When Complacency Creeps in, It's Time to Think 'Like Outsiders'

In one of Nobel-Prize winning psychologist Daniel Kahneman's experiments, a grocery store put Campbell Soup products on sale for 79 cents with a sign above the display that read "limit 12 per customer." Another grocery store ran the same sale but with no purchase limit. On average, how many cans were purchased per customer in the first store? Seven. And in the other store? Roughly three.

What's going on here, and why is this relevant? The experiment shows the power of what is called an "anchoring heuristic." A heuristic is essentially a mental shortcut or rule of thumb the brain uses to simplify complex decisions (also known as a cognitive bias). An anchor is a piece of information that someone relies on to make a decision. In the supermarket experiment, shoppers’ brains anchored on the purchase limit of 12 and adjusted downward. Those who bought only three cans of soups didn't have the number 12 in mind, so they made what might be considered a more normal-size purchase, or one adjusting upward from zero.

Now let's apply this learning to the way many CEOs traditionally approach their strategy. Each year, these CEOs refresh their goals based on the prior year's assumptions—what still holds, and what doesn't? By contrast, the best CEOs periodically do thorough analyses of all aspects of their businesses in the same way that they did when they took the role, as though they were coming in from the outside with fresh eyes. They're not wed to the past, encumbered by internal loyalties or willing to bow to short-term pressures.

Please select this link to read the complete article from Chief Executive.