Are Mental Biases Derailing Your Corporate Strategy?

The presidential debate has spent a lot of airtime on something we businesspeople already know: corporations are people. Whatever the corporation's rights and responsibilities, success and failure comes down to the people that make up the business. And corporate strategy most often fails due to our inherent mental biases.
In a classic McKinsey report, Hidden Flaws in Strategy, Charles Roxburgh outlines the 8 human biases that drive good executives to create flawed strategies:

1. Overconfidence
2. Mental Accounting
3. Status Quo bias
4. Anchoring
5. Sunk Cost effect
6. Herding instinct
7. Misestimating Future Hedonic States
8. False Consensus

While McKinsey explores how each bias plays out in economics, we highlight three biases (Status Quo, Herding, and False Consensus) that falsely guide the marketing strategy process of many technology companies. 

Status Quo

People maintain the status quo, not out of risk aversion, but of loss of expected return. In an experiment where subjects were asked how they would invest a hypothetical inheritance, 1/2 currently in a high-risk portfolio, 1/2 in a low-risk portfolio, both groups typically left the portfolio unchanged.

We see this play out every day: fear of changing the marketing mix, and resistance to abandoning past poor-performing marketing strategies and tactics. Even when metrics demonstrate a media channel or tradeshow does not deliver on expected marketing ROI, companies resist marketing budget allocation changes. Why? "If we've always done it, and this year we don't, people will wonder if we're out of business."

How to combat this bias?

• Consider your marketing mix as a portfolio, with every segment "up for sale". Evaluate each on its rate of return against the others at least annually. 
• Analyze existing activities with the same rigor as new marketing experiments.

Herding Instinct

Second only to "do what we've always done" is "do what the others in our industry are doing." Executives are afraid of a strategic misstep, but more so afraid to be the only one.

We continue to see resistance to social media in B2B technology companies because it's not currently done well and successfully. Marketing executives are afraid to invest in a strategic approach to social media-its execution is still relegated to small silos in the organization. 

Inbound marketing is also suspect-if my website has a poor history of generating qualified leads, an optics company argues, Why would I invest it in as an engine for generating leads? After all I get so little traffic today!

How to combat?

• Like R&D, budget for marketing experimentation. If you'd like to create a market leading position, or just maintain it, you must stand out from the herd. Setting aside the money and treating the new activities as a controlled experiment allow you to try things others aren't. Allocate 5% of your marketing budget for such experimentation.
• Look to market leaders in early-indicator segments. It's lonely to break from the herd: look for parallels outside your industry.

False Consensus

We hear what we want to, from customers, stakeholders, and prospects, because of our tendencies to:

• Confirm bias-seek out the facts that support our beliefs
• Selective recall
• Biased evaluation-the quick acceptance of evidence that supports our belief, and rigorous evaluation and frequent rejection of contradiction
• Groupthink, the pressure to agree in teams

In marketing strategy, we often see product launch, branding and market positioning stall out or go off track due to false consensus. Executives struggle to put aside their own preconceptions about what customers want.

How to combat?

• Use a third party to conduct and analyze customer and market research
• Facilitate key team strategy sessions, to draw out contradictory evidence and opinion

At PLS, we are often called in to perform a marketing assessment. The first step is qualitative research-talking to their customers. We hear things that surprise the technology companies we serve-not because they don't talk to their customers, but because they don't ask the right questions, or hear the real answers.

In your organization, which flaw do you see come into play?