From the monthly archives: March 2017

We have all experienced feelings of discomfort that result from two contradictory beliefs.

The existence of a dissonance, being psychologically uncomfortable, tends to motivate people to seek consonance, that is, to seek a zone of comfort.

In small and medium-sized companies executives do not deny the need to innovate to be competitive, but the risks that this may entail lead to a zone of discomfort.

To reduce this dissonance, people can look for new information that challenges the connection between innovation and competitiveness. This new information can serve to reduce the discomfort caused by the dissonance that some people experiences.

Phil Rosenzweig said: “It’s possible to believe honestly that you have a market-beating strategy when, in fact, you don’t. Sometimes, that’s because forces beyond your control change. But in other cases, the cause is unintentional fuzzy thinking.

Behavioral economists have identified many characteristics of the brain that are often strengths in our broader, personal environment but that can work against us in the world of business decision making. The worst offenders include overoptimism (our tendency to hope for the best and believe too much in our own forecasts and abilities), anchoring (tying our valuation of something to an arbitrary reference point), loss aversion (putting too much emphasis on avoiding downsides and so eschewing risks worth taking), the confirmation bias (overweighting information that validates our opinions), herding (taking comfort in following the crowd), and the champion bias (assigning to an idea merit that’s based on the person proposing it). “

It is relatively easy to admit that our business approach is made up of illusions, logic errors, and failed judgments that distort our understanding of the real reasons that determine an organization’s performance.

When, for example, a company’s sales and profits are high, people conclude that this organization has an overwhelming strategy, a leader with extraordinary visions, talented employees, and an excellent culture that even drives innovation.

But when the results are not so good, then the leader was not so good after all, the collaborators did not collaborate and the culture was fictitious.

What often happens is that little has changed, but the previously established image creates an aura effect, which is nothing more than an illusion.

In fact, there is a concern with the quality of decision-making, confirmed with research that indicate that cognitive tendencies affect the most important strategic decisions made by the managers of the best companies.

As an example, let us consider two cognitive propensities that are common and relevant in an economic context where innovation is the word of the day:

– Excessive confidence and cognitive dissonance. Both can bring discomfort!

Or maybe not!

If on the one hand, we know that an individual who has overconfidence overestimates the accuracy of their private information.

On the other hand, cognitive dissonance happens when we perceive an incompatibility of information elements that cause us tension, and to get rid of that tension we create the propensity to acquire or perceive information in accordance with a set of desired things.

If a consultant or an analyst issues a privately favorable forecast of high profits his tendency to interpret the subsequent information to support the information previously provided.

There is, however, another side of the coin in the cognitive dissonance that Javier Santiso, a ESADE professor, brings with great grace and pertinence.

“Yet perhaps the key to this successful repositioning lies precisely in the IMF’s ability to regenerate and subvert itself, i.e. to exhibit cognitive dissonance and innovation, not only by tolerating this internal dissonance, but rather by promoting it (Blanchard’s hire alone evidences this audacity).

This is a feat of great merit, since whether public or private, national or international, none of our institutions tend to favor dissonance. Very much on the contrary, they tend to limit disruptive, innovative potential.

Consider, for example, the remuneration of bankers via the (now infamous) bonus system, invented to reward those who have (supposedly) made money. Where are the reward systems for those who have avoided losing money?

Cognitive dissonance is as rare and precious as a white pearl. It is key to promoting innovation and to reinventing oneself.”

Probably we can see the parallel between the processes of Cognitive Dissonance, that is, experiencing incompatible cognitions and the need to reduce unpleasant feelings (act to resolve conflict) and the Creative Tension, that is, experiencing the difference between reality at a given moment and Desired result (acting to create something reduces stress).

We do not like to hear the cognitive dissonance say:

What I want is this…, But I do not have it!

To alleviate this discomfort, we must release energy and resources and put creativity to fill the gaps created by this dissonance.

 

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This text was inspired by an article of mine already published in this blog  to remember past learning.