Issue 115, June 29, 2023
Every day we assess the potential rewards along with the real and perceived risks of the situations, desires, tasks, and ideas we confront. We may not be consciously aware of these assessments, but they are happening all the time.
Our ever-expanding technical prowess has resulted in new tools, more efficient production, opportunities to transform ideas into reality, and new platforms to engage and connect. We also have access to expanding our knowledge and deferring to AI to do the meaningless work for us.
Risk vs Reward
Tech-based rewards allow us to be more connected, efficient, and informed … but as with most rewards, there comes risk. Our risk assessment in most situations is based on our inherent need to maintain our security and comfort. We may not take on new responsibility, pursue a new project or even immerse in new technology if we are held back by perceived risks. Most of us are strongly influenced daily by our conscious and subconscious assessment of risk measured against potential rewards. As we wrote last week, social proof gets us up and over our perceived risks if we see what others have already done without experiencing any consequences.
Some of us seem to easily dismiss risk by explaining it away as the rewards seem so tangible, worthy, and achievable. Many innovators follow this behavior pattern motivated by moving society forward. Let’s face it, without them we could be holding society back out of risk aversion. Why rock the boat when all seems well and fine? However, there are real consequences that come when risk is dismissed, when a blind eye is turned, and short-term or misunderstood rewards take center stage.
We experienced an example of rewards overtaking risk this past week as we were all transfixed by the Titan submersible, all of us hoping that the five individuals would survive. Each passenger assessed the risk of diving in an uncertified vehicle against the reward of experiencing exclusive, intimate views of the Titanic. Even though the passengers signed extreme waivers, Stockton Rush, owner of OceanGate, could easily be accused of hubris in allowing the titan to operate. Rush, as described by many who interacted with him over the years listened to the criticism, advice, and expertise of others. But ultimately, hubris became a blind spot that led to significant consequences.
We learn from situations when failure occurs (and most often when it comes with the loss of life) They are wake-up calls that force us to take a pause and recognize that we need to collaboratively develop regulations, policies, certifications, and processes to ensure appropriate and comprehensive testing. We need to deeply assess risk and reward to remove or limit fatal and other consequential risks.
On a broader scale, although our immersion in all things tech has resulted in great rewards across society, there are emerging risks that are real and have ramifications. Although most technologies we leverage today do not result in the loss of life, there are nonetheless risks, often ignored by the hubris of innovators.
The tide has turned on our infatuation with the tech geniuses who have fundamentally changed our lives. We may have bought into Facebook and Amazon when they launched as social and commerce platforms that connected us and gave us access to shiny new toys seamlessly. But more recently, our love affair with tech has turned the corner to the dark side as we wake up to the potentially disastrous possibilities of AI in manipulating and deceiving us. Sound dramatic? Not really. We’re not alarmists, but we do believe that practicing rigorous critical thinking is essential to recognizing the hidden dangers of some tech innovations. We’re all in for digital transformation. What we are not fans of is when leaders get a little too over-confident in believing their solutions transcend ethical behavior when serving their customers. By another name, that’s hubris.
Consider these recent developments:
- Meta was fined $1.3 billion for violating E.U. data privacy rules and ordered to stop transferring data collected from Facebook users in Europe to the United States, in a major ruling against the social media company for violating European Union data protection rules. (Axios)
- The F.T.C. accused Amazon in a lawsuit of illegally inducing consumers to sign up for its Prime service and then hindering them from canceling the subscription. The agency said that Amazon “duped millions of consumers” into enrolling in Prime by using “manipulative, coercive or deceptive” design tactics on its website. Amazon denied the allegations. (NY Times)
- Multnomah County, Oregon filed a lawsuit last week against more than a dozen fossil fuel companies alleging $50 million in damages from the June 2021 heat wave that blanketed the Pacific Northwest, sending temperatures up to 116° in the county. The suit also seeks $1.5 billion in future damages and $50 billion to “weatherproof” the county against extreme heat. (Axios)
- The antitrust battleground for Big Tech is expanding beyond the US and Europe. The Indian Competition Commission ruled that Alphabet abused its dominant position in the smartphone software market with its Android operating system. It fined the company 13.4 billion rupees ($162 million) and demanded Alphabet abandon its strategy of pre-installing popular Google apps like YouTube and Google Maps. (NY Times)
What’s hubris? It can happen after a person or organization experiences a period of extreme success. Hubris is excessive confidence, arrogance, and unrestrained pride. Executives overcome by hubris may become a liability for their firms when they make business decisions without fully thinking through the consequences. Investopedia dives deeper:
- Hubris is an excess of arrogance in oneself that often leads to a lack of self-awareness and harmful or self-defeating behaviors.
- Hubris is often found in very successful individuals, due to the nature of their positions.
- When hubris becomes all-consuming, it frequently leads to an individual’s downfall.
- Overcoming hubris is possible with practical techniques and increased self-awareness.
- Humility is an important tool to combat hubris and should be evaluated/implemented frequently.
