When Apple introduced the smartwatch in 2015, it broke new ground in technology, health, and fashion. The company’s successes with the smartwatch and other products can be directly attributed to its leaders’ willingness to challenge mental models and their willingness to combine formerly disparate pieces, technology, health and fashion into a single integrated experience.

This type of innovative thinking is not the norm. According to statistics, only 12% of Fortune 500 firms in 1955 were still on the list in 2016. (1) The fact that 9 out of 10 companies have gone bankrupt, been absorbed, or lost significant revenue is a sign of market disruption.

To remain successful in today’s dynamic environment, an organization needs to embrace disruptive thinking and do away with existing mental models.

What are mental models?

Essentially, mental models are the preconceptions that drive thinking.

Phillip Johnson-Laird defines the term in his book, Mental Models.

“People’s views of the world, of themselves, of their own capabilities, and of the tasks that they are asked to perform, or topics they are asked to learn, depend heavily on the conceptualizations that they bring to the task.”

These preconceived attitudes and ideas make it difficult to embrace disruptive thinking that could lead to true transformation.

Is there a disconnect in thinking between business leaders and their consumers?

The greatest issue with mental models is that businesses underestimate the threat from new competitors outside their own industry. As many as 80% of established business leaders believe that their biggest competition remains with traditional providers in their existing markets. However, surveys indicate that 26% of banking clients and 33% of telecommunications customers would consider switching to a new, more innovative company. (2)

What’s needed for business growth is an entirely new approach, in other words, a new definition of current mental models so that there is no disconnect between business leaders and their fast changing consumers.

Where are mental models in product management failing today for established businesses?

  1. Feedback and Data Limitations

Even a company that has been iterating their product based on customer feedback and research will reach a point where you just can’t make the product any better. Iterating incrementally based on customer research for innovation sets established business to fall behind.

Although retailer Toys R Us was incrementally innovating its products based on customer feedback and research, the company ended up going bankrupt as it held tight to its past mental models as Amazon and the gaming industry changed their landscape from right underneath their feet.

“Amazon changed customers’ expectations about convenience, particularly millennial parents who were a prime segment for Toys R Us” –  Barbara Kahn, Author,  The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption.

As a result and given today’s accelerating rate of change and disruption, established businesses need to focus on radical vs incremental innovation to survive. Customers, especially today, have a hard time with the future and will find it challenging to tell clearly what could become. Horse carriage riders couldn’t give feedback for the possibilities with a car (Henry Ford); research on Walkman users could not have delivered the iPod (Steve Jobs/Apple).

  1. The Limits of Growth KPIs

Teams often choose KPIs based on the positive outcomes they hope for, without considering whether or not their “success” is hurting the company in other ways. For example, growth KPIs don’t take into account the unintended effects of engagement and trust over time.

Consider how Facebook only focused on the growth KPIs in one category and didn’t take into account how “breaking things” might erode the trust they had built with the public and stunt their ability to grow into innovative future business categories. While they were growing rapidly and breaking things and many applauded them, the consequences to their future on their singular focus on growth were stacking up against them.

These problems have made themselves apparent as Facebook struggles to push new innovative initiatives and ventures like Calibra and fights to build back trust and engagement in their Facebook product. “As I have examined Facebook’s various problems, I have come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project.”  – California Rep. Maxine Waters

  1. Not Accounting for the Full Customer Experience

When designing a product, companies move forward with an eye to the in-product experience but fail to account for the customer experience before and after purchase. Leaders should also consider the methods used to acquire customers and how to set their expectations for what they will receive. Even more important may be the customer support experience after their purchase.

Although many companies may focus on creating great products, they lose focus on the full experience and place themselves at risk of losing their most valued customers. Surveys show that 86% of customers would continue to do business with a company if they felt an emotional connection with a customer service agent. Unfortunately, only 30% felt that they had made that connection with a company they interacted within the past year. (3)

Why do established business leaders continue to resist changing their mental models when companies like Amazon move forward and take control?

A change in mental models implies unknown risks and unknown demands on resources and capital allocation. Established business leaders are risk averse and conservative choosing the comfort of “following the herd” rather than leading.

As a result, these leaders risk being on the conservative end of risk averse and “following the herd” in hype cycles makes them feel “safe” and quiets their “fear of missing out”. This can dramatically increase the chances of being disrupted and over-investing in hype cycle trends, resulting in a loss of significant capital and getting distracted from key changes and foundations needed to keep a company competitive in the long term.

