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The Role Of Imagination In Creating The Next Set Of Breakthrough Innovations

Mukesh Gupta

I stumbled across “As We May Think,” an article that Director of the Office of Scientific Research and Development Vannevar Bush wrote in 1945.

This article validates for me the role that imagination can play in the innovation process. Dr. Bush was able to predict in part what the world would look and feel like many years into the future. Here’s what I learned from his approach to ideation and how we can use it to assist in our own quest for using imagination to come up with innovations of the future.

Before trying to predict the future, understand the present

First, Bush thoroughly analyzed the present day (mid-1940s) situation, including what WWII had fostered and what it hindered, from the perspective of scientific inquiry and progress. He shared his thoughts on the state of scientific research and where science had seen progress and where it stood still.

Identify potentialities by extrapolation

He then extrapolated into the future by identifying the potentialities in the progress made, and shared what he though would happen in the near-to-short term if things had continued on the same trajectory. This is where he talked about immediate and imminent progress based on what was already happening. Most futurists and trend predictors use this process to forecast their trends.

Now, let your imagination fly

Once he built a good, solid foundation by identifying the progress made and what was expected in the near-to-short term, he then allowed his imagination to take flight. He talked about the camera becoming so small that someone would could carry one strapped onto their foreheads (sounds to me like a GoPro):

The camera hound of the future wears on his forehead a lump a little larger than a walnut.

He then explored and explained what the film and printing process would look like:

Often it would be advantageous to be able to snap the camera and to look at the picture immediately.

He imagined advances in micro-film technology that would enable the whole of Encyclopedia Britannica (one of the largest book collections at that time) to be available on something the size of a matchbox.

The Encyclopedia Britannica could be reduced to the volume of a matchbox. A library of a million volumes could be compressed into one end of a desk. If the human race has produced since the invention of movable type a total record, in the form of magazines, newspapers, books, tracts, advertising blurbs, correspondence, having a volume corresponding to a billion books, the whole affair, assembled and compressed, could be lugged off in a moving van.

The material for the microfilm Britannica would cost a nickel, and it could be mailed anywhere for a cent.

In addition to storing all of this knowledge in a small size, he said it is also important to create new knowledge and do so in an easy and simple way. He talked about a device into which someone speaks (in a specific way) and the device converts this into the appropriate text (sounds a lot like voice-to-text devices – Siri?)

To make the record, we now push a pencil or tap a typewriter. Then comes the process of digestion and correction, followed by an intricate process of typesetting, printing, and distribution. To consider the first stage of the procedure, will the author of the future cease writing by hand or typewriter and talk directly to the record? He does so indirectly, by talking to a stenographer or a wax cylinder; but the elements are all present if he wishes to have his talk directly produce a typed record. All he needs to do is to take advantage of existing mechanisms and to alter his language.

He then took flight in his imagination to put all of this together and predict what it would feel like to live in an era with such devices:

One can now picture a future investigator in his laboratory. His hands are free, and he is not anchored. As he moves about and observes, he photographs and comments. Time is automatically recorded to tie the two records together. If he goes into the field, he may be connected by radio to his recorder. As he ponders over his notes in the evening, he again talks his comments into the record. His typed record, as well as his photographs, may both be in miniature, so that he projects them for examination.

He acknowledged that a lot would need to happen between 1945’s reality and his imagined reality, but he was confident that it was all possible. He showed how past progress implied that the pace of innovation and creativity would only accelerate, meaning his imagined reality would not be very far from the time he was writing the piece.

Next he described mathematical inquiry and his definition of a mathematician:

A mathematician is not a man who can readily manipulate figures; often he cannot. He is not even a man who can readily perform the transformations of equations by the use of calculus. He is primarily an individual who is skilled in the use of symbolic logic on a high plane, and especially he is a man of intuitive judgment in the choice of the manipulative processes he employs.

This is probably the closest definition that I have come across for a data scientist. Bush said machines would do actual mathematical calculations and enable the mathematician to think about a higher order of logic. He also understood that the potential of such a machine is not limited to the scientist.

The scientist, however, is not the only person who manipulates data and examines the world about him by the use of logical processes, although he sometimes preserves this appearance by adopting into the fold anyone who becomes logical, much in the manner in which a British labor leader is elevated to knighthood. Whenever logical processes of thought are employed – that is, whenever thought for a time runs along an accepted groove – there is an opportunity for the machine. Formal logic used to be a keen instrument in the hands of the teacher in his trying of students’ souls. It is readily possible to construct a machine which will manipulate premises in accordance with formal logic, simply by the clever use of relay circuits. Put a set of premises into such a device and turn the crank, and it will readily pass out conclusion after conclusion, all in accordance with logical law, and with no more slips than would be expected of a keyboard adding machine.

I think this sounds like a general purpose computer or even a smartphone. He then goes on to imagine how a retail store could be run if all these innovations became a reality. It sounds a lot like an ERP system running the entire store and its operations.

