May 4, 2017
How Habits Stifle Strategy
by Denise Garth
“It may seem like most organizations make rational choices based on deliberate decision making, but that’s not really how companies operate."
Last week, we discussed a major strategy issue for insurers: What happens when we have the knowledge to move forward but are stymied by a Knowing/Planning/Doing gap? It can be difficult for insurers to get from the point of knowing to the point of planning, let alone doing. We dipped into a relevant book by Stanford professor Jeffery Pfeffer, titled, The Knowing-Doing Gap: How Smart Companies Turn Knowledge Into Action. And we drew on Majesco’s findings in our most recent thought leadership paper, Strategic Priorities 2017 — Knowing vs. Doing.
So, if insurers know what needs to be done and aren’t doing it, what is standing in their way? Is it possible that the organization has built its own barriers to progress?
Recognizing harmful habits
Habits rule our individual lives. While there are many factors and hypotheses about why we don’t do what we know we should, the root cause can be viewed by looking in the mirror. Human decisions and behaviors are powerfully driven by habits. Throughout our evolution, we have relied on habits for things as vital as our survival and as mundane as accomplishing daily tasks.
Our brains are constantly making countless decisions and processing from an endless flow of information in our environments. In his book, The Power of Habit, Charles Duhigg says scientists believe habits form as a way for the brain to save energy or effort. A habit is created and maintained through a three-step process, or “loop.” It starts with a Cue, a trigger that tells the brain which behavior pattern to use, followed by a Routine, which is the physical, mental or emotional response to the cue, and then the Reward, which helps the brain decide if the particular loop was beneficial and should be remembered for future use. Once a loop is repeated enough times with a favorable outcome, it becomes more automatic … a system with straight-through processing.
In this way, habits are good things. They promote efficiency. They aid in quick decisions. They become rules we can count upon. The downside is that with continued repetition, habits become more ingrained and harder to change.
And just like individuals, organizations are driven by habits. Duhigg puts it this way: “It may seem like most organizations make rational choices based on deliberate decision making, but that’s not really how companies operate at all. Instead, firms are guided by long-held organizational habits, patterns that often emerge from thousands of employees’ independent decisions. And these habits have more profound impacts than anyone previously understood.”
We often hear, “It’s always been done this way.” This is the death for innovation … something not needed in today’s world of change and disruption.
Habits can speed up decisions and operational tasks, but they can lead to the same problems that we know as “bad habits.” Majesco’s Strategic Priorities research suggests many insurance companies are stuck within long-held organizational habits, finding it difficult to change even when they know customer expectations, technology and market boundaries are changing the world around them.
This challenge of knowing versus doing is represented in Figure 1, which links the forces of change identified in Majesco’s Future Trends 2017: The Shift Gains Momentum report with the reality of how insurers are responding, both in terms of planning as well as doing. This highlights a significant gap. In addition, those initiatives where insurers are actually doing something tend to be those that are traditional areas of priority and understanding, like security, talent and legacy system replacement rather than those that are transformational and require new thinking, different approaches and different business models.
Look around within the organization, and there may be hundreds of habits that are carryovers from past processes that once had good reasoning. In one insurer, for example, a certain type of claim is always sent to the legal team for review before settlement because one time (a long time ago) the lack of review resulted in litigation. Since that time, policy language has changed, and similar litigation is rare. But the review is a habit that has stayed in place. If the organization can remove the review, many more claims could be automated. It’s a hurdle worth moving.
A Way Forward to Doing
Duhigg describes two approaches for changing harmful organizational habits so that beneficial change can take place. The first involves the implementation of and commitment to a small number of “keystone habits” by company leadership. A keystone habit is one that has a ripple effect on other habits that, over time, can transform the company. Implementing the keystone habit leads to improvements in other areas, much like a habit of exercising has been shown to lead to other positive habits like better eating and increased productivity. To illustrate this, Duhigg described how Paul O’Neill’s singular focus on improving worker safety at Alcoa during his tenure as CEO rippled through the company’s other processes and ended up transforming it from a struggling, dysfunctional company into an economic powerhouse.
The second approach is to wait until a crisis occurs and use it to shock the organization into change. While effective, waiting for a crisis certainly seems like a less desirable option. But sometimes it takes a major failure to motivate organizations to change their old, established ways of doing things. In fact, Duhigg notes that good leaders seize crisis “opportunities” to remake organizational habits, and some even prolong the sense of emergency on purpose.
See also: A Gap That Could Lead to Irrelevance
The insurance companies that are not yet acting on the changes, or that don’t act soon, unfortunately may find that the gap between them and the leaders may become too large to be overcome. It’s best to weed out detrimental habits and make room for growth.
In our last blog in the series, we’ll look at some practical ways that insurers are closing the growing gap between knowing and doing. We’ll also look at the myth of stability that keeps insurers from taking much needed risks to build a secure future. In the meantime, be sure to read Majesco’s recently released report, Strategic Priorities 2017 — Knowing vs. Doing.