5 Aspects That Make Our Intuition Unreliable And Inconsistent

Human Intuition or gut feeling is perceived to be reliable, accurate and that we should rely on this more to make our decisions predictions and run our businesses.  I believe that in leading and managing in business it must be a synthesis of evidence and intuition. Not everything is in the data but nor can a business be completely lead or managed by intuition.

How our intuition works and it’s limitations have been researched at length. The research clearly shows some limitation that we need to be aware in leading and managing our businesses.

1. We apply intuiton inconsistently.

Even experts have been found to be inconsistent.  It has been found that Doctors in determining how they diagnose patients those with a clearly defined model did a better job of diagnosing the new cases than humans whose knowledge was used rather than the evidence based models.  In other words their intuition varied.  Models though don’t have intuition.  So the Doctors armed with models and being able to use their intuition within that framework had a better clinical outcome.  The same is the principal in business that having the evidence or the model or framework allows us to operate business more efficiently and then applying the intuition within that framework.

2. It’s easier to make bad judgements quickly.

Our biases that we have affect us when we make decisions.  There are plenty examples of this but to use an example that was in a recent Blog post on Harvard Business Review:-  if you were to ask a group of people “is the average cost of German cars more or less than $100,000″ and then ask them to estimate the average price of German cars, they would anchor around BMW’s and other high end makes when estimating.  If ask another group the same two questions but say is the average cost of German cars more or less than $30,000 instead they will anchor around VW and give a much lower estimate.  How much lower?  Well when this study was performed it turned out around $35,000 lower on average or half the difference between the two anchor prices.  How information is presented affects what we think.  This is powerful in that it shows the short coming of our intuition but it also shows the ability that if we present our information properly to our team then we can determine the decisions that assist in determining the decision that they will make.

3. Intuition only works well in specific environments ones that provide a person with good ques and rapid feedback.

A good que is a rapid indications on what is going to happen next. Feedback from the environment is information about what worked and what didn’t. So if the environment is perfectly suited up with these rapid ques and accurate feedback  then intuition can work.  Unfortunately the environments where this is the case are few and far between.

4 It takes a long time to build intuition.

Malcolm Gladwell talks of 10,000 hours rule. This is that it takes 10000 hours of application to become expert at a particular area.  It is understood that chess players need approximately 10 years of studying competition to assemble a mental repertoire of patterns to allow them to compete at the upper level.  It is only after many years that intuition can be fine-tuned to be consistently accurate subject to the correct environment as discussed above.

5. We don’t know where our ideas come from.

There is no way for even an experienced person to know if a spontaneous idea is the result of expert intuition or of a pernicious bias.  In other words we have lousy intuition about our intuition.

These 5 reasons show the shortfall in relying on our intuition.  What are your thoughts?

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Recently I travelled to Tasmania on business and stayed at the Mid City Motel. I was there for 2 nights and the motel room itself is quite well appointed. The lady on reception was a little bit vague when I checked in.  I got up to the floor and the swipe cards that had been presented didn’t work but housekeeping were there cleaning out other rooms and let me in and were quite friendly. I went back downstairs thereafter and the check in lady (reception lady) corrected the cards.  so this point in time I’m still neither extremely happy or in no way could I say that I was unhappy.  In the room it advertised that breakfast was a buffet breakfast available in the restaurant on the ground floor.

The next day I went downstairs to the restaurant and I couldn’t see the buffet breakfast so I asked the lady present and I was told no we don’t have buffet breakfast you just order al-a-carte.  I’m thinking to myself that this is a little odd as it was contrary to the information in the room. But then it started to deteriorate from there. I was asked as to what room I was in and I stated the room 506 and she went off to her computer and came back to me and said nobody is in 506. I said well I am  and showed her the envelope with the swipe cards in it that quite clearly showed that I was in 506. She asked for my surname went off and came back and said “No, you’re not in 506 you’re actually in 603.”  I said “Well I am in 506, but obviously your computer system is saying 603.”

The upshot of the conversation was that this lady did not in any way believe that I was in 506. So that I could actually enjoy breakfast I signed the voucher as 603 and I’m thinking the poor person in 603 is going to end up with my breakfast bill, but I’ll go to reception straight after breakfast and sort it out. So after the breakfast I went to the reception and I was told by the person there that I was in room 603 despite me quite clearing saying where I was and the envelope. But they continued to disbelieve me.