He also predicted that machines can be taught to learn and operate, not just on selection by indexing, but by association, and that machines would be able to beat humans (the story of IBM’s Watson winning Jeopardy?) – what’s called today machine learning.

Man cannot hope fully to duplicate this mental process artificially, but he certainly ought to be able to learn from it. In minor ways he may even improve, for his records have relative permanency. The first idea, however, to be drawn from the analogy concerns selection. Selection by association, rather than indexing, may yet be mechanized. One cannot hope thus to equal the speed and flexibility with which the mind follows an associative trail, but it should be possible to beat the mind decisively in regard to the permanence and clarity of the items resurrected from storage.

He described a personal machine (he calls it “memex”) that stores all the information and data that we need as individuals (including all the knowledge that humans have accumulated over the centuries) and is available whenever a person wants it. Information would be accessible by associative indexing (sounds like hyperlinking to me), which would allow us to move across connected and relevant topics.

The owner of the memex, let us say, is interested in the origin and properties of the bow and arrow. Specifically he is studying why the short Turkish bow was apparently superior to the English longbow in the skirmishes of the Crusades. He has dozens of possibly pertinent books and articles in his memex. First he runs through an encyclopedia, finds an interesting but sketchy article, leaves it projected. Next, in a history, he finds another pertinent item, and ties the two together. Thus he goes, building a trail of many items. Occasionally he inserts a comment of his own, either linking it into the main trail or joining it by a side trail to a particular item. When it becomes evident that the elastic properties of available materials had a great deal to do with the bow, he branches off on a side trail which takes him through textbooks on elasticity and tables of physical constants. He inserts a page of longhand analysis of his own. Thus he builds a trail of his interest through the maze of materials available to him.

And his trails do not fade. Several years later, his talk with a friend turns to the queer ways in which a people resist innovations, even of vital interest. He has an example, in the fact that the outraged Europeans still failed to adopt the Turkish bow. In fact he has a trail on it. A touch brings up the code book. Tapping a few keys projects the head of the trail. A lever runs through it at will, stopping at interesting items, going off on side excursions. It is an interesting trail, pertinent to the discussion. So he sets a reproducer in action, photographs the whole trail out, and passes it to his friend for insertion in his own memex, there to be linked into the more general trail.

Sounds a lot like a combination of Google, Wikipedia, and Evernote to me.

He then goes on to talk about the fact that science is a tool that could create weapons and innovations that could not only enable humanity to keep track of its history, but create a completely new future as well.

Applied imagination

In a single 1945 article, Vannevar Bush imagined so many innovations that we enjoy today, seven decades later. He imagined things similar to GoPro, selfie sticks, Google Glass, ERP systems, digitized Encyclopedia Britannica, search engines, note-taking in the cloud, voice-to-text and text-to-voice conversions, personal computers, mobile phones, and much more.

This shows that if we start from the place where we are today, apply our imagination, and take leaps of faiths, we can imagine what the future will look like and then go after this future with all our current strengths.

This ability to imagine is critical for all of us who wish to be part of the generation of innovators who will define what and how our future shapes up.

How to develop this ability to imagine

In “The Real Neuroscience of Creativity,” Scott Barry Kaufman talks about three kinds of neural networks – the Executive Attention Network (activated when we need focused attention to do something specific), the Imagination Network (also called the default network), and the Salience Network (acts as the “switching” network and decides which neural network needs to be activated when).

… the Default Network (referred to here as the Imagination Network) is involved in “constructing dynamic mental simulations based on personal past experiences such as used during remembering, thinking about the future, and generally when imagining alternative perspectives and scenarios to the present.” The Imagination Network is also involved in social cognition. For instance, when we are imagining what someone else is thinking, this brain network is active. The Imagination Network involves areas deep inside the prefrontal cortex and temporal lobe (medial regions), along with communication with various outer and inner regions of the parietal cortex.

Conclusion

What this tells me is that the ability to imagine is inherently human and we are all capable of letting our imagination soar, if we want to.

So, the inability to imagine new or alternate realities is totally self-induced – and sometimes induced by our systems (e.g., education and even the culture of our organizations). This also means that it is in our very hands to set this right and start imagining alternate realities. The more we practice, the better we will get at it.

The more important it is for us to innovate and create, the more critical the skill to imagine alternate realities.

When Vannevar wrote this piece, it was a time where technological breakthroughs were imminent.

We are again at the same crossroads & technological breakthroughs are imminent. The question we need to now ask is:

Will we bring in the breakthroughs, or will we stand and wait for someone to do it for us?

PS: You can view a visual tour of Vannevar Bush’s Work below:

More predictions: AI will make customers and employees happier – as long as it learns to respect our boundaries. Learn more about Empathy: The Killer App for Artificial Intelligence.

