Constrained by Artificial Boundaries

Blair’s latest obsession is bounded rationality, in which he sees too many creative firms failing to make “rational” decisions because they choose to bind their businesses with outdated and overly-constraining ideals like the 80/20 principle.

Links

“The Great Convergence is Upon Us” by Blair Enns for Win Without Pitching

Award-winning “Unapologetically Human” ad campaign by Kruger and BHLA

Productize: The Ultimate Guide to Turning Professional Services to Scalable Products by Eisha Tierney Armstrong

Transcript

David Baker: Blair, we're going to do a bee-ectomy on your bonnet. This is where I fire up the pitchy machine.

Blair Enns: I don't have a bee in my bonnet over this topic.

David: You don't? 

Blair: I’m obsessed with it.

David: What's the difference?

Blair: A bee in a bonnet is you're irritated. Imagine you have a bee under your hat. You're irritated. You're agitated. You're on edge.

I'm not. I'm very excited. You're going to get nothing but positivity from me today.

David: That's so obvious in the title, Constrained by Artificial Boundaries.

Blair: Yes. It's a very academic sounding title. It's like you're at the UN presenting to 30 people who are reading their iPhones while you're talking.

David: It's you and me. I’ll dumb it down. You started texting me. I finally just turned off all the notifications. You started texting me about this incessantly about two weeks ago. I'm always curious about what set it off. Was it a particular thing that you read somewhere or what?

Blair: You and I are in a group thread with what my wife calls the teenage girls. There's four of us. We're all middle-aged men and it never stops. One of our friends was asking about industrial design firms. You and I were making the comment that a lot of industrial design firms have UX capabilities and other capabilities because like all these other disciplines, the lines are blurring. I said, hey, that'd be a good podcast episode. I immediately saw it through my current favorite lens of bounded rationality. Bounded rationality is this idea that we don't really make fully rational decisions. We don't do a full cost-benefit analysis on any decisions for various reasons.

Too much information, not enough cognitive ability, not enough time, whatever it is. For us to make a satisfactory or an adequate decision, we shrink the boundaries of the context in which we're thinking about the decision. That's like a social psychology thing. I'm really interested in the application of this idea to systems thinking. That's where it came from. I've been reading this book, Simple Complexity, A Guide to Systems Thinking. I was listening to Ron Baker and Ed Kless in their podcast, The Soul of Enterprise. They were talking about this book and I picked it up because I was looking for something in it.

It's this idea of bounded rationality. If you think back to our conversations we've had about one of my other favorite topics, the inefficiency principle and the inefficiency problem, you've heard me say that it's a tenet of systems thinking that when you optimize a subsystem in a system, you sub-optimize the greater system. I got that idea from another book called Conscious Business by Fred Kaufman. When I read that, it just resonated with me. I've never done the research on systems thinking to go deeper into the subject. In this book by William Donaldson, Simple Complexity, he has the 17 tenets of systems thinking.

I've been reading this book for a month. I haven't got past page 12 because the 17 tenets of systems thinking are blowing my mind and they span three or four pages. I can't get past, I just keep rereading and rereading them. One of them is this idea of bounded rationality. Bounded rationality in an organization is the idea that we see these lines within the organization as real even though they're arbitrary. Like what separates accounting from marketing?

David: Interesting people, boring people. That's the simple thing.

Blair: Accountants being the interesting people?

David: Yes, right.

Blair: Exactly. It's a long answer to your question, how did I get onto this without using the term bounded rationality? I've been thinking about this for a while, for years now. Thinking about the inefficiency principle, the idea that innovation and efficiency are mutually opposable goals. You cannot increase one without decreasing the other. That's the inefficiency principle. While thinking about that, I have observed that people in any given organization tend to be optimized to the goals of the department they're in rather than the goals of the organization.

If I think of part of the marketing procurement problem, part of the problem resides in the tension between an independent entrepreneurial creative firm, and a large client that has all of these well-defined departments. As an entrepreneur, who I'm always thinking about the goals of my organization and I will not

put up with any conversation about people trying to optimize a department over the goals of the organization. To me, it's offensive. It's offensive that somebody would value, say, compliance accounting over the goals of the organization or some other department.

While the reality is in large client organizations, these people in different departments are often at odds with each other because they're not all pulling or aligned to the same goal, to the organizational goals. They're all aligned to departmental goals. That is the classic example of bounded rationality within a client organization. People are optimized to the goals of the department and not to the goals of the organization because they see these lines as more real than they are.

