Future of Sourcing - Psychology http://futureofsourcing.com/tags/psychology en Paul J. Zak: doing the math on trust http://futureofsourcing.com/node/671 <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_70.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_70.png" title="Paul J. Zak: doing the math on trust" class="colorbox" rel="gallery-node-671-VcOP__t4JzA"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_70.png?itok=Hd1nv_Sp" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Paul J. Zak is answering age-old questions about the evolutionary and scientific - actually neuroscientific - basis for identifying and establishing trust. For example, why do people trust each other in the first place? Is there a natural inclination to trust? Does location and/or ethnicity matter when it comes to trust? What does this mean for businesses and their employee relations?</p> <p>Zak is uniquely qualified in this arena: he is the founding director of the Center for Neuroeconomics Studies, which investigates the neurophysiology of economic decisions. He is also a professor of economics, psychology, and management at California&rsquo;s Claremont Graduate University.</p> <p>In a recent <em>Harvard Business Review</em> article, &#39;The Neuroscience of Trust&#39;, Zak asserts that his research has found that &ldquo;building a culture of trust is what makes a meaningful difference. Employees in high-trust organisations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies. They also suffer less chronic stress and are happier with their lives, and these factors fuel stronger performance.&rdquo;</p> <p>Business leaders understand the high stakes of trust. He cited a 2016 global CEO survey, that found that 55 percent of CEOs think that a lack of trust is a threat to their organizations&rsquo; growth. But getting from point A to point B in the trust growth continuum is the rub.</p> <p>Enter Zak. In the <em>HBR</em> article he articulates a &ldquo;science-based&rdquo; framework designed to help those CEOs deal with trust issues. His first step is to look at the science behind the framework.</p> <p>In 2001 Zak (and the economist Stephen Knack) derived a mathematical relationship between trust and performance in a paper for <em>The Economic Journal</em> (2001, vol. 111, issue 470, pages 295-321). In the <em>HBR</em> article, Zak admitted he could not answer the most basic question: why do two people trust each other? &ldquo;Experiments around the world have shown that humans are naturally inclined to trust others - but don&rsquo;t always. I hypothesised that there must be a neurologic signal that indicates when we should trust someone.&rdquo;</p> <p>He began a long-term research program to discover more about that signal. It seems that in rodents a brain chemical called oxytocin had been shown to signal that another animal was safe to approach: &ldquo;I wondered if that was the case in humans, too.&rdquo;</p> <p>To prove that trust and oxytocin were linked a series of studies were carried out in which participants had blood samples taken immediately after they had made the decision to trust someone. The experiment also allowed for increasing levels of trust. The results proved Zak&rsquo;s hypothesis, that oxytocin was linked to trust and the more trust the more oxytocin was produced. This resulted in higher levels of happiness for the participants that had chosen trust.</p> <p>The possibility that the link between trust and oxytocin being coincidental was also tested by administering synthetic oxytocin and observing how trusting the participants became, again a strong link was identified. Finally, to see if the trust and oxytocin link was evolutionary and universal, or a more recent phenomenon, similar experiments were carried out on tribes in the highlands of Papua New Guinea. The same results were found, trust created happiness across all experiments (for those with a statistical bent the correlation was very high at 0.77, a sufficient statistic).</p> <p>In the <em>HBR</em> article, Zak distilled his findings into a list of management behaviours that can help facilitate trust and gain the neurochemical benefits described in his research:</p> <ul> <li>Recognise excellence</li> <li>Induce &ldquo;challenge stress&rdquo;</li> <li>Give people discretion in how they do their work</li> <li>Enable job crafting</li> <li>Share information broadly</li> <li>Intentionally build relationships</li> <li>Facilitate whole-person growth</li> <li>Show vulnerability</li> </ul> <p>&ldquo;High-trust companies hold people accountable but without micromanaging them. They treat people like responsible adults,&rdquo; writes Zak.</p> <p>It seems a bit strange to see trust expressed as a chemical in the brain and a series of measurement equations in an <em>Economic Journal</em> article, but the result that Zak brings us to, in my view, is a Vested, collaborative and relational approach to organisational dynamics. Getting a handle on trust and how it works is a worthy exercise for any business striving to increase trust, collaboration, value and innovation throughout the organisation.