Jennifer Riel (MBA ’06)
I was working with the A FEW YEARS AGO, talent management team at a large financial organization. The firm was struggling with retaining its top talent. Far too many of its identified high-potential employees were leaving at the VP level. We set out to figure out why this was happening and what could be done about it.
The talent team wanted to do a survey of the organization. I proposed a set of deep-dive interviews, instead. I believed spending more time with fewer folks was likely to give us a richer understanding of what these high-potential leaders were thinking and feeling about the organization. The talent team agreed and came back with a list of 35 questions to ask in the interview. I countered with a list of two: What was your very best experience working at this organization and what was your worst? These questions, it seemed to me, would tell us a lot about what mattered most to people. We ended up with a list of 10 core questions, including my two, and started in on a process of interviewing some 50 leaders across the organization.
One of our interviewees, Steve, came into our discussion ready to talk. With barely a prompt, he began to explain that the relationship between company and employee was actually very simple. “Listen,” he said, “it’s not that complicated. I show up here every day and I work really, really hard. I do a great job and in exchange, they write me a cheque. And, at the end of the month, so long as that cheque doesn’t bounce, we’re even. That’s all there is to it.”
In Steve’s ‘conscious worldview,’ the employee-employer contract was simple and transactional. Had we left things there, we might have gone on to design a set of wellintentioned but ultimately useless solutions that matched this model of the world.
Instead, we pressed on and tried to get beyond Steve’s stated model of the world to his real experiences. By asking for examples of both great and awful experiences, we hoped to peek behind what he had told us about his ‘theory of the world’ to understand how it matched — or didn’t — with his actual experiences and behaviour.
After a moment’s reflection, Steve said he wanted to talk about his worst experience. He explained that his low point at the company had come about two years prior, in a moment at which he felt ready for his next role. One day he had come across an internal posting that seemed perfect for him. He applied and did careful, thorough prep for the
interviews — each of which he felt he nailed. So, it came as a shock when someone else got the job.
Disappointed but determined to learn from the experience, Steve asked the hiring leader for feedback on what he could have done differently. The response came back: “Um, nothing really. The posting and the interviews were just a formality; we knew who we were going to hire before we started the process. We assumed you knew that we included you in the process as a courtesy.”
As he told the story, Steve’s voice had grown louder. He leaned forward in his chair and began to gesture broadly, talking about how he had felt in that moment. Beyond disappointment and frustration, he said, he felt truly betrayed. He recalled that he had considered quitting on the spot and that it took months for him to regain his motivation. Even now, he said, just thinking about that situation made him question his commitment to the company.
Remember that at the very beginning of our interview, Steve had told us that the company owed him nothing more than a paycheque. But the negative story he told revealed a much deeper expectation to be treated with respect, dignity and humanity. An interview process that lacked all of these dimensions had had a significant impact on him, on his career and on his lingering feelings about the organization.
This story created an opportunity for the talent team to explore how it might design a more human-centred promotion process. Had we not pressed forward past Steve’s initial framing of his relationship with the company, this insight and opportunity area would never have come up.
Steve’s story tells us a good deal about him as a person, but it illustrates a more general insight about human beings: There is an important gap between what people think and say, and what they feel and do.
Espoused Theory vs. Theory in Use
In the 1970s, management theorist Chris Argyris highlighted a gap, not only between what we think and how we act, but also between how we think we behave and how we actually do behave. As he explained it, we all have an ‘espoused theory’ — the worldview and values that we think our behaviour is based upon. But that theory is often at odds with our actual behaviour, or our ‘theory in use’. Argyris suggested that we are aware of our espoused theory, but blind to our theory in use — and to the gap between the two.
Human behaviour is complex: We say one thing and do another; we take actions that are not in our own best interest; we act one way in one context, and in a contradictory way in another; and we make decisions on the basis of impulses and biases, even as we believe we decide on the basis of reason and logic. Many excellent studies and books have been written about this disconnect — by Argyris, Daniel Kahneman, Dan Ariely and others. These books — and the fields of Cognitive Science, Behavioural Economics and Social Psychology more generally — demonstrate that there is still much to be learned about why we behave the way we do.
When it comes to strategy, understanding human behaviour — what people actually do — is often the best way to determine how to win over time. Building a winning strategy entails leveraging behavioural insights at three key moments:
1) When framing the problem
One of the best practices for designing a winning strategy is to begin with a problem to be solved. When I work with organizations, I always ask them to consider what isn’t working about their current strategy. Is there a gap between aspirations and results? If so, what seems to be causing that gap? Over the years, I’ve found that one of the most fruitful places to go looking for problems to be solved is in the realm of customer behaviour.
