Uncertainty can be scary – but what is even scarier is how insidious the human mind can be in the face of uncertainty. To make sense of the continuous stream of data being pelted at us from every direction, our mind creates filters so that we can survive and function.
These filters are so effective that only about five percent of the stimuli trickle through. Your mind has become your worst enemy– it only lets through information that conforms to your current beliefs and expectations. When faced with new data and important decisions, that can be really bad, deadly even.
Misinterpretation can lead to disaster.
Consider a classic example of misinterpretation at Pearl Harbor in 1941. The captain of the destroyer USS Ward had just dropped depth charges on an unidentified submarine moving into Pearl Harbor, suspected of spying. En route to port shortly thereafter, this captain heard muffled explosions and remarked to his commander, “I guess they are blasting the new road from Pearl Harbor to Honolulu.” Operating from a peacetime frame of mind, the captain mistook the muffled explosions of the first Japanese air raids for road construction. He failed to link his encounter with a suspect submarine that morning with the explosions he just heard. His mind was insufficiently prepared to interpret the signals for what they really were all about, the start of the Second World War for the U.S.
Such misinterpretation, due to looking at new data through old lenses, is quite common in business as well. Instead of challenging our assumptions, we search for information that proves our old ideas right. Unfortunately, this confirmation bias further delays us coming to terms with a new reality. Instead, we should constantly test our assumptions and actively look for disconfirming information that would prove our old ideas wrong when they are in fact wrong.
Be a better interpreter.
Vigilant leaders must always be on guard for their evil twin who wants to interpret the world in terms of past realities rather than new ones. For example, your competitor drops its prices – how do you view this and what would you do about it? Your first interpretation might be that this is a desperate act to hold market share, a futile race to the bottom that will hurt all. But have you interpreted this situation correctly? Perhaps you are basing this knee-jerk reaction on old knowledge. Here’s how you can tell:
1. Make a list of all the important things that have to be true for your interpretation to be correct. Arrange the list from assumptions that are easiest to verify information to hardest. For example:
- Your competitor’s market share has been dropping.
- Lowering price can buy market share in this business.
- The competitor cannot make money at this new price.
2. Look for disconfirming evidence starting from the top down. Finding market share data is relatively easy, but be sure to check trends within different customer segments and also consider lags or biases in the data. Next, can you find examples where price drops did not result in higher market share? Why did it not work? Finally, challenge the assumption that your rival could not make money. Did it innovate its offering in a way that reduced cost? Could it be using a lower price to generate volume for higher value parts of it business?
If you can prove any part of your interpretation wrong, you should rethink your view and response to the situation. A statue in Helsinki, honoring former Finland president J. K. Paasikivi (1870-1956), is engraved with his motto that “all wisdom starts by recognizing the facts.”
Three is the magic number.
When looking for evidence pro and con, try to find at least three sources for data about any new issue. Leonardo Da Vince believed that he would never understand a complex subject without looking at it from at least three angles (what we now call triangulation).
The Internet makes this rather easy, but don’t overlook traditional sources of information such as customers, competitors, suppliers, regulators, partners etc. If there are differences in what you find, spend some time thinking about why those discrepancies exist and if they matter. What other patterns can you see in the data?
Some organizations use scenario planning as a way to make sense of uncertainty and conflicting data. The aim of this methodology is to generate competing views about the future and use a wide lens to capture new signals from the periphery. Insights gained from this type of exploration and interpretation will not just help you avoid devastating pitfalls, but also highlight opportunities before your competitors see them as explained in our book Peripheral Vision or at our company's website.