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Today's Insights: Transform Your Business: Essential Cognitive Skills for Navigating Today's Market Challenges
Table of Contents
- Introduction
- Why You Can't Rely on Previous Successful Methods
- How to Improve Organizational Cognitive Skills
- Conclusion
Introduction
The only constant in business is change. If you still rely on old methods to promote business, it may be difficult to succeed. Companies should be committed to improving the thinking styles and cognitive skills of their employees. This article tells you how to improve your cognitive skills to help companies effectively solve today's business problems.
The only constant in business is change, and change has accelerated to breakneck speed lately. If rising employee burnout rates are any indicator, the turmoil shows no signs of slowing down. People will continue to face increasing stress and anxiety from lingering uncertainty and ambiguity. To cushion the blow, organizations often turn to familiar methods—those with a previous track record of success. However, methods that worked in the past cannot fully address today's challenges because they were developed in completely different circumstances.
For example, one of our financial services clients was facing a long-term decline in membership. The loss of members had reached a critical point, and there was a danger of plummeting. The sales team was tasked with turning the situation around and plans were made to double the number of sales teams in this area. In the past, when membership had declined, bringing in new staff had brought membership back up, so this seemed to be a reliable approach. However, this approach has not yielded the expected results as consumer engagement preferences have shifted towards conducting more commerce online.
Why You Can't Rely on Previous Successful Methods
Your methods may be tried-and-true solutions to business challenges, but those methods also have flaws. What worked yesterday may not be applicable or even feasible today. Why can’t you rely on what has worked before? There are three main reasons:
1. Those methods are not equally effective in all situations. McDonald's is famous for its method of granting franchisees non-exclusive rights to operate in their territories. This approach was considered successful, so many new franchisees also adopted this method. But research shows that granting non-exclusive franchises increases the likelihood that new franchisees will fail. Potential franchisees worry that their business will deteriorate if another franchisee of the same brand opens nearby. New franchisees need franchisees to strengthen themselves, and the non-exclusive approach is not suitable for emerging brands. Or check out JCPenney. In June 2011, Ron Johnson took over the troubled retailer. He focused on implementing the methods he had found successful at his previous employer: constant markdowns, converting retail stores into collections of branded merchandise, and reducing the number of private labels. After 16 months, Johnson was fired. Same-store sales fell 25%, the company lost $1 billion, and the stock price fell 19.72%. What works at Target and Apple doesn't translate to JCPenney's because their customers aren't looking for a shopping experience; they're looking for consistent deals, hard-to-find special sizes, and premium private label brands. As a result, Johnson's approach was exactly the opposite of what Penney shoppers were looking for.
2. Existing methods have limited life because competitors can copy them. When Bill Walsh became the head coach of the NFL's San Francisco 49ers in 1979, he implemented an approach called "The West Coast Offense." With a West Coast-style offense, Walsh led the 49ers to Super Bowls in the 1981, 1984, and 1988 seasons. The team went on to win two more Super Bowls, but the benefits of the West Coast-style offense diminished after other coaches began implementing similar methods on their teams. Another example is the famous "Toyota Way," which is the legendary management system popularized by Jeffrey K. Liker in his 2004 book. This framework is a set of principles with organizational culture and continuous improvement (Kaizen) as its core, focusing on the root causes of problems and conducting continuous innovation. This method allowed Toyota to gain a large market share in the U.S. market from 1986 to 1997. But since then, rivals such as Ford, Honda, General Motors, and Stellantis Motors have adopted the system, significantly reducing the competitive advantage the approach offers.
3. Existing methods may have hidden risks. A study of Silicon Valley technology startups found the "High-Commitment Management Model," which focuses on hiring employees based on cultural fit and building relationships with them. Companies that use this approach are less likely to fail and are more likely to go public than startups that use other hiring methods. But the same study found that changing the hiring structure of a startup after it started operating tripled the likelihood of failure. A "high-commitment management model" may be an effective model for small, flat organizations, but once the company starts to scale, this approach becomes unsustainable. This forces companies to make significant changes to their hiring practices, which in turn puts organizations at risk. Just-In-Time production system is also a unique method developed by Toyota. Just-in-time production focuses on making production as efficient as possible, providing raw materials only when needed (rather than holding excess inventory), thereby reducing wait times between work processes and reducing supply chain costs. However, when the epidemic broke out in 2020, manufacturers held very little inventory and were unable to meet production needs and were unable to replenish supplies. As a result, global raw material shortages are still affecting global supply chains and manufacturers today.
