The Steep Costs of Misperceptions

The Steep Costs of Misperceptions

The breakthrough financial success of the new Wonder Woman film contains an important lesson. For years, women super-heroes were outside the scope of movie producers’ considerations. Why? A 2004 film, Catwoman, also starring a female superhero, had failed to achieve its commercial aims. An assumption – female superheroes do not fill seats – became a belief that shaped future investment decisions.

No river is ever the same at any one point on the shore. The analogy holds true in the business world. An idea that failed in the past does not necessarily mean the idea has no merit today. And winning ideas that won in the past may lead, today, to your business’ disruption.

Beliefs born from assumptions are shortcuts that make our world faster to navigate. Brushing our teeth is good for our health and social life. But beliefs can shrink our opportunity set. They can keep us from being curious, from accepting blame for our contribution to a problem, or from risking a second try. Misperceptions, in other words, can serve as barbed wired fences keeping us shut out from our desired future.

Some beliefs are core principles that guide how we do things at work. They are necessary for strong cultures; we should only modify them when a shift in how our people work enables us to get closer to realizing our organization’s potential. For example “we only promote within” creates workforce engagement. But it would doom you to failure when technology trends change.

Other beliefs, grounded in science, are vital to remember. Bridge builders do not debate the laws of physics.

But beliefs that are, in reality, false conclusions are like crumbling foundations, especially when they are self-serving.

For example, a biotech leader acquired a small start-up that had a cost-saving technology. After the acquisition, the acquiring company laid off all but two acquired (non-technical) employees and closed the businesses. The new technology has repeatedly failed in development, so the acquiring team decided the technology is not ready for the market. In fact, some niche companies have proven the technology is marketable. The core, unacknowledged issue is a botched integration. Competitors will make inroads as a result of the acquirers’ mistaken belief.

One way I measure an organization’s innovation culture is to count how often leaders say, “We tried that before, and it did not work,” in responding to a growth idea. Innovators look at a seemingly good idea that has not worked and ask “Why?, Why?, Why?” to unearth the insight that leads to a breakthrough. Or, as Thomas Edison said in celebrating yet another of his many experimental failures, “We are one step closer!”

Not that you should try to ride a dying horse. Some ideas don’t work at any time. But stop being so intellectually lazy to assume the present and the future will reflect the past. That indeed is a very dangerous assumption in today’s technology-driven markets where the cost of entry has fallen dramatically.

Test the assumptions that drive business model strategy decisions about where you compete, how you will win, and why you will be profitable. “People will pay a lot more for a drug with fewer side-effects” is an assumption behind many pharmaceutical companies’ business models. What has to remain true about the payor, the magnitude of a side effect, and the production cost of minimizing side effects for today’s propensity to pay a high premium to continue?

A highly differentiated auto glass replacement company replaced cracked auto glass better than any of its competitors. But when the buyer shifted from the car owner to the automobile insurers (who offered glass replacement for free as part of insurance policies), “better” no longer mattered. Insurers selected glass replacement contractors offering the lowest price for “good enough” quality. In not anticipating the sudden change in the market, pivot strategies were too slow to save the business, and the company was sold.

Clothing manufacturers assumed women and men would only buy fashionable clothes in person. Kodak believed digital was years away. J Crew’s CEO thought loose, athletic clothing would never be cool.  Newspapers believed classified ads would never be free. Disney raised prices because there is little price elasticity of demand for its theme park experiences, at least in the past.

And men thought female super powers could only hold bit parts in films that appealed largely to men.

What beliefs are holding your organization back?

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. She resides in San Diego, California but still considers Madison home. She is the author of Beyond Price. This post was originally posted at Kay’s blog ~ Business Model Innovation.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of WTN Media, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.