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Mukesh Gupta

About Mukesh Gupta

Mukesh Gupta previously held the role of Executive Liaison for the SAP User group in India. He worked as the bridge between the User group and SAP (Development, Consulting, Sales and product management).

How To Design Your Company’s Digital Transformation

Sam Yen

The September issue of the Harvard Business Review features a cover story on design thinking’s coming of age. We have been applying design thinking within SAP for the past 10 years, and I’ve witnessed the growth of this human-centered approach to innovation first hand.

Design thinking is, as the HBR piece points out, “the best tool we have for … developing a responsive, flexible organizational culture.”

This means businesses are doing more to learn about their customers by interacting directly with them. We’re seeing this change in our work on d.forum — a community of design thinking champions and “disruptors” from across industries.

Meanwhile, technology is making it possible to know exponentially more about a customer. Businesses can now make increasingly accurate predictions about customers’ needs well into the future. The businesses best able to access and pull insights from this growing volume of data will win. That requires a fundamental change for our own industry; it necessitates a digital transformation.

So, how do we design this digital transformation?

It starts with the customer and an application of design thinking throughout an organization – blending business, technology and human values to generate innovation. Business is already incorporating design thinking, as the HBR cover story shows. We in technology need to do the same.

Design thinking plays an important role because it helps articulate what the end customer’s experience is going to be like. It helps focus all aspects of the business on understanding and articulating that future experience.

Once an organization is able to do that, the insights from that consumer experience need to be drawn down into the business, with the central question becoming: What does this future customer experience mean for us as an organization? What barriers do we need to remove? Do we need to organize ourselves differently? Does our process need to change – if it does, how? What kind of new technology do we need?

Then an organization must look carefully at roles within itself. What does this knowledge of the end customer’s future experience mean for an individual in human resources, for example, or finance? Those roles can then be viewed as end experiences unto themselves, with organizations applying design thinking to learn about the needs inherent to those roles. They can then change roles to better meet the end customer’s future needs. This end customer-centered approach is what drives change.

This also means design thinking is more important than ever for IT organizations.

We, in the IT industry, have been charged with being responsive to business, using technology to solve the problems business presents. Unfortunately, business sometimes views IT as the organization keeping the lights on. If we make the analogy of a store: business is responsible for the front office, focused on growing the business where consumers directly interact with products and marketing; while the perception is that IT focuses on the back office, keeping servers running and the distribution system humming. The key is to have business and IT align to meet the needs of the front office together.

Remember what I said about the growing availability of consumer data? The business best able to access and learn from that data will win. Those of us in IT organizations have the technology to make that win possible, but the way we are seen and our very nature needs to change if we want to remain relevant to business and participate in crafting the winning strategy.

We need to become more front office and less back office, proving to business that we are innovation partners in technology.

This means, in order to communicate with businesses today, we need to take a design thinking approach. We in IT need to show we have an understanding of the end consumer’s needs and experience, and we must align that knowledge and understanding with technological solutions. When this works — when the front office and back office come together in this way — it can lead to solutions that a company could otherwise never have realized.

There’s different qualities, of course, between front office and back office requirements. The back office is the foundation of a company and requires robustness, stability, and reliability. The front office, on the other hand, moves much more quickly. It is always changing with new product offerings and marketing campaigns. Technology must also show agility, flexibility, and speed. The business needs both functions to survive. This is a challenge for IT organizations, but it is not an impossible shift for us to make.

Here’s the breakdown of our challenge.

1. We need to better understand the real needs of the business.

This means learning more about the experience and needs of the end customer and then translating that information into technological solutions.

2. We need to be involved in more of the strategic discussions of the business.

Use the regular invitations to meetings with business as an opportunity to surface the deeper learning about the end consumer and the technology solutions that business may otherwise not know to ask for or how to implement.

The IT industry overall may not have a track record of operating in this way, but if we are not involved in the strategic direction of companies and shedding light on the future path, we risk not being considered innovation partners for the business.

We must collaborate with business, understand the strategic direction and highlight the technical challenges and opportunities. When we do, IT will become a hybrid organization – able to maintain the back office while capitalizing on the front office’s growing technical needs. We will highlight solutions that business could otherwise have missed, ushering in a digital transformation.

Digital transformation goes beyond just technology; it requires a mindset. See What It Really Means To Be A Digital Organization.

This story originally appeared on SAP Business Trends.

Top image via Shutterstock

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Sam Yen

About Sam Yen

Sam Yen is the Chief Design Officer for SAP and the Managing Director of SAP Labs Silicon Valley. He is focused on driving a renewed commitment to design and user experience at SAP. Under his leadership, SAP further strengthens its mission of listening to customers´ needs leading to tangible results, including SAP Fiori, SAP Screen Personas and SAP´s UX design services.

How Productive Could You Be With 45 Minutes More Per Day?

