At CloudIO we often, have a small informal meet up or discussion which we like to call the “Extra Mile”. Here we share business insights, current trends, new ideas and possibilities with our associates.
Recently the Extra Mile team came up with a very interesting presentation that gave deep insights into our line of business. The presentation revolved around author Rolf Dobell’s, book “The Art of Thinking Clearly”. This book is about Cognitive Biases and the author talks about how biases can lead to wrong decisions and ways to avoid them. We @CloudIOPlatform related these biases to our line of business – The Enterprise System and how it affects decision making.
Here are some excerpts:
The Sunk Cost Fallacy
Sunk Cost fallacy is a classic bias most companies dealing with Legacy Systems face. In simple words you keep investing more time, more money, more energy and more efforts in an expensive investment hoping that by pumping more money it would someday yield result. This bias fits the bill perfectly for companies who keep investing in ERP upgrades and customization, of a non performing ERP.
Today the industry presents a lot of simpler, smarter and faster alternatives to costly ERP upgrades. These solutions in fact are easy to deploy and reduce the cost and time of costly customization to about half the standard customization price.
The Confirmation Bias
Just as Sunk Cost Fallacy this bias too is largely present when companies opt for ERP solutions or upgrades. This bias basically makes us blind to any new information that contradicts our existing views. In the case of enterprise systems this bias usually surfaces when big decisions are to be made around the ERP.
Example: ERP upgrades are not necessarily the only way forward to improve your legacy systems. Other extended solutions available on open platforms may as well do a better job in probably half the cost and time but confirmation bias comes in play and ignores all these aspects.
The Outcome Bias
The Outcome Bias emphasizes the fact that we tend to evaluate decisions based on the results rather than on the decision process. This bias often comes to play when organizations want to shop for a new ERP. More often than not people tend to evaluate their decisions based on the success of other companies rather than evaluating the needs of their own organization. However this may not yield result because every company’s requirement is different and every ERP offers a unique set of value propositions. Sometimes you may not even require a full-fledged ERP or CRM solutions and an alternative business application may just fit the bill.
Action Bias is basically the urgency to ‘act’ without complete information or knowledge about the subject matter in hand. This bias could be associated at different stages of ERP implementation.
Let’s run through the ERP implementation process- right from the stage of deciding to have an ERP to it’s actually implementation. Action bias can crop up during any of these decisions. It can be seen right from the phase of choosing an ERP to a later phase of upgrades and customizing it.
At the selection phase it is highly imperative to choose an ERP that resolves the problem in hand. Every company is unique and hence will have a different requirement from its ERP. A proper and detailed analysis and requirement specification is ideally necessary for understanding the need of the ERP and the issues it is expected to address. However despite of this there is no dearth of examples to highlight how incomplete requirement analysis and lack of vision have messed up the ERP selection process. Action Bias gives a convincing answer to this phenomenon. The urgency to implement probably leads to the failure of implementation.
Once the implementation phase is crossed – ERPs often are susceptible to this bias again owing to the keenness or urgency of decision-makers to roll-out the ERP without proper user-training. A lot of companies are not able to use their ERP to its full potential owing to the reluctance of their work force in using the ERP. The reluctance stems from the lack of proper training and knowledge making the ERP appear as a rather intimidating adversary rather than help.
Studies indicate that a proper user-training can help you garner a better ROI on your enterprise system. Hence companies should keep a keen eye and avoid action bias while implementing their ERP.
Typically when individuals are presented with either/or choices, they fail to think outside the box and look for other alternatives. This is called Alternative Blindness, and it can make us miss some great ideas in favor of ones that are less promising.
Take the case of ERP upgrades and customization, when the vendors of big enterprise systems announce a new version. The only choice perhaps is “to be or not to be” rather than searching for other alternatives. Today the market offers many alternative solutions to costly ERP upgrades and customization. These solutions can sit on top of any legacy ERP systems and provide quick solutions. Moreover these extended enterprise solutions are simpler and easier to deploy than traditional customization. However alternative blindness can make decision-makers often miss this option completely.
One of the major contributors to the failure of ERP implementation is Planning Fallacy. It is usually observed that companies build a high-level plan with broad assumptions or underestimate the amount of business change involved. This invariably leads to incomplete or faulty ERP implementations. Finer and larger aspects of the implementation too sometimes get easily overlooked. Example: Planning for User- Training.
An ERP without a good plan is suicidal. It is therefore imperative for all stakeholders in the ERP implementation process to come together and work on planning, implementing, training and managing the ERP. Best is to get ERP Specialists and experts on-board .The planning needs to be at a level of detail where specialists and experts can visualize the work, usually in work blocks of a few days. It needs to have a logical sequence of tasks, like leaving time in the schedule to identify and rectify bugs found in test cycles.
Default Effect is one of the points most of us can quickly associate with. Basically Default Effect is the tendency to cling to the way things are even if it puts us in a disadvantage. We just get very cosy and comfortable in the setting we are in and avoid change. In case of ERP implementation the Default Effect is quite evident with the end-users of ERP. If you have attended any of the ERP training sessions you would witness that a lot of times end-users are really averse to using the systems .This stems from the comfort they have in doing things they are used to. However this comfort can prove to be costly.
These are some of the most evident and hard-hitting biases that our team came up with. A lot of others are definitely at play too. It is amazing how biases and beliefs that tune our minds affect macro decisions and huge investments. In a way they have the power to, make or break organizations.
If you feel that you are being victim of any such biases then do take an alternate approach, look for newer options and test newer possibilities. Do visit our Solutions page at CloudIO to understand our enterprise offerings and alternative solutions.