The next day at breakfast again I thought “No, I’m not going to go to the motel’s breakfast service.” So I went off to a restaurant elsewhere to have breakfast, rather than argue which room I was in; so the business lost that service. Then I came to checkout, which could have been … well a tad intriguing. And once again I was told I wasn’t in 506, but 603. To which I then asked “Was there a difference in room rate?” And there was - $20 a night difference, so then an argument ensured to prove I was in 506 which after a few minutes they finally amended the bill to reflect that I was in 506 and I checked out.

The upshot of all this is that at no time did anybody that I dealt with try to actually take the situation in hand and resolve it. Customer service was not even in the consideration. The computer must be right, the customer must not have a clue as to which room he is in.

So the little thing of the sign in the room about the buffet breakfast became a big issue, because suddenly you are looking at everything.

Now I am telling the world and using the experience as an example of poor customer service. The attitude from the people was not of trying to help but rather it was “customer get away, you don’t have any idea, you are a pain”.

They did not even try to look at it from the customers perspective.

Do your frontline staff look at things from the customer’s perspective? How many clients are you annoying because of your systems and processes? How many customers are you turning away? Not because of necessarily hugely bad service, but just because of an attitude of ‘we are right, the customer is wrong’. I think lessons can be learnt from this example that in no way did they try to distinguish themselves from other accommodation in the town, but rather had the attitude of the customer is wrong. Suffice to say, I won’t stay there again and suffice to say that I’m recommending to everybody else to look at alternative accommodation.

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Many advertising agencies and the old media sales representatives will talk about the importance of brand advertising. They will produce a spiel that goes along that ‘it is necessary for a business to establish it’s brand in the market place.  They will state that brand advertising is more important than direct response marketing.

Recently there has been a survey in Australia of the most trusted brands. The top brand was Australia Post. The second was Toyota with third going to Cadbury.

To my knowledge Australia Post and Toyota do not undertake brand advertising. They are always advertising and marketing a product or service. Toyota are always marketing a car; Australia Post are always advertising and marketing one of their services.

This seems to highlight the ploy that brand advertising is actually a waste of money and small business in particular need to be careful not to get caught in the trap of doing any marketing that would just purely be focussed on brand only.

The next important aspect of this is that these brands deliver on their promise.They inform their customers what they will be getting and then deliver it, consistently. It is this delivering on what they promise is the reason why these brands are the most trusted in Australia.

Obviously the big 4 banks do a lot of TV marketing, but because the belief is because they are not delivering on their promise, they do not make it into the top 10 most trusted brands in Australia.

This survey highlights the fact that a business must be focussed :-

• on delivering on its promise, delivering on its service and product in an exceptional consistent way
• if it does any marketing and advertising at all it must always be promoting a product or service, the brand development will follow from that.

Your brand will be trust not because of advertising but because you deliver on your promise.

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Here in Australia the Federal Government has recently started a new website called My School This website provides profile information about all of the schools in Australia (government and private).

The information detailed is various educational results from National testing that all students undertake in Years 3, 5, 7, & 9. Also the final year results are also included. The results for each school are compared to the national average and to statically similar schools.

The website has created some considerable controversy. The teachers unions are unhappy. A number of the school Principal’s are also unhappy. Their arguments is that these results are not reflective of the schools performance.

I am not an expert in assessing the educational results of a school, I am just a parent with a keen interest in measurement.

The metrics may not be perfect but they are better than what we had prior : - nothing. One measure that I would like to see is to track the results of a cohort of students through the schools. This would show the impact of the school. Given we are testing each student and then compiling them, it would relatively easy to track the students results throughout their time at the school.

The focus in the pass in education has been measuring the input.  The politicians, teachers union, and schools themselves would talk about :-

• how many new teachers are employed
• class sizes
• dollars being spent nationally, state and school level.

The output though is a much more accurate reflection whether the money has been well spent. The My School website had least is moving towards measuring the output ie the educational results. So why the objections. Could it be that this start to reveal where the money is being wasted. Could it be that finally the focus on output will mean that people will be shown up.

This lesson is just as applicable to business. Be careful of measures that focus on the input. It is the output that is important. In business the output is measured by looking at what our customers think and do. Our measures must focus on what is important to the customer.

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In business today we can get tied up in our products and services that we offer. We can talk to prospective customers and current customers about the various range of products, models or services that we can provide. But people don’t buy products or services, they buy solutions. I know it’s an old adage that ‘they don’t buy the drill they buy the hole’ - ‘they don’t buy the sausage they buy the sizzle’ - so my question to you is “What problem do you solve?”

