Thinking Slow – Thinking Strategically

Early in my career I was working with an oilfield services company and sat in on a new product launch presentation. The product eliminated scale from oil pipes and was a brilliant invention. Scale can build up in oil pipe choking off oil and the only solution at the time was to replace the pipe at great expense. Customers were desperate for a solution. Competitors had developed high pressure water systems but they were unsuccessful due to pressure changes downhole. Chemical companies introduced scale removing compounds but they damaged the oil reservoir defeating their purpose. Elsewhere a sandblasting unit was introduced which removed scale so efficiently that it damaged the oil pipe meaning the pipe had to be replaced anyway. Customers were at their wit's end, replacing miles of scaled pipe each year.

The presenters proudly showed how the R&D department had discovered a special bead that worked like a sand blaster removing the scale without damage to the pipe. They even passed around a sample showing that not only did the product remove all the scale but it left the pipe intact. Even the polyurethane coating inside the pipe was undamaged leaving the pipe looking like it was new again. Customers were screaming for a product like this and the presentation focused on how sales were projected to go through the roof. Confidence was high and the decision was made to launch the product worldwide with great fanfare. A year later the product was withdrawn from the market…a total flop.

In his book Think Fast and Slow, author Daniel Kahneman highlights how our brains can sometimes lead us in the wrong direction. Most of our daily decisions require us to think fast and make quick decisions.  What to order for lunch, how much new product to order for inventory, do I change lanes to avoid traffic, can we source from a new supplier, etc. However, when it comes to strategy it’s important to "think slow". Thinking slow means thinking in probabilities, being objective with your decisions and transparent in your reasoning. Thinking this way isn't something we often practice nor are we wired to do so. Indeed, people who "think slow" are often criticized by peers for not being decisive when, really, they are weighing the options. Some people are better at thinking slow than others but everyone (that includes you and me) suffers from over-confidence bias – something our oilfield service company exhibited as they launched their product.

When making strategic business decisions – these are big decision with lots on the line and where getting it wrong can have significant consequences - Kahneman tells us it's here we need to think slow and consider three types of information:

1. The Outside View: this is information based off similar events and how customers and competitors might react based on past behaviours.

2. The Inside View: this is information based on specific facts about your current situation - your current strengths and weaknesses.

3. The Relative Weight of each on the upcoming decision or event.

When it comes to developing a business strategy we tend to put too much weight on the inside view – believing in our own magic. We all suffer from confirmation bias which inclines us to ignore evidence that is contradictory to our beliefs. This is what our oilfield services company suffered from – ignoring outside information which could have led them to make better decisions. They lost their objectivity. If they had considered an outside view, they would have seen that each geographical area presented a slightly different challenge for their service equipment. There was no reason to believe it would be any different for their scale-removing equipment. These challenges could have been easily overcome a few at a time but trying to launch everywhere all at once overwhelmed their technical department leading to project delays and frustrated customers.

The best way to avoid confirmation bias is to follow a process. A strategic planning process helps you apply the discipline needed to think in probabilities (think slow) and avoid confirmation bias by forcing you to consider the outside view. The Six Pillars of Strategy  guides you to use the tools of strategy to give you the opportunity to step back and objectively consider all the possibilities and probabilities.

In the oil fields the technical updates needed for each region were slow to arrive and customers became frustrated, sales teams lost faith in the product and it didn’t take long for word to get out that the product didn't work as promised. In the end salespeople refused to sell the product wanting to limit damage to their reputations with their customers.

Strategy is a discipline that requires "slow" thinking. It's about thinking in probabilities and tilting the odds in your favour so you win more times than you lose. This is why the Six Pillars of Strategy is so important as it forces you to think slow and consider both the outside and inside view. Objectivity, transparency and thinking in probabilities are paramount when working with your team on your strategic plan.  Keep this in mind as you work with your team on your strategy this fall. And remember when making big decisions….think slow!