Michael Rander

Chances are that you are already feeling your fair share of organizational complexity when navigating your current company, but have you ever considered just how much time is spent across all companies on managing complexity? According to a recent study by the Economist Intelligence Unit (EIU), the global impact of complexity is mind-blowing – and not in a good way.

The study revealed that 38% of respondents spent 16%-25% of their time just dealing with organizational complexity, and 17% spent a staggering 26%-50% of their time doing so. To put that into more concrete numbers, in the US alone, if executives could cut their time spent managing complexity in half, an estimated 8.6 million hours could be saved a week. That corresponds to 45 minutes per executive per day.

The potential productivity impact of every executive having 45 minutes more to work every single day is clearly significant, and considering that 55% say that their organization is either very or extremely complex, why are we then not making the reduction of complexity one or our top of mind issues?

The problem is that identifying the sources of complexity is complex in of itself. Key sources of complexity include organizational size, executive priorities, pace of innovation, decision-making processes, vastly increasing amounts of data to manage, organizational structures, and the pure culture of the company. As a consequence, answers are not universal by any means.

That being said, the negative productivity impact of complexity, regardless of the specific source, is felt similarly across a very large segment of the respondents, with 55% stating that complexity has taken a direct toll on profitability over the past three years.  This is such a serious problem that 8% of respondents actually slowed down their company growth in order to deal with complexity.

So, if complexity oftentimes impacts productivity and subsequently profitability, what are some of the more successful initiatives that companies are taking to combat these effects? Among the answers from the EIU survey, the following were highlighted among the most likely initiatives to reduce complexity and ultimately increase productivity:

  • Making it a company-wide goal to reduce complexity means that the executive level has to live and breathe simplification in order for the rest of the organization to get behind it. Changing behaviors across the organization requires strong leadership, commitment, and change management, and these initiatives ultimately lead to improved decision-making processes, which was reported by respondents as the top benefit of reducing complexity. From a leadership perspective this also requires setting appropriate metrics for measuring outcomes, and for metrics, productivity and efficiency were by far the most popular choices amongst respondents though strangely collaboration related metrics where not ranking high in spite of collaboration being a high level priority.
  • Promoting a culture of collaboration means enabling employees and management alike to collaborate not only within their teams but also across the organization, with partners, and with customers. Creating cross-functional roles to facilitate collaboration was cited by 56% as the most helpful strategy in achieving this goal.
  • More than half (54%) of respondents found the implementation of new technology and tools to be a successful step towards reducing complexity and improving productivity. Enabling collaboration, reducing information overload, building scenarios and prognoses, and enabling real-time decision-making are all key issues that technology can help to reduce complexity at all levels of the organization.

While these initiatives won’t help everyone, it is interesting to see that more than half of companies believe that if they could cut complexity in half they could be at least 11%-25% more productive. That nearly one in five respondents indicated that they could be 26%-50% more productive is a massive improvement.

The question then becomes whether we can make complexity and its impact on productivity not only more visible as a key issue for companies to address, but (even more importantly) also something that every company and every employee should be actively working to reduce. The potential productivity gains listed by respondents certainly provide food for thought, and few other corporate activities are likely to gain that level of ROI.

Just imagine having 45 minutes each and every day for actively pursuing new projects, getting innovative, collaborating, mentoring, learning, reducing stress, etc. What would you do? The vision is certainly compelling, and the question is are we as companies, leaders, and employees going to do something about it?

To read more about the EIU study, please see:

Feel free to follow me on Twitter: @michaelrander

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Michael Rander

About Michael Rander

Michael Rander is the Global Research Director for Future Of Work at SAP. He is an experienced project manager, strategic and competitive market researcher, operations manager as well as an avid photographer, athlete, traveler and entrepreneur. Share your thoughts with Michael on Twitter @michaelrander.

Primed: Prompting Customers to Buy

Volker Hildebrand, Sam Yen, and Fawn Fitter

When it comes to buying things—even big-ticket items—the way we make decisions makes no sense. One person makes an impulsive offer on a house because of the way the light comes in through the kitchen windows. Another gleefully drives a high-end sports car off the lot even though it will probably never approach the limits it was designed to push.

We can (and usually do) rationalize these decisions after the fact by talking about needing more closet space or wanting to out-accelerate an 18-wheeler as we merge onto the highway, but years of study have arrived at a clear conclusion:

When it comes to the customer experience, human beings are fundamentally irrational.

In the brick-and-mortar past, companies could leverage that irrationality in time-tested ways. They relied heavily on physical context, such as an inviting retail space, to make products and services as psychologically appealing as possible. They used well-trained salespeople and employees to maximize positive interactions and rescue negative ones. They carefully sequenced customer experiences, such as having a captain’s dinner on the final night of a cruise, to play on our hard-wired craving to end experiences on a high note.

