so they developed a dummy product along the lines of their hypothesis. Even though it was very rough, they resisted the temptation to hold back and develop it further (for fear of tarnishing their image) and instead pushed it out into the market (as better to find out you are wrong early on than after masses of product development). Their hypothesis was flawed, which led them to completely rethink their positioning. Indeed it took them many iterations before they finally stumbled upon a positioning that they could exploit. It’s only by really seeing what people do rather than relying on our own flawed beliefs can we let go of our prejudices and blinkered view.

Doing the right thing -There are many things to think about when setting up a company (e.g. sales, budget setting, recruitment etc etc) and doing all these things will make you feel you have been effective in the day – but you could be spinning wheels – you could be doing the wrong things efficiently because you still do not know who your customers are, what role your product plays, and if they will part with their money. TLS instead focuses on ensuring you are building the right product – it starts with testing your hypothesis about your product/concept with actual customers – as quickly as possible.

The most important question any company should answer is ‘What activities add value and which are a form of waste?’ Thus you need to test every element on an almost continuous basis to know which ones make a difference (and are worth pursuing) and which ones to stop wasting precious resources on (as most companies never had enough resources). So instead of building upon assumption, TLS relies on fact based evidence for each step via the ‘Build-Measure-Learn’ feedback process. By constant experimentation, you can move ahead with greater certainty. And if you do need to make bigger shifts (known as pivots) you do it much earlier on in the process, minimising wastage. 

Intuit flagship product, Turbotax undergoes 500 different ‘micro’ changes in a two and a half month season. They will make a change on say a Thursday, run it over the weekend, read the results on Monday, come to a conclusion on Tuesday, then rebuild and retest on Thursday. When you only do limited tests, you can only choose one or two variations, so there is a fight over whose ideas wins. when you can do 500 tests, then everyone’s ideas can get tested. This way, it’s not middle or upper management making the decisions – it’s the actual customers – leading to more accurate (and timely) decision-making. This speed has meant that they have developed $50m revenue products in just 12 months instead of 5.5 years previously. By relying on data it allows them to quickly kill things that do not add value and instead focus on refining the bits that do.

Validated learning – Customers often do not know what they want. They find it difficult to envisage something they have not had past experience of. So asking them in advance of experience is often flawed. However, when they gets their hands onto it, then they can provide much greater clarity of response. One of the guiding principles of TLS is validated learning – it’s not what customers say that matters it’s what they do that is the empirical test of a product. Thus it’s key to give them a workable model of your product as soon as is feasibly possible and then track what they do (or don’t do) with it.

Waste vs. value – A critical question TLS forces is to quickly distinguish between waste and value – i.e. what adds value and what doesn’t (and hence is wasteful of resources). If a feature on a piece of software is not being used, then stop developing it. Instead use your scarce resources to work on the parts they do add value. The sooner you know the value items, the less you will waste time doing the wrong things. Spend 12 months developing a more finished version and if it bombs, then you have wasted a year. Develop a version in 3 months and if it bombs you have just wasted 3 months (and now have another 3 rounds to get it right). Thus the key principle is to learn fast (/fail fast).

When IMVU were developing their instant messaging product they run hundreds of experiments week after week to discover what would inspire their customers to become advocates (‘net promoter score’).

Removing emotion and subjectivity – You need to be ruthlessly objective and not fall in love with your ideas. Set benchmarks and stick to them – you must face the hard truth of the data – if the tests show it falls below benchmarks, then you need the strength to let go and change.

Buying success (too early) – Stakeholders may see all these endless negative test results as failure (which will make them lose faith). There is then the temptation to ‘buy’ artificial success (e.g. via marketing) but this will not lead to sustainable growth if the product is flawed. Furthermore it squanders limited resources which could have been better used further developing and testing the product. So it’s best to resist the temptation to accelerate growth before you have absolute certainty that you have a really powerful idea that can maximise the marketing investment. 

The two driving factors for success: Value & Growth – Two critical questions to answer are: 1) The Value hypothesis – i.e. does your product or service really deliver value to your customers? and 2) The Growth hypothesis – i.e. how far and how fast can the product/ service grow? People find it very difficult to judge these two hypotheses in conceptual form so getting real market data is the only way to get validated data.

