Why addiction to certainty is a blight on business & what to do about it

We hate uncertainty. In a series of studies in the 1980s, Daniel Kahneman and Amos Tversky demonstrated that most people would rather accept the certainty of a small payment than the possibility of a larger one. By the same token, if we are troubled by the possibility of a negative outcome, however unlikely it may be, we will pay a premium to eradicate that feeling of anxiety – which is why the insurance industry exists.  

The more visceral the negative outcome, the stronger our anxiety and the more desperate we are to remove it.  Indeed, the psychologists Pietro Badia, Bonnie McBane and Steve Suter have shown that most people would rather receive an electric shock now than face the prospect that they might get one later, without warning.

John Sills has just written an excellent piece about uncertainty in Management Today, focusing on the implications for customer experience design. As he points out, even the relatively innocuous situation in which your waitress doesn’t write down your order is enough to cause mild anxiety – and has the potential to spoil the experience, even if she gets the order exactly right. His advice is simple: identify the moments when consumers might begin to feel uncertain and make sure you intervene to reassure them. In other words, avoid uncertainty at all costs.

But, of course, it isn’t just when we’re consuming that uncertainty troubles us. It’s also when we’re at work. Employees hate it when their bosses appear uncertain about the future; investors hate it even more; and bosses put their employees under equal pressure to predict accurately how negotiations and pitches  will turn out, or how relationships will develop, or how others in their team will perform.  Anyone who is involved in revenue forecasting or project scoping will be under huge pressure to get the numbers right. And if you have the temerity to consider yourself an expert in your field, certainty is effectively what you sell.

The trouble is, such certainty can rarely be justified. How many times have you finished a job within budget and with time to spare? Compare this with the number of occasions when you have you had to bust a gut to meet the deadline, or had to push it back. Or when the budget you so painstakingly worked out proved woefully insufficient. So prevalent is this human tendency to make over-optimistic forecasts that Kahneman and Tversky gave it a name: the Planning Fallacy.

Why do we fall prey to it? Well, lots of reasons have been identified – from our failure to grasp the laws of statistics to evolutionary assertiveness (and, let’s face it, the most confident proposal still tends to win the most favour, even today). But it all still boils down to one thing: we hate uncertainty so much that we simply refuse to contemplate it.

This means that we don’t try hard enough to identify the things that might throw us off track. Something within us tells us it’ll all be fine, that we’ll find a way around any potential obstacles, that we are smart enough to succeed, whatever the odds. So we don’t even bother to work the odds out.

And, if we did, others – whether our colleagues, our clients, or both – would tell us to stop. Pessimism, as it would be interpreted, is almost as unacceptable in business as uncertainty.

Even when things don’t work out, we don’t learn our lesson. We look, instead, to blame the people doing the job for incompetence or inefficiency. We fire suppliers, file critical personnel reports and identify process issues which we believe to have caused the problem.

We rarely consider the idea that the plan might have been unrealistic in the first place.

This fear of uncertainty takes us to some pretty bad places. Major overspends on big construction projects like Sydney Harbour Bridge or Wembley Stadium; corporate scandals like Enron and Lehman Brothers; and a million other small business failures that you never read about can all be traced to our unwillingness to look reality in the face - because we're addicted to certainty.  However fallacious, we are pre-programmed to believe in confidently expressed project plans, plausibly explained growth patterns, and optimistic business forecasts that back us to succeed.

How can we avoid these pitfalls? Who would hire an expert who admitted to being unsure about the very subject she was claiming to be an expert in? Who would commit to a project that did not have a coherent budget and timing plan? Who would invest in anything without first seeing their projected returns?

It’s a tricky one. But the best experts in uncertain fields, like business planning, project planning and economic & political forecasting, will be certain about one thing: that they know how to navigate uncertainty, but not how to eradicate it. They will know that this latter goal is illusory. And they will confidently express this view to their clients, their employees, and their investors.

They will pursue a project by taking small steps, measuring the impact of each one, often comparing it with a different step in the same direction to see which one takes them further. They will use this feedback to figure out what the next step should be. At the same time, they will be alive to the changes around them and over which they have no control – such as the activity of competitors and legislators, the fortunes of the economy and the advent of new technologies.

They will make short-term forecasts, but be wary of long-term ones. They will express each forecast as a range and they will attach a probability to that range. From this, they might be able to extrapolate a single “average” figure to set as a target, but this will be better understood for the estimate it is and not be regarded as immutable.

In the same way, they will tackle projects in short sprints. They will apply the lessons learned from the last sprint to the next one, adjusting time and budget estimates accordingly.

They will know where they want to go. They will have a metaphorical compass. But, as Drew Hanson has said, they won't have a map.

They will be rewarded for moving things in the right direction, of course, but incentivised on the accuracy of their projections and forecasts, rather than on the scope of them. In many situations, not least when dealing with investors, it is better to project 5% growth and achieve it than 10% and fall short.