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/strategy" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Strategy</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/collaboration" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Collaboration</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/behavior" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Behavior</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/psychology" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Psychology</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/transformation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Transformation</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Paul J. Zak: doing the math on trust - Future of Sourcing" addthis:url="http://futureofsourcing.com/node/671"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div> Mon, 27 Mar 2017 23:47:54 +0000 Kate Vitasek 671 at http://futureofsourcing.com http://futureofsourcing.com/node/671#comments Shrink an agile business case http://futureofsourcing.com/node/883 <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/William-Hooper-Mar-2016-oNexus-1-slider-1-624x325.jpg"><a href="http://futureofsourcing.com/sites/default/files/articles/William-Hooper-Mar-2016-oNexus-1-slider-1-624x325.jpg" title="Shrink an agile business case" class="colorbox" rel="gallery-node-883-VcOP__t4JzA"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/William-Hooper-Mar-2016-oNexus-1-slider-1-624x325.jpg?itok=v_6pYt2h" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>There is a fiction that suggests that business decisions are made on purely utilitarian grounds. Psychologists have shown convincingly that people value the avoidance of loss far more highly than capturing gains. There are many and significant implications for those seeking to implement change, particularly in an agile environment.</p> <p><strong>The Agile Manifesto</strong></p> <p>The&nbsp;<a href="http://www.agilemanifesto.org/" target="_blank">Agile Manifesto</a>&nbsp;and associated delivery methods have gathered significant traction. This makes sense for those navigating uncertain consumer attitudes. It appears quite reasonably to have been adopted most enthusiastically in consumer-facing applications such as web sites and mobile apps, where the early exposure of an approach to end-users provides rapid feedback to the development team, steering later development. Although one of the principles of the Agile Manifesto is &ldquo;Continuous attention to technical excellence and good design&rdquo; agile approaches focus deliberately on working changes delivered rather than analysis delivered as an enabler (e.g. documented design). I have therefore seen agile as more applicable to the front-end than core infrastructure. Recent experience is challenging that perception.</p> <p><strong>Agile business transformation</strong></p> <p>Business transformation is a framework for delivering new or significantly enhanced capabilities to a business. Applications include mergers, demergers, new market entry and major changes in operating model often associated with outsourcing. The delivery of such a competence involves the coordinated development of many aspects concurrently. There are many moving parts. Managing such a complex set of interactions fries brains, driving otherwise calm folk to scream and jump off high structures. This is sad as there are perfectly well established approaches to maintaining orderly progress&nbsp;(either contact <a href="http://www.samaritans.org/">http://www.samaritans.org/</a> or read <a href="http://www.oareborough.com/insights/inside-change/">http://www.oareborough.com/insights/inside-change/</a>).</p> <p>If you find yourself contemplating the transformation of your business, I would endorse the adoption of an agile approach, subject to clear thinking about what it gives and where carefully considered underpinnings are still necessary to give excellence and good design. The first of these is in the laying of foundations to ensure that the leadership are committed to a consistent and coherent view of where they seek to go. Resist the temptation to &ldquo;Just Do It&rdquo; before you share a view of what &ldquo;it&rdquo; is and where the value lies. This is where the business case comes in. Too often, stakeholders have divergent views of one or more elements. If left unresolved, this will surely come to a head at some stage. It is much cheaper to face up to this at the start before the commitment of major resources and time than it is half way through construction.</p> <p><strong>What has psychology ever done for us?</strong></p> <p>As one trained as an engineer and accountant, I am used to thinking of myself as fundamentally rational, analytical and used to choosing based on the greatest expected value. Once more, perceptions are challenged. Utility theory would make a clear statement of preference between the following options:</p> <p>&ldquo;A: 61% chance to win $520,000 or 63% chance to win $500,000<br />B: 98% chance to win $520,000 or 100% chance to win $500,000.