I encourage leaders to reflect on what they see in the marketplace: To what extent are their customers acting in the ways they expect? To what extent has customer behaviour changed since they crafted their strategy? In what ways has that behaviour changed? What are the current effects of customer behaviour on the business? And what seem likely to be the effects in future? Answering these questions means looking closely at how customers are acting and looking for signs of changes in that behaviour that might impact your business.
There is an important gap between what people think and say, and what they feel and do.
For instance, cable providers in 2014 may not have felt much impact from the three million or so Americans who chose to cancel their cable services in favour of streaming options. But, according to Variety, those cord-cutters had hit 25 million households by the end of 2017 and estimates suggest the number may climb as high as 55 million by 2022. The faint hints of cord-cutting behaviour in 2014 represented an early warning signal of what is now cable carriers’ biggest strategy problem: Relative to competitors like Netflix, their value proposition simply isn’t good enough to keep consumers paying over $100 per month for their services.
Paying thoughtful attention to customer behaviour on an ongoing basis can be a complex and confusing task. So, having a framework that senior leaders can use to understand and assess the impact of behaviour changes can be very helpful. I quite like the Uncertainty-impact Matrix (see Figure One) often used in scenario planning. With it, you map the behaviours and potential trends in a 2-by-2 matrix, according to the degree of uncertainty around the future of that behaviour and the degree of impact that behaviour would have on your business. Strategic problems in each quadrant of the matrix are treated differently (e.g. behaviours in the low-impact/high uncertainty box would likely not be tackled at all).
2) When Testing the Possibilities
Once the strategic problem has been identified — ideally at the intersection of a business challenge and a customer need suggested by observed behaviour — the task is to identify possibilities. These are prototype strategies — potential directions that specify where you might play and how you might win there, in order to address your strategic problem.
One of the principle tasks of any strategy process is to think through and build these prototype strategies. Once you have done so, rather than simply debating which is most likely to be successful, take the opportunity to test the possibilities. In this context, testing means reflecting on ‘what would have to be true?’ for each possibility to be a winning strategy, and then exploring which of those conditions you are least confident of. Almost certainly, some of the most important tests will relate to your customers.
Think of those cable companies, facing the threat of mass migration away from their offerings towards popular streaming services. What are some possibilities they might explore? The set of possibilities might range from offering their own non-linear streaming services, to partnering closely with one streaming provider to create exclusivity, to reimaging the costs of their current offers to create a more compelling valuepriced offer, and so on.
Some of the tests of these possibilities could involve building out potential new offers to share with customers for feedback or looking to observe customers in other global markets that have similar offers, to see how they engage with them. The tests of each possibility should be designed to enable the strategy team to feel more confident in placing its bet against a particular possibility. While we can never know for sure that a given possibility will be successful, tests can make it easier to move ahead with one possibility over another.
3) When Rolling Out the Strategy
Getting a team to the point of choosing one possibility as their new strategy is not the end of the journey; it’s just the end of the beginning. Once a strategy is selected, it must be activated — and that is in large part about changing human behaviour. In this case, the humans in question are mainly the employees that will be tasked with bringing the strategy to life. That’s why, when it comes to bringing a strategy to life, one critical behavioural task is to take a close look at your organizational incentives.
Metrics and incentives represent core management systems that guide employee behaviour. But metrics, even if only informally linked to rewards, can shape employee behaviour in powerful and unexpected ways. Think about your own organization. Which metrics do you spend the most time tracking and talking about? Stock price? Revenue? Profit? Employee engagement? Net promoter score? The metrics that take up the most mindshare — and time share in meetings — are the ones your employees are being ‘told’ matter most. If there is a mismatch between the incentives and the strategy, the incentives will win. So, it is important to design incentives for new behaviours as part of the process of designing a strategy.
I once worked with an organization that was struggling to shift from an operational, engineering-oriented strategy and culture to a customer-centric, innovative strategy and culture. The single biggest obstacle we identified? One meeting that dominated the quarterly calendar: an operations review. As structured, the Ops Review was a corporate battle-royale in which executives were publicly chided for missteps and asked to account for their business in purely operational terms. Customers were rarely even mentioned. There was no parallel innovation review. There were no rewards for trying new things, only punishments for failure. This was a system that needed to be redesigned, if the new strategy was to have any hope of success.
As employee systems are redesigned and new behaviours begin to take root, it is important to closely monitor how the strategy is playing out — internally and externally — over time. Are customers and employees responding as expected? If not, what can their behaviour show us about what we missed or miscalculated? How might we continue to tweak our choices to get to the behaviour we desire?
In closing
In the realm of strategy, behavioural insights can provide useful cues for framing the problem at hand, for testing possibilities, and for designing new systems to support and measure your strategy. We can’t just ask people what they want and hope that a robust strategy will be the result. What we can do is observe people closely, ask questions and explore insights. In this way, we design our strategies with real human beings in mind.
Building a winning strategy means leveraging behavioural insights at three key moments.