When it comes to setting strategy, which is more effective: one great thinker or a wise crowd?
To find out, I turned to my ongoing Top Pricer Tournament, in which 884 people — managers, consultants, professors, students — make pricing strategy decisions for a generic business competing against other generic businesses. The decision options available to each person work out to 14,739 possible strategies in each of three generic industries.
About half of the 884 strategies entered in each industry were chosen by two or more people; some were picked by two dozen. We’ll call these the popular strategies. The other half were chosen by only one person. They are the loner strategies.
If the wisdom of crowds applies to strategic thinking, popular strategies should outperform the loners. If it doesn’t, the loners should outperform the crowd.
You and Your Team Series
I ran a billion simulations and saw that the crowds’ strategies worked pretty well. In general, the more people who chose a strategy, the better the strategy performed. (The largest crowds, though, rated about average.) The simulations also showed that loner strategies usually performed below the crowds’ popular strategies.
But the strategies that performed the very best were also loners.
If you want to outperform the crowd, you’ve got to do something the crowd isn’t doing. That means learning two key skills:
- To do something the crowd isn’t doing, you must think something the crowd isn’t thinking. You can generate ideas by broadening your decision frame.
- No one proposes a strategy thinking it will fail, so you must be able to tell the difference between good and bad loner strategies. You can evaluate those ideas by embracing critical thinking.
Broadening the Frame
I conducted a business war game for a company in the food industry. We had teams for their business, competitors, customers, and government regulators. I asked each team to list key changes they might make over the next few years, and then I calculated the number of possible scenarios. In 15 minutes they’d identified 3.9 million scenarios. That quashed the idea that they could plan for a definitive future.
We narrow our decision-making frame when we believe we know what the future will look like. We implicitly assert that everything is locked in except for what we will do, and so we ask this simple, efficient question: “What should we do?”
Should asks people to spot and advocate the one right decision. It treats decision making as a debate. It drives toward closure. We need should, but not when we first address a decision.
We broaden our decision-making frame when we consider multiple futures, with shifts and disruptions in our environment interacting with shifts and disruptions we can introduce. We ask this illuminating question: “What could we do?”
Could lets one idea stimulate another. It asks what if, what else, and why not. It’s energizing and educational. For example:
- Imagine it’s the future and you’re saying “I wish we’d thought about X.” What is X?
- Ask what would be the equivalent in your industry of something that’s working well in another
- Ask what you’d do if you were entrepreneurs preparing to enter your market de novo
- Ask what you’re afraid your competitors might do
- Notice your favorite metaphor for business: chess, war, making deals, doing good, enriching shareholders, satisfying customers. Switch to another.
- Apply humor — it opens up the brain. In my workshops I ask people to create as many ideas as they can to prevent a bathtub from overflowing. My favorite: Call the water company and tell them you won’t pay your bill.
Embracing Critical Thinking
A petrochemicals company planned to disrupt a century-old distribution channel. Their plan passed every internal review. My colleagues and I ran some simulations as their final check.
They quickly discovered competitors would have no choice but to emulate the disruption. Their loner strategy would attract a crowd. That, we calculated, meant the disruption would cause cash to gush out, not in, relative to the status quo. They abandoned the plan.
How did the plan get so far? The company didn’t have a death wish, and its strategists weren’t deficient. The problem was that their strategy development and internal reviews, like those in many companies, didn’t account for competitive dynamics.
Strategy development and internal reviews often focus on precedents, trends, and due diligence. They implicitly address “what will happen.” Unfortunately, what will happen is susceptible to cognitive and analytic biases.
Just as we broadened should with could, we can challenge “what will happen” with “what may happen.” How?
- Role-play other parties. “If I were a key competitor or typical customer or government regulator…”
- Have people take turns as designated contrarians
- Listen for assumptions in the way a strategy is supposed to work, and question them as Murphy’s Law incarnate. What could go wrong? How badly will it hurt?
- Learn about and watch out for confirmation bias, overconfidence, survivor bias, and groupthink
- Forecast your competitors’ results as well as your own. What will they do if those forecasts come true?
- Beware of missing pieces in the tools you use. Financial analysis isn’t designed for non-financial factors such as competitive dynamics and customer loyalty. Extrapolating trend lines into the future assumes the future will look like the past.
It’s not bad, wrong, or lazy to pick a popular, crowd-approved strategy. Those strategies are good, safe bets, and there’s a reason most loner strategies are so lonely. On the other hand, you can build your skill at developing good loner strategies if you can improve your ability to think strategically. With skills, processes, and tools to generate and evaluate ideas, you can spot risks worth taking.