First of a four-part series
The focus of the Asean leadership in 2018 is going to be on innovation, given the volatility and speed of the world we live in. With digital revolution making our world turn faster every day, not only is the attention span of our millennials much shorter, but so are the life cycles of our products and, if we are not careful, our businesses.
The only way for a business to resist these pressures – resilience is the second core theme of the 2018 Asean chairmanship – is through innovation. Simply adapting to changes will not help a business withstand its competitors, let alone rise above the rest. Novel ideas must be followed, and chances must be taken – but that is exactly where it gets tough.
Innovating is making decisions in uncertainty
Is this innovative idea worth following? Should we continue with the project we have been working on? Should it be stopped so we can focus on other ideas? These are the kinds of questions that will arise and need to be addressed in the innovation process.
The hard truth we face when innovating is that we must make decisions even without knowing what the outcome would be. Every aspect of a project can be fuzzy and uncertain. When a company like Lamoiyan develops a new type of toothpaste, there is no way of telling whether the sales will actually meet the projections. What was expected to turn out a major success may actually be a bust! Anyone remember Microsoft’s Zune?
What separates the mediocre from the great is the ability to focus on what has the best chances of turning out to be a success. Not only do we need to nurture the right ideas, but we must also know when to cut a bad idea loose. That will allow us to focus our time and money on other ideas with greater chances of success.
Our struggle to stay rational
Making such a decision may sound basic; it actually is one of the greater challenges we face when we innovate. The reason for this lies within ourselves. Richard Thaler’s Nobel Prize win has once again brought into focus the reality that we are not capable of making fully rational decisions. Even if we know which decision is the right one, we may sometimes opt to choose another option, driven by our feelings, preconceptions or how the information is presented to us.
What Thaler wants to correct by “nudging” are errors created by our ways of evaluating and making decisions. In complex and uncertain situations, mental shortcuts, so-called heuristics, help us make decisions. While accelerating our decision making, these heuristics may bias it, possibly leading us down the wrong track without us taking notice.
These deviations from a purely rational decision, cognitive biases, are a danger to us and our businesses as we may lose the sovereignty over our own decisions. If we let our decisions be driven by heuristics and become biased, we give away the decision authority to our instinctive, instead of our reflective and rational, ways of thinking.
These instincts, however, did not develop in our modern and fast-living times, but are remnants of the development of our decision-making capabilities. While helpful in many instances, they can hinder us in our business decision-making process. Feeling strongly toward our group’s ideas helped us progress as a society. As a team, we are stronger than as individuals. But does that mean that information from an outsider is not worth recognizing?
In the next parts of this series, I will be discussing the fallacies we face in our quest to drive our businesses through innovation. I will dive into what my own experience with innovation managers and that of leading economists and psychologists have revealed about our decision-making behavior, and what we should learn from it.
Ryan Kraft is an expert in the field of innovation management and behavioral decision sciences. He is currently a consultant for MoneyMax.ph, the Philippines’ leading financial comparison website. Tweet us: @MoneyMaxPH, like us on Facebook: MoneyMax.ph, and email your comments to email@example.com. For more information, visit our website: www.MoneyMax.ph