Such realism is at work only in pockets today – aided by the transparency and speed of feedback that can now be gathered digitally. Where it works, it is because data gives rigour to what might otherwise appear to be a wishy-washy experimentalism. It makes “test and learn” a smart strategy, not a weak cop-out.

There is no reason why such an approach cannot be adopted away from the digital domain – even if feedback is less clear, or less rapid. All that is required is for progress to be tracked, and the insight used to make adjustments to the plan. In slower moving domains, such as automotive or optical retail, it might not make sense to adjust too often. But that doesn’t mean it isn’t the right approach.

Finally, it’s worth pointing out that this isn’t a licence to avoid making big decisions. Perhaps one of the reasons we’re addicted to certainty is the need for leaders to demonstrate strength (and the desire of followers to perceive it). Butexperimental realism, to give this approach a name, makes decision making much less problematic. It allows many decisions to be made more quickly, without lengthy deliberation or apparent hesitancy.  This, in turn, frees up decision makers to spend more time thinking about the really big decisions that cannot be reversed, as well as creating a culture in which such decisions are naturally subject to empirical data analysis and realistic market assessments.

Like the customers in John Sills’ restaurant, the staff, investors and other interested parties would still need to have their uncertainty managed. But the regular provision of data would do precisely that. Horizons would be shortened and objectives reframed. The clarity of this framework would provide further reassurance, so that any anxiety induced by long-term uncertainty would be relieved by the knowledge that forensic attention to detail was being applied in the present and near future.

Much of this runs counter to the dominant culture of business – which pretty much states that you should know everything about what you're doing and, if you don’t, you should bluff convincingly. This really is the evolutionary law of the jungle. Surely it’s time we moved on.  

Nudging beyond comms: what marketers can learn from the Nudge Unit

At a time when marketing directors are seeking to reinvent themselves as Chief Customer Officers or Heads of Customer Experience, it might help to look outside of what is strictly defined as “marketing” for inspiration.

One such place is the Behavioural Insights Team, which works with the UK Government. And, as luck would have it, the head of the unit, David Halpern, has written a book, which I’d highly recommend. Inside the Nudge Unit tells the story of how the unit has fared since its inception in 2010.

There are lots of concrete examples of how small changes to the way letters are written and choices are presented can (and do) lead to more people taking the desired action. There are even some examples of how behavioural insights can inform successful advertising, such as the anti-smoking work done by my old agency, Dare.

But what’s really striking is the battle Halpern talks about to exert influence beyond such comms-based interventions. To succeed properly, he says, the unit had to influence policy.

Halpern is no marketer, but his challenge is familiar. Like those "new" marketers with their new-fangled titles, Halpern was essentially engaged in a battle to move his discipline beyond the crafting of messages – to a place where it could use insight and creativity to inform the product itself.  

If you believe that marketing should do this – that it is at least as much about shaping the experience a customer has with the brand as it is about spinning them a line – then there is real inspiration to be drawn from the examples he provides of where that challenge was met.

The key was marshalling human insights (born of behavioural science), hard data (drawn from an embrace of statistics) and creative ideas (in the form of lateral problem solving) –with impressive results.

I’m not going to summarise all of them here. One will suffice to illustrate the point.

In 2010, the economy was still struggling and banks remained highly reluctant to lend money to small businesses. This was seen by the Government as a vital blockage to economic growth. A problem no amount of quantitative easing seemed able to address.

Halpern’s new team was asked if they had any bright ideas. Like good behavioural scientists, they wondered first if there might be a way of making it easier for small businesses to get a loan. If the banks were making it difficult, and the small business owners didn’t trust them anyway, what other sources of finance might be more attractive? With a particular focus on the building trade, they looked at the trusted relationships small tradesmen already had – identifying lumber yards, hardware warehouses and hire centres.

Like good commercial marketers, they also looked at the hard financial data. And they discovered that another consequence of the economic stagnation was that large businesses were sitting on record levels of cash.

They put 2 and 2 together and then made a creative leap: they proposed a scheme whereby large chains in the sectors they’d identified could provide loans to their builder customers.

As you might imagine, persuading the hardware retailers and hire shops to branch out into finance wasn’t easy. It required lots of hard work, patient negotiation and support – from helping to calculate the potential returns to simply pointing out the data the retailers held on their customers and how much of an advantage that gave them when deciding how much to loan to whom. It also required some incentives. But, ultimately, this highly creative solution was implemented.

Its success may be hard to quantify in absolute terms. Suffice to say, the scheme was used to facilitate modest amounts of finance that would have made a huge difference to the businesses in question.

But the lesson from this story is not about the success of the scheme per se. Rather, it is about the way in which it was conceived and the argument for its implementation won.

To reiterate: it took human insight – not the sort that comes from focus groups but deep, psychological insight that comes from an understanding of the scientific evidence about what makes humans tick; it took hard data – not just numbers churned out on a spreadsheet but proper analysis, mining the data for clues to help solve a particular problem; and it took creative thinking – the ability to make a lateral leap and think the previously unthinkable. Plus, of course, it took conviction, intelligence and sheer hard work. They may have been making life easier for small tradesmen, but no-one said anything about that being an easy thing to achieve.