Today, though, customer interactions are increasingly moving online. Fortune reports that on 2016’s Black Friday, the day after Thanksgiving that is so crucial to holiday retail results, 108.5 million Americans shopped online, while only 99.1 million visited brick-and-mortar stores. The 9.4% gap between the two was a dramatic change from just one year prior, when on- and offline Black Friday shopping were more or less equal.

When people browse in a store for a few minutes, an astute salesperson can read the telltale signs that they’re losing interest and heading for the exit. The salesperson can then intervene, answering questions and closing the sale.

Replicating that in a digital environment isn’t as easy, however. Despite all the investments companies have made to counteract e-shopping cart abandonment, they lack the data that would let them anticipate when a shopper is on the verge of opting out of a transaction, and the actions they take to lure someone back afterwards can easily come across as less helpful than intrusive.

In a digital environment, companies need to figure out how to use Big Data analysis and digital design to compensate for the absence of persuasive human communication and physical sights, sounds, and sensations. What’s more, a 2014 Gartner survey found that 89% of marketers expected customer experience to be their primary differentiator by 2016, and we’re already well into 2017.

As transactions continue to shift toward the digital and omnichannel, companies need to figure out new ways to gently push customers along the customer journey—and to do so without frustrating, offending, or otherwise alienating them.

The quest to understand online customers better in order to influence them more effectively is built on a decades-old foundation: behavioral psychology, the study of the connections between what people believe and what they actually do. All of marketing and advertising is based on changing people’s thoughts in order to influence their actions. However, it wasn’t until 2001 that a now-famous article in the Harvard Business Review formally introduced the idea of applying behavioral psychology to customer service in particular.

The article’s authors, Richard B. Chase and Sriram Dasu, respectively a professor and assistant professor at the University of Southern California’s Marshall School of Business, describe how companies could apply fundamental tenets of behavioral psychology research to “optimize those extraordinarily important moments when the company touches its customers—for better and for worse.” Their five main points were simple but have proven effective across multiple industries:

  1. Finish strong. People evaluate experiences after the fact based on their high points and their endings, so the way a transaction ends is more important than how it begins.
  2. Front-load the negatives. To ensure a strong positive finish, get bad experiences out of the way early.
  3. Spread out the positives. Break up the pleasurable experiences into segments so they seem to last longer.
  4. Provide choices. People don’t like to be shoved toward an outcome; they prefer to feel in control. Giving them options within the boundaries of your ability to deliver builds their commitment.
  5. Be consistent. People like routine and predictability.

For example, McKinsey cites a major health insurance company that experimented with this framework in 2009 as part of its health management program. A test group of patients received regular coaching phone calls from nurses to help them meet health goals.

The front-loaded negative was inherent: the patients knew they had health problems that needed ongoing intervention, such as weight control or consistent use of medication. Nurses called each patient on a frequent, regular schedule to check their progress (consistency and spread-out positives), suggested next steps to keep them on track (choices), and cheered on their improvements (a strong finish).

McKinsey reports the patients in the test group were more satisfied with the health management program by seven percentage points, more satisfied with the insurance company by eight percentage points, and more likely to say the program motivated them to change their behavior by five percentage points.

The nurses who worked with the test group also reported increased job satisfaction. And these improvements all appeared in the first two weeks of the pilot program, without significantly affecting the company’s costs or tweaking key metrics, like the number and length of the calls.

Indeed, an ongoing body of research shows that positive reinforcements and indirect suggestions influence our decisions better and more subtly than blatant demands. This concept hit popular culture in 2008 with the bestselling book Nudge.

Written by University of Chicago economics professor Richard H. Thaler and Harvard Law School professor Cass R. Sunstein, Nudge first explains this principle, then explores it as a way to help people make decisions in their best interests, such as encouraging people to eat healthier by displaying fruits and vegetables at eye level or combatting credit card debt by placing a prominent notice on every credit card statement informing cardholders how much more they’ll spend over a year if they make only the minimum payment.

Whether they’re altruistic or commercial, nudges work because our decision-making is irrational in a predictable way. The question is how to apply that awareness to the digital economy.

In its early days, digital marketing assumed that online shopping would be purely rational, a tool that customers would use to help them zero in on the best product at the best price. The assumption was logical, but customer behavior remained irrational.

Our society is overloaded with information and short on time, says Brad Berens, Senior Fellow at the Center for the Digital Future at the University of Southern California, Annenberg, so it’s no surprise that the speed of the digital economy exacerbates our desire to make a fast decision rather than a perfect one, as well as increasing our tendency to make choices based on impulse rather than logic.

Buyers want what they want, but they don’t necessarily understand or care why they want it. They just want to get it and move on, with minimal friction, to the next thing. “Most of our decisions aren’t very important, and we only have so much time to interrogate and analyze them,” Berens points out.

But limited time and mental capacity for decision-making is only half the issue. The other half is that while our brains are both logical and emotional, the emotional side—also known as the limbic system or, more casually, the primitive lizard brain—is far older and more developed. It’s strong enough to override logic and drive our decisions, leaving rational thought to, well, rationalize our choices after the fact.