David: When I hear that, and actually I love hearing it just sparks all kinds of thoughts in my mind. Some good, some not so good. When I hear that, I go to this tentative solution. It could very well be me illustrating this by just trying to simplify the problem to say, I've solved that. Now let me move on to the next one, which is another feature of this way of thinking, is to oversimplify something so that we can move on. My solution to that would be, I have a department, let's just say procurement, and there's 25 people in this department.

I would say that 24 of them ought to think about everything through the lens of that department but the leader's job is to make sure that the department is doing stuff within the larger picture. That to me is the difference between leadership and people on the front lines in an effective organization. Is that just simplifying something?

Blair: No, I think you're exactly right in that that's the way it should work. You should allow the more junior people in a department to work to the goals of the department. Then the head of that department, maybe somebody who's in the C-suite, has to balance the goals of that department with the goals of other departments. I think in reality, it is the rare leader of any department that actually puts the goals of the organization ahead of their own department. It's the CEO, really, maybe the board of directors, but on a day-to-day basis, it's the CEO who is thinking about the goals of the organization. A lot of that CEO's frustration can stem from these different generals advocating the case of their department.

David: Right. If I could add a second party that I think also does good here, so the CEO for sure. We can see that because the people listening to this, you know you want to work as high at the organization as possible because now you can speak to the bigger picture, and you can have more impact and so on. I would say that the other group that speaks to this would be the mavericks internally.

Blair: Yes.

David: Which all the other leaders hate because the mavericks get away with shit-

Blair: Yes.

David: -and they would get fired except that reluctantly everybody has to admit, you know what, he or she does get stuff done. As much as I hate him, we got to keep him.

Blair: Yes, and very often they do get fired or they get pushed out. I would say it's because what's going on with those mavericks is they have an entrepreneurial spirit. They're looking past these false lines or malleable lines. They're not entirely false. They're helpful. We can come back to that but they're looking past the constraints of the department thinking, well this isn't the right thing for the organization. This doesn't make sense logically from a 30,000 foot view. That's a future CEO, provided other levels, other forms of competence are there, or a future entrepreneur.

I've always loved those people. I've fancied myself one of those people whether I am or not or whether I was or not in other organizations. I was never a very good employee, much is pretty clear. I think you're right. It's the CEOs and it's the mavericks.

David: When you think about a principal whose role should be similar to the CEO role you just described, where they get in trouble is when they think down at the department level. Where they think about from a designer standpoint or from the CFO standpoint where the only thing that matters is profit or on the design side, the only thing that matters is that we're stroking our genius and doing amazing stuff. Or they think from the AM's department where the only thing that matters is keeping the client happy or growing. The most effective CEOs don't think at that department level, they think at the high level.

Blair: Yes, and some board members are guilty of this as well. Not just in not-for-profit organizations but in for-profit corporations. You sometimes get the board member on the board

who has deep technical expertise in the area, and they start to meddle in the operations. I don't know if it's still the case, but 10-15 years ago, Air Canada had a policy that if you were a pilot, you could not sit on their board for that very reason.

David: I didn't know that.

Blair: They're supposed to be in charge of governance, right? The high-level issues of the organization. If you're a pilot, you're going to get dragged into, well, I don't think we should be buying that plane for this because I've flown them and blah, blah, blah.

David: I don't like where this button is. You have an example in your thinking here around the working, not working thing, which I find pretty instructive. Can you just walk us down this path?

Blair: Yes. Those of us who grew up in marketing, there's this I don't know what you would call it. It's a decision-making device. I guess it's a heuristic of this idea of you're working versus not working budget in terms of your marketing spend. This has come up on two different episodes of my other podcast, 20% The Marketing Procurement Podcast. The first time with Rory Sutherland, Vice Chair of Ogilvy UK, talking about just how ridiculous this idea is. In a most recent episode, a really good episode where we had a client and their agency counterpart talking about how they got to some very good work, the client dropped this 80%, 20% working, non-working.

The idea, if you're not familiar with it, and a lot of clients are constrained by this model, this heuristic, this idea that 80% of your marketing spend should be “working” and what they mean by that is media, and your “non-working” budget, which is creative and production should be kept to no more than 20%. I'm 57. That model was around when I was in my early 20s. It's been with us for at least three decades. Set aside the absolute absurdity of the labels, working versus non-working, it's just absolutely ridiculous. Set aside the labels. Why does the entire marketing profession, clients who are controlling ad spend, why are they all bound by this idea?