I’ve been thinking about this, with respect to my business. So I thought I’d take the opportunity to explain some of the problems that I solve.

1. Business owners are not getting the operational result i.e. profitability, cash flow, team engagement, customer engagement that they desire.

2. Wanting to get some hard numbers on the soft issues e.g. leadership customer engagement.

3. Too many meaningless numbers in the business.

4. Helping the team to understand how the business makes money; helping the team understand the mathematics of business; helping the team gain financial literacy.

So I conclude this post by again asking “What problems do you solve?”

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Social Web

The world is changing because of the internet, an obvious statement if ever one was made. What I am talking about is word of mouth has become more powerful than ever before. Numerous businesses particularly small businesses know that word of mouth is one of their best ways of garnering new clients. Unfortunately too many businesses don’t do enough to focus on this. They don’t systemise the process of ensuring that their customers do talk to others.

Presently Google is by far the most dominant search engine on the internet but it is also clear that with the advent of the rise of the various social media sites such as Facebook, Twitter etc that what we know is real time search is becoming more and more important. We know that for a large number of service providers e.g. accountants, doctors, medical specialists etc we talk to our friends and family to determine to get their recommendation on who to use. The rise of the social media sites and also a large number of review sites e.g. Tripadvisor.com etc that we are putting out to these forums and asking people for recommendation for service providers, hotels, restaurants etc.

There is no doubt the internet is driving us more and more into recommendation based searching. I have utilised Twitter to ask for people I communicate with their opinions on things on microphones, monitors and other software tools. I have utilised this advice to then search further based on some of the links that have been sent to me and it has definitely affected my purchases. The likes of Tripadvisor and other websites that are providing reviews on hotels and restaurants etc these are having a profound impact on the various service providers people are selecting.

Unfortunately businesses aren’t necessarily what are happening because of the power of the internet. They are still locked in to the traditional way of marketing themselves by talking about their product and feature and trying to put up a glossy image or front as to what they do or provide. But the bottom line is that people who have experienced your product or service are writing reviews on websites and are telling their friends in a way that is so much easier than ever.

A business must focus more on being what they want to be rather than saying what they want to be. The future in this recommendation based internet search is for businesses to recognise they must provide phenomenal service to their customers, systemise the word of mouth marketing process and then drive the recommendations through the internet to other people.

Search is changing on Google to the utilisation of these other sites to review recommendations. It’s not just simply the book reviews on Amazon, these are reviews of restaurants, motels, hotels, airlines etc real-estate agents, plumbing, electrician every service provider you can think of.

Word of mouth marketing if it wasn’t important before has just become more important with the development of the web. How are you marketing to your customers? How are you providing fantastic service? How are you systemising the work of mouth marketing process? How are you reviewing the reviews of your products and services on the internet? Get ready for the recommendation optimisation internet. Not the search engine optimisation.

Photo by tobiaseigen

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In the last post I covered the issue of the unnecessary fees and charges that are being imposed by businesses small and large. Further on this line of thinking, too often businesses are making their customers or clients go through processes which may make sense from the internal operation of the business, but in no way make sense to the customer.

Recently I had to get a washing machine serviced and also an air conditioner fixed. I had a look at a website of a particular company (a small Brisbane company) that stated that they had a division for washing machine repairs and also air conditioning repairs.

So I contacted them and mentioned that I had these repairs and I was put through to the air conditioning division, where I then spoke to a person about the air conditioner and then I said “I need to also book in somebody to come and have a look at the washing machine repair.” To which my reply was “That’s not my division, I will need to transfer you back to the main switch.”

So back to the main switch I went and it was like calling for the first time. I then got transfered to the washing machine division and I go to go through all my information again because this was the washing machine division.

I had given all my personal contact address details, phone numbers and everything to the first person, but I was asked to go through the process again because their internal operations were obviously separate and they couldn’t, in any way, merge the two. It was an unnecessary process and this just happened to me very recently so I am highlighting it. However, there are many examples that I could utilise.

We need to think of business from the customer’s perspective. We need to understand what is success as judged in the eyes of the customer; how are they experiencing our business?

It is only through a deep understanding of the customer that is both understanding of the behaviour of the customer, through observation, but also understanding the numbers that come out of dealing with our customer base. We need to understand exactly what they don’t like about our processes and redesign it to remove the unnecessary processes. The end result of unnecessary processes is customers who are not completely satisfied.