</p> <p>If you are like most other people, you preferred the left-hand option in problem A and you preferred the right-hand option in problem B. If these were your preferences, you have committed a logical sin and violated the rules of rational choice.&rdquo; (<em>Thinking, Fast and Slow</em>, by Daniel Kahneman.)</p> <p>Daniel Kahneman established through multiple experiments that most people most of the time value certainty of gain and the avoidance of loss significantly more highly than utility would predict. Many quants, spread-sheet in hand, have emerged crest-fallen as their carefully worked-out business cases have been kicked into the grass by managers who have decided against the maximisation of expected value. Myself amongst them.</p> <p>This matters, and matters greatly. The value that is foregone by choosing under the influence of these fears directly influences economic return. This is well known by insurance companies and retailers, who regularly make irrationally high margins on extended warranties, knowing that a significant number consumers will over-price the value of the risk of product break-down. Lottery operators know that if they can seduce us with the possibility of millions, we will willingly part with far more than a rational expectation of return would suggest; over-valuing the dream. That may provide entertainment for the gullible which is mostly just harmless delusion. If it is the investment of millions on a programme or corporate direction, we should all be more concerned.</p> <p>The unscrupulous will use the dark arts of presentation to skew a decision. They will conjure vivid imagery to evoke strong emotional reactions that cloud judgement. Great if you want to win a referendum. Both sides do it.. If you see such trickery in a business case, I suggest a strong reaction (prompt approval please where I am the prophet of doom).</p> <p><strong>The implications for agile</strong></p> <p>The agile approach requires rapid experimentation and thrives on early failure. It advocates many small bets as a way of hunting for the optimal solution. If one approach does not quite work as expected, detect this quickly, work out why and refine it. This says of risk &ldquo;so what?&rdquo; There is a risk that some or even many of my attempts will fail. Risk must be accepted if progress is ever to be made. Without tolerating risk, we are doomed to failure and irrelevance: the biggest risk of all.<br />Kahneman reports additional experiments on the subject of &ldquo;framing&rdquo;. By this he means the breadth of choice evaluated. In this context a programme is a connected series of sprints. What matters is the achievement of the overall benefits as soon as possible. In business transformation as in Kahneman&rsquo;s choices, the greatest overall benefit is rarely intuitively guessed from evaluating narrowly framed choices in isolation. In a programme, some elements will be costly and have little direct end-user benefit. An example is the foundation of a building. However, the programme needs them if the edifice is to stand.</p> <p>Whilst nobody seeks failure, given enough flips of the coin, it is nigh inevitable on some occasion. For a manager transfixed by the fear of loss, this is a real problem. Should the case of each sprint be viewed in isolation, decisions skewed by over-valuing the loss are sub-optimal for the overall achievement. It is vital to be able to proceed in awareness of the risk. Whilst all would acknowledge this in theory, do the individuals follow this through into practice? The success of the programme depends upon it. Sponsors and governance groups may need to wade in to make sure it happens and that the schedule is maintained.</p> <p>The programme business case may be prepared and managed in the standard manner (see, for example,&nbsp;<em>Managing Successful Programmes, 4th Impression</em>, Axelos). It looks holistically across all the phases, through delivery and into operation. It assesses the risks in the light of the associated benefits, seeking efficiency and effectiveness but also recognising that they can only be managed down so far without losing the essence of the undertaking.</p> <p>The aspect in which I have seen the agile approach to business transformation make great sense is in aligning the many pieces of the evolving picture. At first, it can be hard to see how they can fit. Then the task of scheduling it blows the poor planner&rsquo;s mind (if they ever really attempt it). Maintaining the dependencies as projects move drives the planner to jabbering incontinence. Salvation comes in the form of the sprint. Dependency is managed at the level of the sprint: for which will it be available? Coherence is managed at the level of the sprint: does the set constitute a&nbsp;<a href="https://en.wikipedia.org/wiki/Minimum_viable_product" target="_blank">coherent viable product</a>? Benefits are managed at the level of the sprint: how does this advance the programme towards the goal and what is the increment to each outcome? I take it as read that programme costs are related to sprints too, thus giving the governance group overall visibility of programme business case performance. Some sprints will not deliver as hoped, others will exceed expectations. This way the governance body can steer development, holding the programme managers to performance against a business case that is monitored and updated for each sprint.