"Mindset" or "Bias"Are they the same? Maybe, but the connotations feel slightly different. Bias is probably the more technical term - but a recent McKinsey Quarterly article "Hidden Flaws in Strategy"1 on behavioral economics stated "These implications of the brain's inadequacies have been rigorously studied by social scientists....found that the underlying assumption....human beings as purely rational economic decision makers...doesn't stack up against the evidence."
And this has what to do with international business development?One of the largest challenges faced under the National Export Initiative is getting SMBs to really commit to an international sales program. There's no shortage of theories for why that might be the case. But interestingly in most cases there is an intellectual embrace of the opportunity but a hesitancy to commit emotionally.
The ubiquity of this scenario got me thinking, therefore, that maybe there is "an answer." And the idea that behavioral economics can explain flawed business strategy may hold the key.
Flaws - Mistaken Conclusions - Bad StrategyWorking with research from behavioral economics we find three common flaws in "strategic" reasoning that likely impact on SMBs reluctance to pursue international sales.
- Mental accounting
- "Status Quo" bias
Certainly #3 plays the largest role in decisions regarding export. Quite simply it is far more comfortable to leave things as they are - not only does change inherently lead to unfamiliar conditions, but when the proposed change involves unfamiliar risks, activities, languages and cultures it becomes even more daunting.
And then it become convenient to have such an overflowing inbox and just two more key domestic strategy objectives that international business development, while worthy, will simply have to wait a bit.
But today's global conditions are radically different than when the status quo was established. And the best antidote to the status quo is to subject static strategy "to a risk analysis as rigorous as change options receive. (Because) Most strategists are good at identifying the risks of new strategies but less good at seeing the risks of failing to change."
CompoundingThe other two flaws give the status quo even more inertia. "Mental Accounting" allows otherwise analytical minds to "categorize and treat money differently depending on where it comes from, where it is kept, and how it is spent." This allows companies to spend far more on domestic marketing and sales (recruiting & training) than they would spend initially on an international initiative which would yield potentially a far greater return in revenue and profits - not to mention vibrancy, diversification, enterprise value, etc.
"Overoptimism" is one of the corollaries of "overconfidence." Layered atop the status quo bias companies face a clear choice. If they would far prefer to avoid the trauma of a strategic shift (status quo) and they are certain that the halcyon days of the status quo market will return (overconfidence) then why would they consider an international business development initiative?
Makes perfect sense, right?Looked at in that perspective the decision by 95% of American companies to eschew export sales makes perfect sense. The problem is that the decision is based on flawed strategy.
But there's a reasonable solution. If the actual risks involved in international business development can be inexpensively mitigated, and the opportunity can be strategically developed across a diverse range of markets using strategies that accelerate success, then the status quo becomes undesirable. And that's precisely what an international business development consultant can do.
Want to find out how Consilium can help your company over these bumps and through this counterintuitive strategy thicket? Contact us to discuss your situation.