Somebody came up with this idea somewhere. I can't figure out where it came from. It's this 80/20, they thought this is the appropriate metric. It's been in use forever and clients talk about it like it's gospel. It drives me bat shit crazy. I don't know if this, but Tony Micas, when he was alive, he used to have a seminar and about an hour of each seminar was set aside to basically changing this formula. He would say, the best way for you to make more money is to change the 80/20 thing to 78/22, just tweak it because you get to keep the 2%, whereas you're only keeping your commission of the 80%. I thought it was really smart. I don't know if it was ethical, but it was very smart.

David: Yes, I'm not saying-- he was a smart guy too. I thought you were going to say he spent an hour ranting about it. That would have been more like Tony.

Blair: No, it's very good stuff. Anyway, so this working, non-working and this client we interviewed for this award winning work, I think it won a Cannes Gold Lion, she blew up the 80/20 ratio. She over-invested in creative. It's really beautiful. The company is Kruger Products and the work is called Unapologetically Human, if you punch that into YouTube. There's some tissue and paper towel spots. There's just so beautiful, so well done. I was really moved by the work. She was pitched this by the agency and she blew up her working, non-working ratio.

In the end, one of the things she discovered by investing in higher quality work, paying more for the creative is that she had a three X lifespan on the media. She was able to run it for three years and the market didn't get tired of it. If she had been confined by that constraint, she would have dialed back the creative. She would have been kept within the ratio and within a one-year period, she would have hit that 80/20 ratio. By blowing up that ratio, in the end, she made the working part, God, I hate that label. By investing in the non-working, she made the media work three times harder or three times longer.

We invent these lines for a reason, the Pareto principle, this 80/20. Pareto principle is not the idea that 20% of the effort yields 80% of the gains or the returns. It's the idea that a small amount of effort is responsible for a large percentage of the gains. That 80/20, it's often referred to as the 80/20 rule, that's an arbitrary number as well, but we use it because that fits on our bumper sticker and the longer, more accurate title wouldn't. Plus, we just are drawn to oversimplification. Think of it, if you're a new marketer and you're in charge of a multi-billion

dollar budget and you're thinking well how much of this should I spend on what?

This idea of again, forget about the stupid titles working, non-working but this 80/20 ratio that's a pretty good helpful ratio for you to start out with. These hard lines, these lines are helpful to people, to younger junior people who are trying to figure out the basics of what's going on around here. Their ability to process the information through experience and expertise. When these things grow, those lines should start to dissolve. That's a generalization I'm making across multiple domains. You can extrapolate that to almost anything. In the beginning these bounds, the boundaries that are established by other people are helpful.

When you get to a point in your career where you've got 20 years experience and you are being bound by this line, and you don't stop to think maybe it's not as real as it is, you're making a big mistake.

David: Yes. Helpful at the beginning and I don't know for sure that what I'm going to say next is true, but I'll bet it is. Firms that are really kicking ass are probably moving beyond each one of these things, and discovering a truth that's more applicable to them. They're blowing these up for the right reasons. They're moving on from them.

Blair: Yes.

David: It's good enough decision making. It's not terrible, it's just a good place to start but they're not invaliable rules. This relates to marketing and sales too?

Blair: Yes, other examples of these lines that get drawn either in organizations or even in our businesses is the line between marketing and sales. I'm sure you've seen this too. I think you and I did an episode years ago where we talked about if we were forced to start an agency today, what would we do? I said I would go after the intersection of marketing and sales. I think of the overlap between marketing and sales there's so much opportunity there especially in the B2B world. If you're an agency with a B2B client you're helping your marketing client solve marketing problems, at some point, the work being done in marketing hands over something to sales.

It hands over information, it hands over prospective customers or clients in the form of leads. Most marketing agencies don't want to breach that line into sales. I maintain that the marketing agency that can think and operate in the domain of marketing and sales has a significant advantage. I just know from my career of selling agency services that if I had the head of sales in a meeting with the client, I always felt like I was going to win because I was thinking through the lens of sales in addition to the lens of marketing. I think too many marketers and marketing agencies think sales is just an entirely foreign world and they're not allowed to go there, or they don't want to go there because it's so different.

David: Oh, it's way too measurable for one thing.

Blair: [laughs] Marketing is now way too measurable, it's similar now.

David: Yes.