The repairs to my washing machine and air-conditioner have been completed successfully. But what is the story I am telling people - it is the story of the first contact.

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Invoice

Recently I have been noticing a rise in fees that have been added to various accounts with some amusing names (handling or processing fee). Telstra last year tried to implement a fee where you had to pay extra to pay over the counter your bill. This fortunately was removed by the public pressure.

Some banks charge you more to use the over the counter services than the electronic services. Other organisations also have fees and charges that appear on the bill and they don’t have to be the large public companies that are mentioned earlier.

These fees and charges are possibly being seen by some of the internal accountants and financial officers as ways of raising additional revenue without increasing the price of the good or the service.

But the impact from the customer point of view, far out weighs any benefit that these unnecessary fees and charges incur. It is not just the large companies that are doing this practice. Many small businesses seem to be adopting the practice but be careful.

Recently I had my car serviced and when you look through the bill there was four separate little fees, none of which exceeded $5, that were added on after the labour component and the parts component, etc. It leaves a sour taste in your mouth as a customer. The additional revenue that the business has charged adds up across all customers, but what is the impact on the customer.

Instead of the service or the experience being remembered, the little fees and charges take a bigger significance. It is always the little things in business that have a big impact and unfortunately these little fees are having a far bigger impact than  most businesses are crediting.

So have you gone down the path of imposing some little fees, service charges or levies on your clients? If so I would seriously reconsider these and just consider increasing the price and accordingly, increasing the experience the customer has.

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Sales & Marketing focus on obtaining a new customers

To often in business we focus on garnering a new client or customer. Even to the exclusion of retaining an existing customer.

The marketing and advertising dollars are focused significantly on the new customer market.

Countless studies (in Australia and internationally) show that the cost of a new customer vs. retaining an existing customer is somewhere between 6 and 20 times more expensive. Retention of our existing customers needs to be given a much higher priority that often it is in business.

The sales people are excited by the thrill of the chase, so they want to always deal with new customers. Probably a lot of businesses incentive systems for their sales people focus on new business also. Whilst in business we need to grow there needs to be a balance also in the focus on retaining new customers.

Customer retention affects business profitability.

In the insurance industry it was determined that if insurance clients could be retained one more year, that it would increase the profit by 75%. I am sure that this is the case in a lot businesses, that if customer retention can be increased, then the bottom line impact will be extremely positive.

The example that we could look at for this is the motor vehicle industry. Lexus put a extraordinary amount of effort in to retaining their current customers and internationally they have by far the highest repurchase rate of any vehicle. This is superior to any of the European marquees; Mercedes Benz, BMW, etc and also to the other brands within the Toyota stable as well. It is through the focus of the after sales service that Lexus has been able to have such a high retention rate.

This means that Lexus gets greater revenue during the lifetime of that relationship with the customer and also gains greater new sales from the customer.

The Rate of Customer Churn must be reduced.

So how do we address the churn rate; and that is firstly focussing on the after sales service. It is also focussing on how to constantly maintain contact and impress the customer to ensure that they keep coming back.

Lexus know exactly what a customer is worth to them during the lifetime and what it costs to obtain a new customer vs. selling another product to their existing customer base.

• Do you know in your business what the churn is costing you?
• Do you know what the lifetime value of a customer is?
• Do you know what is the average length of time a customer deals with you?

These are important numbers because a small improvement will lead to a large improvement in the bottom line.

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George Gilder has written extensively about entrepreneurism. Recently I read a piece by George where he called ‘profit an index of altruism’.

Often profit unfortunately in our society is automatically associated with greed. There is no doubt that there has been (unfortunately) cases of excessive profits and greed that has been espoused by some sectors of the business community.

This should not mean that profit gets a bad name as a result. It would be crazy to replace a flawed system with a failed system. The profit motive may be a flawed system but everything else are failed systems.

Profit is what is necessary to feed the spirit of entrepreneurism the world over.  It is only through small-medium businesses that are willing to a risk and to explore the mysteries of business that society as a whole is better off.

It is only through the profit motive that inspires entrepreneurs to have a go that employment increases, general welfare of our society increases and  we as consumers are served with better products and services for our enjoyment.

Altruism is considered to be inspired by something other than profit. But as George Gilder states profit is an index of altruism. Through profit society is better off.

Profit is good - don’t demonize it. Profit motivates positive society change benefiting all. We must be careful of regulation that would in any way stifle the entrepreneurial spirit that will lead to a better world for all.

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