This is as true in the B2B realm as it is for consumers. The business purchasing process, governed as it is by requests for proposals, structured procurement processes, and permission gating, is designed to ensure that the people with spending authority make the most sensible deals possible. However, research shows that even in this supposedly rational process, the relationship with the seller is still more influential than product quality in driving customer commitment and loyalty.

Baba Shiv, a professor of marketing at Stanford University’s Graduate School of Business, studies how the emotional brain shapes decisions and experiences. In a popular TED Talk, he says that people in the process of making decisions fall into one of two mindsets: Type 1, which is stressed and wants to feel comforted and safe, and Type 2, which is bored or eager and wants to explore and take action.

People can move between these two mindsets, he says, but in both cases, the emotional brain is in control. Influencing it means first delivering a message that soothes or motivates, depending on the mindset the person happens to be in at the moment and only then presenting the logical argument to help rationalize the action.

In the digital economy, working with those tendencies means designing digital experiences with the full awareness that people will not evaluate them objectively, says Ravi Dhar, director of the Center for Customer Insights at the Yale School of Management. Since any experience’s greatest subjective impact in retrospect depends on what happens at the beginning, the end, and the peaks in between, companies need to design digital experiences to optimize those moments—to rationally design experiences for limited rationality.

This often involves making multiple small changes in the way options are presented well before the final nudge into making a purchase. A paper that Dhar co-authored for McKinsey offers the example of a media company that puts most of its content behind a paywall but offers free access to a limited number of articles a month as an incentive to drive subscriptions.

Many nonsubscribers reached their limit of free articles in the morning, but they were least likely to respond to a subscription offer generated by the paywall at that hour, because they were reading just before rushing out the door for the day. When the company delayed offers until later in the day, when readers were less distracted, successful subscription conversions increased.

Pre-selecting default options for necessary choices is another way companies can design digital experiences to follow customers’ preference for the path of least resistance. “We know from a decade of research that…defaults are a de facto nudge,” Dhar says.

For example, many online retailers set a default shipping option because customers have to choose a way to receive their packages and are more likely to passively allow the default option than actively choose another one. Similarly, he says, customers are more likely to enroll in a program when the default choice is set to accept it rather than to opt out.

Another intriguing possibility lies in the way customers react differently to on-screen information based on how that information is presented. Even minor tweaks can have a disproportionate impact on the choices people make, as explained in depth by University of California, Los Angeles, behavioral economist Shlomo Benartzi in his 2015 book, The Smarter Screen.

A few of the conclusions Benartzi reached: items at the center of a laptop screen draw more attention than those at the edges. Those on the upper left of a screen split into quadrants attract more attention than those on the lower left. And intriguingly, demographics are important variables.

Benartzi cites research showing that people over 40 prefer more visually complicated, text-heavy screens than younger people, who are drawn to saturated colors and large images. Women like screens that use a lot of different colors, including pastels, while men prefer primary colors on a grey or white background. People in Malaysia like lots of color; people in Germany don’t.

This suggests companies need to design their online experiences very differently for middle-aged women than they do for teenage boys. And, as Benartzi writes, “it’s easy to imagine a future in which each Internet user has his or her own ‘aesthetic algorithm,’ customizing the appearance of every site they see.”

Applying behavioral psychology to the digital experience in more sophisticated ways will require additional formal research into recommendation algorithms, predictions, and other applications of customer data science, says Jim Guszcza, PhD, chief U.S. data scientist for Deloitte Consulting.

In fact, given customers’ tendency to make the fastest decisions, Guszcza believes that in some cases, companies may want to consider making choice environments more difficult to navigate— a process he calls “disfluencing”—in high-stakes situations, like making an important medical decision or an irreversible big-ticket purchase. Choosing a harder-to-read font and a layout that requires more time to navigate forces customers to work harder to process the information, sending a subtle signal that it deserves their close attention.

That said, a company can’t apply behavioral psychology to deliver a digital experience if customers don’t engage with its site or mobile app in the first place. Addressing this often means making the process as convenient as possible, itself a behavioral nudge.

A digital solution that’s easy to use and search, offers a variety of choices pre-screened for relevance, and provides a friction-free transaction process is the equivalent of putting a product at eye level—and that applies far beyond retail. Consider the Global Entry program, which streamlines border crossings into the U.S. for pre-approved international travelers. Members can skip long passport control lines in favor of scanning their passports and answering a few questions at a touchscreen kiosk. To date, 1.8 million people have decided this convenience far outweighs the slow pace of approvals.

The basics of influencing irrational customers are essentially the same whether they’re taking place in a store or on a screen. A business still needs to know who its customers are, understand their needs and motivations, and give them a reason to buy.