In 2004, three college sophomore arrived in silicon valley with their fledging social media network. With only 150,000 registered users it made little revenue, yet that summer they raised $500,000 in venture capital, and a year later another $12.7m. What made the Venture capitalists buy into Facebook was not the revenue stream at that time but the fact the two hypotheses of value and growth had been clearly demonstrated. Value was proven by the amount of time people were spending on the site (each day, every day); and the growth hypothesis was validated by the fact that over 75% of all Harvard undergraduates used Facebook within just 1 month of launch.

Build-Measure-Learn – At the startup of a business, information is more important than money because it is the critical element to success. Thus it’s imperative to learn quickly to hone the product quicker. The intent is to minimise the time it takes to circle round this loop. The quicker you can do this, the faster you learn and the more you can learn (as you can loop round more times, testing more elements).

The B-M-L model has three phases: First a hypothesis is formed. Then the product is developed that allows that hypothesis to be tested. Metrics/benchmarks are set to help determine success criteria. Then the product is tested with real consumers. Their usage data is then analysed against the benchmarks and these learnings drive decision-making. There are two routes to pursue – either to Proceed (if the results exceed the benchmarks) or Pivot (if the results dramatically under perform expectations). By testing quicker it allows some of these bigger ‘pivot’ decisions to be made faster and when it is easier to do (than when you have a whole infrastructure set up to operate in a certain direction). Speed is a competitive advantage. Learn to learn faster than your competition.

The 5 Whys – To help isolate the real cause of a problem, use the 5 W’s technique (e.g. Why did the machine stop? -> Because X failed -> Why did x fail? -> Because Y happened ->Why did Y happen? etc. In most cases it often tracks back to a human problem. By doing this you save time in the long run (and is usually easier/quicker/cheaper to solve before the problem escalates). The reality is that often a breakdown happens at a number of different levels so the 5 W’s creates a more robust solution as it picks up the errors at all the levels. Sadly in many organisations there seems to be more of a ‘5 blames’ culture. It needs to instead be seen as a ‘collective failure’ rather than an individual (as everyone else should also have spotted the problem). It’s recommended that teams tolerate mistakes first time round (as most times it’s caused by flawed systems rather than bad people) but to learn from them and not let the same mistake happen twice.

Genchi Gembutsu – ‘Go see for yourself’ (From Toyota) – you cannot be really sure you understand the problem unless you go see it for yourself first hand – it is unreliable to rely on other people’s reports. As Steve Blank once said, “Get out of the building and start learning”.

When they launched the 2004 version of the Sienna minivan, Toyota’s chief engineer on the project took a 53,000 mile road trip across America, Canada and Mexico, talking to minivan drivers and their families. His big insight was that the kids rule the minivan and they are the one’s who need to be wowed. This led to an improved Sienna which had 60% higher sales than the previous model. 

When Intuit’s founder wanted to test his hypothesis that people would want to use computers to keep track of their expenses and pay bills, he picked up two phone books, and randomly called people to ask how they currently managed their finances. This cheap, quick and easy research help validate his hypothesis enough to proceed onto the next stage. It was not in-depth, checking out lots of potential options and pricing structures, but a quick piece of research focused on one key research question (all too often research becomes over complicated).

Minimum Viable Product (MVP) – To move rapidly through each cycle needs a product and this is what usually steals the time. Instead TLS relies on MVP’s – Minimum viable products – i.e. the rawest, quickest (cheapest) version that delivers the core functionality that is being tested (all the other bells and whistles, and glossy packaging are not developed at this stage as it takes time and detracts from what is being tested). It’s not meant to be 100% accurate – it’s meant to be the start of learning not the end of it. Whilst such small scale testing has its weaknesses, this is compensated by real in-market insights gained with people actually using your product. The secret of an MVP is to keep it as simple as possible.

Nick Swinmurn, the founder of Zappos, the online shoe retailer (worth in excess of $1bn) wanted to test his hypothesis that people would be prepared to buy shoes online. Rather than building up a warehouse full of shoes, he went to a local shoe store, took photos of their shoes, and posted their pictures on-line in a simple website. When customers clicked to buy, he would simply go back to the shoe store, buy the shoes and ship them out – thus holding no stock and no risk. This ‘cheap’ piece of research validated his hypothesis and helped him learn his way to success. What was critical was he had real behaviour data (not hypothetical ‘If we set up a website selling shoes would you buy from us?’ type spurious data). It also quickly taught him things he never really thought too much about such as discounting and returns policy.

