Business strategy: we accept ignorance of intuition and deceive ourselves

I was prompted to write this column here this picture, which I saw in Facebook:

I immediately decided to see who it took so flippantly talk about strategy? Page was filled with a sweet nonsense, so join the battle in the comments I got sick. Nevertheless, this picture - a perfect illustration of common misconceptions, which I - inquisitive man - wanted to understand.

Intuition gives failures, its use is detrimental to business

Widely believed that intuition - is a magical property rights, which allows him to get answers to complex questions instantly. Some even consider intuition as a spiritual concept. According to them, the man with the help of intuition receives responses directly from God, the universe, aliens, - in a word, by a higher intelligence. It is very convenient conviction that solving a complex problem, a lot easier to trust intuition, than to engage in lengthy calculations or bother myself painful arguments with the more hateful schooldays.

Intuition - a handy tool, but you need to be able to use it correctly.

When a person is faced with problemIt automatically searches the memory-box solution and, if found, are too lazy to think about an alternative. We do not need to think intensely, how to get the food out of the refrigerator as comfortable to sit on a chair, or what would happen if touch the red-hot iron: we found these solutions as a child and use the results of previously acquired experience.

Cognitive psychologists call this kind of thinking the first system and the brain, when we seriously analyze something - second. It turns out that, for the first time faced with the task, we use a second system, and when she will understand with puzzles, the solution is stored in memory, and we turn to the use of the first system of thought.

Anyone who has studied driveKnows how hard it is at first one foot clutch, then you push the other foot on the gas, then the brake: the main thing - do not mix, left hand turns the steering wheel, the right - shifts gears, it is necessary to monitor the traffic situation, signs, remember the rules of the road. Nightmare for the second system. But just a year or two, we do it at the same time talking on the phone or listening to music, because that has been operating for the first system.

This example illustrates the main feature of the first system: it gives solutions instantly and effortlessly, so we love to use it. But here is not without faults.

First, this phenomenon began to study Daniel Kahneman (Daniel Kahneman) and Amos Tversky (Amos Tversky). At the Congress of Mathematicians in Jerusalem, they wondered how well people have developed a statistical intuition. After testing their colleagues, specialists in mathematical statistics, they were shocked by the results: even professors Mathematics with many years of experience in the easy wrong answers to simple questions in cases where the answer without hesitation, intuitively.

In contrast, for example, the language of intuition, the ability to speak in their native language without learning its rules, the statistical people intuition is not inherent.

Since then, psychologists have seriously engaged in studying the question of why the first system of thought brings us. It turned out that such failures are many and we are confronted with them every day.

Here is an example familiar to every leader. Today decided to develop business plans? Graduates of business schools by examining courses Financial planning, statistics, corporate finance and other important subjects, as a rule, do not apply this knowledge in practice. Instead they use in forecasting the performance of previous periods, their growth rate, intuitive thinking about the next way: 5% growth - it's safe, but for such forecasts do not praise you, and may even expel, 20% - aggressive, but there is the prospect of advancement service. At the same time the real situation in business, market conditions, new growth points are not taken into account!

The problem with this logic is that it excludes the possibility of a fundamental change in the business model, and, therefore, significant business growth. It is much easier to continue to do that and so it turns out. There are times when the market conditions change so that the figure of 5% is considered to be very optimistic. But the manager is not spending enough analysis, promises to guide and + 10% He loses his jobWithout reaching the promised performance.

Here is a recent example. This year I had a very difficult discussion with a number of Allbiz sales executives. We were just discussing the change of system of sales, which was caused by a qualitative leap in the development of the product. And then it turned out that goalsThat we set ourselves, look unrealistic in the eyes of some leaders. To my question why these goals seem unrealistic, followed by the "iron" the answer: "We have never reached such indicators do not." In their view, + 5%, we can try to do a + 100% - not possible.

Now remember this episode funny because some offices in July reached a performance to be obtained only by 2017. We all were wrong then, relying on intuition. The main argument on my part in the discussion was simple: "We therefore want to change the sales system, we need a qualitative leap. Why do we discuss the changes in sales of the system, if we do not plan to increase the quality of its effectiveness? "

Intuitive sense of numbers - a dangerous thing.