And despite the accelerating shift to digital commerce, we still live in a physical world. “There’s no divide between old-style analog retail and new-style digital retail,” Berens says. “Increasingly, the two are overlapping. One of the things we’ve seen for years is that people go into a store with their phones, shop for a better price, and buy online. Or vice versa: they shop online and then go to a store to negotiate for a better deal.”

Still, digital increases the number of touchpoints from which the business can gather, cluster, and filter more types of data to make great suggestions that delight and surprise customers. That’s why the hottest word in marketing today is omnichannel. Bringing behavioral psychology to bear on the right person in the right place in the right way at the right time requires companies to design customer experiences that bridge multiple channels, on- and offline.

Amazon, for example, is known for its friction-free online purchasing. The company’s pilot store in Seattle has no lines or checkout counters, extending the brand experience into the physical world in a way that aligns with what customers already expect of it, Dhar says.

Omnichannel helps counter some people’s tendency to believe their purchasing decision isn’t truly well informed unless they can see, touch, hear, and in some cases taste and smell a product. Until we have ubiquitous access to virtual reality systems with full haptic feedback, the best way to address these concerns is by providing personalized, timely, relevant information and feedback in the moment through whatever channel is appropriate. That could be an automated call center that answers frequently asked questions, a video that shows a product from every angle, or a demonstration wizard built into the product. Any of these channels could also suggest the customer visit the nearest store to receive help from a human.

The omnichannel approach gives businesses plenty of opportunities to apply subtle nudges across physical and digital channels. For example, a supermarket chain could use store-club card data to push personalized offers to customers’ smartphones while they shop. “If the data tells them that your goal is to feed a family while balancing nutrition and cost, they could send you an e-coupon offering a discount on a brand of breakfast cereal that tastes like what you usually buy but contains half the sugar,” Guszcza says.

Similarly, a car insurance company could provide periodic feedback to policyholders through an app or even the digital screens in their cars, he suggests. “Getting a warning that you’re more aggressive than 90% of comparable drivers and three tips to avoid risk and lower your rates would not only incentivize the driver to be more careful for financial reasons but reduce claims and make the road safer for everyone.”

Digital channels can also show shoppers what similar people or organizations are buying, let them solicit feedback from colleagues or friends, and read reviews from other people who have made the same purchases. This leverages one of the most familiar forms of behavioral psychology—reinforcement from peers—and reassures buyers with Shiv’s Type 1 mindset that they’re making a choice that meets their needs or encourages those with the Type 2 mindset to move forward with the purchase. The rational mind only has to ask at the end of the process “Am I getting the best deal?” And as Guszcza points out, “If you can create solutions that use behavioral design and digital technology to turn my personal data into insight to reach my goals, you’ve increased the value of your engagement with me so much that I might even be willing to pay you more.”

Many transactions take place through corporate procurement systems that allow a company to leverage not just its own purchasing patterns but all the data in a marketplace specifically designed to facilitate enterprise purchasing. Machine learning can leverage this vast database of information to provide the necessary nudge to optimize purchasing patterns, when to buy, how best to negotiate, and more. To some extent, this is an attempt to eliminate psychology and make choices more rational.

B2B spending is tied into financial systems and processes, logistics systems, transportation systems, and other operational requirements in a way no consumer spending can be. A B2B decision is less about making a purchase that satisfies a desire than it is about making a purchase that keeps the company functioning.

That said, the decision still isn’t entirely rational, Berens says. When organizations have to choose among vendors offering relatively similar products and services, they generally opt for the vendor whose salespeople they like the best.

This means B2B companies have to make sure they meet or exceed parity with competitors on product quality, pricing, and time to delivery to satisfy all the rational requirements of the decision process. Only then can they bring behavioral psychology to bear by delivering consistently superior customer service, starting as soon as the customer hits their app or website and spreading out positive interactions all the way through post-purchase support. Finishing strong with a satisfied customer reinforces the relationship with a business customer just as much as it does with a consumer.

The best nudges make the customer relationship easy and enjoyable by providing experiences that are effortless and fun to choose, on- or offline, Dhar says. What sets the digital nudge apart in accommodating irrational customers is its ability to turn data about them and their journey into more effective, personalized persuasion even in the absence of the human touch.

Yet the subtle art of influencing customers isn’t just about making a sale, and it certainly shouldn’t be about persuading people to act against their own best interests, as Nudge co-author Thaler reminds audiences by exhorting them to “nudge for good.”

Guszcza, who talks about influencing people to make the choices they would make if only they had unlimited rationality, says companies that leverage behavioral psychology in their digital experiences should do so with an eye to creating positive impact for the customer, the company, and, where appropriate, the society.

In keeping with that ethos, any customer experience designed along behavioral lines has to include the option of letting the customer make a different choice, such as presenting a confirmation screen at the end of the purchase process with the cold, hard numbers and letting them opt out of the transaction altogether.