VLS wanted to see if there was a market for laundrettes in India. Rather than commissioning large scale research, they mounted an industrial size washing machine on the back of a pick up truck and parked it on a street corner in Bangalore – the experiment cost less than $8,000 and proved that people would pay to have their clothes cleaned. They parked it on different street corners and experimented with different elements to answer different questions – such as speed and extra services like ironing. VLS now have 14 locations in India. 

Groupon is one of the fastest growing companies of all times. The very first deal was 20 people buying a two-for-one deal on a pizza. Their first minimum viable product was a WordPress blog site where they sold T shirts. They had no on-line ordering mechanism so people had to email their order in. Now they are operating in more than 375 cities worldwide.

Sometimes it’s not possible to make the product – in which case trying to bring it alive as much as possible is the next best thing. When Dropbox was first being developed, it used a video to explain how to use Dropbox. This helped drive up the number of people prepared to take part in the beta tests from 5,000 to 75,000.

Food On The Table creates weekly meal plans for families based on their choices and the best deals on local ingredients. To first test their assumptions, they signed-up just one family and personally developed the food plans for them by visiting all their local stores. Clearly this was very costly in time but gave them invaluable learnings on the good and bad points of their offering.

Aardvark (a search engine to answer the questions Google can’t) initially tested their concept using people not technology to mimic the search engine functionality (because they knew it was not until they had validated their value and growth hypotheses should they start investing in the technology).

Quality levels at different life stages – The value of quality is target audience specific i.e. early adopters appear to be very forgiving of beta MVP’s (they like being at the forefront). So you can get away with an MVP at the start but once validated, then the product needs to be optimised for quality to appeal to new (less forgiving) audiences. For many mainstream marketers, the idea of putting out a substandard product is counter-intuitive as they see it damaging their brand reputation. 

Innovation Accounting – Many brands stumble along in the zone of the ‘living dead’ – never quite taking off. The trouble with most people is they are naturally optimistic and assume 1) their product is brilliant and 2) things will get better. Entrepreneurs need to park their natural enthusiasm and face the harsh facts that proper financial accounting will testify to.

Innovation Accounting has three steps: 1) Use an MVP to establish a data baseline of where your company is right now 2) You then fine tune the ‘engine’ to move up from the baseline 3) If you do, then ‘Persevere’. If not then ‘Pivot’.

A key question to always ask is ‘How do you know if you are making your product better?’ The answer must be empiric. Metrics need to be actionable, accessible and auditable (i.e. credible).

At IMVU, they had monthly meetings where they reported back on a range of metrics such as registration rates, download rates, trial rates, repeat usage rates, conversion to purchase rates, customer counts and revenue. Even though they had been busy refining and changing the product, the bottom line metrics showed no shift – i.e. all their effort was not generating any return. The harsh reality of flat numbers made them re-look at everything they were doing. This led them to pivoting the product. If the company had not set clear benchmarks they could easily have carried on down this track for another year – and eventually into oblivion. 

Beware ‘vanity metrics’ – It’s also key to make sure you look at the right kind of metrics (some give you a nice warm feeling and others put money in the bank). Cohort analysis gives a better reflection than cumulative total (which fool you into a space of positivity as the numbers grow each day), but with cohort analysis you just look at the behaviour trends of the latest 100 customers – and if they are not converting at a higher rate, then your product is not getting better. So avoid ‘vanity metrics’ and instead focus on ‘actionable’ metrics.

Grockit’s founder Farbood Nivi knew student to student peer based learning was effective. He saw the opportunity to use ‘social learning’ to develop it globally. So he designed a minimum viable product (i.e. an online video). Having validated his value and growth hypotheses, he was able to raise venture capital and embarked on developing his product. The trouble was initially they were relying on vanity metrics (such as total number of customers). Soon he switched to cohort analysis and using A/B testing was able to make rapid, effective progress.

‘Persevere’ or ‘Pivot’ – It takes courage and discipline to let go on your original beliefs about your product and change (that’s why you need to rely on data to overcome our inbuilt resistance). But the longer you leave it, the greater the costs.

When the numbers exceed your benchmark, then your hypothesis has been supported and you can ‘persevere’, continuing to refine along the same lines. When the results are well below benchmark, you need to shift the product or strategy to continue to meet the set vision. The faster you can pivot and learn, the greater the chance of taking off (before you run out of money).