Why consider the amount of deductions is more important than customer churn

Here is another example, but the first thought for a moment, whether it is a lot, 10%?

We are very closely monitoring the outflow of customers at the end of the first contract. Alas, this is a very big figure: last year its first contract not to renew 85% of customers. The reason for such a high churn clear: the sellers promise something remarkable, for which he received an advance payment. But when customers are faced with the reality and realize that they need to engage in self listing quality and transformation in Lida clientAre willing to pay - many are disappointed. It is interesting that those who extend the contract, remain with us, as a rule, for all, learn how to effectively use our system.

I wonder something else: the financiers, looking at these numbers, were shocked by such a high outflow. Moreover, for the year this figure, according to them, has improved insignificantly, falling to 75%, in fact on those 10%. Curiously, the income figures from repeat customers rose sharply. How is it that a small change in the outflow yielded a significant increase in income?

We count the same performance in terms of retention. A year ago, we held 15% of first-years (100% - 85%), now this figure has risen to 25%. This difference is more sensitive to our intuition, is not it? Now, let's divide the 25% to 15% (feel like a lazy joined your other system and how tedious to understand these numbers?). Doing these calculations, we get a growth rate of + 67%: it is on so much changed revenues from repeat customers!

The question arises: what better take into account the churn, or the amount of the deductions? outflow index characterizes lost income, we can get if more work on hold. retention rate also demonstrates the level of our revenue growth. However, whether the fact the we could get those lost revenues, which are characterized by the outflow? I doubt it.

Collect and analyze data. Do not be lazy!

If we analyze the reasons for which the customer goes away and does not return to the site, then a lot of them. Some of the deceased does not have an established sales process in their company, and therefore the applications received and calls remain untreated. Someone there is an established system of evaluation of call-tracking, resulting in the client does not know where the call came a potential buyer, and considers the work at the site all.biz ineffective. Some companies simply changed the manager, who did not want to delve into the situation. I do not think we could keep such customers, it is a natural outflow. By the way, many of them come to us again when the internal processes established.

I think it is much more useful to analyze the retention of which is directly related to income, with it is important to look at the growth rates of retention: If retention is at a level of 2%, there are those businesses, the growth of 2% - a doubling, although our intuition 2% - negligible value. Will you stand in line for discounts of 2%? I doubt it.

How to avoid mistakes? Do not be lazy to include a second system when making important strategic objectives. You need to have real courage to say, "Stop, and why we think that this is the case," - even if the question is going to work as a stop-cock flying at an enormous speed of the train.

We often call the intuitive decisions that are taken without hesitation, and it is, of course, not intuition, but simply our laziness once again to think.

Many will say that in the offline business data for analysis is much smaller, so many solutions We have to make intuitive. However, there are many entry points for analysis. Here are some of them: the dynamics of purchases, brand awareness, image parameters, changing consumer preferences. Moreover, modern technologies dramatically reduce the cost of such studies and improve their accuracy, you just need to not be lazy to collect and analyze data.

For example, many advertisers of FMCG advertising budget is calculated on the basis of an acceptable level cost structure and its profitability, which is logical, but the targets for the growth of image parameters "draw" intuitively. In fact, simple econometric model makes it easy to relate to advertising costs and changes in, for example, spontaneous brand awareness. This model is quite accurately predicts what goals are realistic for the growth of knowledge, which - ambitious, and what - is absurd. More than ten years ago, during my time at Starcom, we successfully calculated such models for demanding customers.

So, we admit to ourselves that our intuition is cheating and it can not be trusted serious solutions. You need not be lazy to ask himself: "Why am I made this decision and I have used all the available data?"

I think after reading this article, some are outraged, why do I call the first system of intuitive thinking. In fact, I think not only me. We all often call intuitive decisions that are taken without hesitation, and it is, of course, not intuition, but simply our laziness once again to think. But, of course, there is another order of intuition, the one that reveals the mysteries and helps make breakthroughs. But this is the subject of a separate article.