<br />This approach does not work everywhere. I have recently managed supplier exit and service transition where contractual obligations were not designed for phased delivery. It can however usefully augment your approach tool-kit.</p> <p><strong>Lithe beauty</strong></p> <p>Competition increasingly demands speed, whilst giving no quarter on cost. The many interactions involved make for uncertainty that can be terrifying for those who know only the old ways. The agile approach to business transformation offers an approach to phased development and small bets to manage down the risk. An awareness of the psychology of risky decisions helps the crafting of the question such that the manager thinks it through accurately without irrational distraction.</p> <p>It takes effort to simplify a complex situation such that the way forward is obvious to all, and the obvious is also the best. There is beauty in simplicity. Strive for it!</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/business-process-outsourcing-bpo" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Business Process Outsourcing (BPO)</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/innovation-technology-it" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Innovation Technology (IT)</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/transformation" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Transformation</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/psychology" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Psychology</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/business-management" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Business Management</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Shrink an agile business case - Future of Sourcing" addthis:url="http://futureofsourcing.com/node/883"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Fri, 11 Mar 2016 13:56:34 +0000 William Hooper 883 at http://futureofsourcing.com Kahneman, Tversky and cognitive biases http://futureofsourcing.com/kahneman-tversky-and-cognitive-biases <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_86.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_86.png" title="Kahneman, Tversky and cognitive biases" class="colorbox" rel="gallery-node-1113-VcOP__t4JzA"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_86.png?itok=NLHCOzVa" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Nobel laureate&nbsp;<a href="http://www.princeton.edu/~kahneman/" target="_blank">Daniel Kahneman</a>, professor emeritus of Psychology at Princeton University, famed for his psychological research into economic science and behavioral economics, laid the foundation for the field of research known as cognitive biases.</p> <p>His work has been popularised recently in a TED talk, &ldquo;<a href="http://www.ted.com/talks/daniel_kahneman_the_riddle_of_experience_vs_memory.html?quote=655.html?quote=655" target="_blank">The riddle of experience vs. memory</a>&rdquo;. Kahneman and his colleague Amos Tversky (who died in 1996) challenged traditional economic theory that dates to Adam Smith: that people make rational choices based on their self-interest. Their research showed that people frequently fail to fully analyse situations where they must make complex judgments. Instead, people and organisations often make decisions using rules of thumb rather than rational analysis, and they base those decisions on factors economists traditionally don&rsquo;t consider, such as fairness, past events and aversion to loss.</p> <p>As I dug deeper into Kahneman&rsquo;s work, I was struck by just how many cognitive biases there are!&nbsp;<a href="http://en.wikipedia.org/wiki/List_of_cognitive_biases" target="_blank">The list</a>&nbsp;is literally from A-to-Z: from the &ldquo;ambiguity effect&rdquo; to &ldquo;zero risk bias.&rdquo; These &ldquo;cognitive traps&rdquo; make it virtually impossible to think clearly in our personal &ndash; and business &ndash; lives.</p> <p>Kahneman and Tversky found that people&rsquo;s decisions can be swayed by how a given situation is framed. For example, they asked people to hypothetically decide what procedure to take to cure a disease, and most preferred a procedure that saved 80 per cent of people to one that killed 20 per cent.</p> <p>While their examples are numerous and widespread, it is the business examples that interest me the most. In&nbsp;<a href="http://www.mckinsey.com/insights" target="_blank">a 2008 video interview with McKinsey</a>&nbsp;Kahneman asked, &ldquo;Are the talents of the people that surround the decision-making utilised effectively? In many cases the answer is no.&rdquo; That&rsquo;s because there is an &ldquo;enormous amount of resistance to improving the quality of the decision-making process &ndash; people feel threatened.