There is a psychological way of thinking, that can negatively impact company growth, that every company will experience. This way of thinking has caused some of the largest corporate failures, and is the same state that prevents small businesses from becoming industry leaders. Written by Nate Clark, email@example.com
There is a psychological way of thinking, that can negatively impact company growth, that every company will experience. This way of thinking has caused some of the largest corporate failures, and is the same state that prevents small businesses from becoming industry leaders.
Written by Nate Clark, firstname.lastname@example.org
I've been fascinated with psychology lately and how it correlates to a company’s risk tolerance. Diving into case studies, experiences, success stories and failures.
Without going into all the numbers and boring details, there is common phenomenon in business that happens A LOT. For the purpose of this article, I will focus on the first time it happens to a business and what it means. This does not mean that it can’t happen after a certain stage, in fact, it happens all the time with large corporations.. ahem: Blockbuster, Kodak.
A business will attain some success that often comes from unique strategic ideas, relationships, essential processes, etc. Things are going great and forecasts for next year are up. The ideas are working, and people are seeing that the company plan is successful. The company has calculated their risk and has set plans accordingly to mitigate them.
Problem #1: Economic downturn. Spoiler: most well prepared companies make it out of this part (Even if it means going bankrupt and coming back after). Usually, when this happens, companies will revert back to their core strengths. BUT this is where it actually starts…
This psychological state is stronger than you think, no matter the industry
In 1976, 85% of film camera sales in the US belonged to Kodak. 85%! Today the market is run by players such as Canon, Nikon, and Sony who have capitalized on digital photography. You might be thinking "So what? The others came up with a better idea/product." But let me remind you, Kodak INVENTED the digital camera.
Strategic ideas shape how a company does business and provides answers to the fundamental questions. What business are we in? Who do we serve? Who are our competitors? How do we create value?
In 2000, Reed Hastings, founder of Netflix, flew to Dallas to propose a partnership with Blockbuster. In 2010, when Blockbuster went bankrupt, Netflix was a $28 Billion dollar business. Blockbuster knew of Netflix, and its strategy, but so much of Blockbuster’s revenue came from late fees. If they were to partner with Netflix, those late fees, that pumped in so much revenue, would take a hit, and that was something that Blockbuster refused to concede.
The strategic ideas that built companies like Kodak and Blockbuster, or any business that has initial success, are also the cause of our Problem #2
The Racehorse Effect.
When something happens outside of a business’s control, usually the business is reactive and follows a “get back to what got us here” mentality. The Racehorse Effect kicks in. Racehorses wear blinders, or “blinkers,” during a race to keep their focus on what’s in front of them. The strategic initiatives that brought your company success, effectively become blinders, focusing all of your attention in one direction, unaware of the competition and environment around you. Now you might be saying, “It keeps them focused on what’s important,” which is a valid point in the context of the race. But let’s do a quick thought experiment.
Imagine your company as the racehorse. You have spent years training and refining your techniques, your methods have worked, you’ve won a few races and have had some success. The Kentucky Derby is coming up and you’re confident in your processes to prepare. Months before the race occurs, the competition committee informs everyone racing that the Kentucky Derby will no longer be raced on a dirt track; they have decided to make it a turf track. Your horse, however, has only ever trained on dirt. What do you do?
1. Do stick to your normal training methods and hope for the best on race day? The surface changed, but once you put on those blinders the horse should be good to go, right?
2. Do you change your training ground, and change your training methods, to prepare for the race on a new surface? That way, when you put the blinkers on, all external circumstances have been accounted for and your horse is fully prepared.
What would you do? Can you apply this to a business decision you’ve been faced with? This is where these fun thought experiments differ from reality. When external unknowns happen, they revert to “we’ve always done it this way.” It’s a very fascinating aspect of psychology.
OK, But Why Does This Happen?
In psychology, cognitive dissonance is the mental discomfort experienced by a person who simultaneously holds two or more contradictory beliefs, ideas, or values. The discomfort is triggered by a situation in which a person’s belief clashes with new evidence introduced to that person. To reduce the psychological discomfort, the person will have to change either their mindset, or their behavior, so that the inconsistency or contradiction is resolved, thus restoring mental balance and emotional harmony. That is, cognitive consonance.
Hence, people continually reduce their cognitive dissonance to align their beliefs with their actions, thereby maintaining psychological consistency and feeling less mental stress.