To manage the changing business landscape, businesses need a different set of tools. Organizations can no longer rely on the static approaches that have worked in the past, but must focus on changing the way people think. To do this, companies must focus on refining people's cognitive skills so that they are better able to identify, evaluate, and solve unique problems in unique ways.
How to Improve Organizational Cognitive Skills
Cognitive skills are the thinking processes that allow us to perceive, understand, and analyze information. They are extremely important for problem-solving, decision-making, and critical thinking. Psychologist Daniel Kahneman and Amos Tversky first studied these higher-order processes in their best-selling book Thinking, Fast and Slow. They discovered that the cognitive skills they considered "slow thinking" required more time and energy to effectively evaluate and reason about problems. On the other hand, "quick thinking" is a more automatic and reactive response. Basically, we must use our slow-thinking skills to make better decisions and solve complex challenges more effectively.
Fortunately, cognitive thinking skills can be expanded and improved through practice and training. Here are three basic ways to improve your organization’s cognitive skills:
1. Analyze Known Unknowns
President George W. Bush’s Secretary of Defense, Donald Rumsfeld, is famous for his statement: “As we know, there are some things that we know we know; there are known unknowns; that is, we know there are things we don’t know, but there are unknown unknowns, which are things we don’t know we don’t know.” Although Rumsfeld did not invent the concept, a cognitive method called the Rumsfeld Matrix is used to define those things you think you know, but actually you don’t. This matrix has four categories of thinking:
1) Known knowns: things we are aware of and understand
2) Known unknowns: things we are aware of but do not understand
3) Unknown knowns: things we know but are not aware of
4) Unknown unknowns: things we are neither aware of nor understand
Using this approach can help us better identify blind spots, incorrect assumptions, and information gaps. For example, an organization knows that it faces a risk: a competitor may steal 10% of its customers (a known known thing). The organization can easily manage and quantify this impact. However, they may also know that there is a risk that rain may affect the company's operations, but they do not know how much it will rain (a known unknown). To face this situation, organizations must develop multiple action plans for the most likely outcomes and be prepared to switch to the correct action plan once more information becomes available.
2. Encourage Divergent Thinking
Divergent thinking is the thinking process of generating creative ideas by exploring many possible solutions. This process requires breaking down the problem into its various components to gain a deeper understanding of each part. Through a spontaneous, free-flowing approach, many ideas are generated in a random, unorganized way. An example of divergent thinking is coming up with as many uses for common, everyday objects as possible. For example, use a coin as a flat-head screwdriver, use a fork to dig holes, etc. Seeing situations from a unique perspective can lead to unique solutions.
Organizations can use divergent thinking in a variety of ways, such as bringing together various groups of employees who don't normally interact with each other to practice synectics, which is to stimulate the thought process to find solutions to overcome problems. Alternative approaches to obstacles. For example, instead of asking employees to find ways to retain customers, challenge them to come up with a list of various ways to lose customers, thereby discovering new ideas that they might never have considered in a typical way.
3. Apply First-Principles Thinking
The concept of first-principles thinking is to break down complex problems into many basic elements and then reassemble these elements from scratch. Every play and move we see in the NBA was created by someone at some point thinking, "What would happen if a player does this?" and then testing that idea. Since then, thousands if not millions of tactics and moves have been created. Coaches reason from first principles. The rules of basketball are first principles: they govern what you can and cannot do. As long as you don't break the rules, anything goes.
First-principles thinking allows one to focus more on the underlying components of a problem rather than just reacting to symptoms. For example, Elon Musk and his company SpaceX are trying to change space travel by buying rockets to launch into planetary orbit. However, the cost of purchasing rockets outright is too high to make SpaceX a successful company. Instead, he applied first-principles thinking, reducing a rocket to its most basic components and materials. He understood that the price of the materials needed to build the rocket was much lower than the price of buying the rocket directly. In other words, for the business model he was creating, building his own spacecraft made more sense.
Conclusion
As with many things, the key to success is moderation. Established methods can be useful guides, but complex challenges often require unique insights and perspectives that can only be gained by applying cognitive thinking skills. Employees who focus on these skills can also help themselves learn more independently. If individuals understand the "how" of learning, they will develop abilities and behaviors that can be applied to a variety of situations and problems they encounter. This ability is inherent in the art of responding effectively to change. When we know how to adapt, we can position ourselves for future success in unknown environments.