&rdquo;</p> <p>That resonates with me. I can definitely testify that all too often businesses get stuck in a rut because they fear change &ndash; and their decisions are based on their own cognitive biases. In short, they are afraid to move forward because&nbsp;<a href="http://www.vestedway.com/" target="_blank">Vested</a>&nbsp;is different &ndash; and cling to why they need to continue doing things the same old same way they have always done them.</p> <p>Vested&rsquo;s 10 Ailments that can plague business and outsource deals come to mind. There&rsquo;s the Junkyard Dog Factor, where after a decision to outsource is made, employees hunker down and stake territorial claims to processes that &ldquo;absolutely must&rdquo; stay in house. The Zero-Sum Game occurs when companies believe that if something is good for the service provider, then it is automatically bad for them. Measurement Minutiae is another, where companies get bogged in a sea of metrics &ndash; they must measure everything that move! &ndash; most of which are not used in a meaningful way.</p> <p>The idea of cognitive biases in business also resonates with Jim Taylor, an adjunct professor at the University of San Francisco. Taylor picked up on Kahneman&rsquo;s and Tversky&rsquo;s themes last year in a&nbsp;<em>Psychology Today</em>&nbsp;article, &lsquo;<a href="http://www.psychologytoday.com/blog/the-power-prime/201305/cognitive-biases-are-bad-business" target="_blank">Cognitive Biases are Bad for Business</a>&lsquo;.</p> <p>He said their work shows that &ldquo;humans make decisions and act in ways that are anything but rational.&rdquo; Cognitive biases can be broadly placed in two categories, he continued:</p> <ul style="list-style-type:square;"> <li>Information biases that include the use of heuristics, or information-processing shortcuts, can &ldquo;produce fast and efficient, though not necessarily accurate, decisions.&rdquo;</li> <li>Ego biases include emotional motivations, such as fear, anger, or worry, and social influences such as peer pressure, the desire for acceptance, and doubt that other people can be wrong.</li> </ul> <p>When cognitive biases influence individuals, real problems can arise. But when cognitive biases impact a business, then the problems can be exponentially worse. Just think of the Edsel and the&nbsp;<a href="http://www.wired.com/gadgetlab/2010/06/four-reasons-why-microsofts-kin-phone-failed/" target="_blank">Microsoft Kin</a>.</p> <p>Taylor identified 12 cognitive biases that appear to be most harmful to business decision-making. (He noted that some of these cognitive biases were developed and empirically validated by Kahneman and Tversky.) Taylor&rsquo;s 12 biases include:</p> <ul style="list-style-type:square;"> <li>Knee-jerk bias: fast and intuitive decisions when slow and deliberate decisions are necessary.</li> <li>Occam&rsquo;s razor bias: assume the most obvious decision is the best decision.</li> <li>Silo effect: use too narrow an approach in making a decision.</li> <li>Confirmation bias: focus on information that affirms beliefs and assumptions.</li> <li>Inertia bias: think, feel, and act in ways that are familiar, comfortable, predictable, and controllable.</li> <li>Myopia bias: see and interpret the world through the narrow lens of your own experiences, baggage, beliefs, and assumptions.</li> </ul> <p>Ego biases include:</p> <ul style="list-style-type:square;"> <li>Shock-and-awe bias: belief that intellectual firepower alone is enough to make complex decisions.</li> <li>Overconfidence effect: excessive confidence in beliefs, knowledge, and abilities.</li> <li>Optimism bias: overly optimistic, overestimating favorable outcomes and underestimating unfavorable outcomes.</li> <li>Homecoming queen/king bias: act in ways that will increase acceptance, liking, and popularity.</li> <li>Force field bias: think, feel, and act in ways that reduce a perceived threat, anxiety, or fear.</li> <li>Planning fallacy: underestimate the time and costs needed to complete a task.</li> </ul> <p>Taylor sums up his article matter-of-factly. &ldquo;Clearly, cognitive biases are bad for business&hellip;(they) are most problematic because they cause business people to make bad decisions.&rdquo;</p> <p>Outsourcing decisions in today&rsquo;s volatile global economic climate are highly complex and uncertain, especially where one side or the other acts with self-interest, inflexibility and/or incomplete knowledge of the enterprise or problems. Irrational or at least ineffective behaviour &ndash; and outcomes &ndash; is almost guaranteed in those instances.</p> <p>So what can you do about cognitive biases that inflect your organisation? How often have you sat in meetings where some, or all, of those biases were on display?&nbsp; Taylor says there are ways to fight through the bias thicket.&nbsp; His tips include:</p> <ul style="list-style-type:square;"> <li>Be aware that cognitive biases exist; use your understanding of them to ask the right questions.