Blair: We serve the marketing industry not the sales industry. It’s like sales is what you do if you're marketing isn't good enough. You just have to drag it across a finish line with better sales. That's how I think we think in this industry sometimes. Marketing sales is just one example, other examples you want to talk about?

David: We kicked off by telling the story about advising a friend on the blurry lines in the disciplines of a design firm. I wrote a post, it's got to be five, six years ago now and I forget what it's called but we'll dig up a link and put it in the show notes. It's about the new design firm where there's a convergence of the design discipline, the consulting discipline and the software engineering discipline. If you look at most successful design firms today, you will see that overlapping of those three disciplines and sometimes some other disciplines. Then as you and I were advising our friend, as he was thinking about pursuing a market of industrial design firms to sell services to industrial design firms, we were just commenting that a lot of industrial design firms now increasingly have UI and UX capabilities. You look at customer experience design, experiential marketing, there's just more and more overlap between the disciplines. Surely you're seeing that as well.

Blair: I am. I think it's something we need to embrace but also to me it ties a little bit to the whole positioning discussion. If you're doing everything for everybody and now all of a sudden you're starting to do really everything for everybody, you're just lost. You might be able to vertically integrate the work that you're doing for a particular market or a segment whether it's horizontal or vertical. Your clients are expecting it from you, they already love you. They don't want to go somewhere else to get this. That's one side of it. The other side of it is just don't make stuff up either. To me, the most recent example of this was when all the UI people are now suddenly UX experts, because they felt like nobody's going to hire UI people anymore. UX was viewed as a step above and where all the money was. It's like, well, Friday you are a UI expert, Monday you're a UX expert, and you didn't spend any time over the weekend figuring out what that meant. That discourages me because I think our clients deserve better. The truth is that many of those people did learn very quickly and now there's deep expertise on the UX side.

There really wasn't an industry before that popped up. I understand some of those pressures. I do wish we didn't just say we're experts here because wink, wink we'd really like a chance to do it. Then you think about this is back to your example. I have a client now and they basically have a three legged stool. They serve the health care space. They're working in industrial design and they're focusing on the built environment and they're working with UX, all of what that means, and also a lot of digital. That's not something that anybody in the marketplace would have even asked them to do 10 years ago.

The marketplace is saying we want this. If you want to keep being relevant in that space, you need to do it. It's just an example of how the bounded rationality of these firm lines between the industries, they're getting erased, they're getting brought together and it's happening faster than it ever has too. That's all good. It's all really interesting. We just need to be thoughtful about how we do it.

David: That's so true. All of that is so true. Historically, I've thought about a firm's positioning along two dimensions. Discipline. What does it do in market? For whom does it do it?

Blair: Early on, these lines, like the lines that separate the disciplines, are helpful. Then later on in the career of an individual, in the evolution of a market, they're less helpful. It occurs to me that we're getting to the point in the evolution of the market for marketing services and creative services even more broadly, that the lines that separate disciplines are less helpful. There's a book called Productize, The Ultimate Guide to Turning Professional Services into Scalable Products by Aishat Armstrong. She has a question in there that I love in place of answering, maybe, what is your discipline and your market?

Her question is, what urgent and expensive problem do you help your clients solve? Now, it doesn't end there. That's the starting point, the way my starting point would be what's your discipline and what your market? What do you do and for whom do you do it? I think that model of mine is unnecessarily bounded by the old discipline lines. You've just given a great example of a firm that the market is quite specific, but it's a real blend of disciplines. They would be better off instead of saying, we're an ID and a UX and a CX firm. That's not meaningful. They would speak to the urgent and expensive problems that they help their clients, their market solve. That's a better way to think about the problem. I don't know that it would have been a better way to think about it 10, 15, 20 years ago, where if you were a design firm, a web design firm, an ad agency, a PR firm, the lines were really solid.

David: Yes. Here's where we're 10 years behind. If we keep saying we're a digital firm, it's like, well, what isn't digital anymore? Digital is a line that we need to erase. Bounded rationality, we all do it. It's a useful way to set the table, but you need to move beyond that with a certain level of sophistication. Don't be bound by some rubric that you've heard that keeps getting repeated to you. Think a little bit deeper. What am I leaving off here?

Blair: Yes, that's it. These lines are helpful early on and then later on grow beyond them. Use them as more guidelines than hard, fast rules.

David: Good. Thank you, Blair.

Blair: Thanks, David.