“A nudge is directing people in a certain direction,” Dhar says. “But for an ethical vendor, the only right direction to nudge is the right direction as judged by the customers themselves.” D!

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.


About the Authors:

Volker Hildebrand is Global Vice President for SAP Hybris solutions.

Sam Yen is Chief Design Officer and Managing Director at SAP.

Fawn Fitter is a freelance writer specializing in business and technology.

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Small And Midsize Businesses Have The Capacity To Drive Europe’s Future As A Digital Superpower

Katja Mehl

Part 10 of the “Road to Digital Transformation” series

Representing 99.8% of all companies throughout Europe, small and midsize businesses have tremendous power when it comes to impacting the region’s economy. One innovation at a time, they’re transforming entire industries, propelling emerging industries forward with adjacent offerings, and even supersizing a favorite childhood toy to make living conditions better for the poor and homeless. But perhaps the greatest evolution is found in the growing adoption of technology among firms.

According to the IDC InfoBrief “The Next Steps in Digital Transformation: How Small and Midsize Companies Are Applying Technology to Meet Key Business Goals with Insights for Europe,” sponsored by SAP, 35.4% of all European firms feel that their adoption of digital technology is either advanced or well underway. Germany and France are great examples of countries that are embracing advanced business networks and automation technology – such as the Internet of Things – to boost productivity and computerize or consolidate roles left empty due to long-term labor shortages.

Despite the progress made in some countries, I am also aware of others that are still resistant to digitizing their economy and automating operations. What’s the difference between firms that are digital leaders and those that are slow to mature? From my perspective in working with a variety of businesses throughout Europe, it’s a combination of diversity and technology availability.

digital transformation self-assessment

Source: “The Next Steps in Digital Transformation: How Small and Midsize Companies Are Applying Technology to Meet Key Business Goals with Insights for Europe,” IDC InfoBrief, sponsored by SAP, 2017. 

Opportunities abound with digital transformation

European companies are hardly homogenous. Comprising 47 countries across the continent, they serve communities that speak any of 225 spoken languages. Each one is experiencing various stages of digital development, economic stability, and workforce needs.

Nevertheless, as a whole, European firms do prioritize customer acquisition as well as improving efficiency and reducing costs. Over one-third of small and midsize companies are investing in collaboration software, customer relationship management solutions, e-commerce platforms, analytics, and talent management applications. Steadily, business leaders are finding better ways to go beyond data collection by applying predictive analytics to gain real-time insight from predictive analytics and machine learning to automate processes where possible.

Small and midsize businesses have a distinct advantage in this area over their larger rivals because they can, by nature, adopt new technology and practices quickly and act on decisions with greater agility. Nearly two-thirds (64%) of European firms are embracing the early stages of digitalization and planning to mature over time. Yet, the level of adoption depends solely on the leadership team’s commitment.

For many small and midsize companies across this region, the path to digital maturity resides in the cloud, more so than on-premise software deployment. For example, the flexibility associated with cloud deployment is viewed as a top attribute, especially among U.K. firms. This brings us back to the diversity of our region. Some countries prioritize personal data security while others may be more concerned with the ability to access the information they need in even the most remote of areas.

Technology alone does not deliver digital transformation

Digital transformation is certainly worth the effort for European firms. Between 60%–90% of small and midsize European businesses say their technology investments have met or exceeded their expectations – indicative of the steady, powerhouse transitions enabled by cloud computing. Companies are now getting the same access to the latest technology, data storage, and IT resources.

However, it is also important to note that a cloud platform is only as effective as the long-term digital strategy that it enables. To invigorate transformative changes, leadership needs to go beyond technology and adopt a mindset that embraces new ideas, tests the fitness of business models and processes continuously, and allows the flexibility to evolve the company as quickly as market dynamics change. By taking a step back and integrating digital objectives throughout the business strategy, leadership can pull together the elements needed to turn technology investments into differentiating, sustainable change. For example, the best talent with the right skills is hired. Plus, partners and suppliers with a complementary or shared digital vision and capability are onboarded.

The IDC Infobrief confirms what I have known all along: Small and midsize businesses are beginning to digitally mature and maintain a strategy that is relevant to their end-to-end processes. And furthering their digital transformation go hand in hand with the firms’ ability to ignite a transformational force that will likely progress Europe’s culture, social structure, and economy. 

To learn how small and midsize businesses across Europe are digitally transforming themselves to advance their future success, check out the IDC InfoBrief “The Next Steps in Digital Transformation: How Small and Midsize Companies Are Applying Technology to Meet Key Business Goals with Insights for Europe,” sponsored by SAP. For more region-specific perspectives on digital transformation, be sure to check every Tuesday for new installments to our blog series “The Road to Digital Transformation.”

 

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Katja Mehl

About Katja Mehl

Katja Mehl is Head of Marketing for Europe, Middle East, and Africa at SAP.