KaChing first started off as an online game for amateur investors where they played the market but in a fantasy league. Their real aim was to use it to identify future traders and for those less successful traders, to offer them trading by those who did perform well. This meant they built up a sophisticated scoring system for each player to evaluate their investment prowess. However their strategy did not work, so they pivoted, abandoning the gaming option (and throwing away months of work) and instead allowing people to invest with professional managers who had been assessed through their tool. Today Wealthfront has over $180m invested with more than 40 professional managers.

The pivot is about optimising the product to market fit. When this happens, you get business traction. There are 10 kinds of pivot:
1) Zoom-in pivot: Where focus-in on one specific feature of the product

2) Zoom-out pivot: Where the original focus on a single feature gets subsumed into a wider offering

3) Platform pivot: A shift from just one product to a range of offerings

4) Customer need pivot: Where you solve a different problem for the same customer

5) Customer segment pivot: A shift in who the customer focus is

6) Business Architecture pivot: A major shift on the strategy for financial growth (e.g. a shift from low volume/high margin to high volume/low margin)

7) Value capture pivot: How it moneterises itself

8) Engine of growth pivot: How it changes its engine of growth (e.g. from viral or sticky to paid growth)

9) Channel pivot: Moving to a new distribution channel

10) Technology pivot: Finding a new way of delivering the same benefit

Batch size – If you stuff a series of envelopes, seal them, and put a stamp on them, it makes intuitive sense to do each operation in turn – i.e. stuff them all, then seal them all, then stamp them all. But research has shown that it’s faster to instead complete each envelope one at a time. In business, it saves time by identifying problems early on. For example, if the envelope’s seal is faulty, then it’s better to find that out early on (otherwise you have to unpack all the envelopes). So it is in manufacturing. Toyota adopted small batch sizes to offer a competitive advantage (of variety.) This was made possible by reducing the changeover time from hours to minutes (SMED – Single minute exchange of die). Furthermore they adopted the Andon cord principle where anyone can stop the production line to resolve a problem. It might slow things down initially but stops recalls/refits later on. 

Increasingly software updates are delivered one update at a time – almost on a continual basis (IMVU can make up to 50 mini changes a day). They then use matrix teams to work on one feature at a time. They then get single issue feedback that provides immediate and focused feedback.

For many industries they may assume these principles cannot apply to their business. But increasingly we are seeing software providing added functionality to hardware (from cars to fridges to sportswear), and increased customisation of products (e.g. BMW, Nike etc).

SGW Designworks were asked to build a complex field x-ray system to detect explosives. They delivered their first 3D model within 3 days. Their clients made a few amends and the final design with a new mock-up was agreed 5 days later. 40 production units were made just three and a half weeks after initiation of the project. SGW used the same process to deliver 8 other products in a 12 month period.

In the ‘school of one’ students are given a daily personalised ‘playlist’ of their learning tasks. This may be a mix of small group work, e-learning, one-on-one tutoring time or personal study time. Each activity has built-in feedback mechanisms to help set future activities.

The myth of large batch sizes – Large batch sizes feels intuitively right, and so you quickly get into large batch death spiral – fix one more bug…wait another week and we have that new feature…. The trouble is the longer you leave something the more perfect you feel it needs to be.

When Apple launched its long awaited iPhone 4, it had 1500 changes in one batch.

Adapt – With this speed of learning, an organisation needs to adapt fast enough to the changes required. It’s best to operate in smaller matrix teams, who are empowered to make fast and courageous decisions (through faster customer feedback).

Complex systems need simple rules (not complex ones) to navigate through – thus principles rather than detailed processes are better – hence Learn (/Fail) fast, MVP, Small batch sizes etc are all sound principles of a more efficient way of working.

CRITICISMS

This book is quite an influential book doing the rounds at present. It has some strong core concepts that can be applied in many areas of business.

That said, I question whether The Lean Startup principles can be applied to all businesses or launches (nothing in my experience is that perfect a system). I think he overemphasises the difference between TLS and normal business. In my experience every brand I have ever worked on does a lot of concept/product testing to hone its offering and to understand about its customer.

One of the problems of this model is the trouble in setting accurate benchmarks and this can then lead to flawed decision-making. Building from this the TLS model is very ‘metrics’ driven. We can also be misled by numbers as we can be misled by emotions. Numbers tend to take a singular focus when we live in a place of mass complexity. I therefore believe we need to take the numbers as a guide but then make a more rounded decision taking into account other factors that numbers can’t help map.

 

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