</li> <li>Collaboration: the best way to recognise and mitigate cognitive biases.</li> <li>Turn on the cognitive bias radar.</li> <li>Establish a trusting, disciplined and consistent framework and process for making decisions.</li> </ul> <p>I agree with Taylor&rsquo;s tips. As I like to teach &ndash; don&rsquo;t be afraid to point out the elephants in the room! In fact, you might enjoy&nbsp;<a href="http://www.informationweek.com/strategic-cio/team-building-and-staffing/5-ways-to-turbocharge-innovation-/d/d-id/1112920" target="_blank">this opinion piece</a>&nbsp;I recently wrote for&nbsp;<em>Information Week</em>&nbsp;on this topic.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/behavioural-economics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Behavioural Economics</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/cognitive-bias" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Cognitive Bias</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/psychology" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Psychology</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/vested-outsourcingd" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcingd</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Kahneman, Tversky and cognitive biases - Future of Sourcing" addthis:url="http://futureofsourcing.com/kahneman-tversky-and-cognitive-biases"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Thu, 06 Feb 2014 10:41:40 +0000 Kate Vitasek 1113 at http://futureofsourcing.com http://futureofsourcing.com/kahneman-tversky-and-cognitive-biases#comments Kenneth Arrow: trust’s central role http://futureofsourcing.com/kenneth-arrow-trust%E2%80%99s-central-role <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_99.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_99.png" title="Kenneth Arrow: trust’s central role" class="colorbox" rel="gallery-node-1125-VcOP__t4JzA"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_99.png?itok=uIucIypF" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>We know that trust, ethical behaviour and collaboration go hand-in-hand in our personal and social relationships. But how widespread are those things in our business and outsourcing relationships? Obviously they should be!</p> <p>This is why I have chosen to feature&nbsp;<a href="http://www.nobelprize.org/nobel_prizes/economics/laureates/1972/arrow-autobio.html" target="_blank">Kenneth Arrow</a>, an American economist and the recipient of the Nobel Prize in Economics with John Hicks in 1972. It think it&rsquo;s time to rewind and want to share some of Arrow&rsquo;s valuable insights on the nature and value of trust and ethics in economic interactions.</p> <p>Trust is not only a nice thing to have and foster; it has, as Arrow said back in 1974, a very important pragmatic value.</p> <p>&ldquo;Trust is an important lubricant of a social system,&rdquo; he noted in a widely-disseminated quote (cited for instance in&nbsp;<a href="http://books.google.co.uk/books?id=kNSLBoJqIm8C&amp;pg=PA151&amp;lpg=PA151&amp;dq=kenneth+arrow+trust&amp;source=bl&amp;ots=t_3uGPF9nC&amp;sig=Sgkoytv3wJHCmXU-Ot_zmIdf0yY&amp;hl=en&amp;sa=X&amp;ei=xJhsULP_Aom9iwL3woDoBg&amp;redir_esc=y#v=onepage&amp;q=kenneth%20arrow%20trust&amp;f=true" target="_blank">Trust by Francis Fukuyama</a>). &ldquo;It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance upon other people&rsquo;s word.&rdquo;</p> <p>Unfortunately trust is not an easily purchased commodity: &ldquo;If you have to buy it, you already have some doubts about what you&rsquo;ve bought.&rdquo; Arrow says that trust and similar values such as loyalty and truth-telling are what an economist refers to as &ldquo;externalities.&rdquo; They have practical economic value and they increase the value of the system, &ldquo;by for example enabling you produce more goods or create more value for services.&rdquo;</p> <p>But the problem as I see it and as Arrow alludes to is that these externalities are not commodities in the traditional sense of open market trading. The confluence of markets and ethics needs special handling and consideration.</p> <p>&ldquo;The market has deficiencies of a kind for which ethics is a remedy,&rdquo; Arrow wrote in&nbsp;<a href="http://www.acton.org/pub/religion-liberty/volume-16-number-3/economy-trust" target="_blank">a 2006 article</a>, &lsquo;The Economy of Trust&rsquo;. For example, he says the world is &ldquo;filled with private information. There is inside information on products and in contracts. In these situations, there is a very strong possibility of one person using this information to take advantage of the other. If this happens frequently, a market may not exist at all because the buyers know that they don&rsquo;t know certain things, and that the sellers can exploit them.&rdquo;</p> <p>&ldquo;To get markets that work,&rdquo; he continues, &ldquo;you have to keep the other person from trying to cheat you at every moment. So morality is closely related to the workings of the market.&rdquo; Not only is morality closely related, he adds, it &ldquo;plays a functional role in the operation of the economic system.