All said we are experiencing hubris on steroids. Ben Laker, professor of leadership at Henley Business School at the University of Reading, has insights into why hubris is on the rise. “Today’s executives are front and center on every social media platform. They blog, Tweet their own opinions, post on Facebook, and comment on LinkedIn. Modern CEOs write books, hire publicists, promulgate personal philosophies, and give spontaneous interviews. Big-time executives have become celebrities in their own right. Their faces adorn billboards and magazines, and they appear on every public stage (even at the edge of space), opining on issues that shape our public and personal agendas. Today’s CEO isn’t just a name and a face; they’re a brand.”
Here’s a cheat sheet from author Ted Leonhardt on how hubris can manifest in an organization and become toxic:
- You don’t talk to customers.
- You blame others.
- You get defensive.
- Everyone is too scared to disagree with you.
- You make all the final decisions.
- You always have lunch with the same people.
- Your goals are unreasonable.
When teaching my students about the hidden behavioral shifts caused by using technology, they are amazed. Our minds are controlled by subconscious default decision-making and comfort with things that are familiar that we can become subtly influenced by technology and the algorithms programmed into tech tools and services so that we don’t even know it is happening. That is hubris on the part of the individuals who program and deploy these technologies. We’re not suggesting that we turn our backs on progress, however, we do urge everyone – from students to CEOs – to be mindful of the risks and rewards of innovation. You only have to reread Sam Altman’s mea culpa statements about his ChatGPT innovation as he takes his victory lap speaking tour around the world. But you have to wonder which side he is on — genius AI developer at the same time he is a defender of human agency. Although his intentions are noble, his position is innovator hubris.
Risks and Rewards of Innovation
Our focus in this newsletter is to examine how the process of innovation could backfire into hubris. When embarking on any pivot or transformation, or equally in developing new products and services, we have developed a roadmap with some guardrails.
- What is your appetite for risk and reward? Innovation is a process, not an aha moment. It is also an invitation to step out of your comfort zone. It takes patience, persistence, and passion to see an innovation through to fruition. It also takes pragmatism if it doesn’t pan out. On the positive side, it may become a stepping-stone to a different product or service that was hidden inside of the original idea.
- Is your innovation nice or necessary? Is it a solution to a problem that doesn’t exist? Is it your own idea or in response to stakeholders’ needs? Over 98% of startups fail, many because their business proposition is not addressing a specific market or customer need. This is a case of extreme hubris.
- What are the intrinsic benefits of the innovation? Its purpose needs to be clearly defined. This requires objective discipline. Innovation can feel highly personal and emotional to its champions, but it needs to be a relevant and meaningful solution to all stakeholders.
- Who’s on the innovation team? Do you rely on your go-to creative team? A better plan is to have multi-disciplinary, holistic teams that use systems thinking to develop and review the innovation three-dimensionally and collaboratively. And the team should be given autonomy to be agile and make decisions without layers of approval.
- Did you vet your innovation? Market research, competitive analysis, and customer feedback are all important factors. Yes, this sounds like Marketing 101. It is, and we call it common sense.
- Will it drive revenues, customer engagement, market share, and brand equity? And how will you measure its success? If it doesn’t perform as anticipated, are you willing to let it go?
- Does the workforce understand the innovation? Is its purpose permeated to everyone in the organization? Innovation champions intuitively understand the value and mechanics of their innovations, but innovation needs the support of those who will implement it … and everyone’s understanding of how the innovation fits into the organization’s ecosystem to prevent it from being abandoned or ignored.
Exploration or Exploitation?
Finally, a cautionary word about innovation. It’s key to recognize the difference between exploration and exploitation. According to Informa, exploitation is focused on the preservation and growth of an established business’s success and its momentum. It wants a high degree of certainty. Think of exploitation as a practice of traditional business: it assumes the future is a continuation of the past supported by accurate predictability. It leverages existing skills and organizational structure. Its hallmark is no surprises and a single focus on targets and goals.
Exploration work focuses on discovery and learning. It is not based on certainty but rather on the higher risk of innovation. It assumes that the future is shaped by the “wisdom of crowds” approach. Prediction is basically irrelevant. Surprises are insights and iterations that support new thinking and transformation are crucial.
Innovation clearly sits in exploration, but many organizations that fit the exploitation mold believe they can innovate. It takes a shift in mindset and organizational culture to even consider innovation. At 2040 we work with clients to recognize and then define the risks and rewards of their innovation efforts. Operating in an asymmetrical and disruptive marketplace has become the norm. Organizations want confidence and certainty. Nothing in business is for sure; we advise practical, flexible thinking. And when organizations and leaders do achieve great success, we help them stay grounded, mange the risks and rewards of innovation and avoid hubris.
Get “The Truth about Transformation”
The 2040 construct to change and transformation. What’s the biggest reason organizations fail? They don’t honor, respect, and acknowledge the human factor. We have compiled a playbook for organizations of all sizes to consider all the elements that comprise change and we have included some provocative case studies that illustrate how transformation can quickly derail.