Companies are consistently looking for new ways to grow. Every organization is trying to discover new innovations which will catapult revenue, and build a bigger gap between them and the competition. However, many of these organization’s leaders are making business decisions they can defend, rather than what will truly make an impact.
It’s driven by a fundamental psychological bias we all face – loss aversion. Loss aversion is the tendency to prefer avoiding losses to acquiring equivalent gains. Loss aversion implies that one who loses $100 will lose more satisfaction than another person will gain satisfaction from a $100 windfall.
The problem is, this bias causes leaders to err on the side of caution rather than an opportunity. A new, revolutionary idea may be viewed as too far afield from the current norms or internal culture, and therefore dismissed. Or a leader may worry that if the idea fails or is perceived as a failure, it will be their job. So in order to cover our asses, we default to the safe, familiar, and frequently unimpactful decisions. The outcome is neither here nor there – as long as the decision can be justified.
We all understand there is a practicality to measuring and managing risk, however, as leaders, we need to examine the opportunity cost of not doing something, as well as the cost of doing it. Instead of examining an idea with a balance sheet perspective, we need to look at it through a customer behavior perspective. Yet before this can happen, we need to examine our own leadership mentality and eliminate our own blame avoidance behaviors.
The most common behaviors of leaders in a “blame avoidance mindset” include:
- Doing what you can defend, rather than what works
- Making decisions least likely to cause personal negative impacts
- Relying solely on customers to tell you exactly what they want/need
- Focusing on only things you can measure
- Focusing on reducing risk instead of creating opportunity
What leaders often unconsciously care about is what other people think about our decisions, rather than the quality or outcome of the decision. While making decisions out of habit is the safe route, it causes us to reduce our tolerance and openness to new ideas, perspectives, and real growth opportunities. It causes us to overlook the very thing we are seeking – new ideas.
Leadership needs a new mindset – taking the path less traveled. Sometimes that path is unclear, unknown, and feels unsafe. But it’s taking that risk which separates those that uncover true innovation and those that continue to follow and regurgitate the things that have already been done.
About the Author
Andrea Olson is a speaker, author, behavioral economics, and customer-centricity expert. As the CEO of Pragmadik, she helps organizations of all sizes, from small businesses to Fortune 500, and has served as an outside consultant for EY and McKinsey. Andrea is the author of The Customer Mission: Why it’s time to cut the $*&% and get back to the business of understanding customers and No Disruptions: The future for mid-market manufacturing.
She is a 4-time ADDY® award winner and host of the popular Customer Mission podcast. Her thoughts have been featured in news sources such as Chief Executive Magazine, Entrepreneur Magazine, The Financial Brand, Industry Week, and more. Andrea is a sought-after keynote speaker at conferences and corporate events throughout the world. She is a visiting lecturer at the University of Iowa’s Tippie College of Business, a TEDx presenter and TEDx speaker coach. She is also a mentor at the University of Iowa Venture School.