TOP ARTICLES: Three Cognitive Traps that Stifle Global Innovation

by Simone Ahuja, Ranjan Banerjee and Neil Bendle | 10:00 AM October 18, 2013

Which is the more likely cause of death — shark attack or falling airplane parts? The answer to Nobel prize winning psychologist Daniel Kahnemann’s question is surprising; falling airplane parts. (In fact, you are 30 times more likely to die from a piece of falling airplane than you are at the jaws of a shark.) We have tested this query with senior executives across multiple continents, and they inevitably get it wrong. Why does this happen? Events are perceived as more likely to occur if they are easier to bring to mind. We have the TV special Shark Week and movies like Jaws to remind us of the danger of sharks, but there is no Airplane Debris Week. With unfamiliar, low probability events, disproportionate media coverage can lead to gross estimation errors.

Mis-estimation is not restricted to predicting danger. In business we frequently market to consumers whose experiences are far removed from ours and so we often make assumptions about how these consumers behave.

When we look at markets different from our own we often have little information. While formal information may exist in the form of statistical data from organizations like the World Bank and consulting firms, the information which is most easily brought to mind is from the people we happen to have met, or from the media. Thus, soccer and Gisele rank right at the top of our associations with Brazil, giraffes and Somali pirates with Africa, and ouzo and debt with Greece — whether this is fair or (more likely) not. All of us have a tendency to hang our hats on what we do know no matter how unrepresentative it is. Our work, and this blog, focus on how and why assumptions lead to failures – and what you can do to prevent them.

Availability is the first assumption trap. For instance, the dishes seen in British curry houses, such as Chicken Tikka Masala, are far from representative of Indian cuisine. But that’s what’s available; so that’s what the usual Brit thinks of when you talk about Indian food. Similarly, most executives in developed countries have some familiarity with developing countries’ urban, affluent, rapidly growing middle classes. This urban middle class is noticeable – it shares characteristics with many multinationals’ home markets and is far easier for the affluent, professional manager to relate to. Plus, when traveling on business, most executives are in and out of major urban hubs. Consequently the urban middle class receives all the attention, while the less noticeable but potentially far higher growth in the semi-urban and rural markets is ignored.

Here is an easy test to diagnose whether you suffer from availability bias. How do you think people in another country live? Picture this to yourself. Then search “A typical day in the life of a (enter nationality here),” that country’s World Bank Country Profile, and their leading local newspaper . Read the top three search results of each carefully. If the results are far removed from what you visualized earlier, you probably suffer from availability bias.

Confirmation bias is the second assumption trap. When we hold a hypothesis passionately and are confronted with ambiguous information, we latch on to anything consistent with our original hypothesis. The ambiguous data becomes clinching evidence. To give a concrete example: A European multinational had just launched its building material product line in India. Many of the product’s technologically superior features were over-engineered for much of the Indian market. Consistent feedback from the Indian sales force was that the customers were saying: “You are selling gold. We are looking for bronze.” The company, unwilling to let go of their assumptions, maintained that the products were appropriate for the market, but that the local salespeople simply did not have the skill to sell the range. The company’s managers felt vindicated (if briefly) when a global product executive visited India. After hearing numerous customers complain about over-engineered products the executive eventually saw a single, stellar salesperson encounter a high value customer, patiently demonstrate each and every superior product feature, and finally make the sale. Latching on to the prevailing assumption, the executive reported home, citing this one incident in great detail as conclusive evidence that “the products were indeed suitable, salespeople just needed the skills to sell them.” The result: no product changes but large investments in skills training. It took years of losses, and two new country CEOs, before the company realized the folly of its assumptions.

Can you remember the last time you were surprised by a piece of new information — and changed your mind as a result? If not, you might be trapped in confirmation bias.

The third assumption trap is the variance bias, (known to psychologists as out-group homogeneity bias). We see fine-grained differences in groups we identify with, but underestimate variance in distant cultures. We’ve seen Americans who think that New Yorkers and Californians are dramatically different but then talk about “Indians” as if they can be seen as a unified whole. This is a two-way bias. To many Indians, “Americans all love Big Macs”, but India “is a land of many languages and many cultures.” Variance bias leads to the systematic underestimation of opportunities outside the mainstream taste. This provides spaces for local competitors to flourish and grow and may explain why the multinationals successful in many emerging markets are those that have been there for a very long time. They often have a proliferation of brands and variants and importantly, they have learned, over time, to recognize and cater to this diversity.

Variance bias is hard to spot, but ask yourself a question. Do you really think the 1.3+ billion Chinese are less diverse than the 300+ million Americans? If so, sit back, take a deep breath. Now try and explain logically why that would be the case.

Read the local press, be curious, and approach with an open mind. A highly successful country CEO at Legrand, the French multinational, who worked in multiple BRIC countries, told one of our co-authors, “You never fully understand a country until you get lost in its markets.” He used to wander through the main market places, soaking in the experiences. When he was lost, he would call his driver and describe the location where he should be picked up. It is no surprise that this executive went on to global product management and then moved to a larger, and significantly expanded role in an emerging market.

Identifying these three assumption traps will help you get it right the first time, and better innovate for consumers across global markets. Indeed understanding what you don’t know is vital to preventing many a costly failure.

More blog posts by Simone Ahuja, Ranjan Banerjee and Neil Bendle