This phenomenon, first described by Leon Festinger in 1957, helps explain why so many people will vigorously defend, excuse, justify, and keep their sacred beliefs, even when confronted with irrefutable proof that they are wrong.
There are several ways that people reduce their mental tension when their behavior and their available information clash. In psychology, it’s called “dissonance reduction.” Let’s take this knowledge and apply it to our topic of technology in construction. For this example, this particular construction company doesn’t utilize any technology. They are wanting to improve their business and perform better on projects, and they know technology is helping others, yet they are undecided on which way to go. They either:
1. Change their behavior or belief, so that it is congruent with the new information. For example, “I know this will help my business, so I will start to implement technology.”
2. Justify their behavior or belief by changing the conflicting cognition. For example, “I will stick to my methods, but I’ll at least learn more about what is out there.”
3. Justify their behavior or their belief by adding new cognitions. For instance, "I'll work more hours to make up for the wasted time."
4. Ignore or deny information that conflicts with their existing beliefs. For example, “Technology doesn’t help my business at all, I can do better without it. "
What Does This Mean For Construction?
In construction, there is a stigma that the industry is behind when it comes to technology. While it is true that the industry has been slower to adopt, the companies that are have been paying attention are finding out that when you start the journey, it opens doors that they never thought were possible. Now, I’m not saying that a smaller company should exhaust all of its resources to implement robotics. Initially, it means standardizing processes and implementing a construction management software. Whatever the level of tech in your business, staying well informed of what is available and budgeting to adopt new technology, should be a priority.
We Can Still Learn
Let’s take a look a Chinese board game, believed to be the oldest board game played today, called Go (dating back more than 2,500 years). This board game is taken very seriously, in fact, it's common that when children show above average skill at the game, they are taken out of school to train to become professional Go players. Go is played on a grid of black lines, usually 19 x 19, and what makes Go so difficult, is the number of legal board positions, which is approximately 2 x 10^170. To put that in perspective, the number of known atoms in the observable universe is approximately 10^80.
So why is this important? In 2016, AlphaGo, an AI computer that learned to play Go using machine learning, beat who some believe to be the best Go player in the world, Lee Sedol, 4 out of 5 times. It was able to do this because it played against itself thousands of times a day, learning from its past moves to become better and better. I'll say that again, it learned from its past experience.
Lee Sedol spent countless hours practicing and learning from his previous games, but a human cannot play the amount of games a computer could, in a single day in their entire lifetime so it obviously has the edge. Lee Sedol had spent most of his life perfecting his craft, and even then, was easily beaten by a computer. So, what do we do? Buy AlphaGo to make all of our decisions? Not quite. But that doesn’t mean we can't learn from the example. If you do the same thing every day, over and over and over, only relying on “we’ve always done it this way, so we’re not changing,” then eventually you will get passed. You must constantly learn from your experiences, look for ways to improve, and sometimes that means looking to technology.
Don’t Ask “What Should We Do?”
Action alone will do more harm than good. The question isn’t “What should we do?” The question should be “What’s holding us back?” When you have a good business model, and have seen some success, you don’t just uproot everything and change your core strategic initiatives. You take a step back and find a solution to the obstacles holding you back. When a company understands its obstacles, rushing to change everything isn’t the answer. Far too often it’s taken from one extreme to another, shocking the system and disrupting the strategies and relationships that have been formed over the years. Uprooting everything can turn out to be fatal. Construction technology is no different. It is a rolling process of renewals to implement as your business grows and adapts to the environment. Often, a good starting place in construction is implementing a construction/project management software. Don’t fall into the “what should we do” trap though. Finding the right fit for your company is VITAL to ensuring your implementation is a success., If you are not well informed, it could end up costing your company considerably, with nothing to show. BUT, if you do find the right fit ,and embrace the change it can bring, you can transform your business and maximize your earning potential while mitigating outside risks.
How Do I Find The Right Fit?
This step is so important in your digital transformation journey. It can seriously cost you, in both time and money, if you get this wrong. I’ve witnessed too many companies begin their journey, signing a long contract with a technology company, and end up wasting thousands of dollars and countless hours, after realizing it wasn’t the proper fit. Because this is so important, I sat down with some of the top construction executives in the field, to put together a cheat sheet that covers their experience; what they wish they had known, what they would have done differently and the 11 biggest mistakes to avoid when adopting technology. If you’d like a free pdf copy of this cheat sheet, you can email me directly.