&rdquo;</p> <p>Arrow asks some pertinent (and uncomfortable) questions: &ldquo;Could it be argued that a certain amount of virtue of a basic kind &ndash; being honest, honoring contracts, providing accurate information &ndash; is required for a market to work? Is it a danger that prosperity can sometimes weaken those virtues? To become prosperous you need to be virtuous, but then does prosperity erode the foundations of virtue? I don&rsquo;t know if it&rsquo;s so much prosperity as the prospect of prosperity that&rsquo;s dangerous.&rdquo;</p> <p>These are difficult questions to answer and terms that are difficult to define, which could be a reason why as Arrow says, &ldquo;psychology is invading the whole field of behavioural economics. I believe that sociology should play more of a role in economics than it does.&rdquo;</p> <p>Very true. When was the last time you thought about the value of morals and ethics in the marketplace? Got you there, didn&rsquo;t I? Yes, they should play a functional role in our business relationships. I believe there is a shift occurring to this way of thinking, and the&nbsp;<a href="http://www.vestedway.com/">Vested</a>&nbsp;collaborative approach to business partnerships, based on social norms of trust, integrity, honesty, transparency and reciprocity puts businesses on this more righteous path.</p> <p>So how do you put all this &ldquo;trust&rdquo; and &ldquo;ethics&rdquo; in a contact?&nbsp;<a href="http://www.vestedway.com/the-vested-outsourcing-manual/" target="_blank"><em>The Vested Outsourcing Manual</em></a>&nbsp;calls for companies to create a joint Statement of Intent that includes an agreement on the behaviours that buyers and suppliers will mutually seek. This goes right into the front of the contract!</p> <p>Bottom line: I agree with Arrow &ndash; how could one not agree with a Nobel laureate? You&rsquo;ve got to start with ethics and trust as the foundational lubrication in order to have a successful collaborative business deal.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/collaboration" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Collaboration</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/ethics" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Ethics</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/morality" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Morality</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/psychology" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Psychology</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/trust" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Trust</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Kenneth Arrow: trust&amp;rsquo;s central role - Future of Sourcing" addthis:url="http://futureofsourcing.com/kenneth-arrow-trust%E2%80%99s-central-role"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Tue, 06 Nov 2012 22:49:26 +0000 Kate Vitasek 1125 at http://futureofsourcing.com http://futureofsourcing.com/kenneth-arrow-trust%E2%80%99s-central-role#comments Eric Berne: I’m OK, you’re OK (the psychology of win-win) http://futureofsourcing.com/eric-berne-i%E2%80%99m-ok-you%E2%80%99re-ok-the-psychology-of-win-win <div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_102.png"><a href="http://futureofsourcing.com/sites/default/files/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_102.png" title="Eric Berne: I’m OK, you’re OK (the psychology of win-win)" class="colorbox" rel="gallery-node-1129-VcOP__t4JzA"><img typeof="foaf:Image" src="http://futureofsourcing.com/sites/default/files/styles/juicebox_medium/public/articles/FOS%20Digital_Kate%20Vitasek_Slider%20Graphic%20%281%29%20%281%29_102.png?itok=MrvwV5t4" width="624" height="325" alt="" title="" /></a></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"> <p>Too often people and businesses are locked into either destructive I-win-you-lose relationships, or what I often call a &ldquo;ping pong&rdquo; match where you are in a so-so relationship but either don&rsquo;t know there is a better way or don&rsquo;t have the courage to get out because things are not actually&nbsp;<em>bad</em>.</p> <p>Luckily, things are changing and people are starting to wake up to the fact that win-win approaches are real &ndash; and offer real advantage and are worth the extra effort.</p> <p>I often write about John Nash&rsquo;s early work on win-win thinking &ndash; but today I want to focus on win-win from a different lens: a psychology lens. More than 50 years ago Eric Berne&rsquo;s powerful work on Transactional Analysis, social relationships and the &ldquo;games people play&rdquo; touched off an entire school of thought and analysis on how people &ndash; and by extension businesses &ndash; relate (and don&rsquo;t relate) to each other.</p> <p>Berne&rsquo;s classic&nbsp;<em>Games People Play: The Basic Handbook of Transactional Analysis</em>&nbsp;is widely recognised as the most original and influential popular psychology book of our time. It is based on two ideas: first that we have three parts (parent, adult and child) or &ldquo;ego-states&rdquo; to our personality; and secondly that these converse with one another in &ldquo;&rsquo;transactions.