I suspect you won’t read about this case study much elsewhere. The headline grabbing stuff is about pension enrolments, energy industry transparency, job centre processes and e-cigarettes: all worthy of your attention. But this little intervention has all the ingredients of what it takes for marketing to make a real difference.  It’s clear, it’s simple – but it’s far from easy.

Cannes Lions isn’t advertising’s best work - it’s a catwalk

It’s June and my inbox is full of invitations to drinks parties, dinners and lunches in a certain town in the South of France. Yes, Cannes is on the horizon again.

But this year I’m not going and, do you know what, I’m relieved about that. In truth it’s never really been my cup of tea (although, it has on numerous occasions, been my glass of Bandol).

My first memory of Cannes was sitting through the print awards ceremony and being stunned by the almost complete absence of any client logo on the winning entries. Later that same week, I sat in the film awards previews and the same feeling of unreality washed over me as I took in entry after entry that flouted every regulation I knew to exist in the UK market. It’s a long time ago now, but I have a lasting memory of an actual news bulletin being hijacked by a brand — the studio plunging into darkness with the newsreader mid-sentence, panic ensuing and then slowly, from the bottom left of the screen, a ticker making its way across the chaos to exhort viewers to buy a certain brand of light bulb.

Genius, in a way. But real? Not on your life.

Tom Goodwin, who is one of the sanest and most insightful commentators on our industry, has just written another superb piece for the Guardian about Cannes. His core argument is that the festival demonstrates an industry that is only interested in itself and its own opinions about itself. You should read it, but here are my three favourite quotes, which just about sum up the argument.

1. “I did something we rarely do, I spoke with members of the public about what they felt were the best ads of the day. Disturbingly, the ones they all liked, found funny and remembered, were terrible ads. They were dancing cars, talking babies, it was clear how little they knew about what was good advertising.”

2. “The one thing that binds together the more than 200 Cannes winners I’ve seen, is that they are ads only advertising people have a good chance of seeing. I’m not sure that’s what the industry should be about.”

3. “I know Cannes is not the Effies, but this doesn’t mean we should be happy to look like idiots.”

Tom’s view is it’s getting worse — and the recent obsession with clever technologies may well be to blame. As he says, how many people have ever bought a can of Coke from a drone or ripped an NFC bracelet from a press ad?

The truth is Cannes has always been about extremes and exceptions. It would not deny this. It is there, after all, to highlight the extraordinary, not the everyday.

But the problem is that it is increasingly in danger of celebrating the fake, not the real. Which isn’t to accuse any of the winning entries of not having actually run, or having been funded by a client (although at least one network agency is known to have a war chest in the region of £300.000 to fund work for Cannes). Rather, it’s to say that too many entries have run at a very low level, in such a localised way, that a cynic might think this was purely in order to qualify it for Cannes.

At the same time, Cannes continues unashamedly to propagate an anachronistic view of how advertising works. Entries in the main categories are for individual executions — making it highly lucrative for the owners but pretty much impossible for the judges to adjudicate on anything other than craft skills. Of course, everyone is aware that this is not how brands are really built, or how ideas are brought to life. Each execution matters, but this has been a multi-channel, multi-platform world for quite a long time now. To take account of the integrated world that is real marketing, Cannes offers us the opportunity to pay three (or more) times to enter multiple executions as a “campaign” within a single media channel; and, if those executions straddle media, yet another opportunity to spend hard-earned revenue by entering the Titanium Awards. It does all of this instead of restructuring its main awards to reflect industry practice. And, from a financial point of view, it’s easy to see why.

Given this, I don’t think Cannes will change. But I wonder if it isn’t time to put Cannes in its place — as a source of inspiration and provocation, rather than a celebration of the best work the industry has done for clients in the year gone by.

I’d liken it increasingly to a fashion show.

No normal people buy the haute couture designs but they nonetheless set trends and influence high street fashion. Isn’t it best to see the Cannes winners in the same light? To set them on a pedestal and challenge the industry to do more work like this, or which takes inspiration from this, with mainstream budgets in the real world. This would be a useful filter for judges too — and might lead to the weeding out of “clever-clever” ideas that aren’t scalable.

At the same time, I do think it’s time for something to take Cannes’ place as the awards which recognise the industry’s best output each year. A creative awards show that requires proof of significant distribution, usage and impact. One which looks beyond advertising and comms to the application of creative thinking across all a brand’s touchpoints. One which rewards the ideas and the work more than specific individuals or agencies. (Craft awards, of course, can still reward individuals and should do so).

There are plenty of existing awards schemes which could challenge Cannes by revamping in this way. Will any of them do so? Or will it take a new entrant? Perhaps so. I think it’s inevitable that such a scheme would attract fewer individual entries and therefore be less lucrative for the organisers. But if it were designed from scratch with this in mind, it could work.

Eventually, if the industry isn’t going to sail off completely into its own Mediterranean sunset, someone is going to have to give this a go.