Navigating the Hurdles of Rationality
Let’s talk about rationality – that concept we all agree is generally a good thing. Thanks to technology and analytics, we’ve got tools like GPS making our lives simpler and less stressful. But, as with most things, rationality comes with its set of challenges that we can’t just overlook.
Now, can we solve these challenges with just rational thought?
It’s a bit like Steve Jobs said, “Because the people who are crazy enough to think they can change the world are the ones who do.”
But then again, Thomas Edison adds a dose of reality with, “A vision without execution is hallucination.”
Rationality and analytics can be invaluable when it comes to making decisions based on models, probability, risk, and numbers. Take our firm’s analytics, for instance – it’s been a game-changer, helping clients focus on the 20% of customers or products driving 80% of their sales. Sports managing, betting and coaching decisions, too, have seen significant improvement with better analytics.
But let’s not forget the magic of intuition, creativity, passion, and out-of-the-box thinking. The fast, experiential vibe of these elements considers factors that analysis often misses. They’re almost essential for dealing with change, uncertainty, and creativity, like in supply chain management.
George Bernard Shaw said it best, “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”
When we throw in a curveball like COVID, and rationality gets trickier. Forecasting for 2020 became a special event, shaking up models for everything from workers going back to the office, students going back to the classroom, airline passenger growth, business meetings, to apparel and entertainment trends.
When you’re dealing with complex goals, things can get a bit tricky. One common challenge is figuring out how to balance growth and profit. Lately, venture capital firms have been switching gears, putting more emphasis on profit to get better returns. Then there’s higher interest rates, inflation, and moderation in the growth of technology. In addition, there’s juggling issues like supply chain hiccups, managing teams, dealing with the ever-shifting political scene, and other surprise curveballs. Take, for example, the rise in retail store theft, which has become a critical factor that’s impacting how both individual stores and big chains perform.
Do we have the information to be rational? Assumptions, demographics, time periods – they all play a role. Our perceptions can be deceiving, too. Sample surveys versus actuals show us that what we think might be rational can be way off.
Rational thought must be carefully reviewed for bias. Bias is a tricky player in the rationality game. Right-brain and left-brain thinking are different beasts, and biases are often just human. Our recent experiences can color our decisions, and analysts love their formulas, but most bias is just plain human.
Testing, measurement, and examining alternatives can improve rational analysis. How do we make rational thought work? Test, measure, and explore alternatives. Plans often fall flat because they’re too one-dimensional for our complex world. For example, branding, marketing, pricing and operations must all be viewed as an integrated program rather than separate and isolated activities.
Understanding your data can significantly improve the validity of analysis. Before getting started, be sure to understand your data. Demographics matter – the Southwest is a whole different ball game from the Northeast.
Define your parameters as well. Who’s your audience? With 330 million people in the U.S., about 40% are over 65 or under 18. 164 million are in the labor force, 30% are black and Hispanic and around 50% of most age groups are men. These totals vary considerably by region, age, and ethnic background.
Be sure not to overlook the key elements of success – operations, customer service, and logistics are just as vital as the traditional functions.
Remember that sometimes analytics can trip over its own feet. Daniel Kahneman, Olivier Simony, and Cass Sunstein, in their book Noise, point out that it can miss key metrics like mood, bias, mental state, and the like, can alter judicial decisions. Variables like hunger, how well-rested we are and personal preferences can all affect decisions. As a personal example, I’m diabetic and regular meals is a critical aspect of my lifestyle to avoid excess stress, mood swings, depression and anger.
Rationality can add complexity to simple solutions. Simplify where you can. Predicting the stock market is made overly complex while simple factors may do better, and key players matter more in sports than we often think.
Focus on factors that most affect your decisions so you can understand them and estimate factors that are not as significant. For example, look at aggregate costs and administrative expenses rather than trying to forecast small items like telephone, utility, and insurance costs.
Risk requires more personal factors be considered more than many rational models. Retirement recommendations based solely on drawing down assets might not cut it in our world of growth, low interest rates, and low inflation.
Confidence and emotion alter analytical solutions Nike’s “just do it” mantra and Sheryl Sandberg’s “What would you do if you weren’t afraid?” both speak to the power of emotion in decision-making. We often avoid actions due to fear or public perception rather than assessing potential success.
A lot of the push for giving out “participation prizes” is about making activities less stressful and competitive. On the flip side, watching kids take their first steps or ride a bike is extra special because of the joy they feel in their own success. Our feelings – whether it’s passion, dislike, or bias – really shape how we think, especially in things like love, sports, and just having fun. Sometimes, our perceptions and habits lead us to believe things that aren’t true.
Recently, scientists have been looking into how we make choices and have found that we often play it safe, avoid shaking things up, and stick to what’s comfortable.
More so, our emotions and actions are also influenced by the timing of things. When there’s a big tragedy, like a terror attack, bad weather, or war, there’s this immediate call for action and commitment. But as time passes, the costs and tradeoffs start piling up, and that sense of urgency fades away.
Rationality can be expanded to be more effective. How do we amp up rationality? Be open, embrace change, and be willing to improve and accept outside advice. Organizations need to share, understand, and observe their data. And in the end, let’s maximize rational thought but keep our eyes wide open to alternatives, assumptions, and limitations. After all, more analytics can generally be useful for small businesses, but it’s crucial that the foundation is solid.
Dr. Bert Shlensky, President of www.startupconnection.net, offers experience, skills, and a team devoted to developing and executing winning strategies. Our strategy includes clear steps, and over 150 free articles and templates to facilitate your efforts and guide your process. We’re here to help you get on track and stay there as you move forward. You might start with our quick video.
We welcome comments, suggestions, and questions. You can write us at: bshlensky@startupconnection.net or call at 914-632-6977