&rdquo; When people communicate, each exchange is a transaction. Many games &ndash; and conflicts &ndash; can result from these dynamics. Those ideas, it seems to me, are directly applicable to the unhealthy business and outsourcing relationships that often develop, as illustrated in the ten common ailments that disrupt or derail outsource deals.</p> <p>The way a company and its supplier or service provider interact will speak volumes about their long-term prospects for success.</p> <p>For example a company that insists on playing the role of a controlling parent by trying to monitor and measure everything the supplier does &ndash; an activity I call &ldquo;measurement minutiae&rdquo; as explained in Ailment 9 &ndash; will likely only result in a thick notebook of too many meaningless metrics along with extreme frustration between the parties.</p> <p>Berne says that games are ritualistic transactions or behavior patterns between individuals that can indicate hidden feelings, purposes or emotions. An example of this in the outsource world is the Activity Trap (Ailment 3): Under a transaction-based model, the service provider is paid for every transaction &ndash; whether or not it is needed. The more transactions performed, the more money for the outsource provider. The outsource provider has no incentive to reduce the number of non-value-added transactions, because a reduction of transactions would result in a reduction of revenue. Thus the transaction becomes, in Berne&rsquo;s parlance, an unneeded and burdensome ritual. Instead of collaborating through incentives, trust and flexibility for the best outcome (as in a Vested Outsourcing partnership) the company and service provider work at cross-purposes.</p> <p>It&rsquo;s time for companies to put their hidden motives and total self-interest behind them, recognising these behaviours ultimately poison relationships.</p> <p>While Berne&rsquo;s focus was primarily on human interactions, given the US Supreme Court&rsquo;s controversial ruling in Citizens United that corporations are people, linking his ideas to the business world is not all that outlandish. Whether you agree with the court&rsquo;s logic or not it strikes me that many corporations probably could benefit from a few sessions on the couch to re-think and re-vamp their mindsets regarding competition, winning and their relationships with their employees and service providers.</p> <p>Berne says the ideal life position to attain is &ldquo;I&rsquo;m OK, you&rsquo;re OK,&rdquo; which puts you in a position to satisfy your needs while being happy that others are able to satisfy their needs. So for all the naysayers of win-win out there who have not bought into Nash and his win-win thinking, pause for a minute and explore Berne and his &ldquo;I&rsquo;m OK, you&rsquo;re OK&rdquo; mind-set. Whatever you call it, I call it Vested.</p> </div></div></div><div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Tags:&nbsp;</div><div class="field-items"><div class="field-item even" rel="dc:subject"><a href="/tags/psychology" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Psychology</a></div><div class="field-item odd" rel="dc:subject"><a href="/tags/transactional-analysis" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Transactional Analysis</a></div><div class="field-item even" rel="dc:subject"><a href="/tags/vested-outsourcing" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Vested Outsourcing</a></div></div></div><div class="field field-name-field-addthis field-type-addthis field-label-hidden"><div class="field-items"><div class="field-item even"><div class="addthis_toolbox addthis_default_style " addthis:title="Eric Berne: I&amp;rsquo;m OK, you&amp;rsquo;re OK (the psychology of win-win) - Future of Sourcing" addthis:url="http://futureofsourcing.com/eric-berne-i%E2%80%99m-ok-you%E2%80%99re-ok-the-psychology-of-win-win"><a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_linkedin"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_facebook"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_twitter"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_googleplus"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_pinterest_share"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_reddit"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_email"></a> <a href="https://www.addthis.com/bookmark.php?v=300" class="addthis_button_print"></a> </div> </div></div></div><div class="field field-name-field-region field-type-taxonomy-term-reference field-label-inline clearfix"><div class="field-label">Region:&nbsp;</div><div class="field-items"><div class="field-item even"><a href="/regions/global" typeof="skos:Concept" property="rdfs:label skos:prefLabel" datatype="">Global</a></div></div></div> Tue, 12 Jun 2012 00:19:30 +0000 Kate Vitasek 1129 at http://futureofsourcing.com http://futureofsourcing.com/eric-berne-i%E2%80%99m-ok-you%E2%80%99re-ok-the-psychology-of-win-win#comments