  1. Failure on the Part of Media Companies

Large media companies like Disney and NBC have made investments in innovative companies so that they can gain some technological momentum as their audience shifts to digital media.

However, this year, there have been thousands of layoffs at digital-media companies as ad dollars failed to follow the time spent by audiences. Successful operations such as BuzzFeed have failed to produce as expected and Disney has acknowledged that their $400m investment in Vice has become insignificant and basically a write off. (4)

Business leaders taking confidence in “following the herd” during hype cycles and losing sight of the fundamentals often end up getting whacked on the other side of the curve.

On the other hand, Amazon looks to be moving strategically and winning in seemingly unrelated categories moving through hype cycles without getting caught up in traditional technology hype-cycle catching playbook of many legacy company leaders. Consider that Amazon started out by selling books under the business name “Cadabra” in 1994 and has now expanded to include a complex network of businesses across multiple industries.

  1. Failures Among Auto Companies

Business leaders  also can exhibit sedentary confidence and continue to believe that if they can do what they are currently doing better, things will improve. In other words, higher quality or more focus on doing things as they know it will result from fewer errors.  However, the mental models that govern the “old way of doing things” are getting replaced by new, innovative ways of thinking. “Doing it better” is still a loser’s game.

For example, despite an obsession with Quality Assurance, handling QA according to the established processes has not kept auto companies from having quality issues.

According to the Japanese government, Mazda, Suzuki, Yamaha, Subaru, and Nissan all improperly tested vehicles for fuel economy and emissions. (5) While not technically breaking any laws, these failures tarnished the reputation that Japan held for high-quality automobiles.

Amazon has proven that you can reinvent things continually rather than just “doing them better.” Consider shipping. Amazon did “improve” upon shipping times, moving from five days to two days, and now delivering the same day in some areas. Yet, they’ve also reinvented the whole idea of shipping with the use of drones and pick-up lockers.

“If you have a really good idea, stick to it, but be flexible on how you get there. Be stubborn on your vision but flexible on the details.” Jeff Bezos, CEO, Amazon

How can leaders at established businesses shift the paradigm?

CNBC recently posted a copy of the first job description ever posted by Jeff Bezos, founder of Amazon, in 1994. Bezos was seeking developers to “help pioneer commerce on the Internet.” In the end, Bezos cared less about obsessing on the internet technology and more about how he could delight customers with the technology rather than push it down their throats. (5) Bezos’ divergence from traditional business methods has helped Amazon become the largest online retailer in the world. (6)

Mental Models can only be truly change if there are systemic changes by business leaders of an organization executed in an integrated way. They need to be authentically and deeply applied into the workings of a company to truly rewire it for the future; it can’t simply be about following the latest technology trend cycles or pushing hard to doing things the “old way” better. There needs to be a real focus to re-wiring and changing an established business’ mental models. Otherwise, it is more of the same and established companies will continue to die in this 21st century.

Sources:

  1. https://www.aei.org/carpe-diem/fortune-500-firms-1955-v-2016-only-12-remain-thanks-to-the-creative-destruction-that-fuels-economic-prosperity/
  2. https://www.cmo.com.au/article/588485/study-reveals-disconnect-between-consumer-expectations-business-delivery/
  3. https://www.forbes.com/sites/shephyken/2018/05/17/businesses-lose-75-billion-due-to-poor-customer-service/#247afdbb16f9
  4. https://www.theatlantic.com/technology/archive/2019/06/massive-trend-drove-digital-media-over/591520/
  5. https://www.reuters.com/article/us-mazda-suzuki-motor-emissions/mazda-suzuki-yamaha-motor-apologize-for-improper-vehicle-tests-idUSKBN1KU023
  6. https://www.cnbc.com/2018/08/23/jeff-bezos-posted-the-first-job-ad-for-amazon-in-1994.html
  7. https://www.thetimes.co.uk/article/amazon-takes-title-of-world-s-biggest-company-for-first-time-6k3dhlwz3
  8. https://www.forbes.com/sites/blakemorgan/2018/07/30/why-many-customer-experience-programs-are-still-failing-to-deliver/#4f958fd835d2
  9. http://www.ascd.org/publications/books/195188/chapters/Shifting-the-Paradigm@-Giving-Up-Old-Mental-Models.aspx
  10. https://knowledge.wharton.upenn.edu/article/the-demise-of-toys-r-us/